In 1987, Gordon Gekko told moviegoers around the world that greed is good, greed is right — and greed will fix the malfunctioning corporation known as the USA. In the years since he delivered that speech in the movie Wall Street, the rich have become richer. But the corporation known as the USA looks pretty unstable, with high unemployment, rising numbers of people in poverty and a growing concentration of wealth in fewer hands.
The yawning wealth gap in the United States has attracted attention from economists, politicians and pundits. A year ago, the satirical newspaper site The Onion weighed in with a story claiming, “Gap Between Rich and Poor Named 8th Wonder of the World.”
Even DC Comics has something to say. Its Action Comics’ reboot of the Superman series depicts the Man of Steel as part folk hero, part superhero. In the first issue he tussles with a CEO. Series writer Grant Morrison told LA Weekly: “The way I wanted to approach Superman was to go back to that very early Depression-era Superman because we’re in a different kind of depression these days.”
Sesame Street aired a primetime special in October, “Growing Hope Against Hunger,” featuring a Muppet named Lily whose family relies on a food pantry and her school for meals. In 2009, a Sesame Street special dealt with job loss (after Elmo’s mom loses hers) and economic insecurity.
It’s an issue that promises to dominate the coming election. Both Republicans and Democrats have said it’s time to address the income gap. On the right, the focus is on deregulation and tax cuts to aid wealthy job creators. On the left, there’s a growing cry for increased taxes for the very wealthy and more money to create jobs for teachers, police and firefighters. The media and Washington agree that something needs to be done to stave off a double-dip recession. For many in the shrinking middle class, there will be no double dip since there was never any recovery.
Not long ago, the United States had one of the largest and most-secure middle-class populations in the world. Now, income disparity is at the highest level since the beginning of the Great Depression in 1929. Economist Edward Wolff at New York University estimates that in 2009, 1 percent of the U.S. population owned 37.1 percent of the nation’s wealth.
Meanwhile, the Census Bureau reported in September that median household income adjusted for inflation declined by 2.3 percent in 2010 to $49,445, the lowest it’s been in more than a decade. A few weeks later, the Kaiser Family Foundation released a study showing that the cost of insurance premiums for an average family jumped 9 percent in the past year.
Amid increasing unemployment and rising costs of housing, food, fuel and medical care, 2.6 million more Americans slipped from the middle class into poverty, the Census Bureau reported in September. In early November, the Bureau released a supplemental poverty measure, taking into account aid programs such as food stamps, as well as income spent on housing and health care. The revised figures showed an increase in the number of Americans living in poverty: 16 percent or 49.1 million people. The September figure was 15.2 percent.
The Heritage Foundation, a conservative think tank, released a study of its own when the poverty statistics were released in September. The poverty numbers aren’t necessarily true, says the foundation. Most people the government defines as being in poverty “are not actually poor in any ordinary sense of the term,” since they have modern conveniences like washing machines and cable TV.
James Sullivan, a Notre Dame economics professor, also questioned the Census Bureau figures because they don’t factor in income tax credits, food stamps, housing subsidies and other antipoverty measures. A more accurate measure of poverty would come from looking at consumption rather than income, Sullivan argues. For example, food stamp programs might lift some people out of poverty, while at the same time a person devoting most of his or her income to medical bills or childcare has a lower standard of living than income alone suggests.
Charles Wilber, emeritus professor of economics at Notre Dame, has taught a course on poverty a number of times, most recently in 2008. In the class, students look at the Catholic bishops’ pastoral letter on the economy — written in 1986 — and rewrite the section on poverty in light of what’s happening in the current economy.
The class in 2008, when the previous year’s percentage of people living in poverty was 12.5, also determined there were miscalculations in the Census Bureau statistics. Poverty thresholds don’t take into account modern-day out-of-pocket costs such as transportation, childcare or health care. (The bureau addressed this in November with its supplemental statistics, factoring in how much families spend on food, shelter, clothing and utilities.) The students’ look at the definition of poverty concluded that the bureau’s current measure “defines poverty in terms of economic deprivation, but neglects to address the social deprivation that results from economic disparity.”
A full picture of poverty includes quality of life compared with others in the individual’s social circle. The students wrote in 2008: “While a family living on $25,000 in the United States may not be in absolute poverty — that is, their basic needs of food and shelter are met — there is no doubt that they are in relative poverty compared with the general U.S. population.”
The United States is number 39 out of 136 nations in income inequality. Sub-Saharan African nations such as Kenya and Benin have a more equal distribution of income. It might seem nonsensical to compare the United States to a small country with very little wealth. But the United States was built on the belief that anyone could achieve success through hard work. A Third World country, on the other hand, has an underclass that doesn’t believe it can advance and which weighs heavily on an often weak and unstable economy.
Is the United States heading toward a scenario like this?
“Everyone’s just scared and angry and financially distressed. You juxtapose it against people who are making staggering amounts of money, and it’s unprecedented,” says Charles Wheelan, a senior lecturer in public policy at the Harris School at the University of Chicago and a visiting professor at the Rockefeller Center at Dartmouth College.
Wheelan, who wrote the book Naked Economics: Undressing the Dismal Science, says he can remember when Michael Eisner at Disney made $200 million in one year, and that was a mind-blowing number. “And now you have these hedge-fund guys who are approaching a billion dollars. It’s hard to wrap your mind around, probably particularly so if you’re under water on your mortgage.”
Anger about economic disparity has been bubbling across the world. In London and Spain last summer, young people took to the streets. In the Middle East, demands for economic justice and equality led to a wave of protests and fighting large enough to earn the name Arab Spring.
In what some began calling an American Autumn, people in the United States are protesting corporate greed and government policies that favor corporations and their wealthy leaders over individuals. The original protest, called Occupy Wall Street, started with a small group of about 200 occupying a park a few blocks away from Wall Street, where they moved after the police shut down their original camp. As the Occupy Wall Street crowd grew, so did actions in other cities and affiliated online networking sites. It’s hard to say whether anything will come of these protests, but by November trade unions, celebrities and other grassroots organizations were pledging solidarity with the protesters.
Closing the gap
There is much debate about how the United States got here and what should be done to help close the gap. Wheelan sees technology behind a lot of job loss figures. A continuum exists, he says. If you’re on the top end of the earning spectrum, technology will amplify your skills. But workers with fewer or more specialized skills are likely to lose jobs to ATM machines, parking kiosks and a host of other machines that have followed the personal computer into our lives.
Wilber says what’s happening now is a lack of balance. “It’s not simply that everybody’s gaining and some are gaining faster. At the bottom there are people who are actually going backward, while there are people in the middle who have stagnated.” A source of disparity he cites is “economic policy has to first pass political policy, and political policy is driven by money.” Elected officials hear louder the voices of their contributors, a truth no matter what the political party.
The structure of our tax system has also played a role. Most Americans live on money earned from a job. Tax rates for this income are progressive, with the highest earners paying the most in taxes; sometimes as much as 35 percent of wages go to income and payroll taxes. Yet the rate for investment income tops out at 15 percent, so an average worker can end up paying more than those who earn through investment.
Both presidents George W. Bush and Barack Obama reduced the income-tax burden for families and individuals struggling to make ends meet, prompting some sensational headlines claiming 47 percent of the adult population pay no income taxes. However, most of this 47 percent still pay local, state and payroll taxes. The small percentage of people who actually pay no taxes consists of families earning less than $20,000 a year and the elderly, says the Tax Policy Center.
Other factors contributing to the growing wealth gap include globalization, which has shifted manufacturing jobs out of the United States to places where employment is cheaper and in some cases environmental regulations don’t exist. And, according to a recent study by sociologists Bruce Western of Harvard and Jake Rosenfeld of the University of Washington, waning support for unions and declining union membership accounts for a third of the growth in income inequality among male workers.
Then there’s Wall Street, target of the protests. A heady run of high-frequency algorithmic trades fueled by money from the housing market left the financial system on the verge of collapse. The government in 2008 bailed out failing banks, automakers and mortgage companies. This may have prevented a true depression, but it asked little of these firms in terms of management change or transparency. The $700 billion bailout program, called the Troubled Asset Relief Program, propped up the corporations deemed too big to fail, yet still allowed industry leaders to take home bonuses. Because these companies lost so much money, tax loopholes allowed them to defer paying taxes — a practice large corporations from Bank of America to Apple and GE continue today, with accounting that balances profits earned and kept overseas with losses in the United States.
As the big banks received bailout funds, middle class families began losing their homes to creative lending practices that had banks repackaging risky mortgages as investment products.
In the third week of the Occupy Wall Street protest, Nobel-prize winning economist Joseph Stiglitz stopped by for a teach-in. He delivered his lecture, some of which he also said over the summer to the protesters in Spain, one line at a time as the crowd closest to him shouted what he said to those farther away. (Bullhorns are not allowed on Sundays.) As Stiglitz noted, and as was repeated by his shouting interpreters: Democracy faces more regulations than Wall Street does.
In his talk, Stiglitz cited the idea that the bailout socialized losses and privatized profits — or government policy assured resources for the too-big-to-fail banks that were largely paid for by taxpayers. This, Stiglitz says, is not capitalism; it’s a distorted economy. Socialized losses and privatized gains has become an oft-repeated phrase among the protesters.
Each year the Notre Dame Forum brings together leading authorities on a topic for a yearlong discussion. In 2010 that topic was the Global Marketplace and the Common Good, an appraisal of the global economy and its impact on human development.
Mary Hirschfeld, a doctoral candidate in moral theology at Notre Dame who also has a Ph.D. in economics from Harvard, moderated a forum event called Morals & Markets: Being Catholic in a Global Economy. In a recent interview, she noted that the income disparity is so excessive, “it can’t possibly be good or just or right. It can’t be justifiable in any sense.” Many people trying to live within their means can’t afford to buy anything. Then when the very rich try to invest in business, it becomes hard to find customers or clients able to afford those products.
Yet she knows the difficulty in trying to think of morality and economics at the same time. “There isn’t a moral justification to the strong claims to ownership of wealth. But on the other hand, you can’t give everybody the same. How do you find a system that addresses this?”
Leading up to World War II, the United States had a similar imbalance in income equality, Hirschfeld says. The war helped the economy and the nation’s sense of union, but so did the G.I. Bill, which “allowed the market to look like it could generate fair distribution so the average person could advance.” One step toward a balance, she says, would be a renewed commitment to unions and education.
Hirschfeld also cites Elizabeth Warren, the Massachusetts Senate candidate. Warren spoke in September at a campaign event and responded to claims that raising taxes is class warfare. A video of her remarks went viral not long after. She tells her audience that no one in this country got rich on his own. “You built a factory out there? Good for you. . . . But I want to be clear: You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for."
Terrence Keeley ’81 also participated in the 2010 ND Forum. As part of a panel on Professions and the Common Good, he spoke about combining a profession in finance with a life of conscience. Keeley, a managing director with the investment firm BlackRock, wrote a companion essay on the same topic that concludes: “Wrath, greed, pride, lust, envy, gluttony — all save sloth among the seven deadlies — are in abundance in the money business. I pray every day for more strength to keep them at bay. I do so with varying levels of success.”
He also has written about the marketplace and Catholicism. "There is no question that the encyclicals recognize capitalism as the most effective system for reducing poverty,” Keeley says. And as capitalism has helped to lift people in developing nations out of poverty, Keeley has trouble with limiting the discussion to only the United States. “Outsourcing a job from Indiana to India may hurt the United States — but has global utility declined? The developing world has made gains at the developed world’s expense. Is this unjust?” he asks.
Keeley is taking one step he hopes will improve the imperfections of capitalism. He is a founding director of an initiative to promote higher ethical standards in the world of finance with a Financial Hippocratic Oath, which promises to place the interests of clients, colleagues and community ahead of the individual’s, and to observe all laws in letter and spirit. Yet, Keeley says, he remains mindful of that fact that there’s always going to be a class of individuals who cannot support themselves.
“We must simultaneously recognize that we in America will not be able to have benefits and a social safety net and a generous social provision that other countries do not share when we’re competing with these other countries,” he says.
Many economists and policy makers agree education is a good first step toward closing the gap. What that means is up for debate. There’s been a lot of discussion lately about the value of a college education, partly because the cost of a college education, once considered a ticket to upward mobility, has soared almost 130 percent over the past 20 years. Mark Kantrowitz, publisher of student-aid websites Fastweb.com and FinAid.org, estimates that the average amount of debt a student graduates with has reached $22,900.
If technology is displacing workers, “education is the only answer if you want to get to a place where technology is complementary to what you’re doing as opposed to making you redundant,” says the University of Chicago’s Wheelan. Training programs to improve technological skills is a well-rounded solution, he believes. “It’s a very good tool if you’re worried about competition from India and China. It’s a very good tool if you’re worried about immigration. That just happens to be an ancillary benefit,” he says.
That doesn’t mean training would be a cure-all. “Education and skills are roughly synonyms, but not exactly,” Wheelan says. “It’s really about, are we giving people the marketable tools they need to succeed? That’s thinking; that’s writing. Highly skilled people get laid off all the time, but they’re resilient. Don’t skip the step of acquiring general skills before specializing.”
Keeley sees education as a means to economic security — but has tough words for students. At this time, in this global economy, students need to get away from thinking about what they want to do and consider what they can do and what’s practical, he says. “To be a productive member of society you have to be engaged in value creation. People should not have an illusion that society is required to provide them a job.” In fact, the Bureau of Labor Statistics shows unemployment among young adults ages 16 to 24 is 18 percent.
The students in Wilber’s Notre Dame class on poverty and the bishops’ letter have a different take. They note that Catholic social teaching says every human being has a fundamental right to meaningful and life-sustaining work. The fact that not all people have access to work is “a significant flaw in our current economy,” they wrote, as are jobs that fail to produce adequate support of human life through inadequate wages or other shortfalls. The most recent encyclical from the pope, Caritas in Veritate from 2009, warns against the dehumanizing forces of capitalism and calls for the promotion of workers’ organizations that can defend their rights.
A commitment to unions is another important salve, Hirschfeld, Wilber and Wheelan agree. There are Occupy Wall Street protesters in New York City and elsewhere who say they were inspired by the protests in Wisconsin last winter over Governor Scott Walker’s plan to strip bargaining rights from state and local government workers. A variety of unions have pledged support to Occupy Wall Street protests in cities across the country.
However, some believe the anti-big-business spirit of the Occupy Wall Street movement has its limitations. “We need some kind of Labor Relations 2.0,” says Wheelan, who calls for a model “where you try and protect some of the leverage that comes with collective bargaining but the entities doing that are respectful of the fact that the industry in which they’re bargaining has to stay competitive.”
Keeley points to Germany as a current model of manufacturing. They’re the largest exporter in the world. They’re excellent at producing things, he says. Germany also has strong unions. In a joint statement to the G20 summit in France in early November, a delegation of global unions said countries with strong systems of social and labor protections weather financial crises better than those without. “The dismal and faltering recovery, spiraling unemployment figures and record poverty levels in the deregulated U.S. labour market contrast with stronger, job-rich growth in Germany,” the unions wrote.
Of course, as the largest exporter, Germany is dependent on world growth. Bringing manufacturing jobs back to the United States, to a workforce willing and able to negotiate for better training and wages, is necessary not only for a U.S. recovery but for a post-crisis world.
Greed does no one any good, not even Gordon Gekko.
Lori Barrett is a freelance writer and editor living in Chicago. Her work has appeared in The Wall Street Journal, Time Out Chicago, Venus Zine and the spring 2011 issue of this magazine.