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Summary Group: Shefali Khandhar Mody Nicole Tuma Jennifer Larsen David Loebsack Ron Milam Pepperdine University MSOD 619 - 2014. Impressions. Impressions. Impressions. Impressions. Impressions. Insights that Spoke to us.
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Summary Group: Shefali Khandhar Mody Nicole Tuma Jennifer Larsen David Loebsack Ron Milam Pepperdine University MSOD 619 - 2014
Insights that Spoke to us • Shefali: I contemplated history and wondered if the 50’s and 60’s were America’s golden age and realized that every great westernized country has had it’s turn then. The question I have now is the US in a downturn, and how can we regain the trust of our global partners? • Nicole: I had not thought about how most idea originators don’t actually get paid for their ideas – it is the business person / marketer that monetizes the idea. I keep trying to envision a society in which this is not the case, but I simply can’t. Does one exist
Insights that Spoke to us • Jen: The people that are so wealthy, they can’t even fathom what life for the poor is like. • Ron: I’m curious to see a book that profiles the 1% who are these people? Are there more examples of folks like Warrant Buffet and Bill Gates who are more generous? What are the assumptions about what a civil society ought to be. The title of the book doesn’t convey the emotion tied to this issue.
Insights that Spoke to us • David: Two major insights. First, I keep going back to the question: What are the basic assumptions I’m making about how life, the world and “reality” work – and in this case, are supposed to work. Stiglitz’s assumptions about the role of government are starkly different from his political opponents. Rather than discussing the validity of different proposals or interpretations of events, the most potentially impactful conversations will likely be lower down on the ladder of inference, regarding the role of government. Second, it seems like it’s human nature to collude with other like-minded people to protect your joint “territory”. I don’t think the 1% are the only ones that do this, although they are likely the ones that have the biggest impact on the world because they do it. I’ve seen tacit collusion everywhere I’ve worked, and speculate that it’s a standard human response to the SCARF radar going off.
Ways in which these issues may manifest in the session • Shefali: Countries like China and India have a swelling of pride associated with their rise as economic powers. Along with this rise, will comes an “ego” that they know better. Will they listen and trust American voices as we consult there? • Nicole: It would be interesting to observe how inequality shows up in China and how racial inequality shows up.
Ways in which these issues may manifest in the session • Ron: Since there is focus on collaboration in the session, Power will be very important dynamic to be aware of. In America the power distance is supposed to be low. The fact is there is very high power distance. How are we going to be perceived? • David: Is there a trend in systems – no matter the size – for the powerful to tacitly collude to maintain their power? If you can have that phenomenon emerge on a national scale, that the 1% can influence so many sectors of our country to maintain their power, where else does this behavior play out? Where else does tacit collusion take place in order to keep what is “had” by those who have it, and away from those who don’t have it? Is this a phenomenon of humanity, and of all organizational systems? If so, we will see this, not only in China but in all of our sessions – and this will likely be a major underlying issue to many of the manifested “problems” we observe in our engagements.
Ways in which these issues may manifest in the session • Jennifer: We come from a prestigious expensive school, traveling to other countries. If go to China and debating inequality; its ironic. We come from a country propagates equality, but we have so much inequality. We have modeled Inequality of developing nations. We need to be aware of our privileged point of view when in session.
What to look for in the session • Shefali: We need to be uber sensitive as we go into China and always listen more than prescribe. I feel gaining trust will be imperative more so in China, than in other countries. • Nicole: I'd like to look for ways that power is demonstrated in China in business and more social settings. Is it clear who is in charge? What earns power – how is it allocated? Is it the same as respect? Is there as much prestige with power?
What to look for in the session • Jennifer: Listen intently and try to suspend my American lens. Respect in this culture is highly valued. • Ron: Examples for how to equalize unequal power dynamics. How to you engage in the dynamic? • David: I echo Ron’s statement, but might state it a different way: “How do we create more awareness in the system about the power dynamics?”
Primary Message • Causes of Inequality • Economic Impact of Inequality • 1% vs 99% • Role of Government • Fair Performance metrics for the economy and citizenry
Income Gap • Debate is not so much that it exists, but its meaning. • Stiglitz states that the 99% have to contend with: • Income growth mostly occurring at the top 1% • Americans at the bottom of the Income ladder are worse off than they were at the beginning of the century • Gap is great in terms of annual income but even greater when accumulated wealth is concerned • Middle class has hollowed out • Income mobility is negligible and income distribution is disproportionate • The inequality in America is more than any other industrialized country and the disparities are growing at a faster pace compared to many other countries
Income Gap • Trickle down economics has done little for America. There is a widening gap between 1% and the 99% • The Great Recession has worsened inequality • The economic engine is being unfairly driven to serve the interests of the 1% • America is not the land of opportunities as is the popular notion the world over
Income Gap Key Quotes • “The simple story of America is this: the rich are getting richer, the richest of the rich are still getting richer, the poor are becoming poorer and more numerous, and the middle class is being hollowed out.” • “The level of inequality and the absence of the opportunity that we see in the United States today is not inevitable, nor is its recent rise simply the product of inexorable market forces.
Rent Seeking and American Inequality • Rent Seeking in context of inequality makes reference to the way the present political processes help the wealthy at the expense of the middle and poor classes and in the form of subsidies, laws aimed at lowering market competitiveness, laws that give fat cat payments to CEOs and regulations that support profit hungry corporations. • Stiglitz argues that rent seeking activities result in seekers getting a larger piece of the pie than increasing the size of the overall pie. • Rent seeking leads to distortions in resource allocation and weakens the economy from the inside. • Since rent seekers are part of the 1%, their wealth is used to ensure they have contracts with Washington’s powerful to ensure that their agendas are advanced.
Rent Seeking Key Quotes • “Countries rich in natural resources are infamous for rent-seeking activities” • “Macro-mismangement in all of its guises, is a major source of inequality”
Not Playing by the Rules of Democracy • Mistrust in the government stemming from inequality manifests in the way the citizenry participate in political processes • Lack of trust in the government and financial sector affects the functioning of markets and in times of economic peril- such as the Great recession – fuel mass agitations • Globalization and technology can fuel structural transformations. Government policies should address this such that there are more winners than losers • A fairer tax system is also key to closing in on the growing inequality
Rules of Democracy Key Quotes • “Extreme concentration of income is incompatible with real democracy” • “Globalization, as it is being managed is narrowing the choices facing our democracies, making it more difficult for them to undertake the tax and expenditure policies that are necessary if we are to create societies with more equality and more opportunity.”
Framing Perceptions • Perceptions play an important role in politics. People make decisions based on their long-standing perceptions and beliefs about issues and events. This is precisely why there should be a careful, well-graded and balanced approach to understanding the role of the government and the market. • Those at the top try to frame perceptions through discussions, adopting a language of fairness and marketing ideas persuasively, to serve their own agendas. They are mostly successful in manipulating public perceptions that result in outcomes favoring them and not the citizenry as a whole. The fact that beliefs are intrinsically malleable does not help the cause of the 99%.
Framing Perceptions • A solid case for privatization and deregulation can be developed when social returns and private rewards are properly aligned. • It is not possible to completely suppress ideas and as the masses begin to look past the smoke and mirrors, there is a greater likehood for positive change that can close the widening inequality. • One of the positive developments that reflect inequality and economic performance inaccurately is GDP (Gross Domestic Product). There are presently efforts underway to create metrics that reflect economic well-being and general welfare more fairly and accurately.
Framing Perceptions Key Quotes • “The intellectual battle is often fought over particular policies, such as whether taxes should be raised on capital gains. But behind these disputes lies this bigger battle over perceptions and over big ideas- like the role of the market, the state and the civil society.” • “…the powerful manipulate public perception by appeals and efficiency, while the real outcomes benefit only them.”
Is the Rule of the Law Unfair? • There is a general acknowledgement that a democratic society cannot function with rules and regulations that safeguard everyone’s interests. But it is seen that there are trade-offs, with regulations favoring one group over another. • Wealthy groups that control the political process use their power to develop an economic system that advance their interests, through rules and laws. • Abundant examples of circumventing the rule of law by wealthy corporations and banks are testimony to the fact that American judicial system does not practice “justice for all”. This reflects and reinforces inequality.
Rule of Law Key Quotes • “If economic power in a country becomes too evenly distributed, political consequences will follow.” • “…but in today’s America, the proud claim if “justice for all” is being replaced by the more modest claim of “justice for those who can afford it”.
Response to Great Recession • Multiple factors and Bush-era events are responsible for the present fiscal deficit. • Budget cuts and austerity measures cannot reduce deficit; government spending can. • High productivity investments and a progressive tax system can jump-start the economy. • Government can take advantage of the principle of balanced-budget multiplier to stimulate the economy.
Great Recession Key Quotes • “The worst myths are that austerity will bring recovery and that more government spending will not.” • “The logic of why government spending can be and has been effective in stimulating the economy is compelling.”
Macroeconomics in context to Inequality • The belief that markets work efficiently on their own and government interference is unnecessary has benefitted the financial sector and the 1%, widening the inequality. • American monetary and macroeconomic policies have increased unemployment and lowered wages. • To much focus has been placed on lowering inflation instead of boosting employment and decreasing inequality • There is no such thing as a perfect macro economic policy. Alternatively macroeconomic moentary policies can contribute to better economic performance and address inequality.
Macroeconomics Key Quotes • “Nothing affects the well-being of most citizens more than the state of the macro economy – whether there is full employment and growth.” • Over the past quarter century macroeconomic policies and institutions have failed to produce stability; they fail to produce sustainable growth; and, most importantly, they failed to produce growth that benefitted most citizens in our country”
Reform Agendas & Key Quotes • The government must give public investment the attention it deserves. It can do this by: • Improving access to education by directing public money to increasing support for state and non-profit higher education systems, • Increase scholarships for the poor • “..whereas trickle down economies doesn’t work, trickle-up economies may: all-even those at the top – could benefit by giving more to those at the bottom and the middle.
Final Thoughts • Class inequality exists as much in America as in any other industrialized economy. • America is not a land of opportunity, but opportunists, who make up a tiny sliver at the top of the income ladder. • The trend of greater concentration of wealth at the top and lesser at the bottom and middle can be attributed to several factors. These factors become even more significant when examined in the context of the Great Recession
Final Thoughts • From predatory lending to rent-seeking (to which the government continues to be a spectator) and monopolistic attitudes, by and large, the financial sector and certain large corporations have distorted the economy, contributed to disproportionately large income distribution at the top and bottom and widened inequality • The government rewards those at the top with subsidies and does not take a strong enough view of obscene fat cat pay, even during poor company performance and through recession.
NEEDED CHANGES • Recognize that pure competition would take a long time to be effective • Keynes: “In the long run markets may work well, but in the long run we are all dead.” • Incomes should reflect contributions to output • Higher standard of living will increase stability • More equitable, effective taxation & financing • Full, skilled employment & greater Decentralization are crucial
Manufacturing Drops for 1st time in 3 years – July 3, 2012 Headline • Institute for Supply Management Report • Production & exports of manufactured goods declined along with the number of new orders • The decline comes as: • U.S. employers have cut back on hiring • Consumers have become more cautious • Europe is entering a recession • Manufacturing in China is also slowing Source: Institute for Supply Management, In: The Arizona Republic July 3, 2012
Our Current Dilemma Technically, we have been out of recession since June 2009,but most people don’t believe it and many are worse off today than 3 years ago
So, why do we feel so badly? • Unemployment is still much higher than usual for this portion of the recovery in the business cycle • The political scene has led to gridlock in government • Workers’ share of income has fallen to historic lows • Uncertainty in global markets (Europe & China) is causing some investors to postpone decisions • Demand and Supply in the housing sector have not found a stable equilibrium in many locations
Analysis of Recession • What is different about this cycle? • Although recession technically ended three years ago, we didn’t bounce back in terms of: • Rapid increase in GDP • Large decline in unemployment • Increase in personal income and spending • Why not?
A potential issue may be: The Decline of the Middle Class • More and more attention is being paid to this topic in the past couple years • “Workers’ wages and benefits make up 57.5 percent of the economy, an all-time low.” • “Until the mid-2000s, that figure had been remarkably stable – about 64 percent through boom and bust alike Source: Paul Wiseman, Associate Press, in The Arizona Republic. July 2, 2011
Increasing Income Inequality • The Gini Index is a measure of income inequality that can range from 0 to 1. • The latest Gini Coefficient in U.S. is .468 • The coefficient has increased by 20% over the past 4 decades. • The U.S. number is similar to the Philippines and Mexico! • Zero indicates everyone gets the same income • One indicates all the income is received by just one person Source: As Middle Class Shrinks, P&G Aims High and Low. The Wall Street Journal, September 12, 2011.
Why is this a problem? • John Hobson – English economist (wrote in 1902) • The poor didn’t have enough money to buy goods • The rich couldn’t consume enough • Countries looked to external markets (Imperialism) • Multinationals then and now do the same thing • Investment in foreign markets is profitable • Imperialism leads to: • High unemployment in the home country • Increase in social unrest • Increases in inequality of income and wealth
Coming Apart -The State of White America 1960-2010 -- Charles Murray (2012) • American ‘civic culture’ is dying as the country evolves into a two-class society • The few ‘elites’ live in a totally different culture than the rest of society and they don’t have any clue how most people live Source: Summary by Aaron Task. Daily Ticker, May 3, 2012.
Coming Apart Charles Murray - 2012 • The new role for “class” in our culture wouldn’t mean so much except that it is this narrow elite who control almost everything • Political system • Financial system • Media & information streams • Access to education • Murray concludes …….We are coming apart
Coming Apart -The State of White America 1960-2010 -- Charles Murray (2012) • Ernest Hemingway may have said that “the difference between the rich and everyone else is that the rich have more money” • But today, it’s more than money – it is an entirely different culture and way of life……..
Coming Apart Charles Murray - 2012 • Differences in....... • Amount and type of TV shows & movies • Restaurants • Books & music • Views on marriage • Views on diet & smoking • Education of their children • How children spend their time Source: Summary by Aaron Task. Daily Ticker, May 3, 2012.
