Category Archives: inequality

A World Bank for a new world

Jeffrey Sachs writes: The world is at a crossroads. Either the global community will join together to fight poverty, resource depletion and climate change, or it will face a generation of resource wars, political instability and environmental ruin.

The World Bank, if properly led, can play a key role in averting these threats and the risks that they imply. The global stakes are thus very high this spring as the Bank’s 187 member countries choose a new president to succeed Robert Zoellick, whose term ends in July.

The World Bank was established in 1944 to promote economic development, and virtually every country is now a member. Its central mission is to reduce global poverty and ensure that global development is environmentally sound and socially inclusive. Achieving these goals would not only improve the lives of billions of people, but would also forestall violent conflicts that are stoked by poverty, famine and struggles over scarce resources.

US officials have traditionally viewed the World Bank as an extension of United States foreign policy and commercial interests. With the Bank just two blocks away from the White House on Pennsylvania Avenue, it has been all too easy for the US to dominate the institution. Now, many members, including Brazil, China, India and several African countries, are raising their voices in support of more collegial leadership and an improved strategy that works for all.

From the Bank’s establishment until today, the unwritten rule has been that the US government simply designates each new president: all 11 have been Americans, and not a single one has been an expert in economic development, the Bank’s core responsibility, or had a career in fighting poverty or promoting environmental sustainability. Instead, the US has selected Wall Street bankers and politicians, presumably to ensure that the Bank’s policies are suitably friendly to US commercial and political interests.

Yet the policy is backfiring on the US and badly hurting the world. Because of a long-standing lack of strategic expertise at the top, the Bank has lacked a clear direction. Many projects have catered to US corporate interests rather than to sustainable development. The Bank has cut a lot of ribbons on development projects, but has solved far too few global problems.

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Science confirms link between wealth, greed, and selfishness

The Guardian reports: A raft of studies into unethical behaviour across the social classes has delivered a withering verdict on the upper echelons of society.

Privileged people behaved consistently worse than others in a range of situations, with a greater tendency to lie, cheat, take things meant for others, cut up other road users, not stop for pedestrians on crossings, and endorse unethical behaviour, researchers found.

Psychologists at the University of California in Berkeley drew their unflattering conclusions after covertly observing people’s behaviour in the open and in a series of follow-up studies in the laboratory.

Describing their work in the US journal, Proceedings of the National Academy of Sciences, social psychologist Paul Piff and his colleagues at the Institute of Personality and Social Research claim that self-interest may be a “more fundamental motive among society’s elite” that leads to more wrongdoing. They say selfishness may be “a shared cultural norm”.

The scientists also found a strong link between social status and greed, a connection they suspect might exacerbate the economic gulf between the rich and poor.

The work builds on previous research that suggests the upper classes are less cognizant of others, worse at reading other people’s emotions and less altruistic than individuals in lower social classes.

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Social fractals and the corruption of America

Charles Hugh Smith writes: Social fractals and social control myths help explain the complete corruption of America.

Correspondent Kathy K. recently elucidated a powerful concept: social fractals. We typically think of fractals–structures that are scale-invariant–as features of Nature or finance. For example, a coastline has the same characteristically ragged appearance from 100 feet, 1,000 feet and 10,000 feet in altitude. It is scale-invariant, i.e. its characteristics remain constant whether it is viewed on a small, medium or large scale.

This is how Kathy described social fractals:

This dishonest, self-serving individual behavior is a fractal of what is happening in our society at large: dishonest and self-serving people are extending and pretending, and their complicity keeps the system going.

The concept of social fractals can be illustrated with a simple example. If the individuals in a family unit are all healthy, thrifty, honest, caring and responsible, then how could that family be dysfunctional, spendthrift, venal and dishonest? It is not possible to aggregate individuals into a family unit and not have that family manifest the self-same characteristics of the individuals. This is the essence of fractals.

If we aggregate healthy, thrifty, honest, caring and responsible families into a community, how can that community not share these same characteristics? And if we aggregate these communities into a nation, how can that nation not exhibit these same characteristics?

If this is so, then how do we explain the complete corruption of America’s financial and political Elites? What else can you call a nation that passively accepts financial predation, looting, robosigning, etc. by protected cartels as the Status Quo but thoroughly corrupt?

There are three distinct but highly interactive dynamics in America’s social and financial fractals that have led to the nation’s corruption. We can think of these dynamics as feedback loops: positive feedback is self-reinforcing, negative feedback offers restraint and opposition. From Wikipedia:

Negative feedback is used to describe the act of reversing any discrepancy between desired and actual output. A simple and practical example is a thermostat. Biological examples include regulating body temperature and blood glucose levels.

Positive feedback is feedback in which the system responds so as to increase the magnitude of any particular perturbation, resulting in amplification of the original signal instead of stabilization. Any system where there is a net positive feedback will result in a runaway situation.

These dynamics also share certain characteristics of the dialectic method in philosophy, a system of reasoning through arguments and counter-arguments (thesis and antithesis) to reach a synthesis or new understanding. The Socratic method is to show that a given hypothesis leads to a contradiction that forces the withdrawal of the hypothesis as a candidate for truth.

The social fractal element is individual behavior: the actions we choose based on our internal values, emotions, worldview and goals, and our belief in social control myths. [Continue reading…]

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At Davos, a big issue is the have-lots vs. the have-nots

The New York Times reports: A year ago at the World Economic Forum here, Jamie Dimon, the chief executive of JPMorgan Chase, lashed out at what he saw as unfair criticism of the world’s financial wizards.

“I just think this constant refrain, ‘bankers, bankers, bankers’ — it’s just a really unproductive and unfair way of treating people,” he said. “People should just stop doing that.”

After several years of financial crisis, during which the word banker had become a catchall epithet for the undeserving rich, the global economy appeared to be on the mend. Perhaps the bankers, and the other millionaires and billionaires, could wear their pinstripes with pride again and get back to business as usual.

Yet even as Mr. Dimon was speaking, a new wave of anger was welling up, one that, over the last year, would shake up old assumptions about the ultrarich, the middle class and the growing gulf that separates them.

Today, the gap between the haves and the have-nots is no longer just a rallying cry to incite anticapitalist advocates. It has become a mainstream issue, debated openly in arenas where the primacy of laissez-faire capitalism used to be taken for granted and where talk of inequality used to be derided as class warfare.

In the United States, the issue surfaced when protesters proclaimed they were the “99 percent” of the population who were paying for the sins of the wealthy “1 percent,” taking their grievances directly to the epicenter of capitalism. The Occupy Wall Street protests, which began in New York, spread to other cities around the United States and across the world.

In Spain, thousands of “indignados” converged on Madrid and other cities to vent their frustration over mass unemployment and government austerity measures. In the Arab world, a wave of unrest that toppled governments began with a protest over a lack of economic opportunities in Tunisia.

And now, as the Republican Party chooses a nominee for the United States presidential election, rivals of one candidate, Mitt Romney, are rounding on him over his wealth and his background in the private equity business.

Meanwhile, the World Economic Forum, in a recent report, named the growing income divide as one of the biggest risks facing the world in the years to come.

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Rethinking the growth imperative

Kenneth Rogoff writes: Modern macroeconomics often seems to treat rapid and stable economic growth as the be-all and end-all of policy. That message is echoed in political debates, central-bank boardrooms and front-page headlines. But does it really make sense to take growth as the main social objective in perpetuity, as economics textbooks implicitly assume?

Certainly, many critiques of standard economic statistics have argued for broader measures of national welfare, such as life expectancy at birth, literacy, etc. Such appraisals include the United Nations Human Development Report, and, more recently, the French-sponsored Commission on the Measurement of Economic Performance and Social Progress, led by the economists Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi.

But there might be a problem even deeper than statistical narrowness: the failure of modern growth theory to emphasise adequately that people are fundamentally social creatures. They evaluate their welfare based on what they see around them, not just on some absolute standard.

Riz Khan – Europe’s Welfare State

The economist Richard Easterlin famously observed that surveys of “happiness” show surprisingly little evolution in the decades after World War II, despite significant trend income growth. Needless to say, Easterlin’s result seems less plausible for very poor countries, where rapidly rising incomes often allow societies to enjoy large life improvements, which presumably strongly correlate with any reasonable measure of overall well-being.

In advanced economies, however, benchmarking behaviour is almost surely an important factor in how people assess their own well-being. If so, generalised income growth might well raise such assessments at a much slower pace than one might expect from looking at how a rise in an individual’s income relative to others affects their welfare.

And, on a related note, benchmarking behaviour may well imply a different calculus of the tradeoffs between growth and other economic challenges, such as environmental degradation, than conventional growth models suggest.

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Reclaiming democracy

Robert Kuttner writes: On any given day in Washington, D.C., the city’s hotels teem with civic activity. Trade associations, lobbies, corporations seeking government contracts, lawyers looking to influence agency rules—all form a beehive of action. At last count, there were 12,200 registered lobbyists in Washington, according to opensecrets.org, and that doesn’t include the many thousands of corporate attorneys who are technically not lobbyists. Of the top-spending trade associations or issue organizations, the U.S. Chamber of Commerce leads the list with a budget of more than $46 million. Only one quasi-liberal group, the AARP, is even in the top 20. This is the vision of Alexis de Tocqueville made flesh, with one notable difference: Nearly everyone in this associational paradise speaks for the top 1 percent or 2 percent of the income distribution.

Tocqueville, in Democracy in America, famously identified “the art of association” as an essential complement to American constitutional democracy. The franchise was only the beginning of an effective republic. Political associations, to Tocqueville, were “great free schools” of democracy. They breathed civic life into formally democratic institutions of government. To engage with public issues, people did so more effectively in groups, not as isolated individuals. “Americans of all ages, all stations of life … are forever forming associations,” he wrote admiringly.

But something has changed dramatically since Tocqueville wrote those words in 1840. “All stations of life” no longer applies. Civic and political association and the organized exercise of influence have increased for the elite and have all but collapsed for the bottom half, even for the bottom three-quarters.

Thus, while inequalities of campaign finance have gotten most of the attention and indignation of reformers, participatory inequality is just as important. Perhaps it is even more important, since the most promising antidote to the narrow, concentrated power of wealth is the broad power of organized people. When non-rich people are disorganized, disconnected from practical politics, or overwhelmed by the networking power of elites, money rules.

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Harder for Americans to rise from lower rungs

The New York Times reports: Benjamin Franklin did it. Henry Ford did it. And American life is built on the faith that others can do it, too: rise from humble origins to economic heights. “Movin’ on up,” George Jefferson-style, is not only a sitcom song but a civil religion.

But many researchers have reached a conclusion that turns conventional wisdom on its head: Americans enjoy less economic mobility than their peers in Canada and much of Western Europe. The mobility gap has been widely discussed in academic circles, but a sour season of mass unemployment and street protests has moved the discussion toward center stage.

Former Senator Rick Santorum of Pennsylvania, a Republican candidate for president, warned this fall that movement “up into the middle income is actually greater, the mobility in Europe, than it is in America.” National Review, a conservative thought leader, wrote that “most Western European and English-speaking nations have higher rates of mobility.” Even Representative Paul D. Ryan, a Wisconsin Republican who argues that overall mobility remains high, recently wrote that “mobility from the very bottom up” is “where the United States lags behind.”

Liberal commentators have long emphasized class, but the attention on the right is largely new.

“It’s becoming conventional wisdom that the U.S. does not have as much mobility as most other advanced countries,” said Isabel V. Sawhill, an economist at the Brookings Institution. “I don’t think you’ll find too many people who will argue with that.”

One reason for the mobility gap may be the depth of American poverty, which leaves poor children starting especially far behind. Another may be the unusually large premiums that American employers pay for college degrees. Since children generally follow their parents’ educational trajectory, that premium increases the importance of family background and stymies people with less schooling.

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Why the 1 percent are only 1 percent

Huffington Post reports: Social psychologists are making an argument that Occupy Wall Street protesters have been saying for months: Many rich people just aren’t in the habit of thinking of others.

According to researchers at the University of California-Berkeley, people who grew up in economically comfortable circumstances are less attuned to the suffering of other people. In multiple trials that involved both questionnaires and physical-response tests, the researchers found that young adults whose upbringing involved some degree of financial struggle were quicker and more likely to register signs of empathy than young adults who came from affluent backgrounds.

Such conclusions are especially relevant now, as the Occupy movement continues to focus national attention and criticism on the growing divide between rich and poor.

While some wealthy people have defended themselves as merely embodying the ideals of American capitalism — a system where, the argument goes, anyone can make it to the top if they’re willing to work hard — many Occupy protesters have offered a less flattering theory: that the rich, as a class, simply aren’t concerned with the well-being of anyone else.

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Pity the elf slaves of online shipping

Mac McClelland writes: Since June, I’ve been ruining my friends’ online-shopping lives. Back then, I reported on a vast warehouse in Ohio where goods bought from online retailers are sorted, boxed, and shipped to consumers. Unsurprisingly, this job does not pay well. A little more surprisingly, this job seems designed to crush employees’ spirits. During my visit, two people got fired within 10 minutes, one for talking to someone while he was working—"Where are you from?" was the offending comment—and one for going to the bathroom too much. So occasionally, and now more that it’s the holidays, my friends and family will call to complain that "Bleh, I want to order something from Amazon/Walmart/Staples/whatever, but I feel guilty about helping oppress workers."

Why would online retailers be so mean? Well, in the case of many, they have helpfully outsourced interaction with workers. When Walmart started selling its merchandise on the internet, it turned to third-party logistics contractors, or 3PLs, experts who could handle the, uh, logistics, like warehousing and transportation, of online sales. Take Exel, for example, the largest 3PL in the country, and a subsidiary of Deutsche Post DHL, one of the largest companies in the world. Exel alone has 86 million square feet of warehouse all over North America and processes literally millions of goods every single day. Other retailers directly perpetrate the oppression. Amazon.com made headlines earlier this year when 20 current and former employees of its Breinigville, Pennsylvania, warehouse told the local Morning Call that workers were fainting in stifling heat and getting yelled at for not meeting ridiculously high productivity goals and generally being "treated like a piece of crap." Employees who were sent home with heat exhaustion were disciplined; a local ER doc eventually called OSHA and reported "an unsafe environment."

Either way, many of the people actually loading and unloading trucks, packing boxes, and pasting labels work not for retailers, or for 3PLs, but for yet another company: temporary staffing agencies. When an online retailer (especially one that doesn’t actually make anything) wants to wring out the most profit possible, it helps to have a labor pool that is on demand, so it can order the exact number of humans it needs to fill that day’s number of orders if the humans are working at top capacity. That way, workers can’t unionize or be legally entitled to decent benefits. That way, the online retailer can give them outlandish productivity goals, like hundreds of orders and thousands of items per day apiece—and when workers burn out, just replace them with the next temp, who can join the rest of the ranks living in fear that they won’t make their numbers and might be incessantly berated for it, or simply fired. Even if you meet the outlandish goals, don’t necessarily expect to be rewarded by say, a real job. As with so many in the industry, the warehouse in Ohio are mostly "temps"—even though some of them have been working in the same place for more than a year.

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The top 1 percent whining selfish bastards

Bloomberg reports: Jamie Dimon, the highest-paid chief executive officer among the heads of the six biggest U.S. banks, turned a question at an investors’ conference in New York this month into an occasion to defend wealth.

“Acting like everyone who’s been successful is bad and because you’re rich you’re bad, I don’t understand it,” the JPMorgan Chase & Co. (JPM) CEO told an audience member who asked about hostility toward bankers. “Sometimes there’s a bad apple, yet we denigrate the whole.”

Dimon, 55, whose 2010 compensation was $23 million, joined billionaires including hedge-fund manager John Paulson and Home Depot Inc. (HD) co-founder Bernard Marcus in using speeches, open letters and television appearances to defend themselves and the richest 1 percent of the population targeted by Occupy Wall Street demonstrators.

If successful businesspeople don’t go public to share their stories and talk about their troubles, “they deserve what they’re going to get,” said Marcus, 82, a founding member of Job Creators Alliance, a Dallas-based nonprofit that develops talking points and op-ed pieces aimed at “shaping the national agenda,” according to the group’s website. He said he isn’t worried that speaking out might make him a target of protesters.

“Who gives a crap about some imbecile?” Marcus said. “Are you kidding me?”
‘Feels Lonely’

The organization assisted John A. Allison IV, a director of BB&T Corp. (BBT), the ninth-largest U.S. bank, and Staples Inc. co- founder Thomas Stemberg with media appearances this month.

“It still feels lonely, but the chorus is definitely increased,” Allison, 63, a former CEO of the Winston-Salem, North Carolina-based bank and now a professor at Wake Forest University’s business school, said in an interview.

At a lunch in New York, Stemberg and Allison shared their disdain for Section 953(b) of the Dodd-Frank Act, which requires public companies to disclose the ratio between the compensation of their CEOs and employee medians, according to Allison. The rule, still being fine-tuned by the Securities and Exchange Commission, is “incredibly wasteful” because it takes up time and resources, he said. Stemberg called the rule “insane” in an e-mail to Bloomberg News.

“Instead of an attack on the 1 percent, let’s call it an attack on the very productive,” Allison said. “This attack is destructive.”

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How to halt the expansion of inequality in the U.S.

Former Supreme Court justice Louis D. Brandeis once said, “We may have democracy, or we may have wealth concentrated in the hands of a few, but we cannot have both.”

Professors Ian Ayres and Aaron S. Edlin say we have reached the Brandeis tipping point. Yet even while acknowledging this level of inequality undermines democracy, rather than try to reverse the trend, they propose a mechanism that would simply cap it. I guess this falls under the category, better than nothing.

What we call the Brandeis Ratio — the ratio of the average income of the nation’s richest 1 percent to the median household income — has skyrocketed since Ronald Reagan took office. In 1980 the average 1-percenter made 12.5 times the median income, but in 2006 (the latest year for which data is available) the average income of our richest 1 percent was a whopping 36 times greater than that of the median household.

Brandeis understood that at some point the concentration of economic power could undermine the democratic requisite of dispersed political power. This concern looms large in today’s America, where billionaires are allowed to spend unlimited amounts of money on their own campaigns or expressly advocating the election of others.

We believe that we have reached the Brandeis tipping point. It would be bad for our democracy if 1-percenters started making 40 or 50 times as much as the median American.

Enough is enough. Congress should reform our tax law to put the brakes on further inequality. Specifically, we propose an automatic extra tax on the income of the top 1 percent of earners — a tax that would limit the after-tax incomes of this club to 36 times the median household income.

Importantly, our Brandeis tax does not target excessive income per se; it only caps inequality. Billionaires could double their current income without the tax kicking in — as long as the median income also doubles. The sky is the limit for the rich as long as the “rising tide lifts all boats.” Indeed, the tax gives job creators an extra reason to make sure that corporate wealth does in fact trickle down.

The New York Times reports on the property market for those with ‘infinite money’: Pierre Buljan guided his black Mercedes S.U.V. around the winding roads of the Hillsborough hills and into Atherton, where the mansions of Silicon Valley technology barons hide behind thick stone walls, wrought-iron gates and tall, manicured hedges.

“These people have essentially infinite money,” said Mr. Buljan, who has been a Realtor on the Peninsula for more than 30 years. He pointed at a sloping four-acre property that included a large redwood grove with a private creek.

“If someone falls in love with a property like this,” he said, “the price doesn’t matter.”

Everywhere Mr. Buljan turned, a historic transition was under way. A generation ago, many of these properties were second homes for San Francisco’s elite families. These days, most are being bought, for cash, by international tycoons or the youthful leaders of local technology companies.

While the wider Bay Area has suffered, along with the rest of the country, with falling property values and rising foreclosures, the luxury housing market has remained robust, analysts said. That is especially true in Silicon Valley, where an arms race for talent among emerging social networking companies has raised salaries for executives and engineers, and a resurgent market for initial public stock offerings is creating hundreds of new millionaires.

Some of the sales are eye-popping. In March, the Russian billionaire Yuri Milner, an investor in Facebook, Groupon and Zynga, bought a French-style chateau in Los Altos Hills for a reported $100 million. Some buyers have hidden their identities behind companies.

In September, an Atherton estate formerly owned by the great-grandniece of Levi Strauss sold for $53 million, while the home of Sue Burns, a major investor in the San Francisco Giants, was sold for $20 million by her estate.

“It’s going to take a while for the wider economy to recover, but there are enough people to make a difference at the high end of the housing market,” keeping demand high, said Steve Levy, director of the Center for Continuing Study of the California Economy, a think tank in Palo Alto, where the median single-family home price last week was $1,838,750.

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The scandal of the Alabama poor cut off from water

BBC News reports: Banks stand to lose millions of dollars in debt repayments if the biggest municipal bankruptcy in American history is allowed to proceed.

But the real victims of the financial collapse in the US state of Alabama’s most populous county are its poorest residents – forced to bathe in bottled water and use portable toilets after being cut off from the mains supply.

And there is widespread anger in Jefferson County that swingeing sewerage rate hikes could have been avoided but for the greed, corruption and incompetence of local politicians, government officials and Wall Street financiers.

Tammy Lucas is the human face of a financial and political scandal that has brought one of the most deprived communities in America’s south to the point of what some local people believe is collapse.

She says: “If the sewer bill gets higher, my light might get cut off and if I try to catch up the light, my water might get cut off. So we’re in between. We can’t make it like this.”

Mrs Lucas’s monthly sewerage rate bills – the amount levied by the county to flush away waste and provide water for baths and showers – has quadrupled in the past 15 years. She says it is currently running at $150 (£97) a month, which leaves little left out of her $600 social security cheque for food and electricity.

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Occupied Washington

Monika Bauerlein and Clara Jeffery write: A few weeks after the Occupy Wall Street protests began, we found ourselves having a random conversation with a couple of San Franciscans at a store counter. What were these kids going on about? they asked. Time was tight, the inquiry a pleasantry, really. Best to keep it simple. "Jobs, the economy, income inequality." Well, one offered, he knew the wife of Wells Fargo CEO John Stumpf, and according to him, the reason companies aren’t hiring is because they are worried about the extra cost of Obama’s health care reform.

Stunned silence.

Because what can you really say to that, except…let them eat cake? Stumpf made $17.6 million in 2010—672 times what the average American takes home. And say what you will about Obamacare, but for large companies that already offer health benefits, it imposes pretty much zero costs and might even save money.

But why single out Stumpf, who actually sounds fairly cuddly for a bank CEO? (His hobby is baking bread, for Christ’s sake.) Let’s turn instead to John Paulson, the billionaire hedge fund manager who unctuously admonished Occupy protesters: "Instead of vilifying our most successful businesses, we should be supporting them and encouraging them to remain in New York City and continue to grow." Or how about the homeless-themed Halloween party thrown by an upstate New York foreclosure mill? Or the financier David Moore, who, having been dressed down by a panhandler for proffering only a dollar, took to the Wall Street Journal op-ed pages to bray about Obama’s class-warfare rhetoric: "The president’s incendiary message has now reached the streets. His complaints that rich people must ‘pay their fair share’ have now goaded some of our society’s most unfortunate."

Are all of the 1 percent so unmoored from the concerns of ordinary people? We’ve asked friends in high finance how their colleagues feel about the Occupy protests. Some, we’re told, see them as hacky-sacking WTO wannabes, but a more insightful contingent regards the movement as akin to Europe’s anti-austerity demonstrations: the understandable yet futile raging of people stranded by the shifting tides of the global economy.

This is a sentiment worth interrogating a bit, for it is a popular one among the Davos class. Sorry, American and European masses: We know you liked secure jobs that paid a living wage and held the promise of a cat-food-free retirement. But, well, that was then. The things you used to make are made elsewhere; now the knowledge economy the pundits wax about has gone global too. You’re up against a lot of bright kids in Beijing, Bangalore, and Brasília, and know what? You can’t compete.

There’s some truth to this. But let’s keep in mind that, globalization notwithstanding, the US economy is far wealthier now than it was a couple of decades ago—our GDP per capita is up 24 percent (PDF) just since 1995. The problem is not scarcity; it’s that a tiny number of players get rewarded no matter how badly they screw up. Recall that one of the things that gave Occupy Wall Street escape velocity was Bank of America’s decision to slap a $5-per-month fee onto everyone’s debit card—just as it handed a pair of hapless executives golden parachutes to the tune of $11 million.

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How ‘expenditure cascades’ are squeezing the American middle class

Robert H. Frank writes: Republicans have never wanted to talk about inequality, and many Democrats now seem afraid to. As a congressional Democratic adviser quoted by the New York Times reporter Jackie Calmes recently put it, the party is having difficulty articulating its position “in a way that doesn’t get us pegged as tax-and-spenders.”

The remarkable achievement of the Occupy Wall Street movement has been to make continuing silence about inequality politically unacceptable. Some have criticized the movement for not pressing specific demands. Yet most protesters wouldn’t pretend to have a sophisticated understanding of the forces that have been causing growing income disparities, or the policy experience to prescribe what might be done about them. But now that the movement has forced inequality onto the agenda, the time is ripe to focus on these issues.

Because many continue to deny that income inequality has been growing, it’s useful to start with a brief review of how income growth patterns have changed since World War II. The three decades after the war saw incomes grow at an almost uniform 3 percent annual rate for families up and down the income ladder. Since the early 1970s, however, virtually all income gains have accrued to those whose incomes were highest to begin with.

It’s a striking fractal pattern. Most of the gains have gone to the top 20 percent of earners, but the lion’s share of the gains within that group have gone to the top 5 percent. And within the top 5 percent, most of the gains have gone to the top 1 percent, and so on. 

Is this new pattern something to worry about? Many decry rising inequality because it makes those who’ve fallen behind feel impoverished. But it’s done much more than that. It has also raised the real cost to middle-income families of achieving many basic goals.

It’s done that through a process that I’ve elsewhere called “expenditure cascades.” The process begins with the completely unremarkable fact that top earners have been spending at a substantially higher rate than before. They’ve been building bigger mansions, staging more elaborate weddings and coming-of-age parties for their kids, buying more and better of everything.

Many social critics wag their fingers at what they perceive to be frivolous luxury spending. But that misses the point that all consumption norms are local. It’s not just the rich who spend more when they get more money. Everyone else does, too. The mansions of the rich may seem over the top to people in the middle, but the same could be said of American middle-class houses as seen by most of the planet’s 7 billion people.

The important practical point is that when the rich build bigger, they shift the frame of reference that shapes the demands of the near rich, who travel in the same social circles. Perhaps it’s now the custom in those circles to host your daughter’s wedding reception at home rather than in a hotel or country club. So the near rich feel they too need a house with a ballroom. And when they build bigger, they shift the frame of reference for the group just below them, and so on, all the way down. 

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Wall Street is already occupied

Jesse Eisinger writes: Last week, I had a conversation with a man who runs his own trading firm. In the process of fuming about competition from Goldman Sachs, he said with resignation and exasperation: “The fact that they were bailed out and can borrow for free — It’s pretty sickening.”

Though the sentiment is commonplace these days, I later found myself thinking about his outrage. Here was someone who is in the thick of the business, trading every day, and he is being sickened by the inequities and corruption on Wall Street and utterly persuaded that nothing had changed in the years since the financial crisis of 2008.

Then I realized something odd: I have conversations like this as a matter of routine. I can’t go a week without speaking to a hedge fund manager or analyst or even a banker who registers somewhere on the Wall Street Derangement Scale.

That should be a great relief: Some of them are just like us! Just because you are deranged doesn’t mean you are irrational, after all. Wall Street is already occupied — from within.

The insiders have a critique similar to that of the outsiders. The financial industry has strayed far from being an intermediary between companies that want to raise capital so they can sell people things they want. Instead, it is a machine to enrich itself, fleecing customers and exacerbating inequality. When it goes off the rails, it impoverishes the rest of us. When the crises come, as they inevitably do, banks hold the economy hostage, warning that they will shoot us in the head if we don’t bail them out.

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