Depression-Era Inequality, Only Worse

A new study by Economist Emmanuel Saez revealed this week that
income inequality in the U.S. is more severe today than at any time
since World War I, and the current recession is taking its heaviest
toll on the worst-off members of our society. As our government
rebuilds the financial sector using taxpayers' money, it's important to
remember that both financiers and the government are responsible to our
communities, not just bank shareholders. If we want to strengthen our
country's economic foundation, we need to demand better wages for
workers and an end to all kinds of predatory lending.

Saez's new data on income inequality is, as Paul Krugman put it, "truly amazing."
Saez, who teaches at the University of California at Berkeley, found
that the top 0.01% of U.S. earners had 6% of total U.S. wages, more
than double the level in 2000. Earners in the top 10%, meanwhile, took
home an astonishing 49.7% of all wages. That gap is larger now than
during the Great Depression or the Gilded Age of the Roaring '20s.

"We're seeing Depression-era inequality again--only now it's slightly worse," writes
Steve Benen for The Washington Monthly. Benen also notes that this
level of inequality is not an inevitable consequence of a market
economy: It's an extreme historical aberration. In the U.S., prosperity
for much of the 20th Century was shared. But in 2007, at the economic
bubble's peak, the wealthy simply got wealthier.

In that context, it is beyond absurd that
the government is allowing 8-figure bonuses to be doled out by bailed
out banks. Writing for Salon, Robert Reich dissects
the policy implications of Citigroup's plans to pay its top executives
an average of $10 million this year and award over $100 million to its
top trader, a man who literally owns a castle in Germany. Citigroup was
one of the most reckless U.S. banks during the housing bubble, a major
subprime offender that received $45 billion in direct bailout money, as
well as hundreds of billions in federal guarantees. How much is $45
billion? With the median U.S. home price at $174,100,
that's the full market price of over 258,000 foreclosed homes. The
company says that $10 million a head is necessary to attract and
maintain top "talent," which Reich notes is a somewhat misleading term,
given recent history. The problem is not just that Citigroup and other
Wall Street firms are paying tons of money to a few people, it's that
these people are being rewarded for the same kind of activities that
got us into this mess to begin with: Risky, highly leveraged securities
trading.

"Over the last several years Wall Street has
exhibited a truly astonishing lack of talent," Reich says, noting that,
"The Street is back to the same, relentlessly untalented tactics that
made it lots of money before the meltdown--which also forced taxpayers
to bail it out, caused the world economy to melt down, and tens of
millions of people to lose big chunks of their life savings."

In truth, Reich argues, most large financial
firms in the U.S. are much more like public utility companies than
private-sector businesses. Even in good times, they depend on
government guarantees and other support systems to function. In bad
times, we bail them out. Instead of paying financiers tens of millions
of dollars to reinforce a flawed system, Reich argues that we should
impose rules that result in salaries similar to the public utilities
sector, where top earners are generally restricted to 6-figure
incomes.

The American Prospect features two pieces emphasizing problems
in the current financial sector. Under a law known as the Community
Reinvestment Act (CRA), enacted in 1977 we require banks to make loans
in communities where they collect deposits. The loans have to be to
dependable borrowers and they have to be relatively inexpensive. The
law works very well--institutions covered by it made only a tiny
fraction of the high-interest subprime loans that brought down the
financial sector, as National Community Reinvestment Coalition
President John Taylor notes for the Prospect. But CRA only applies to
actual banks. You know, the places where you deposit your paychecks.
CRA does not apply to subcompanies owned by the same corporation, and
it does not apply to giant Wall Street securities firms like Bear
Stearns and Goldman Sachs. Taylor says we need to expand CRA to cover
these other big players in the financial world.

Why? As Alyssa Katz details in a piece for
the Prospect, many Wall Street firms are bidding on foreclosed
properties and selling them at rip-off rates to low-income borrowers.

But as Mary Kane notes
for The Washington Independent, banks have also devised several methods
of making money without making a loan. By charging tremendous fees on
borrowers for minor infractions, banks generate billions of dollars
without producing anything of social value. One of the worst forms of
abuse, Kane writes, comes in the form of overdraft fees. When you
withdraw too much money from your bank account, the bank fronts you the
money, and then charges you a fee for this "protection." The trick is,
banks almost never tell you that this has occurred, and often play
around with the timing of your charges and deposits to maximize the
fees they collect. Banks are on track to collect $38.5 billion in such
fees this year alone. The worst part is, the fees come from the poorest
customers--rich people don't overdraw their bank accounts, because they
have tons of money.

In the case of credit cards, banks routinely
slap borrowers with outrageous fees and interest rate hikes when the
borrowers are making payments on time. Over the years, banks have
targeted younger and younger credit card customers, as Adam Waxman notes
for WireTap. After years of declining wages for all but the wealthiest
citizens, consumers have been turning to pricey plastic to finance
basic necessities.

Sadly, corporate America does not seem very
focused on helping workers establish their financial independence. The
Real News talks with Richard Wolff, an economist with the New School
who emphasizes that, while worker productivity has jumped in recent
months, wages
have not made the corresponding increases. Quarterly productivity
numbers tend to jump around a lot, but the trend of not compensating
workers for improved efficiency has been around for years.

In a consumer-driven economy, major problems
can't be fixed by giving lots of money to a few people, especially if
those few people are already rich. To support broad, meaningful
economic growth, we need to tailor our policies that empower those on
the lower rungs of the economic ladder. And when we bail out giant
corporations with taxpayer money, we need to make sure those companies
arrange their business to improve the lot of taxpayers.