Opportunity, Inequality, Public Opinion, and Power

May 5th, 2015 at 11:52 am

Here’s a timely result from a new NBC/WSJ poll out today:

Which concerns you more: the income gap between the wealthiest Americans and the rest of the country or middle and working class Americans not being able to get ahead financially?

Income gap between the wealthy and the rest of the country: 28%
Middle and working class not being able to get ahead: 68%

That’s a big difference, though not a surprising one. To the extent that we share national values, they tend to lean more towards equal opportunities than equal outcomes.

The thing is, these two phenomena are linked, and likely not just through correlation, but through causation. That means that we can’t increase opportunity without reducing inequality.

Though I’ve made this point a lot lately, I’ve got good reason to do so.

First, there is a theme, if not a meme (not totally sure of the difference; maybe the latter is a theme amplified on the internet) developing among candidates for president, especially among the many R’s, that what matters is opportunity, not inequality. As the poll shows, they’ve got public opinion on their side, and it is congenitally discomforting for politicians of all partisan stripes to focus on inequality, as they can be seen by the donor class as fomenting class warfare that’s unfriendly to the top 1%. (Though I’m with Warren Buffet on this one: “…there’s been class warfare going on for the last 20 years, and my class has won.”)

Second, the evidence keeps building for this connection. Yesterday’s NYT was plastered with compelling, if not surprising, research showing that if a family with young kids relocates from a high- to a low-poverty neighborhood, the kids do better in later life in terms of earnings, college attendance, and family structure (e.g., fewer teenage births). The careful nature of the statistical analysis allowed the authors to argue, plausibly in my view, that they were identifying causal, not just correlative, outcomes.

Why does it matter that we as a nation understand this causal linkage? The answer has to do with both policy and power. One way of summarizing the fundamental problem of narrowly distributed growth is that those whose incomes are asset-driven hold disproportionate political power relative to those whose incomes depend on paychecks.

Thus, anti-inequality measures that threaten the top 1%–that attempt to reduce their economic “rents”—like collective bargaining, higher minimum wages, trade policy that protects workers’ rights and wages, full employment, robust safety nets, progressive taxation, are attacked as counterproductive to growth and jobs.

That leaves us stuck in a cul-de-sac: we can’t increase opportunity because we can’t decrease inequality.

Unfortunately, I fear there are more Baltimores in our future. In fact, the research noted above lists cities by their earnings disadvantage, measured by the “negative exposure effect” of living there. Baltimore was the worst out of the 100 largest cities, but one can easily imagine similar pressures building in lots of other places.

Fortunately, there’s an election coming up where these issues will be front and center. When it comes to truly getting the roots of the opportunity deficits faced by too many Americans, it will be essential to differentiate between who’s singing about the problem and its solutions and who’s lip synching.

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4 comments in reply to "Opportunity, Inequality, Public Opinion, and Power"

  1. Fred Donaldson says:

    Where does inequality begin or end? Banks and investors own, plan to foreclose or auction, thousands of houses in Baltimore. Most are decrepit, but many are valued up to nearly a million dollars. But if you don’t have the cash, do you really think a mortgage company will finance your purchase here?

    In one big city after another depressed property prices have been windfalls for slum landlords. They buy hundreds, sometimes a thousand or more houses at huge discounts, then rent them to the poor at a price far above fair value. The game then begins to see if the properties deteriorate by neglect of owner or renter before the investor gets back the purchase price plus profits.

    Slum landlords have an advantage. They don’t apply at the local bank for money. With huge streams of rental cash from slum properties, investors are quick to back them – happy for double digit returns and blind to the misery of the renters. The money trail goes all the way to Wall Street, where a depressed real estate market can mean big money for another mansion.

    There is something called a “foreclosure discount”, which is the difference in sale price between what a house would normally sell for, and what is sells for in foreclosure. In Baltimore this discount is about 57%, which means a $100,000 house that goes to foreclosure will sell for $57,000.

    There are now 3,866 properties in Baltimore that have entered some stage of foreclosure – default, auction or bank-owned. There are only 3,887 homes that are for sale through normal channels. You chances of your home selling are 50/50 regular sale or foreclosure.

    In the past six months only 6,902 homes have been sold in the city. RealtyTrac statistics follow:

    “In March, RealtyTrac notes that the number of properties that received a foreclosure filing in Baltimore, MD was 23% lower than the previous month and 6% higher than the same time last year.

    “Home sales for February 2015 were down 53% compared with the previous month, and down 52% compared with a year ago. The median sales price of a non-distressed home was $100,000. The median sales price of a foreclosure home was $43,350, or 57% lower than non-distressed home sales.”

    Unfortunately, the national picture is not much more encouraging, as investors continue to drive down prices, buy cheap and rent high. More RealtyTrac numbers:

    “There are currently 842,773 properties in U.S. that are in some stage of foreclosure (default, auction or bank owned) while the number of homes listed for sale on RealtyTrac is 1,182,811.

    “In March, the number of properties that received a foreclosure filing in U.S. was 20% higher than the previous month and 4% higher than the same time last year.

    “Home sales for February 2015 were down 31% compared with the previous month, and down 43% compared with a year ago. The median sales price of a non-distressed home was $190,000. The median sales price of a foreclosure home was $123,100, or 35% lower than non-distressed home sales.”

    While a Republican President might have managed the “Great Recession” worse – by giving even more money to banks from taxpayers – the team assembled by President Barack Obama refused to coerce banks into refinancing homeowners without conditions at lower rates, and in a period of poor-paying jobs, many American families never recovered financially and lost their homes. These same victims now pay high rents to the same Wall Street wannabes who created the mess in the first place.

    There are still families paying twice the normal interest rate on their mortgages for houses that have lost half their value. Quite a cause for unrest, not just in Baltimore, but nationally.

    The issue may not be race in our country, but our country’s race to the bottom.

  2. Smith says:

    1) The selling of “Equal Opportunity” needs to be ferociously attacked by progressives and demolished for the house of cards it represents. Likewise closely associated if not overlapping “economic mobility”. Why would anyone in the U.S. want equal opportunity, a equal chance to live in in poverty as 15% of the population does? If everyone has the same opportunity, then you have a 50-50 chance of making $27,500 per year or less.* Equal opportunity means you have a 1 in 3 chance of graduating college with a 4 year degree. Which I guess is fine because 2/3 of all job openings through 2022 require no more than a high school diploma. But you would have a 6% chance of making $100,000, in fact 1 in 5 if we’re talking household income. Roll a six sided die, get a 1, earn less than $20,000, get a 6, earn more than $115,000. It’s high stakes, but relax, you’ve got equal opportunity.

    Surly you’re not implying if everyone stayed in school, went to college, miraculously the number of jobs requiring college vs high school or less, would just flip?

    The poll cited can in fact be seen as the public implicitly recognizing inequality matters, equal opportunity does not.
    What concerns you more…
    “Income gap between the wealthy and the rest of the country: 28%”
    (Are you missing out on the opportunity to be wealthy, that seems unfair)

    “Middle and working class not being able to get ahead: 68%”
    Stagnant wages and large debt loads can not possibly be about opportunity. It’s obviously about inequality even though it’s never put in those terms or thought of that way. Getting ahead doesn’t mean switching careers or starting over or seeing your children succeed. It’s about getting a raise, holding on to your job, not falling behind.

    But why not make the connection clear? It’s a zero sum game plus 1 to 2% per year productivity gains. If someone else takes that 1 or 2% you don’t, you don’t get ahead, you fall behind. And guess what? That’s what we call rising inequality.

    *personal income, not household based on 2010 http://en.wikipedia.org/wiki/Personal_income_in_the_United_States

  3. Wondering says:

    I recently watched the latest installment in the Zeitgeist series, which was produced in 2011 I believe. It was a good movie, and it relates to this problem. Other pockets of progressive thought are catching on to the same ideas.

    The most important idea is that being poor is itself a health problem. It causes mental anguish that prevents people from becoming successful. It prevents them from trying harder because they have no hope. It isn’t something you can manufacture through a self-help course, tough love or authoritarian policy either. It can only be changed by actively helping those that are poor find hope, and it has to be combined with opportunity.

    This income and wealth divide is eating our system from the inside out. Part of the reason is that national economists focus on GDP and growth too much. The policies that are put in place sometimes increase GDP in the short run at the expense of those that are already beaten down, the poor.

    This is real. It is as real as any other economic principal, because people are people, not rational actors.

    I have to point out where I think Zeitgeist went wrong, however. While I like their vision of the utopian future, it isn’t a utopia that our world economic system or our cultures are ready for. Trying to shoot this high might make for an interesting isolated experiment, but we have much bigger, overriding cultural problems to overcome before we can ever think that our economic system could become as utopian as the vision in the movie. This is what I would call the increasing aspiration divide. It runs parallel to the income divide.

    Those that are fortunate enough to have time to think about these ideas are generally those that have benefited on the upper end of the income scale. I’m not denouncing it, but I just think we should concentrate more on the present, that is we cannot ever get a cultural, democratic agreement on a fair system until the income divide is attacked directly.

    The time is now. We cannot take one more step towards growth-oriented policies without stopping and waiting for the low end of the income scale to catch up, and right now there’s nothing in the works that will allow that to happen. In fact, many of the policies being considered will leave them further behind, which will destroy us if we don’t stop it.

    The movie also gets an important idea about the monetary system wrong. The move is correct in pointing out that money is debt. However it paints a much bleaker picture of the monetary system than it needs to. It makes it sound like in and of itself, using money as debt creates inequality. It doesn’t have to. It wouldn’t if we could get our other policies to reflect the need for fairness.

    I liked the movie, but more discussion is needed between the dreamers of the Venus project and the reality of those that can pave a realistic path to a more fair system that doesn’t destroy people at the low end of the income scale.