Mojo - October 2011

Study: Income Inequality Kills Economic Growth

| Tue Oct. 4, 2011 3:00 AM PDT

Corporate chieftains often claim that fixing the US economy requires signing new free trade deals, lowering government debt, and attracting lots of foreign investment. But a major new study has found that those things matter less than an economic driver that CEOs hate talking about: equality.

"Countries where income was more equally distributed tended to have longer growth spells," says economist Andrew Berg, whose study appears in the current issue of Finance & Development, the quarterly magazine of the International Monetary Fund. Comparing six major economic variables across the world's economies, Berg found that equality of incomes was the most important factor in preventing a major downturn. (See top chart.)

Andrew Berg & Jonathan Ostry
Andrew Berg & Jonathan OstryAndrew Berg & Jonathan Ostry

In their study, Berg and coauthor Jonathan Ostry were less interested in looking at how to spark economic growth than how to sustain it. "Getting growth going is not that difficult; it's keeping it going that is hard," Berg explains. For example, the bailouts and stimulus pulled the US economy out of recession but haven't been enough to fuel a steady recovery. Berg's research suggests that sky-high income inequality in the United States could be partly to blame.

So how important is equality? According to the study, making an economy's income distribution 10 percent more equitable prolongs its typical growth spell by 50 percent. In one case study, Berg looked at Latin America, which is historically much more economically stratified than emerging Asia and also has shorter periods of growth. He found that closing half of the inequality gap between Latin America and Asia would more than double the expected length of Latin America's growth spells. Increasing income inequality has the opposite effect: "We find that more inequality lowers growth," Berg says. (See bottom chart.)

Berg and Ostry aren't the first economists to suggest that income inequality can torpedo the economy. Marriner Eccles, the Depression-era chairman of the Federal Reserve (and an architect of the New Deal), blamed the Great Crash on the nation's wealth gap. "A giant suction pump had by 1929-1930 drawn into a few hands an increasing portion of currently produced wealth," Eccles recalled in his memoirs. "In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When the credit ran out, the game stopped."

Many economists believe a similar process has unfolded over the past decade. Median wages grew too little over the past 30 years to drive the kind of spending necessary to sustain the consumer economy. Instead, increasingly exotic forms of credit filled the gap, as the wealthy offered the middle class alluring credit card deals and variable-interest subprime loans. This allowed rich investors to keep making money and everyone else to feel like they were keeping up—until the whole system imploded.

Income inequality has other economic downsides. Research suggests that unequal societies have a harder time getting their citizens to support government spending because they believe that it will only benefit elites. A population where many lack access to health care, education, and bank loans can't contribute as much to the economy. And, of course, income inequality goes hand-in-hand with crippling political instability, as we've seen during the Arab Spring in Tunisia, Egypt, and Libya.

History shows that "sustainable reforms are only possible when the benefits are widely shared," Berg says. "We hope that we don't have to relearn that the hard way."

Don't miss our blockbuster collection of infographics: "It's the Inequality, Stupid," and our new, interactive explainer map of the Occupy Wall Street protests.

Advertise on MotherJones.com

We're Still at War: Photo of the Day for October 4, 2011

Tue Oct. 4, 2011 2:57 AM PDT

An A-10 Thunderbolt II from the US Air Force Weapons School at Nellis Air Force Base, Nev., drops a AGM-65 Maverick during a close-air support training mission Sept. 23, 2011, over the Nevada Test and Training Range. US Air Force Weapons School students participate in many combat training missions over the NTTR during the six-month, graduate-level instructor course. (US Air Force photo/Senior Airman Brett Clashman)

GOP, ALEC Could Make It Harder For 5 Million To Cast Ballots

| Mon Oct. 3, 2011 2:36 PM PDT

More than five million Americans could find it harder to vote in 2012 than they did in 2008, according to a new report released on Monday by the Brennan Center for Justice. The change is largely due to empowered Republican majorities in states around the country—and Lawrence Norden, the director of the Democracy Program at the Brennan Center, argues the 5 million number could be an underestimate.

"This number that we came up with, five million, is pretty conservative," Norden says. "The whole issue of access to the polls has become politicized in a way we haven't seen in the past."

Supreme Court to Decide Future of Medicaid Payments

| Mon Oct. 3, 2011 11:44 AM PDT

As the 2011-12 Supreme Court term gets underway on this first Monday in October, the first order of business on the docket will be a matter that may well determine the future of Medicaid, the federal and state operated program that provides health care to low-income Americans.

In the case of Douglas v. The Independent Living Center of the United States, the Court will decide whether a Medicaid beneficiary or service provider has the right to challenge a state law that reduces payments to Medicaid providers to a point where there will no longer be enough doctors and hospitals participating in the program to make it viable.

The Paul Ryan Revival Project: Dark Passions Edition

| Mon Oct. 3, 2011 10:10 AM PDT
A contemplative Rep. Paul Ryan (R.Wisc.).

Over the weekend, Politico ran a story reminding us that Rep. Paul Ryan (R-Wisc.)—you know, the serious, adult, courageous, wonky, Republican hero of Medicare-privatizing, Medicaid cost-shifting fame—is still around, and has opinions:

Ryan said he is committed to taking on the president’s "class warfare" rhetoric—dark passions he thinks President Barack Obama is trying to gin up among voters as he bids for a second term as commander in chief.

"The rhetoric is what I think is really dangerous because the class warfare rhetoric, it speaks to bad emotions within people,” Ryan said in an interview. "It speaks to dark emotions—anger, envy, fear—those are powerful emotions, and I suppose they can be manipulated to good political ends, but it’s reckless, in my opinion, and it divides people."

It's true that Obama seems prepared to make 2012 about protecting working class Americans and making the rich poney up some extra tax dollars. But the president's rhetoric, infused with urgent calls to close the yawning inequality gap through a more equitable tax structure, hasn’t masked that fact. Of course Obama is playing politics by placing a tax hike on the rich at the center of his legislative and electoral strategy. Raising taxes on the rich is popular. At least Obama hasn't been afraid to call his plan what it is.

Meanwhile, Ryan continues to talk as if his undeserved enlightened reformer-halo puts him above the political fray. But screwing over poor people could be called "class warfare," too. Ryan's budget plan featured $771 billion in cuts to Medicaid spending and slashed $750 billion from a host of other programs serving low-income Americans. Overall, those reductions comprised almost two-thirds of the $4.5 trillion in cuts his plan would have enacted over the next ten years, according to the Center on Budget and Policy Priorities

If Ryan is going to be stepping back into the spotlight through interviews like the one he gave Politico, he should be ready to explain how his vision of America is any less political, reckless, and divisive than Obama's.

How Rick Perry Fed the Subprime Mortgage Monster

| Mon Oct. 3, 2011 7:54 AM PDT
Texas Gov. Rick Perry.

For all of Texas Gov. Rick Perry's jeremiads against big government and evil regulations, his state won a few admirers during the housing bubble for its surprisingly tough lending laws. Not that Perry didn't try to lure subprime lenders to Texas, plying them with tens of millions in taxpayer cash just as they ramped up their risky home lending.

In the mid-2000s, the Associated Press reports, Perry enticed then-booming lending giants Countrywide Financial and Washington Mutual with $35 million in state tax grants to grow their operations in Texas and create 11,000 new jobs. At the same time, those lenders were diving headlong into more risky lending, while the Perry administration dismissed the risks of subprime mortgages as blown out of proportion. The source of Perry's hand-outs to Countrywide and Washington Mutual was the Texas Enterprise Fund, a multi-billion-dollar economic development honeypot that critics have blasted as a slush fund used to funnel money to political allies and donors.

Here's more from the AP:

The AP analysis found that Washington Mutual, Countrywide, and their subsidiaries boosted risky lending in Texas within a year after receiving grants from the Texas Enterprise Fund. In 2004, only one out of every 100 Washington Mutual loans in the state was originated to homeowners with less-than-perfect credit. The next year, that figure rose to more than one in four.

Countrywide's lending volume also boomed. In 2004, 14 percent of the company's loans in the state were given to high-risk borrowers, but the following year—when Countrywide received its first $10 million disbursement from the fund—the rate of risky loans jumped to nearly one in three, the AP's analysis found. Texas ranked No. 3 for the number of risky mortgages underwritten by Countrywide, behind only Florida and California.

[...]

Countrywide pledged to create thousands of new jobs, but later shed more than that in nationwide layoffs. That came as Countrywide and WaMu gave checks to Perry's re-election campaign, including $2,500 from WaMu's political action committee as late as March 2008. The companies gave more than $15,000 in total contributions, state records show.

Meanwhile, Countrywide faced problems in Texas. Perry's own attorney general reached an agreement with the lender in 2008 that would give millions to customers who lost their homes to foreclosure. The attorney general's office began its investigation that year amid allegations that Countrywide encouraged homeowners to accept loans they could not afford.

Advertise on MotherJones.com

The Onion Predicts the Future: Al Qaeda vs. 9/11 Truthers

| Mon Oct. 3, 2011 6:31 AM PDT
A very blunt sticker from the 9/11 Truth movement.

The website of Inspire, a English-language propaganda magazine believed to be run by Al Qaeda in the Arabian Peninsula (and spearheaded by the recently assassinated, tech-savvy cleric Anwar al-Awlaki), took a shot at Iranian President Mahmoud Ahmadinejad last week for intimating that 9/11 was an inside job. In an interview with the AP during his visit to the UN General Assembly last month, Ahmadinejad said that "[a] few airplanes without previous coordination known to the security forces and the intelligence community in the United States cannot become missiles and target the heart of the United States," and also suggested that he, as a former civil engineer, believed it was entirely possible that the World Trade Center was brought down by a controlled demolition. (David Corn has a nice piece on the dangers of trutherism here.)

In response, an irate Al Qaeda op-ed writer took to the magazine's website to push back against the notion that the Sunni militant group wasn't the sole perpetrator of mass murder on 9/11. Abu Suhail, the article's author, begins his rebuttal with (of all things) a blunt appeal to "logic":

Why would Iran ascribe to such a ridiculous belief that stands in the face of all logic and evidence?...For Iran, anti-Americanism is merely a game of politics. It is anti-American when its suits it and it is a collaborator with the U.S. when it suits it.

Suhail goes on to write that the Iranian regime and Shiites are envious of Al Qaeda's "success" and that they wish to "discredit Sept. 11 [with] conspiracy theories" because they only pay "lip-service to jihad against the Great Satan."

Iran's state-owned news network Press TV then fired back by regurgitating Ahmadinejad's Truther-esque statements in a piece published on Thursday, which asserted that "reports released by al-Qaeda are usually believed to be produced by the US Central Intelligence Agency." Here's an excerpt from the article that reads like it was copy-and-pasted directly from a "Loose Change" video:

There is evidence indicating that once the twin towers were hit by the planes, their foundations were blown up so that they would collapse. The archive files on 9/11 attacks also suggest that the odds are that the Pentagon was struck by missile not plane...[T]here has been no convincing evidence that a number of young Arab people could have masterminded such attacks especially since they could have not known how to fly fully automated airplanes.

The Al Qaeda/Iran back-and-forth also serves as another example of how The Onion can pretty much predict the future. Remember the eerily prescient piece on George W. Bush reviving war, jingoism, and economic recession...published in January 2001? Well, here's a video from early 2008 in which an Al Qaeda fighter debates a 9/11 conspiracy theorist:

"How would you like it if you spent, you know, two months in a moutain cave, sleeping on rocks, planning something really special, only to have someone take the credit away from you?"

Sound familiar?


9/11 Conspiracy Theories 'Ridiculous,' Al Qaeda Says 

We're Still at War: Photo of the Day for October 3, 2011

Mon Oct. 3, 2011 2:57 AM PDT

US Army Staff Sgt. Brendan Quinn, from Foxboro, Mass., of 1-182 Infantry Regiment, Charlie Company, security force for Provincial Reconstruction Team Farah, provides security while on patrol, Purchaman District, Farah Province, Afghanistan, Sept. 26, 2011. PRT members escorted members of Farah's Provincial Government to a shura where elders resolve community issues and communicate concerns to the provincial government. (ISAF photo/ USAF SrA Alexandra Hoachlander)