Tag: wealth distribution

We must fight economic apartheid in America

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Author: Robert Reich

Source: Robertreich.com

Emphasis Mine

The fact that Americans are segregating ever more by income is exacerbating racial divisions.  

Thirty years ago most cities contained a broad spectrum of residents from wealthy to poor. Today, entire cities are mostly rich  (San Francisco, San Diego, Seattle) or mostly impoverished  (Detroit, Baltimore, Philadelphia).

Because a disproportionate number of the nation’s poor are black or Latino, we’re experiencing far more segregation geographically. 

Which is why, for example, black students are more isolated today than they were 40 years ago. More than 2 million black students now attend schools where 90 percent of the student body is minority.

According to a new study by Stanford researchers, even many middle-income black families remain in poor neighborhoods with low-quality schools, fewer parks and playgrounds, more crime, and inadequate public transportation. Blacks and Hispanics typically need higher incomes than whites in order to live in affluent neighborhoods.

To some extent, this is a matter of choice. Many people prefer to live among others who resemble them racially and ethnically.

But some of this is due to housing discrimination. For example, a 2013 study by the Department of Housing and Urban Development found that realtors often show black families fewer properties than white families possessing about the same income and wealth.

The income gap between poor minority and middle-class white communities continues to widen. While the recovery has boosted housing prices overall, it hasn’t boosted them in poor communities.

That’s partly because bank loan officers are now more reluctant to issue mortgages on homes in poor neighborhoods – not because lenders intend to discriminate but because they see greater risks of falling housing values and foreclosures.

But this reluctance is a self-fulfilling prophecy. It has reduced demand for homes in such areas – resulting in more foreclosures and higher rates of vacant and deteriorating homes. The result: further declines in home prices.

As prices drop, even homeowners who have kept current on their mortgage payments can’t refinance to take advantage of lower interest rates.

Others who owe more on their homes than their homes are worth have simply stopped maintaining them. In many poor communities, this has caused the housing stock to decline further, and home prices to follow.

Adding to the downward spiral is the fiscal reality that lower housing values mean less revenue from local property taxes. This, in turn, contributes to worsening schools, fewer police officers, and junkier infrastructure –accelerating the downward slide.

All of which explains why housing prices in poor neighborhoods remain about 13 percent below where they were before the recession, even though prices in many upscale neighborhoods have fully rebounded.  

And why about 15 percent of the nation’s homes worth less than $200,000 are still underwater while just 6 percent of homes worth more than $200,000 are.

Worse yet for poor communities, most of America’s new jobs are being created in areas where housing already is pricy, while fewer jobs are emerging in places where housing is cheapest.

The toxic mixture of housing discrimination, racial segregation over wide swathes of metropolitan areas, and low wages and few jobs in such places, has had long-term effects.

A Harvard study released in May suggests just how long. The study tracked several million children since 1980s.

It found that young children whose families had been given housing vouchers allowing them to move to better neighborhoods were more likely to do better in later life – attend college and get better jobs – than those whose families hadn’t received the vouchers.

The study points to one solution: housing vouchers that help lower-income families move into better neighborhoods.

It also suggests that federal tax credits to encourage developers to build housing for the poor should be used in racially-integrated communities, rather than mostly in poor ones.

If we want to reverse the vicious cycle of economic apartheid in America, that decision offers an important starting place. 

 

See: http://robertreich.org/post/122703537155

JP Morgan Admits Trickle Down Economics Has Completely Failed

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Source: addicting Info

Author; Wes Williams

Remember how the country was sold the idea of “trickle down” economics? “Oh, if we just give the wealthy more, they will create wealth for the poor and middle classes by increasing spending, investing in new factories, hiring more workers, etc, etc, etc.” In reality, after over 30 years of trickle down, or “supply side” economics, we are looking at just the opposite: the rich have gotten richer, and middle class incomes have stagnated. Now, even some in the financial community are admitting that trickle down economics is a failure.

According to an April 17 story on Bloomberg.com,

While the wealth of American households has jumped more than $25 trillion since early 2009 amid rising equity and home prices, the pass-through to consumer spending is lagging the $1 trillion fillip that would have been anticipated historically, according to Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York.

Feroli’s numbers show that since the end of the recession, households have spent only 1.7¢ of each extra dollar they earned in wealth. That compares to an average of 3.8¢ for the years from 1952 to 2009. Simon Kennedy, the author of the Bloomberg story, offers a possible explanation for the difference:

One reason for the adjustment may be that those enjoying gains in wealth are already rich, so have less propensity to increase spending incrementally.

That’s a polite way of saying, “The rich are getting richer, but they already have everything they want and need, so they’re not spending much of their new wealth.”

This past February, Harvard Business Review blogger Andrew O’Connell made the following observation:

Since the end of the recession in 2009, inflation-adjusted spending by the top 5% of U.S. earners has risen 17%, compared with just a 1% average rise for everyone else in the country, according to The New York Times.

So you might be thinking, “Doesn’t that prove that trickle down works, if the wealthy are spending more?” The answer is “no,” and here’s why.

The wealthy can’t spend enough for trickle down to work.

Of course wealthy people buy more things, and more expensive things, than the rest of us do. But there’s still a limit to what they buy. And there just aren’t enough of the wealthy out there for the things they buy to make a difference when it comes to boosting the economy through consumer spending. Take the example of a toaster.

There are, according to the LA Times, 132,000 American households with a net worth of at least $25 million, excluding the value of their homes. Let’s assume, for the sake of  using round numbers, that each of those families owns ten houses, and in each house they have two kitchens. Now suppose that they all decide to buy top of the line toasters for each of their kitchens. They will purchase 2,640,000 toasters. A nice temporary bump for toaster production. But those families are not going to buy 20 new toasters every few months, even though they can.

In 2010, there were 63 million American households that earned between $25,000 and $100,000. Many of those households may need new toasters, but their money is already tight, so they make due with their old toasters. But suppose that, through a different tax structure or an increase in wages, those households all saw increases in income. If even half of them took some of their new income and used it to buy toasters, then toaster producers would see a 31.5 million unit increase in toaster sales. That makes the 2.6 million toasters purchased by the rich pale in comparison. When you consider that not all of those households will buy new toasters at the same time, what you wind up with is sustained growth in toaster sales, leading to increased production, leading to more jobs, and so on. So, who are really the “job creators?”

That example is very simple, but it illustrates the buying power of the middle class — IF they have the money to spend. That buying power has been steadily eroded over the past 30 plus years of Reagan’s trickle down economics. Add to the mix the offshoring of jobs, a move from a manufacturing economy to a service economy, and a tax structure that favors the wealthy. The middle class has watched the failure of trickle down from the time it started. Now at least some in the financial sector are starting to see it as a failure as well. When will Republican politicians stop worshiping at the alter of trickle down? Don’t hold your breath while waiting.

 

 

Emphasis Mine

see: http://www.addictinginfo.org/2014/04/18/jp-morgan-admits-trickle-down-economics-has-completely-failed/