Socialist Jesus

Four Reforms that Don't Require Bureaucracies to Implement

 

The following  article appeared in the NYT. I'm especially fond of suggestion #4.

Did You Hear the One About the Bankers?

CITIGROUP is lucky that Muammar el-Qaddafi was killed when he was. The Libyan leader’s death diverted attention from a lethal article involving Citigroup that deserved more attention because it helps to explain why many average Americans have expressed support for the Occupy Wall Street movement. The news was that Citigroup had to pay a $285 million fine to settle a case in which, with one hand, Citibank sold a package of toxic mortgage-backed securities to unsuspecting customers — securities that it knew were likely to go bust — and, with the other hand, shorted the same securities — that is, bet millions of dollars that they would go bust.

It doesn’t get any more immoral than this. As the Securities and Exchange Commission civil complaint noted, in 2007, Citigroup exercised “significant influence” over choosing $500 million of the $1 billion worth of assets in the deal, and the global bank deliberately chose collateralized debt obligations, or C.D.O.’s, built from mortgage loans almost sure to fail. According to The Wall Street Journal, the S.E.C. complaint quoted one unnamed C.D.O. trader outside Citigroup as describing the portfolio as resembling something your dog leaves on your neighbor’s lawn. “The deal became largely worthless within months of its creation,” The Journal added. “As a result, about 15 hedge funds, investment managers and other firms that invested in the deal lost hundreds of millions of dollars, while Citigroup made $160 million in fees and trading profits.”

Citigroup, which is under new and better management now, settled the case without admitting or denying any wrongdoing. James Stewart, a business columnist for The Times, noted that Citigroup’s flimflam made “Goldman Sachs mortgage traders look like Boy Scouts. In settling its fraud charges for $550 million last year, Goldman was accused by the S.E.C. of being the middleman in a similar deal, allowing the hedge fund manager John Paulson to help choose the mortgages and then bet against them without disclosing this to the other parties. Citigroup dispensed with a Paulson figure altogether, grabbing those lucrative roles for itself.” (Last Thursday, the U.S. District Court judge overseeing the case demanded that the S.E.C. explain how such serious securities fraud could end with the defendant neither admitting nor denying wrongdoing.)

This gets to the core of why all the anti-Wall Street groups around the globe are resonating. I was in Tahrir Square in Cairo for the fall of Hosni Mubarak, and one of the most striking things to me about that demonstration was how apolitical it was. When I talked to Egyptians, it was clear that what animated their protest, first and foremost, was not a quest for democracy — although that was surely a huge factor. It was a quest for “justice.” Many Egyptians were convinced that they lived in a deeply unjust society where the game had been rigged by the Mubarak family and its crony capitalists. Egypt shows what happens when a country adopts free-market capitalism without developing real rule of law and institutions.

But, then, what happened to us? Our financial industry has grown so large and rich it has corrupted our real institutions through political donations. As Senator Richard Durbin, an Illinois Democrat, bluntly said in a 2009 radio interview, despite having caused this crisis, these same financial firms “are still the most powerful lobby on Capitol Hill. And they, frankly, own the place.”

Our Congress today is a forum for legalized bribery. One consumer group using information from Opensecrets.org calculates that the financial services industry, including real estate, spent $2.3 billion on federal campaign contributions from 1990 to 2010, which was more than the health care, energy, defense, agriculture and transportation industries combined. Why are there 61 members on the House Committee on Financial Services? So many congressmen want to be in a position to sell votes to Wall Street.

We can’t afford this any longer. We need to focus on four reforms that don’t require new bureaucracies to implement. 1) If a bank is too big to fail, it is too big and needs to be broken up. We can’t risk another trillion-dollar bailout. 2) If your bank’s deposits are federally insured by U.S. taxpayers, you can’t do any proprietary trading with those deposits — period. 3) Derivatives have to be traded on transparent exchanges where we can see if another A.I.G. is building up enormous risk. 4) Finally, an idea from the blogosphere: U.S. congressmen should have to dress like Nascar drivers and wear the logos of all the banks, investment banks, insurance companies and real estate firms that they’re taking money from. The public needs to know.

Capitalism and free markets are the best engines for generating growth and relieving poverty — provided they are balanced with meaningful transparency, regulation and oversight. We lost that balance in the last decade. If we don’t get it back — and there is now a tidal wave of money resisting that — we will have another crisis. And, if that happens, the cry for justice could turn ugly. Free advice to the financial services industry: Stick to being bulls. Stop being pigs.

The Problem, explained

A Brief Summary of the 2008 Financial Collapse

Matt Henderson reflecting on Michael Lewis' The Big Short, gives  a brief summary of the 2008 financial collapse:

The Big Short, by Michael Lewis, is an amazing book about the banking crisis of 2008. Having watched the events unfold over the course of about a year, and not really understanding everything involved, the tragedy of situation wasn’t quite as impressive to me at the time, as it is having read Lewis’ concise, clear and compressed explanation of it.

While I’d encourage everyone interested to read the book, I’m going to try to summarize the story here.

1980s—Adding innovation to the boring old bond

A bond is a promise — usually from a government or corporation — to make regular interest payments on borrowed money, and, eventually, to pay back the borrowed principal. For generations, financial markets have traded bonds.

Given that a bond represents an income stream based on borrowed money, Wall Street, in the late 1980s realized that it could create “bond-like” financial products from other debt-based income streams like credit cards, student loans and home mortgages.

The “mortgage bond” was born, and became another financial product bought and sold by Wall Street investment banks, such as Goldman Sachs, Merrill Lynch, Bear Sterns, JP Morgan and Morgan Stanley.

Addressing the inherent problem of the mortgage bond

The mortgage bond collects thousands of home mortgages, purchased from lenders, and packages their associated income streams (monthly mortgage payments) into a financial product, that can be bought and sold like a bonds. Mortgage bonds, however, suffer from a couple of unique problems, related to the fact that home owners often refinance their debt during periods of low interest rates, prematurely repaying the principal.

To address this, Wall Street structured mortgage bonds into stacked layers (called “tranches”) — the lowest layer representing the first N mortgages to be paid off early, and the highest layer being the last N mortgages. Investors seeking the higher returns on their money (and accepting the highest risk) could invest in the lower “tranches”, and those wishing lower return (and lower risk), could invest in the higher tranches.

1990s—Where to find new profit? Subprime mortgages

In the 1990s, Wall Street firms began to create mortgage bonds from “subprime” mortgages, i.e. mortgages of much higher risk, but paying much higher interest rates, made to borrowers with lower levels of credit. The structural “tranches” of the mortgage bonds built from subprime mortgages, at this point, represented not only pre-payment, but also outright default.

With increasing demand from Wall Street to buy subprime mortgages, lenders became motivated to place ever more subprime loans (since they were no longer at risk, should the loans fail), and began to push messages like, “refinance your home, unlock all that equity, pay off your credit card debt, and go on vacation.” Often, lenders convinced those without credit and who can’t afford a mortgage at all to get one anyway. To entices these consumers, a new type of mortgage was created — variable rate, with extremely low (even zero) initial interest rates, which later reset to higher levels.

Americans took on these mortgages in masses, not realizing that the real estate bubble forming around them was being fueled by their own actions.


Early 2000s—How to address an ever risker foundation? Rating agencies

As the underlying mortgages became of lower quality, Wall Street’s mortgage bonds became inherently riskier, which should have made them more difficult to sell to investors. Why? Because buyers of Wall Street products look to the rating agencies Moodys and Standard & Poors for guidances, through their ratings, and risker products are supposed to receive lower ratings.

But there’s an inherent conflict of interest between Wall Street and the rating agencies, since it’s Wall Street who pays the agencies to rate their products. Likely due to this conflict, the rating agencies assigned surprisingly high ratings for these ever-riskier mortgage bonds.

Using models provided to them by the Wall Street firms, the agencies would rate mortgage bonds based on the average borrower FICO scores. This allowed Wall Street firms to structure bonds to contain mortgages from both high and low FICO borrowers, to increase the overall bond rating. It never occur to the rating agencies that the solvency of a bond composed of 10 borrowers of score 680 is dramatically different than one with five 700s and five 670s, since only a relatively small percentage of the underlying mortgages needed to default for the bond to fail.

2000s—Insatiable desire for more profits. The collateralized debt obligation

Despite the boom in mortgage bonds, Wall Street’s desire for ever more profits grew stronger led them to focus on the relatively lower ratings of the bottom (riskiest) tranches of the mortgage bonds. They came up with a clever idea. If they could package the bottom tranches of hundreds of different mortgage bonds together, then on the principal of diversification, perhaps they could convince Moodys and S&P to give higher ratings to the collection as a whole.

That’s exactly what happened, and the “Collateralized Debt Obligation” (CDO) was born. What in retrospect seems unthinkable, the rating agencies gave CDOs a rating of triple-A (AAA) — communicating a risk rating equivalent to US Treasuries. This was based on the premise that if one group of Americans began to default on their mortgages, it would be unlikely that other groups would.

Just think about that.

These AAA ratings opened the door to a huge market for Wall Street firms — allowing them to sell CDOs to organizations such as state and private pension funds, whose bylaws prohibited them from investing in anything other than AAA-rated financial products.

2003—An autistic man foresees the collapse. The credit default swap.

Rather than focus on the culprits, the The Big Short tells the story through the eyes of the few who foresaw the coming collapse, and made fortunes as a result. One was Mike Burry, a young man with autism and a glass eye (from a childhood cancer tumor).

Mike studied what was happening, and performed deep analysis of the underlying mortgages. He recognized that the enormous demand by Wall Street for mortgages drove the lending process, which in turn artificially drove up housing prices, creating an unsustainable real estate bubble from the fabric of financially fragile American consumers. When that bubble would eventually burst, through massive defaults, he realized it would result in the collapse of the entire mortgage-backed financial markets.

Considering how he could profit from this collapse, Mike went to Deutsch Bank and asked, “Can I buy insurance against the failure of a mortgage bond?” Deutsch Bank obliged, and when a couple more people wanted such insurance, an industry standard product was conceived, and the “Credit Default Swap” (CDS) was born.

A credit default swap is an insurance policy, against something you don’t have to own yourself. It’s a mechanism to speculate. To purchase a credit default swap, Mike (and others) paid regular insurance premiums to insure massive dollar amounts of CDOs and mortgage bonds (again, which they didn’t own themselves). As long as the CDOs and bonds didn’t default, the insurers made profits on the premiums. If, over the life of the CDOs and mortgage bonds, they collapsed due to defaults, then Mike (and the others) would be paid fortunes.

But who was selling the insurance?

From 2003 through 2007, Mike and a few others built up large portfolios of credit default swaps, paying their regular insurance premiums and waiting for the day their investment would reap fortunes.

They often wondered who was on the other side of their bet — i.e. who was selling the insurance. Turns out, it was the world’s largest insurer, AIG. Somehow, through utter incompetency, the world’s largest insurer insured massive amounts of CDOs and mortgage bonds. Rather than deeply analyze the internal makeup of these CDOs, they were content to trust the AAA ratings of Moodys and Standard & Poors. To them, it was like insuring US Treasuries, and so they considered their regular income stream of insurance premiums to be easy profits.

An important aspect of the credit default swap market was the absence of regulation, the way insurance is normally regulated. For example, AIG wasn’t required to post a percentage of insured asset as collateral.

2007—Running out of mortgages, let’s just used the credit default swaps!

Around 2007, the market for mortgages was drying up, home prices were leveling off, and defaults were already on the rise. Rather than seeing the obvious by now, the Wall Street investment banks remained focused on the continued sale of CDOs. But with their source of mortgages drying up, what income stream could they collect, and pack into these CDOs?

The answer was the income streams from credit default swaps. So the banks themselves got into the business of selling credit default swaps, and packaging those income streams (the insurance premiums) into new CDOs.

2008—The collapse

By 2008, the Wall Street investment banks were making obscene profits, but held large amounts of CDOs and mortgage bonds waiting to be sold. They were also on the liability end of huge amounts of credit default swaps, often sold and exchanged between themselves. AIG was on the liability end of billions of dollars worth of credit default swaps. Pension funds around the world had huge investments in CDOs and mortgage bonds. And then everything collapsed.

Real estate prices began to drop. American began defaulting in masses on their mortgages. The investment banks began seeing losses on their CDOs and mortgage bonds, and the market for hedging credit default swaps collapsed. Reports of potential insolvency of Bear Stearns surfaced and its stock collapsed, triggering the same for the other financial firms. The government allowed Lehman Brothers to go bankrupt, which triggered more panic in the markets. Commercial lending froze, paralyzing businesses in American and across the globe. Many Americans lost their jobs, savings and retirement funds.

With AIG and other of the world’s largest financial firms facing collapse, the US government stepped in, and bailed them out, paying off their debts, assuming their liabilities, and placing a burden of debt on the American people that likely won’t be paid off through the lifetimes of our grandchildren.

And after it was all over, the executives of these same Wall Street firms went home with billions of dollars of taxpayer money in their pockets, in the form of bonuses.

Reflecting on what happened.

Wall Street, in its search for profits, created products based on ever riskier mortgages, and found ways to sell them as secure investments.

The rating agencies, Moodys and S&P, gave risky assets gold-plated ratings, equal to US treasuries, which opened the door to a huge market of CDO buyers.

Having someone to sell their mortgages to, lenders were no longer concerned about whether a borrower could pay them back. Freed of risk, and in search of profits, lenders used deceitful tactics to convince Americans to take out mortgages that they couldn’t afford.

Americans, with their insatiable desires for consumption and for whom the average savings level had dropped to less than 1% (consider that the Chinese save 30%), accepted these mortgages in masses, giving up the equity in their homes.

When everything collapsed, the US government rescued the Wall Street firms, passing an unimaginably large bill to the US tax payers, and creating a debt burden that will take generations to repay.

Much of the US tax payers’ rescue money went in the private pockets of the Wall Street executives, in the form of bonuses.

It seems hard to uniquely place the blame.

I’ve always been a believer in the free-market philosophies of Milton Friedman, and I wonder whether, in the long run, it would have been better to allow the banks to fail, even if it meant the collapse the American economy. (I also now question my own beliefs against government involvement in business through regulation.)

Perhaps all we did is simply defer that collapse (and perhaps a more consequential version of it) to the lifetimes of our children, or their children. At least in allowing a collapse, our children could have likely looked back, and have seen the dire consequences of irresponsibility and unbounded greed.

Update 2011-03-11

Reading the thesis work of A.K. Barnett-Hart, discussed in this WSJ article, she believes the AAA ratings from the rating agencies wasn’t due to a conflict of interest:

The errors of the rating agencies stemmed from neither conflicts of interest nor preferential treatment given to certain banks. The true culprit behind the rating agencies’ failure was the outsourcing of credit analysis to computer models and the low level of human input used to rate CDOs.

Extremely interesting article. And the thesis is directly downloadable here....

Purpose of the Occupy Protests?

QUESTION: Does anyone involved in a single one of the occupy protests actually know specifically what they are trying to achieve and why they think protesting will do something to achieve it? Because try as I might, all I see is confused people saying things that are not even close to consistent and factual information.

MY RESPONSE: Hanging around Wall Street could be a way to remind those on Wall Street of the effects of mortgage bonds, subprime mortgages, and collaterized debt obligations on the average American. People who are angry and frustrated because their voices have been drowned out by lobbyists also tend not to be very coherent. Angry people attract other angry people, who might not be on the same page as they are. When viewed through a camera lens, all one sees is confusion. Most of us prefer stability to chaos, so we dismiss the entire thing and go on surfing the internet and listening to our Ipods.about a minute ago ·

Five Facts about the Wealthiest 1%

5 Facts You Should Know About the Wealthiest One Percent of Americans

1. The Top 1 Percent of Americans Owns 40 Percent of the Nation’s Wealth
2. The Top 1 Percent of Americans Take Home 24 Percent of National Income
3. The Top 1 Percent Of Americans Own Half of the Country’s Stocks, Bonds and Mutual Funds
4. The Top 1 Percent Of Americans Have Only 5 Percent of the Nation’s Personal Debt
5. The Top 1 Percent are Taking In More of the Nation’s Income Than at Any Other Time Since the 1920s

(see the article for helpful charts) 

Seen at a recent protest

De-regulation, Simplified

Reality of de-regulation outside Tea Party distortion field:

1) De-reg banks = Wall Street meltdown, Great Recession
2) De-reg energy = Enron debacle, gutting 401Ks, Calif. cheated of $20 Billion
3) De-reg environment = Exxon Valdez, BP oil spills
4) De-reg mortgages = Liar's Loan / securitization fiasco.

Political Cartoons

Doonesbury and Jon Stewart Nail it

Today's Doonesbury  makes a perfect accompaniment to Jon Stewart's broadcast:

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
World of Class Warfare - Warren Buffett vs. Wealthy Conservatives
www.thedailyshow.com
Daily Show Full Episodes Political Humor & Satire Blog The Daily Show on Facebook

Visually Understanding the Debt

The New York Times has an excellent graphic to help tell the story of how we have come to find ourselves in such debt:

And here is a helpful Q&A about the Clinton years:

Q: During the Clinton administration was the federal budget balanced? Was the federal deficit erased?

A: Yes to both questions, whether you count Social Security or not.


FULL ANSWER

This chart, based on historical figures from the nonpartisan Congressional Budget Office, shows the total deficit or surplus for each fiscal year from 1990 through 2006. Keep in mind that fiscal years begin Oct. 1, so the first year that can be counted as a Clinton year is fiscal 1994. The appropriations bills for fiscal years 1990 through 1993 were signed by Bill Clinton’s predecessor, George H.W. Bush. Fiscal 2002 is the first for which President George W. Bush signed the appropriations bills, and the first to show the effect of his tax cuts.

The Clinton years showed the effects of a large tax increase that Clinton pushed through in his first year, and that Republicans incorrectly claim is the "largest tax increase in history." It fell almost exclusively on upper-income taxpayers. Clinton’s fiscal 1994 budget also contained some spending restraints. An equally if not more powerful influence was the booming economy and huge gains in the stock markets, the so-called dot-com bubble, which brought in hundreds of millions in unanticipated tax revenue from taxes on capital gains and rising salaries.

Clinton’s large budget surpluses also owe much to the Social Security tax on payrolls. Social Security taxes now bring in more than the cost of current benefits, and the "Social Security surplus" makes the total deficit or surplus figures look better than they would if Social Security wasn’t counted. But even if we remove Social Security from the equation, there was a surplus of $1.9 billion in fiscal 1999 and $86.4 billion in fiscal 2000. So any way you count it, the federal budget was balanced and the deficit was erased, if only for a while.

Update, Feb. 11: Some readers wrote to us saying we should have made clear the difference between the federal deficit and the federal debt. A deficit occurs when the government takes in less money than it spends in a given year. The debt is the total amount the government owes at any given time. So the debt goes up in any given year by the amount of the deficit, or it decreases by the amount of any surplus. The debt the government owes to the public decreased for a while under Clinton, but the debt was by no means erased.

Other readers have noted a USA Today story stating that, under an alternative type of accounting, the final four years of the Clinton administration taken together would have shown a deficit. This is based on an annual document called the "Financial Report of the U.S. Government," which reports what the governments books would look like if kept on an accrual basis like those of most corporations, rather than the cash basis that the government has always used. The principal difference is that under accrual accounting the government would book immediately the costs of promises made to pay future benefits to government workers and Social Security and Medicare beneficiaries. But even under accrual accounting, the annual reports showed surpluses of $69.2 billion in fiscal 1998, $76.9 billion in fiscal 1999, and $46 billion for fiscal year 2000. So even if the government had been using that form of accounting the deficit would have been erased for those three years.

- Brooks Jackson

Sources
Congressional Budget Office, "Historical Budget Data," undated, accessed 6 Sep 2010.

Austerity and the American Dream

My friend C. sent me this article, written by an Australian:

American dream comes with a heavy cost

Ros Coward

The US debt debate reveals a nation living beyond its means.

ONE word is missing in the American debate over the debt crisis: austerity. It's a revealing absence. In spite of the vast deficit, and despite the US being the home of individualism, no way is being offered for individuals to make a difference by changing their lifestyles.

People in Britain have become familiar with talk of the ''new age of austerity''. Politicians of both left and right use the expression to frame the narrative about the cuts Britain is now facing. While both sides ''warn'' about this coming era, austerity is not negative in the British psyche. Associations with wartime Britain soften it. Austerity is associated with personal changes that benefited society and made sense to people who learned to tackle wastefulness, to ''make do and mend''.

Long before the current cuts, austerity was making a comeback in Britain, associated with the environmental issues of recycling, cutting consumption and reducing our carbon footprint. Indeed, the New Economics Foundation recently launched the New Home Front, arguing that wartime lifestyles are positive models for reducing environmental impact.

 Not so in the US. In the five months I spent there earlier this year, I never heard the word austerity in political discussion. There was nothing about individuals living beyond their means. Yet the US deficit is founded on overconsumption, made possible by too much consumer credit and, less well recognised, too much environmental credit.

In the current war of words in Congress, there is no reference to the immoral lending that encouraged people who could not afford it to invest in the American dream. Yet that is what led to the property crash and the financial crisis. From individuals I heard nothing about the need for prosperous people to change their ways. There are, of course, many worthy ''green shoots'', such as the ''locavore'' movement or the ''greening the campus'' initiative at the university I was visiting, where a newly appointed sustainability officer tries to cut energy use. But people like him have their work cut out.

The whole of the east coast and the rust belt are vast, shocking landscapes to which many Americans seem oblivious. This is a society that has lived not just beyond its economic means but beyond its environmental ones, too, as the hundreds of miles of abandoned buildings, abandoned cars, and endless highways bear witness to.

Yet the American dream survives. You're either in it, or out of it. Being out means destitution. In Britain I know many people who reject consumerism, getting involved in poorly paid environmental or political work. We regard them as rather honourable. In the US, if you don't have money you don't count.

None of this is supposed to indicate Britain has got it right. Far from it. The relaxation of planning controls with the potential to trash the environment is a case in point. But at least words such as thrift and sustainability don't carry such negative connotations. They suggest a place to work from. In the US, the ideological mindset makes these negative terms, which in turn makes the future there look bleak. Their problem isn't just fixing government spending, but ultimately counting the real costs of the American way of life.

Here's my response:

Austerity is not an American virtue. Making a profit and consuming are. "The concept that making money (employment) and spending money (consumerism) is the primary goal of individuals within a market economy, and the assumption that individuals must work for an employer to "make a living" and that such activity is the most meaningful and desirable of human activities." wikipedia

So we have tended to equate consumption with success and happiness and being good Americans. We define ourselves in terms of our quarterly earnings reports and our "stuff." Buying and selling on credit just allows us to have more stuff, feel better about ourselves, and keep the economy rolling. Austerity is taken to be un-American, because it is a refusal to participate in this economic and social engine.

The housing crisis stands as a challenge to all this, because it means the conveyer belt has stopped. See this. Austerity is being imposed upon us, whether we want it or not. The question is, in the process, will we come to realize that the culture of capitalism is a false kingdom? If sin is missing the mark, then the gyrations between the extremes of consumerism and austerity are evidence that we are not where Christ intends us to be.

Debt Ceiling Crisis: Cutting off your nose to spite your face

Could this be what the Republicans/TeaPartiers had in mind all along? If politics is like a chess game, the players plan their moves long ahead of their actions. But to force such a constitutional and economic nightmare upon the American people seems more like cutting off your nose to spite your face.

The Debt Ceiling Crisis: Approaching the Witching Hour

by Geoffrey R. Stone,

Edward H. Levi Distinguished Service Professor of Law at the University of Chicago

As the clock runs down toward the witching hour on August 2, I see three possible solutions to the crisis. First, the Republicans and Democrats in Congress can agree on a compromise plan that raises the debt ceiling for a reasonable period of time and deals with at least some of the issues of spending cuts and new revenues that have thus far so furiously divided the parties. I suppose this is still possible, but it seems unlikely.

Second, the Republicans and Democrats in Congress can agree to increase the debt ceiling for a reasonable period of time without addressing any of the bitterly divisive spending and revenue issues. This is pretty much what has always happened in the past. Congress has separated the debt ceiling issue from the more difficult and more contentious issues of taxing and spending. At this point, that might be the best solution, but it too seems unlikely because of Republican intransigence.

Third, Congress can remain paralyzed and simply do nothing. If they follow that approach, which now seems likely, the current debt ceiling will remain in place and as of August 2 the government will not be able to borrow any more money and thus will no longer be able to pay its bills -- for the first time in American history. What happens then?

The most obvious outcome is that for as long as that state of affairs exists, the president will have to decide which bills to pay and which to ignore. In other words, the president would have to decide whether to suspend Medicare payments, cancel Social Security payments, withhold the salaries of government employees (including the military), default on our debt obligations, etc. With each passing day, the spending cuts would need to be deeper and deeper.

Some people have argued that, even if Congress does not raise the debt ceiling, these cuts and non-payments don't have to happen, because the president can ignore Congress' action and just keep on borrowing to pay the nation's bills. Some have argued that a little-noticed provision in section 4 of the Fourteenth Amendment authorizes precisely this course of action. This provision states: "The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned."

This provision of the Fourteenth Amendment, which was enacted shortly after the Civil War, was intended, in part, to prevent the former Confederate states, when they resumed their positions in Congress, from attempting to cause the federal government to renege on the debts the Union incurred to put down the "rebellion." A careful reading of the text, however, reveals that the provision goes well beyond that. It does not say that the validity of the public debt incurred to put down the rebellion "shall not be questioned," but that the public debt more generally "shall not be questioned," citing the Civil War issue as merely an illustration.

So, what is the relevance of section 4 to the current crisis? What it seems to say is that the government must honor all public debt "authorized by law." This suggests that non-payment of our existing debt is not a constitutionally-permissible option for the president. As a result, in making spending cuts beginning on August 2, the President apparently cannot constitutionally decide not to pay our outstanding debt. Rather, all of the cuts must come from ongoing expenditures. This would, of course, dramatically magnify the impact of the crisis on government programs, services and operations.

Faced with this dilemma, what is the president to do? There are those who argue that this entire controversy is much ado about nothing, because the President can simply "raise the debt ceiling on his own." They argue that, in light of "the president's role as the ultimate guardian of the constitutional order," President Obama should disregard Congress' failure to authorize additional debt and assume the authority to do the "right thing" for the nation. As Justice Robert Jackson observed more than half a century ago, "the Constitution is not a suicide pact."

This is a dangerous argument. Its proponents point to the one dramatic instance in American history in which a president openly exercised this extraconstitutional authority. (President Bush II, by the way, attempted to exercise this authority secretly when he authorized the use of torture and the NSA surveillance program in violation of federal law.) But that earlier instance, involving President Abraham Lincoln, was quite a different situation. It arose at the very outset of the Civil War, when Union troops needed to get to the nation's capital to protect it from possible Confederate attack.

Confederate sympathizers in Maryland were tearing up the railroad tracks in order to prevent the Union troops from moving south to the capital. Because the local authorities, who were sympathetic to the Confederates, did nothing to prevent this interference, the only way to end the obstruction was for Lincoln to suspend the writ of habeas corpus and authorize the military to arrest and detain those who were preventing the army from reaching Washington.

The problem was that the Constitution authorizes only Congress to suspend the writ of habeas corpus. But Congress was not in session, and in 1861 it could not be convened quickly. Faced with this crisis, historians and legal scholars agree that Lincoln was justified in doing what he did, even though it was not expressly authorized by the Constitution.

Even if one thinks that the danger to the national interest today is comparable to that facing Lincoln in 1861, the situations are importantly different. Today, Congress is in session and is refusing the raise the debt ceiling, even though it could easily do so. Because the Republicans in Congress refuse to do this, President Obama (unlike Lincoln) is faced with a "decision" by Congress. It may be a reckless and irresponsible decision, but it is a decision and it is much harder to justify ignoring a decision than to act in a situation where no congressional action was possible.

Having said this, I think the president is likely to (and should) take control of the situation and do the "right thing" for the nation, even though he has no express constitutional authority to do so. But to suggest that this crisis is much ado about nothing because the president can avoid a calamity by extra-constitutional means, and by doing something that no other president in American history has been called upon to do, is absolutely no excuse for the conduct of the Republicans in bringing us to this point.

Moreover, even if the president does this, there may be serious repercussions. First, the Republicans in the House may well attempt to impeach the president for acting "unconstitutionally." Even though this would go nowhere in the Senate, the very act of impeachment would exacerbate the dire state of politics in the United States today. Second, there will almost inevitably be litigation challenging the constitutionality of the president's action. (Note that in 1861, Chief Justice Taney held Lincoln's suspension of the writ of habeas corpus in Maryland unconstitutional and ordered him to lift the suspension. Lincoln ignored the Taney's ruling.). Is that a crisis we want to repeat?

The plain and simple reality is that unless the Republicans agree to raise the debt ceiling in the next two days, they will throw the nation into a constitutional and economic nightmare. If nothing else, they should have enough sense and self-discipline to know that they will pay dearly for this with the American people

QUOTE: On the National Debt

"My advice to Congress. If your car is spinning on the ice don't slam on the brakes or you'll flip it. Steer into it to get control of the vehicle." --Brad B.

JUST WONDERING about the Federal Debt

I was curious to see how many times the debt ceiling was raised under the previous administration, and I found this, dated Sept 29, 2008:

On the day President Bush took office, the national debt stood at $5.727 trillion. The latest number from the Treasury Department shows the national debt now stands at more than $9.849 trillion. That's a 71.9 percent increase on Mr. Bush's watch.

The bailout plan now pending in Congress could add hundreds of billions of dollars to the national debt – though President Bush said this morning he expects that over time, "much if not all" of the bailout money "will be paid back."

But the government is taking no chances. Buried deep in the hundred pages of bailout legislation is a provision that would raise the statutory ceiling on the national debt to $11.315 trillion. It'll be the 7th time the debt limit has been raised during this administration. In fact it was just two months ago, on July 30, that President Bush signed the Housing and Economic Recovery Act, which contained a provision raising the debt ceiling to $10.615 trillion."

Consistency is not a virtue for political parties, is it?

Even more interesting are charts dealing with federal spending, federal debt, and GDP, available here. Isn't it curious how Ronald Reagan was able to get by with the following % increases in federal debt, while Obama's 12.5% hike in 2010 is being heralded as the end of the republic?

Percentage increase in Federal Debt under Ronald Reagan
1983: 15%
1985: 12.3%
1986: 13.9%

Curious.

"Rupert Repents" Conversation

In response to my previous message, "Rupert Repents, or Why we need Government,"  a student wrote me:

I think anyone who says "the government doesn't help me" is either speaking in a very general term, or is a moron. What the guy pointed out is fine, and I don't think that's the hot issue. From what I know, no one has asked to quit building roads, quit producing power, quit producing water, cut police and fire, etc. Those are seemingly the very things that government wants to take FROM! You don't hear "Let's cut back PERS, and governor salaries, presidential salaries, congress salaries!". Although I can't say for certain but I have a feeling that I do more work each year than many politicians do, I'm not say all, or even most, but many; yet they receive decent (even BIG) salaries and perks that most mortal men would LOVE to have! (I could be wrong on that, but that's just a feeling/perception I have.) Anyway, I digress...

My main thought of the article was that it was pretty shallow, didn't really dig into "serious" or even "controversial" issues that are ACTUALLY being discussed. Or the other option is that I'm misinformed, which is possible!

My response:

... The whole libertarian movement is about holding government to the minimum and attracts people who take themselves to be sovereign as individuals. See the Libertarian Party Platform. Joel Salatin, self-described ""Christian-libertarian-environmentalist-capitalist-​lunatic-Farmer" is typical of this viewpoint.

Trust me: in the name of efficiency, cost effectiveness and free markets, I have heard people argue for the privatization of social security, and/or prisons and/or schools and/or utilities and/or police and fire departments. (Just do a google search, "privatization + fill in the blank, and you'll see what I mean. ) For example, The Ludwig von Mises Institute (an extremely influential think tank ) promotes the privatization of roads and highways! (See this)

Part of the reason we are in the economic mess we are in is because of the financial degregulation of the financial sector. (See this and this.)

I grant you that politicians are a lot of the problem. Unfortunately, if we conflate politicians with government (as many people seem to be doing) we will be in worse shape than before. That is why I think it is important to be reminded of the positive things government does. If we are upset with politicians, we should also be upset with CEOs and multinational businesses that buy them off, and only care for their own profit, at the expense of the middle class. (See this.)

REALITY CHECK: The Obama "Trillion Dollar Bill"

There's a nasty little message making the circuit that purports to explain how much a trillion dollars is, appending this image at the end:

The senders clearly only interested in ad hominems, and not facts.  But, dear reader, I trust you are cut from straighter timber. Here is what I wrote back to the person who passed that message to me:

-----------------------------------------------------------------------------------------------------------------------

I'm sorry you felt the need to take the cheap shot at Obama. Given the following information,  you might want to consider changing the image from our current president to a previous president.


1. Trillions lost on waging war

According to the Center for Defense Information, the estimated cost of the wars in Iraq and Afghanistan will reach $1.29 trillion by the end of fiscal year 2011.
However, this doesn't take into account the real cost:
+ Loss of life and work potential for the private sector
+ Cost of seriously injured to society
+ Mental health costs and consequences
+ Quality of life impairment (I weep for the multiple amputees)
+ Family costs
+ Social costs
+ Homefront National Guard shortfalls needed for Katrina etc.

2001 Nobel winner in Economics, Joseph Stiglitz estimates the true cost of the Iraq war at $3 trillion.
Obama rightly deserves criticism for continuing the war in Afghanistan, but he wasn't the one who invaded Iraq. Stiglitz writes, "It is hard to believe that we would be embroiled in a bloody conflict in Afghanistan today if we had devoted the resources there that we instead deployed in Iraq. A troop surge in 2003 -- before the warlords and the Taliban reestablished control -- would have been much more effective than a surge in 2010. "

2) Trillions lost due to Recession

a) Small Business
Study shows recession cost small businesses $2 trillion. Recall that Obama inherited the recession upon taking office. Economists say Dec. 2007 marked the start of the recession. Obama didn't take office until January 2009.

b) Children
Recession-induced child poverty to cost U.S. $1.7 trillion in economic loss. Would this have occurred if presidents and legislators before Obama had not deregulated Wall Street, and allowed it to run amok and ruin he economy? In March, 2008, CNN reported: "You know things are very very bad on Wall Street when a guy like Henry Paulson -- Treasury secretary, solid Republican, and former Goldman Sachs CEO -- joins the crowd calling for more regulation over the financial markets."

c) worldwide
Here's a visual that estimates the worldwide cost of the financial crisis to be $11,900 billion--nearly $12 trillion (Click on it to enlarge the image. )



I'm sorry the sender felt the need to take the cheap shot at Obama. Given the information above, he might want to consider changing the image on the trillion dollar bill from our current president to a previous president.

Why Patients are not Consumers

The reason patients cannot be reduced to consumers is that they are persons, not events. A naturalistic worldview can only account for that which is material: able to be quantified, therefore able to be measured; therefore able to be predicted, therefore able to be controlled. Events are able to be reduced to material explanations. Persons are not. Persons are both material AND immaterial; matter AND  form, body AND soul, events AND agents.  What is immaterial cannot be quantified,  it is unable to be priced: therefore it is outside the realm of commerce.


Patients Are Not Consumers
By PAUL KRUGMAN
Published: April 21, 2011

Earlier this week, The Times reported on Congressional backlash against the Independent Payment Advisory Board, a key part of efforts to rein in health care costs. This backlash was predictable; it is also profoundly irresponsible, as I’ll explain in a minute.

But something else struck me as I looked at Republican arguments against the board, which hinge on the notion that what we really need to do, as the House budget proposal put it, is to “make government health care programs more responsive to consumer choice.”

Here’s my question: How did it become normal, or for that matter even acceptable, to refer to medical patients as “consumers”? The relationship between patient and doctor used to be considered something special, almost sacred. Now politicians and supposed reformers talk about the act of receiving care as if it were no different from a commercial transaction, like buying a car ­ and their only complaint is that it isn’t commercial enough.

What has gone wrong with us?

About that advisory board: We have to do something about health care costs, which means that we have to find a way to start saying no. In particular, given continuing medical innovation, we can’t maintain a system in which Medicare essentially pays for anything a doctor recommends. And that’s especially true when that blank-check approach is combined with a system that gives doctors and hospitals ­ who aren’t saints ­ a strong financial incentive to engage in excessive care.

Hence the advisory board, whose creation was mandated by last year’s health reform. The board, composed of health-care experts, would be given a target rate of growth in Medicare spending. To keep spending at or below this target, the board would submit “fast-track” recommendations for cost control that would go into effect automatically unless overruled by Congress.

Before you start yelling about “rationing” and “death panels,” bear in mind that we’re not talking about limits on what health care you’re allowed to buy with your own (or your insurance company’s) money. We’re talking only about what will be paid for with taxpayers’ money. And the last time I looked at it, the Declaration of Independence didn’t declare that we had the right to life, liberty, and the all-expenses-paid pursuit of happiness.

And the point is that choices must be made; one way or another, government spending on health care must be limited.

Now, what House Republicans propose is that the government simply push the problem of rising health care costs on to seniors; that is, that we replace Medicare with vouchers that can be applied to private insurance, and that we count on seniors and insurance companies to work it out somehow. This, they claim, would be superior to expert review because it would open health care to the wonders of “consumer choice.”

What’s wrong with this idea (aside from the grossly inadequate value of the proposed vouchers)? One answer is that it wouldn’t work. “Consumer-based” medicine has been a bust everywhere it has been tried. To take the most directly relevant example, Medicare Advantage, which was originally called Medicare + Choice, was supposed to save money; it ended up costing substantially more than traditional Medicare. America has the most “consumer-driven” health care system in the advanced world. It also has by far the highest costs yet provides a quality of care no better than far cheaper systems in other countries.

But the fact that Republicans are demanding that we literally stake our health, even our lives, on an already failed approach is only part of what’s wrong here. As I said earlier, there’s something terribly wrong with the whole notion of patients as “consumers” and health care as simply a financial transaction.

Medical care, after all, is an area in which crucial decisions ­ life and death decisions ­ must be made. Yet making such decisions intelligently requires a vast amount of specialized knowledge. Furthermore, those decisions often must be made under conditions in which the patient is incapacitated, under severe stress, or needs action immediately, with no time for discussion, let alone comparison shopping.

That’s why we have medical ethics. That’s why doctors have traditionally both been viewed as something special and been expected to behave according to higher standards than the average professional. There’s a reason we have TV series about heroic doctors, while we don’t have TV series about heroic middle managers.

The idea that all this can be reduced to money ­ that doctors are just “providers” selling services to health care “consumers” ­ is, well, sickening. And the prevalence of this kind of language is a sign that something has gone very wrong not just with this discussion, but with our society’s values.

A version of this op-ed appeared in print on April 22, 2011, on page A23 of the New York edition with the headline: Patients Are Not Consumers

ADDENDUM: On April 25, 2011, the Economist published a response to Krugman, entitled "Diagnosing Krugman." My further remarks can be seen, above, in an April 28 post, Why Patients are not Consumers, Part 2."

Heading toward Class Warfare

“There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”--  Warren Buffet

The average American's income has not changed much, while the richest 5% of Americans have seen their earnings surge. This chart includes capital gains.

How the Middle Class became the Underclass


By Annalyn Censky, staff reporter

February 16, 2011: 4:30 PM ET


NEW YORK (CNNMoney) -- Are you better off than your parents?

Probably not if you're in the middle class.

 Incomes for 90% of Americans have been stuck in neutral, and it's not just because of the Great Recession. Middle-class incomes have been stagnant for at least a generation, while the wealthiest tier has surged ahead at lighting speed.

In 1988, the income of an average American taxpayer was $33,400, adjusted for inflation. Fast forward 20 years, and not much had changed: The average income was still just $33,000 in 2008, according to IRS data.

Meanwhile, the richest 1% of Americans -- those making $380,000 or more -- have seen their incomes grow 33% over the last 20 years, leaving average Americans in the dust.

Experts point to some of the usual suspects -- like technology and globalization -- to explain the widening gap between the haves and have-nots.

But there's more to the story.

A real drag on the middle class

One major pull on the working man was the decline of unions and other labor protections, said Bill Rodgers, a former chief economist for the Labor Department, now a professor at Rutgers University.

Because of deals struck through collective bargaining, union workers have traditionally earned 15% to 20% more than their non-union counterparts, Rodgers said.

But union membership has declined rapidly over the past 30 years. In 1983, union workers made up about 20% of the workforce. In 2010, they represented less than 12%.

"The erosion of collective bargaining is a key factor to explain why low-wage workers and middle income workers have seen their wages not stay up with inflation," Rodgers said.

Without collective bargaining pushing up wages, especially for blue-collar work -- average incomes have stagnated.


How do you define middle class?

International competition is another factor. While globalization has lifted millions out of poverty in developing nations, it hasn't exactly been a win for middle class workers in the U.S.

Factory workers have seen many of their jobs shipped to other countries where labor is cheaper, putting more downward pressure on American wages.

"As we became more connected to China, that poses the question of whether our wages are being set in Beijing," Rodgers said.

Finding it harder to compete with cheaper manufacturing costs abroad, the U.S. has emerged as primarily a services-producing economy. That trend has created a cultural shift in the job skills American employers are looking for.

Whereas 50 years earlier, there were plenty of blue collar opportunities for workers who had only high school diploma, now employers seek "soft skills" that are typically honed in college, Rodgers said.

A boon for the rich

While average folks were losing ground in the economy, the wealthiest were capitalizing on some of those same factors, and driving an even bigger wedge between themselves and the rest of America.

For example, though globalization has been a drag on labor, it's been a major win for corporations who've used new global channels to reduce costs and boost profits. In addition, new markets around the world have created even greater demand for their products.

"With a global economy, people who have extraordinary skills... whether they be in financial services, technology, entertainment or media, have a bigger place to play and be rewarded from," said Alan Johnson, a Wall Street compensation consultant.

As a result, the disparity between the wages for college educated workers versus high school grads has widened significantly since the 1980s.

In 1980, workers with a high school diploma earned about 71% of what college-educated workers made. In 2010, that number fell to 55%.

Another driver of the rich: The stock market.

The S&P 500 has gained more than 1,300% since 1970. While that's helped the American economy grow, the benefits have been disproportionately reaped by the wealthy.

And public policy of the past few decades has only encouraged the trend.

Considering yourself 'rich'

The 1980s was a period of anti-regulation, presided over by President Reagan, who loosened rules governing banks and thrifts.

A major game changer came during the Clinton era, when barriers between commercial and investment banks, enacted during the post-Depression era, were removed.

In 2000, the Commodity Futures Modernization Act also weakened the government's oversight of complex securities, allowing financial innovations to take off, creating unprecedented amounts of wealth both for the overall economy, and for those directly involved in the financial sector.

Tax cuts enacted during the Bush administration and extended under Obama were also a major windfall for the nation's richest.

And as then-Federal Reserve chairman Alan Greenspan brought interest rates down to new lows during the decade, the housing market experienced explosive growth.

"We were all drinking the Kool-aid, Greenspan was tending bar, Bernanke and the academic establishment were supplying the liquor," Deutsche Bank managing director Ajay Kapur wrote in a research report in 2009.

But the story didn't end well. Eventually, it all came crashing down, resulting in the worst economic slump since the Great Depression.

With the unemployment rate still excessively high and the real estate market showing few signs of rebounding, the American middle class is still reeling from the effects of the Great Recession.

Meanwhile, as corporate profits come roaring back and the stock market charges ahead, the wealthiest people continue to eclipse their middle-class counterparts.

"I think it's a terrible dilemma, because what we're obviously heading toward is some kind of class warfare," Johnson said.

Income Inequality: Towards a Banana Republic?

Slate has an important series about income inequality in the U.S.  If you go to the article, you can launch a helpful slide show that gives a visual guide to this matter.

What will the Great Divergence mean for the Church? What sort of virtues will we need as Christians to meet this challenge? Is it a matter of justice for Christians to work for income equality? Or should we accept it and direct our energies toward ministering to individuals? Do any of the popular finance programs evangelicals host address the connection between income inequality and consumer debt?

From the first installment in the series:

...[In 1915, ] the richest 1 percent accounted for 18 percent of the nation's income. Today, the richest 1 percent account for 24 percent of the nation's income. What caused this to happen? ...
Income inequality in the United States has not worsened steadily since 1915. It dropped a bit in the late teens, then started climbing again in the 1920s, reaching its peak just before the 1929 crash. The trend then reversed itself. Incomes started to become more equal in the 1930s and then became dramatically more equal in the 1940s. (During the 1930s the richest 1 percent’s share of the nation’s income dropped. Overall, the income-equality trend of the Great Depression was somewhat equivocal. On the one hand, the rich lost income. On the other hand, middle-class incomes stagnated and a high level of unemployment (which peaked at 25 percent) hit those at the bottom of the income scale especially hard. I note all this to emphasize that it is neither necessary nor desirable to achieve equality through economic catastrophe.)  Income distribution remained roughly stable through the postwar economic boom of the 1950s and 1960s. Economic historians Claudia Goldin and Robert Margo have termed this midcentury era the "Great Compression." The deep nostalgia for that period felt by the World War II generation­the era of Life magazine and the bowling league­reflects something more than mere sentimentality. Assuming you were white, not of draft age, and Christian, there probably was no better time to belong to America's middle class.

The Great Compression ended in the 1970s. Wages stagnated, inflation raged, and by the decade's end, income inequality had started to rise. Income inequality grew through the 1980s, slackened briefly at the end of the 1990s, and then resumed with a vengeance in the aughts. In his 2007 book The Conscience of a Liberal, the Nobel laureate, Princeton economist and New York Times columnist Paul Krugman labeled the post-1979 epoch the "Great Divergence."

It's generally understood that we live in a time of growing income inequality, but "the ordinary person is not really aware of how big it is," Krugman told me. During the late 1980s and the late 1990s, the United States experienced two unprecedentedly long periods of sustained economic growth: ­ the "seven fat years" and the " long boom." Yet from 1980 to 2005, more than 80 percent of total increase in Americans' income went to the top 1 percent. Economic growth was more sluggish in the aughts, but the decade saw productivity increase by about 20 percent. Yet virtually none of the increase translated into wage growth at middle and lower incomes, an outcome that left many economists scratching their heads.

Here is a snapshot of income distribution during the past 100 years:

Chart of the Top Ten Percent Income Share, 1917 - 2008.

All my life I've heard Latin America described as a failed society (or collection of failed societies) because of its grotesque maldistribution of wealth. Peasants in rags beg for food outside the high walls of opulent villas, and so on. But according to the Central Intelligence Agency (whose patriotism I hesitate to question), income distribution in the United States is more unequal than in Guyana, Nicaragua, and Venezuela, and roughly on par with Uruguay, Argentina, and Ecuador. Income inequality is actually declining in Latin America even as it continues to increase in the United States. Economically speaking, the richest nation on earth is starting to resemble a banana republic. The main difference is that the United States is big enough to maintain geographic distance between the villa-dweller and the beggar. As Ralston Thorpe tells his St. Paul's classmate, the investment banker Sherman McCoy, in Tom Wolfe's 1987 novel The Bonfire of the Vanities: "You've got to insulate, insulate, insulate."

But income inequality is a topic of huge importance to American society and therefore a subject of large and growing interest to a host of economists, political scientists, and other wonky types. Except for a few Libertarian outliers (whose views we'll examine later), these experts agree that the country's growing income inequality is deeply worrying. Even Alan Greenspan, the former Federal Reserve Board chairman and onetime Ayn Rand acolyte, has registered concern. "This is not the type of thing which a democratic society­a capitalist democratic society­can really accept without addressing," Greenspan said in 2005. Greenspan's Republican-appointed successor, Ben Bernanke, has also fretted about income inequality.

Yet few of these experts have much idea how to reverse the trend. That's because almost no one can agree about what's causing it. This week and next, I will detail and weigh the strengths and weaknesses of various prominent theories as to what has brought about the income inequality boom of the last three decades. At the same time, I'll try to convey the magnitude of its effects on American life. The Great Divergence may represent the most significant change in American society in your lifetime­ and it's not a change for the better. Let's see if we can figure out what got us here.

------

(from the final installment in the series: )

The United States' economy is currently struggling to emerge from a severe recession brought on by the financial crisis of 2008. Was that crisis brought about by income inequality? Some economists are starting to think it may have been. David Moss of Harvard Business School has produced an intriguing chart that shows bank failures tend to coincide with periods of growing income inequality. "I could hardly believe how tight the fit was," he told the New York Times. Princeton's Paul Krugman has similarly been considering whether the Great Divergence helped cause the recession by pushing middle-income Americans into debt. The growth of household debt has followed a pattern strikingly similar to the growth in income inequality (see the final graph). Raghuram G. Rajan, a business school professor at the University of Chicago, recently argued on the New Republic's Web site that "let them eat credit" was "the mantra of the political establishment in the go-go years before the crisis." Christopher Brown, an economist at Arkansas State University, wrote a paper in 2004 affirming that "inequality can exert a significant drag on effective demand." Reducing inequality, he argued, would also reduce consumer debt. Today, Brown's paper looks prescient.

Heightened partisanship in Washington and declining trust in government have many causes (and the latter slide predates the Great Divergence). But surely the growing income chasm between the poor and middle class and the rich, between the Sort of Rich and the Rich, and even between the Rich and the Stinking Rich, make it especially difficult to reestablish any spirit of e pluribus unum. Republicans and Democrats compete to show which party more fervently opposes the elite, with each side battling to define what "elite" means. In a more equal society, the elite would still be resented. But I doubt that opposing it would be an organizing principle of politics to the same extent that it is today.
I find myself returning to the gut-level feeling expressed at the start of this series: I do not wish to live in a banana republic. There is a reason why, in years past, Americans scorned societies starkly divided into the privileged and the destitute. They were repellent. Is it my imagination, or do we hear less criticism of such societies today in the United States? Might it be harder for Americans to sustain in such discussions the necessary sense of moral superiority?
What is the ideal distribution of income in society? I couldn't tell you, and historically much mischief has been accomplished by addressing this question too precisely. But I can tell you this: We've been headed in the wrong direction for far too long.