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Willful Blindness Worsens Inequality

Economy Memo Pad

Willful Blindness Worsens Inequality


The rich really are getting richer, while the vast majority is getting poorer. All you have to do is look at the official government data to know this.

Sadly, though, most of our nationally prominent journalists, especially David Brooks of The New York Times and PBS, do not know this because they neglect to do a basic journalistic task. It’s called reporting.

Brooks, in his Friday Times column, looked at inequality. He gets it nearly all wrong in these two paragraphs:

At the top end, there is the growing wealth of the top 5 percent of workers. This is linked to things like perverse compensation schemes on Wall Street, assortative mating (highly educated people are more likely to marry each other and pass down their advantages to their children) and the superstar effect (in an Internet economy, a few superstars in each industry can reap global gains while the average performers cannot).

At the bottom end, there is a growing class of people stuck on the margins, generation after generation. This is caused by high dropout rates, the disappearance of low-skill jobs, breakdown in family structures and so on.

The first and overwhelming problem is that his scale is wrong, probably because Brooks just conjured up the only hard number in that passage.

Brooks writes about “the growing wealth of the top 5 percent.”

The threshold to be in the top 5 percent income group in 2012 was $161,000, analysis of tax return data by economists Emanuel Saez and Thomas Piketty shows.

That is a lot of money to most people, but it is pocket change for top Wall Streeters, the group whose pay Brooks properly calls perverse.

Lloyd Blankfein, who runs Goldman Sachs, was paid $23 million in 2012. That is 142 times the threshold to be in the top 5 percent.

Looked at another way, had Blankfein been paid weekly, his first paycheck would have shown almost 3 times the gross pay that those at the top 5 percent threshold labored all year to make.

Goldman’s 32,400 employees made $12.6 billion last year, which is as much money as the lowest-earning 6.2 million American workers made the year before.

To put that in another inequality perspective, in 2012 America had 23.3 million workers, all of them part-time or seasonal, who made less than $5,000. They averaged $2,025 each. Ponder that for a moment. About one worker in six made only $2,000.

Careful readers will note that Brooks referred to the top 5 percent of workers, not taxpayers. So, let’s look at compensation for services, as the government calls your paycheck.

How much must one earn to get into the top 5 percent?

In 2012 it was $115,000, Social Security data show.

That is much lower than the income on tax returns for two reasons. First, most taxpayers are actually two people, a married couple.  Second, wages and salaries account for about three-quarters of all income with deferred wages like pension benefits pushing the share due to labor above 80 percent of income reported on tax returns. The rest is capital gains, rents, business profits and the like.

Brooks gets one thing right, what he calls “assortative mating” in which doctors these days tend to marry other doctors, not lower-paid nurses.

The result is two big incomes blended in one household.  Even so, we are still talking about modest incomes compared to the Wall Streeters and others at the very top.

Say a man whose pay is at the threshold of the top 1 percent marries a man or woman at the same threshold. Their 2012 combined wages, Social Security data show, would be just under $500,000.

That is a lot of money, but still not enough to get them into the top half of the top 1 percent class of taxpayers, which started at $611,805.

David Cay Johnston

David Cay Johnston won a 2001 Pulitzer Prize for his coverage of taxes in The New York Times. The Washington Monthly calls him “one of America’s most important journalists” and the Portland Oregonian says is work is the equal of the great muckrakers Ida Tarbell, Lincoln Steffens and Upton Sinclair.

At 19 he became a staff writer at the San Jose Mercury and then reported for the Detroit Free Press, Los Angeles Times, The Philadelphia Inquirer and from 1995 to 2008 The New York Times.

Johnston is in his eighth year teaching the tax, property and regulatory law at Syracuse University College of Law and Whitman School of Management.

He also writes for USA Today, Newsweek and Tax Analysts.

Johnston is the immediate past president of the 5,700-member Investigative Reporters & Editors (IRE) and is board president of the nonprofit Investigative Post in Buffalo.

His latest book Divided: The Perils of Our Growing Inequality an anthology he edited. He also wrote a trilogy on hidden aspects of the American economy -- Perfectly Legal, Free Lunch, and The Fine Print – and a casino industry exposé, Temples of Chance.

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  1. Erik January 17, 2014

    Gordon Gekko had it all wrong. Greed won’t save America, it’s going to destroy America.

    1. Daniel Jones January 18, 2014

      That’s the whole thing. All these Ayn Rand followers are basically Gordon Gecko. And every one of them doesn’t give a spit about America, Lithuania, or West Bumfuck–only about themselves.

      1. Lovefacts January 18, 2014

        What slays me is that people act as if Ayn Rand was a great economist. She wasn’t an economist, but rather a mediocre writer. Talk about turning the world on its head. Anyone who knows her political leanings–Communist–would realize her books, poorly written not withstanding, were a condemnation of the 1% and their greedy attitudes, not a celebration of capitalism. Her heroes weren’t the establishment and fall when they’re seduced by the dark side.

      2. JSquercia January 19, 2014

        As my cousin said to me after learning that I had switched from a Goldwater Republican to a liberal “You finally figured out that YOU are NOT in the RULING class” .These people need to figure that out .
        The late great George Carlin summed it up with this statement “It’s a big CLUB and you ain’t in IT

  2. Dominick Vila January 18, 2014

    The income inequality that exists in the USA goes well beyond the plight that millions of Americans endure every day of their lives, and the lavish lifestyle of those at the top. It confirms the need for more efficient regulation, and the need to remind our populace of the true values of Christianity. The overwhelming majority of Americans understand and accept the fact that there will always be rich and poor, what Republicans do not understand or prefer to ignore is that the argument is not centered on the implementation of a socialist system, but on the need to provide our most vulnerable citizens the tools they need to enjoy the basic necessities that should be available to every citizen in the richest country in the world.
    Raising the minimum wage, extending unemployment benefits for those who lost their jobs during the 2007-2010 Great Recession and who have not been able to find employment, investing in infrastructure, modernization, R&D, and education are not frivolous endeavors or examples of waste and abuse, they are absolute necessities to ensure every American can put food on the table, pay rent, and pay utilities. Higher wages and investment in infrastructure would have a direct impact on our fellow citizens, would stimulate the economy, and would encourage private sector investment, which is the key to sustained economic prosperity and job creation.
    I suspect the GOP is well aware of the positive impact of raising wages, extending unemployment benefits, and investing in infrastructure. With that in mind, why are they opposing the initiatives that will lead to economic improvement, economic stability, and job creation? I believe the answer to that rhetorical question is that, from a political perspective, the GOP benefits from socio-economic problems and public anxiety. They are, in a nutshell, sacrificing our well being to score political points. Hopefully mainstream Americans will see through the veneer of effective political propaganda, the failure of a complicit media, and look at what should be evident to the most ambivalent citizen.

    1. sigrid28 January 19, 2014

      Great post.

    2. DooMm January 20, 2014

      Are you single and looking for your special someone to join you in your pursuit of happiness? Welcome to___richfriends.com___the largest community for finding successful and attractive singles for relationships. Have a try and good luck! 🙂

    3. CPAinNewYork January 20, 2014

      Your post and the article by Mr. Cay are both great, but don’t bet on “mainstream Americans” seeing through anything. Until a charismatic leader emerges to reverse the trend, the rich will continue to dominate our government and push the middle class closer and closer to oblivion.

      It seems that until the present American power structure is overthrown, there is little help coming for the middle class and the poor. Unfortunately, history has shown us that what replaces power structures is frequently much worse in terms of individual freedom than was the power structure that was overthrown. One has only to look at the Russian and French revolutions.

      Our prospects are not very promising.

      1. dpaano January 20, 2014

        CPA: Unfortunately, we are no longer a government for the people, of the people,and by the people…..we have slowly become a corpocracy ran by the 1%, who refuse to allow any of the middle close (or lower) to get anywhere! Until we retake our government, we’re at their mercy!

        1. CPAinNewYork January 20, 2014

          You’re right. I’ve shared with a number of friends and colleagues that I believe that a revolution is coming to America.

          1. dalancroft June 4, 2014

            Riiiiiiiight. After they cancel all reality shows, American Idol, The Voice, America’s Got Talent, NFL football, and also close all the malls and movie theaters. Then you’ll see REAL anger!

        2. dalancroft June 4, 2014

          Not even the 1%. The 0.0001%.

  3. Allan Richardson January 18, 2014

    Thanks for giving us the mailing address of this “journalist,” but I do not plan to send him a free book. That would merely be more redistribution of wealth from the bottom 90% (me) to the top 1% (him).

    Read the books of Hosea, Amos, and the first third of Isaiah, and you can see that their prophecies against the two kingdoms of Israel (aka Samaria) and Judah centered on social justice even more than religious and sexual sins, primarily because they considered idolatry the CAUSE of social injustice. And the ORIGINAL message of Jesus was to “preach good news to the poor.”

  4. charleo1 January 18, 2014

    David Brooks is a propagandist. A clever one, with talent, and writing chops,
    but a propagandist all the same. At this point, one doesn’t need a degree
    in economics, or an MBA from an ivy league school, to diagnose the malady
    ailing our economy. So skewed, and obviously out of kilter, it has become. Siting high school dropouts, and professional people marrying each other,
    is a prime example of the unbelievable pap that’s being offered up to explain
    the perverse inequities that have been the deliberate creation of an entire
    system so corrupted, as to be criminal. Politicians, unwilling to lift a finger to finger to reverse a situation that will ultimately undermine democracy, and everything this Country stands for. Not all, and not yet. But too many, and too close to the precipice. There are some who are right at this moment, beginning to ask themselves. Could this be real? Could my dreams be coming true? Could I really have it all? Sweet Jesus, this is great!

  5. Lovefacts January 18, 2014

    Americans aren’t educated about their own history or that of the world and don’t have critical thinking skills. Those who don’t know history are doomed to repeat it. Worsening this problem is that news has gone from a public service, one to keep the public informed is now profit-centered entertainment. And with the exception of Fox which is really a Republican propaganda machine, reporters are now afraid to offend politicians and thus refuse to call them on their lies. Most reporters are nothing more than pretty talking heads, aren’t educated in US or world history, and like most of the 1% either haven’t heard of or know the definition of “noblesse oblige,” which used to rule America. Yes, the younger generation of one percenters–like the Gates and Wozniak–have rediscovered this attitude, unlike the Koch brothers and their generation upon who Gordon Gekko was based.

    1. 788eddie January 18, 2014

      Well stated, Lovefacts.

      I have heard it said that Fox News is “the Republican party at prayer.” They support the party propaganda stances wholly, and not without fault.

      The latest example is, of course, Andrea Tantaros, a Fox host who yesterday observed, “If you ask most people, they don’t even know why we left England. They don’t even know why some guy in Boston got his head blown off because he tried to secretly raise the tax on tea. Most people don’t know that.”

      (chilling, huh?)

      1. CPAinNewYork January 20, 2014

        Nobody in Boston or anywhere else “…got his head blown off because he tried to secretly raise the tax on tea”.

        Where did she get that cockamamie story? The Boston Tea Party was two years before Lexington. Andrea Tantaros sounds as if she’s a relative of Sarah Palin.

    2. sigrid28 January 19, 2014

      Talk about willful blindness.

  6. mah101 January 18, 2014

    I read Brooks’ column in the NYT and was frankly shocked. I don’t often agree with David Brooks but often find him to be rational and informed. However, I couldn’t believe how badly he mangled the issue, the causes, and the proposed solutions to this growing problem. My ability to listen and respect Brooks’ thoughts on issues was badly shaken (to be clear, I am certainly not often in agreement with Brooks but have found him in other cases to be a reasoned voice from the right center).

  7. ExRadioGuy15 January 18, 2014

    D.C. Johnston has it correct. The greedy and Fascist GOP Cons use propaganda to fool everybody else in the Republican Party into thinking that hard work will make you rich. “Oh, well, if you work hard and get a little lucky, you can be rich, like us”. B*llsh!t… how the rich REALLY get rich is almost always through two factors: inheritance and exploitation….
    The inheritance part is easy to explain. Many wealthy families these days have been wealthy for decades. That wealth is simply passed down upon the deaths of older family members. The Koch brothers are a great example of this. They won’t admit the sad truth that they’ve never really worked for a living…they just simply inherited the wealth passed on to them by their Fascist Reich-Wing John Birch Society father, Fred. Even Fred himself didn’t really work for the fortune he passed to his four sons (yes, there are four Koch brothers; we just know about two of them, Chuckie and Davy); he used the second factor to accumulate his wealth: exploitation.
    Elizabeth Warren correctly pointed out a while back that “no one gets rich alone”. It’s absolutely true. Greedy Cons don’t like to admit that the businesses they run profit from the infrastructure that tax money paid to build, aka, a Social Democracy. For instance, those roads that the company’s trucks drive on to deliver the goods to be sold. The government built those roads with tax money. But, the “exploitation” part comes in with the employees of the company who actually make the product or sell the service the company provides. These greedy CEOs and other executives don’t actually make the product or sell the service; that’s what employees are for.
    In most businesses, the largest expense is labor. The simple math of capitalism and profit is to make as much in sales as possible while paying as little in expenses as possible. Where labor is their biggest expense (or one of the biggest), the greedy company executives, whom I call “Vampire Capitalists”, ask themselves, “how can we reduce our labor expense to make more profit?” Remember, they’re talking about paying the people who ACTUALLY make the product or sell the service that the company provides less money for their work! The people who actually WORK for a living! This is why big corporations, with their Fascist stooges of the GOP, try to “bust” unions and get “Right-To-Work” laws passed, so that the big corporations can pay their employees even less.
    Have you noticed that, the higher union membership is, the lower income and wealth inequality is? It goes the other way, as well: as union membership drops, wealth and income inequality rises. That’s where we are now.
    In the case of Fred Koch, he was a master opportunist, as well. In the Russian Revolution of 1905, he sold arms to BOTH SIDES of the conflict! You see, with the greedy, the only political ideology they care about is the one that makes them more money. It doesn’t matter which political party it is that supports Vampire Capitalism; the greedy Vampire Capitalists will support that party. These days, as we all sadly know, it is the Republican Party in the US that supports Vampire Capitalism. This is because the GOP adhere to all 14 of the defining characteristics of Fascism, which include several that pertain to financial issues.
    I’m pretty sure that Fascist Cons will read my truthful words and say, “B*llsh!t, ExRadioGuy15!” Guess what, guys? That’s your Fascism talking. And, for those in the GOP who aren’t Cons, if you disagree with the truth, what it means is that you suffer from a severe case of FICD—-Fear, Ignorance and Cognitive Dissonance. The Non-Cons of the GOP use FICD to deny the sad fact that their party practices FOT—-Fascism, Oligarchy and Theocracy. Denial is not a river in Egypt, kids 🙁

    1. sigrid28 January 19, 2014

      Crony capitalism ain’t no joke. Biographical detail on the Koch brothers explains a lot. I wonder how many ambivalent voters would see through millionaire Republicans in Congress–especially those who face a challenge this November–if they could (or would) read proper biographies of these candidates with accompanying forensic analysis of their last tax returns by David Cay Johnston. The tax return data would even more meaningful to Americans willing to read it if it were to come out during tax season. Thanks to the evergreen sustainability of information on Internet (though it is a vast forest indeed) people perplexed and vexed about their own tax returns would certainly have their eyes opened by the tax returns of those seeking their votes this November. Let’s see how they parse their charitable donations, for example.

      1. CPAinNewYork January 20, 2014

        As you may recall from the 2012 election, when Mittens Romney refused to disclose his tax returns, one cannot be compelled to do that. One can be shamed into doing it, but that takes time.

    2. CPAinNewYork January 20, 2014

      Don’t forget thievery.

      1. ExRadioGuy15 January 20, 2014

        Thievery is a close cousin of exploitation. But, CPA, your point is very well taken. With the Fascist, Reverse Robin Hood and Upward Wealth Redistribution tax policies of the GOP, it’s more like exploitation. If the GOP gets their way, the Inheritance Tax will disappear forever, which would make the amount of wealth passed down between the generations of the wealthy that much bigger.

  8. dalancroft June 4, 2014

    Brooks is a tool, plain and simple. As was said recently of Marco Rubio following his nonsensical gibberish on climate change, “He is not stupid, but willfully ignorant — which makes him a fool.”

    As for access, well, if you lose it you lose your job — and your 7-figure paycheck. “Why analyze a statistical table when you can have brand-name politicians invite you to their homes for dinner to flatter your ego? Why ask hard questions that might undermine what you wish to be true when you can bask in the comfort of ignorant bliss and keep those social invitations coming?” Exactly. Why risk their wrath when you can give them handjobs and keep them happy?

    Thomas Friedman is in the same camp. I’m about six Friedman units away from being a millionaire assuming the stock market keeps rising gently.


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