Madoff and Mankiw and Inequality–the corporatist ideology at work
by Linda Beale
Madoff and Mankiw and Inequality–the corporatist ideology at work
There are two letters to the editor in the Times today that are worth noting–as usual, the ‘real’ analysis is hidden in the interior pages, positioned next to a huge ad (for an investment adviser, no less).
Chris Cannon from San Francisco notes that treating Madoff as the iconic symbol of the financial disruption caused by the credit bubble is problematic.
“Everyone agrees that Mr. Madoff broke the rules. But the damage done by those acting as allowed by our ineffective rules cost the public much more. ‘Our troubled financial times’ are the product of a bubble economy fueled by cheap money, an abject failure by rating agencies, regulatory agencies that have been hamstrung by regulations written by financial lobbyists, and a laserlike focus by some bank leaders on yearly bonuses.” Letters, New York Times, Dec. 18, 2011, at BU 7.
Steven Conn, Yellow Springs Ohio, notes that Greg Mankiw (economic adviser to Republicans, and specifically to Mitt Romney) misses the boat on understanding the way that economics is burdened with ideology.
“He seems not to understand that economists aren’t really objective and dispassionate scientists. Economics is merely a set of tools with which we build the kind of society we want to live in. Defining what that means is, of course, an ideological proposition, and thus all economic ‘theory’ is freighted with ideological baggage.” Letters, New York Times, Dec. 18, 2011, at BU 7.
These two ideas are related.
One of the reasons that someone like Madoff could get away with a long-term, enormous economic scam is that the reigning economic ideology from 1980 to 2010 has been the neoliberal belief in unfettered markets, taking power with ‘reaganomics’ and the acceptance of ‘greed is good’ corporatism that took hold in 1980, in which those that are sleazy, fraudulent or just intent on having things work out a certain way can take enormous means to achieve their petty ends–like hiring just-out-of-Congress people to panhandle for them in the halls of Congress and to hobnob with regulators, drafting the rules that govern the industry. It is the enormous expansion of this corporatist perspective that permits money to buy the rules that caused the financial crisis and that continues to pervade the policy solutions that can get through a Congress that is behoven to lobbyists and Big Money in various industries.
As long as we leave tax policy fundamentally to the corporatist moneybags and ideological economists, we can expect regulations to fall short of what they ought to do to protect ordinary Americans; corporations to make money out of failing to do what they ought to do to protect their workers, their customers, and their communities; tax laws that fail to exact a reasonable share of the fiscal burden from the very wealthy (such as the current trend towards decimation of the estate tax, often the only way that some extraordinarily wealthy families pay much of anything, because most of their income is in the favored form of capital gains and income on capital); and the passage of stupid laws that take away our most precious Constitutional rights–like the legislation under consideration that will permit the MILITARY TO DETAIN US CITIZENS WITHOUT DUE PROCESS.
And the result of these tax and economic policies will be a continuation of the trend towards a two-class society of the very rich and the rest of us that has been aided and abetted by reaganomics. See Allegretto, the few, the proud, and the very rich, Berkeley Blog, Dec. 2011.
The share of wealth held by the top fifth is about 87.2 percent while the bottom four-fifths share the remaining 12.8 percent of wealth—so the Occupiers are correct in their assessment. And, the riches of those in the top 1 percent are about 225 times greater than that held by the typical family—it was 125 times in 1962—so, Grandma was correct too.
***
In 2007 (the most recent SCF) the cumulative wealth of the Forbes 400 was $1.54 trillion or roughly the same amount of wealth held by the entire bottom fifty percent of American families….Upon closer inspection, the Forbes list reveals that six Waltons—all children (one daughter-in-law) of Sam or James “Bud” Walton the founders of Wal-Mart—were on the list. The combined worth of the Walton six was $69.7 billion in 2007—which equated to the total wealth of the entire bottom thirty percent! Id.
originally published at http://ataxingmatter.blogs.com/tax/2011/12/madoff-and-mankiw-.html
“Upon closer inspection, the Forbes list reveals that six Waltons—all children (one daughter-in-law) of Sam or James “Bud” Walton the founders of Wal-Mart—were on the list. The combined worth of the Walton six was $69.7 billion in 2007—which equated to the total wealth of the entire bottom thirty percent! I”
As I have noted elsewhere.
http://www.forbes.com/sites/timworstall/2011/12/14/six-waltons-have-more-wealth-than-the-bottom-30-of-americans/
The fact is that the bottom 25% of Americans have no wealth at all, or even negative wealth.
Meaning that you or I, with maybe $10 more assets than we have debts, have more wealth than the entire bottom 25% of Americans put together.
That six billionaires have more than the bottom 30% is pretty much a “Meh” moment.
Ah well, Tim, that’s much better then.
“….that treating Madoff as the iconic symbol of the financial disruption caused by the credit bubble is problematic.”
I know of no such treatment, except perhaps from junior reporters. So what’s the point?
Linda Beale hates Republicans, the wealthy and business – ok, we already knew that. This rambles all over the place, undergrads write better essays.
Ideological baggage, is that a code-word for crazy feelings like a desire for justice?
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ahhh rusty:
Still muckraking for a fight? Most notably, it is upon the Repubs the stigma of increasing wealth and income at the expense of the other 99% of the taxpaying households can be blamed. What Hoover could not or did not do with income, Bush did with the 2001/2003 tax breaks being funneled rowards 1% of the taxpaying households. Their income increased while everyone else’s either fell or stagnated. Income increase does associate with the growth in wealth.
Has today’s political environment changed when it comes to income? No! Today, the Republicans have become more militant with regard to rolling back the income tax breaks for this very same group which has benefited the most, signing the Party of “No”rquist pledge, and under the guise of job creation. How noble to represent themselves as benefiting common labor.
The essay is fine and the topic is conflated by those who choose to ignore the truth in order to continue to line their pockets. I suppose you still believe . . .
tag
a desire for justice could be many things. but it does not seem to fit the ideological baggage of the “economic theories” of the right.
or maybe from your point of view, of the left.
i think the point being made was that “economics” as a science is more like a religion.
bat
you said it better, but for the benefit of those who missed it… Tim Worstall doesn’t think that the bottom 25% of the people having NO wealth is a big deal.
i could work up some theory of economics or sociology that would demostrate that it is a very big deal indeed. but i think i’ll leave it at Worstall is a representative member of the class of people who don’t think the poor are human. and they don’t treat their dogs too good either.
“Tim Worstall doesn’t think that the bottom 25% of the people having NO wealth is a big deal. “
Correct. Let us take an example. A newly minted doctor. Finished residency, now ready for the big bucks, $400,000 a year as a starting neurosurgeon perhaps. Carrying $500,000 in student debt from medical school and college, interest has been rolling up for the 7 year residency.
This person (and this is an example of a real person who wrote in as a result of that piece in Forbes) has negative wealth.
Is this a problem?
I happen to think not. That some portion of the population will have either negative or no wealth is simply a function of the life cycle.
As I said, Meh.
ALWAYS BLAME THE MARK!
Madoff-like Ponzi schemes have existed since before Charles Ponzi’s times. I guess those were Reagan’s fault too? Madoff was a white collar criminal, and criminals are nothing new. It is not some new ideaology.
Worstall
you give yourself away when you pick a “newly minted doctor” as representative of the 25% of the population who have no wealth at all.
you need to get out of the office more.
just in time for the 2011 Missed the Point award.
It’s an example.
Just about any student newly out of college will have debts greater than their assets. And thus have no wealth. So, just about all students newly out of college are part of that 25% with no wealth.
Because, you know, we borrow when we’re young, for education, maybe a mortgage to buy a house? Then as we grow older we (hopefully) pay off these loans and our wealth moves into positive territory.
That some people have negative wealth is simply a function of the life cycle.
tim
you need to get out of the office more. if the only americans with no wealth were young people just starting their climb to riches, you’d have a point.
but that is not the case.
mcwop
i think you missed the point.
“
“But the damage done by those acting as allowed by our ineffective rules cost the public much more. ‘Our troubled financial times’ are the product of a bubble economy fueled by cheap money, an abject failure by rating agencies, regulatory agencies that have been hamstrung by regulations written by financial lobbyists, and a laserlike focus by some bank leaders on yearly bonuses…
“Greg Mankiw (economic adviser to Republicans, and specifically to Mitt Romney) misses the boat on understanding the way that economics is burdened with ideology. “He seems not to understand that economists aren’t really objective and dispassionate scientists. Economics is merely a set of tools with which we build the kind of society we want to live in. Defining what that means is, of course, an ideological proposition, and thus all economic ‘theory’ is freighted with ideological baggage.”
why doesn’t that argument make the statistic even *more* problematic?
cathy:
Welcome to Angry Bear.
Can you expand on your comment to Tim? I believe I know wht you arre driving at and would like to hear you expand on it
or, even more explicitly:
“treating Madoff as the iconic symbol of the financial disruption caused by the credit bubble is problematic.”
The economic consensus is not burdened by ideology, it is ideology. Economics as widely understood today would be viewed as nonsense by all in the not too distant past and will be seen as nonsense by all in the not so distant future.
Economics and money are totally human constructs. They are abstractions. Economics is understood by all to be an emergent phenomena, a natural and inevitible thing. It is nothing of the sort.
rapier
pretty much agree. when is your book coming out?