summary group: shefali khandhar mody nicole tuma jennifer larsen david loebsack ron milam pepperdine...

Summary Group: •Shefali Khandhar Mody•Nicole Tuma•Jennifer Larsen•David Loebsack•Ron Milam

Pepperdine University MSOD 619 - 2014

ImpressionsReviewer Name

What were the Books Strengths

What were the Weaknesses

Shefali •There is good supportive data and the conclusions drawn from it are logical.•Takes a Johari window perspective of global impressions of American challenges, discussing topics Americans might not see or want to discuss openly

Was redundant at times to the point of sensationalism

Nicole Easy to read, not dense and offered strong historical perspective on current US situation.

Agree with Shefali. Also, as someone who followed the Occupy movement, most of the content was review. Would have liked to hear more of the opposing view for balance – more of a point, counterpoint approach.

2


What were the Books Strengths

What were the Weaknesses

Jennifer There is a lot of great stats that back up his statements. I didn’t know the percentages, but seeing these and projections alert us to the fact we need changes in policy because its not sustainable.

Book could have been shorter. He didn’t 100% back up the perspective of the right or the left. He presents a historical viewpoint, but both the right and the left has contributed to this problem. However his writing is more left leaning.

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Ron This is something I have been thinking about because its so evident in Los Angeles, a very economically segregated city. The author relentlessly goes after the root causes and looked at why this is threat to our democracy. I really enjoyed it and would recommend it to anyone wanting to engage with the issue of inequality.

While the book makes a rational, factual argument based on stats, will these move the American people? How does this make this discussion more mainstream? How can the detailed criticisms in this book translate into stories of real people?

5

David Very educational; very detailed in articulation of the problems and suggested solutions; appreciated that author was up-front and honest that we were getting an economic perspectives from the left side of the aisle. He dismantled some popular opposing arguments but would have liked to hear more balance – more about where the left and right approaches meet (or don’t) in the middle. Now that I’ve read this, I would like to read a similar book from the right to balance out the perspective.

Book could have been shorter.Felt like there could have been more balance in its approach to articulating economic policy views from both sides of the aisle. Author does this to some degree, but I want to hear what smart people from both sides have to say.


What Excited Us About the Book

What Frustrated Us About the Book

Shefali By opening up the topics, people will be more engaged in these discussions and this will bring about change

These are complex issues and the solutions presented didn’t consider consequences or how to implement wasn’t considered

Nicole I am excited about others who have not been introduced to or thought critically about our economic inequality to read this. I would have liked to hear the response of a 1%er to this.

I feel like this could have been a 30 page book. It did not need to be 350 pages. Also, I feel like the tone was very aggressively anit-right, which is not the way to inspire change. It only “preaches to the choir” as others may simply put it down or dismiss it. 6




Jennifer Facts and figured to back up the points that Stiglitz is trying to make. Extensive research and brought new perspective of the problems we are facing to me that I was not previously aware of.

A better roadmap could have been explored on how to address the issue. Lack of diversification of viewpoints (have’s vs. have nots)

Ron He directly addressed a challenging issue our democracy faces.

He speaks about the 1% and specifically bankers/finance people types as if they are all of one mind.

7




David The fact that there is hope for our economic system, especially for how we take care of the poor, the marginalized and the suffering.

I'm frustrated by politics in general. Despite the fact that we may have well-thought-out solutions, what matters is how politics are played -- not in how good the ideas are. I'm also frustrated by the thought that our country may not live up to the ideals we hold in our hearts because of systematic inequality; if everything Stiglitz says is true, then it's possible that the marginalizing of the unempowered may be so deeply rooted in our system that we may never be able to "remove the virus" and the result may be a country we hardly recognize in 50-100 years

8

Insights that Spoke to usShefali: I contemplated history and wondered

if the 50’s and 60’s were America’s golden age and realized that every great westernized country has had it’s turn then. The question I have now is the US in a downturn, and how can we regain the trust of our global partners?

Nicole: I had not thought about how most idea originators don’t actually get paid for their ideas – it is the business person / marketer that monetizes the idea. I keep trying to envision a society in which this is not the case, but I simply can’t. Does one exist

9

Insights that Spoke to usJen: The people that are so wealthy,

they can’t even fathom what life for the poor is like.

Ron: I’m curious to see a book that profiles the 1% who are these people? Are there more examples of folks like Warrant Buffet and Bill Gates who are more generous? What are the assumptions about what a civil society ought to be. The title of the book doesn’t convey the emotion tied to this issue.

10

Insights that Spoke to us David: Two major insights. First, I keep going back to

the question: What are the basic assumptions I’m making about how life, the world and “reality” work – and in this case, are supposed to work. Stiglitz’s assumptions about the role of government are starkly different from his political opponents. Rather than discussing the validity of different proposals or interpretations of events, the most potentially impactful conversations will likely be lower down on the ladder of inference, regarding the role of government. Second, it seems like it’s human nature to collude with other like-minded people to protect your joint “territory”. I don’t think the 1% are the only ones that do this, although they are likely the ones that have the biggest impact on the world because they do it. I’ve seen tacit collusion everywhere I’ve worked, and speculate that it’s a standard human response to the SCARF radar going off.

11

Ways in which these issues may manifest in the sessionShefali: Countries like China and India

have a swelling of pride associated with their rise as economic powers. Along with this rise, will comes an “ego” that they know better. Will they listen and trust American voices as we consult there?

Nicole: It would be interesting to observe how inequality shows up in China and how racial inequality shows up.

12

Ways in which these issues may manifest in the session

Ron: Since there is focus on collaboration in the session, Power will be very important dynamic to be aware of. In America the power distance is supposed to be low. The fact is there is very high power distance. How are we going to be perceived?

David: Is there a trend in systems – no matter the size – for the powerful to tacitly collude to maintain their power? If you can have that phenomenon emerge on a national scale, that the 1% can influence so many sectors of our country to maintain their power, where else does this behavior play out? Where else does tacit collusion take place in order to keep what is “had” by those who have it, and away from those who don’t have it? Is this a phenomenon of humanity, and of all organizational systems? If so, we will see this, not only in China but in all of our sessions – and this will likely be a major underlying issue to many of the manifested “problems” we observe in our engagements. 13

Jennifer: We come from a prestigious expensive school, traveling to other countries. If go to China and debating inequality; its ironic. We come from a country propagates equality, but we have so much inequality. We have modeled Inequality of developing nations. We need to be aware of our privileged point of view when in session. 14

Ways in which these issues may manifest in the session

What to look for in the session

Shefali: We need to be uber sensitive as we go into China and always listen more than prescribe. I feel gaining trust will be imperative more so in China, than in other countries.

Nicole: I'd like to look for ways that power is demonstrated in China in business and more social settings. Is it clear who is in charge? What earns power – how is it allocated? Is it the same as respect? Is there as much prestige with power?

15

What to look for in the session

Jennifer: Listen intently and try to suspend my American lens. Respect in this culture is highly valued.

Ron: Examples for how to equalize unequal power dynamics. How to you engage in the dynamic?

David: I echo Ron’s statement, but might state it a different way: “How do we create more awareness in the system about the power dynamics?”

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Primary MessageCauses of InequalityEconomic Impact of Inequality1% vs 99%Role of GovernmentFair Performance metrics for the

economy and citizenry

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Income GapDebate is not so much that it exists, but its

meaning.Stiglitz states that the 99% have to contend with:

Income growth mostly occurring at the top 1%Americans at the bottom of the Income ladder are

worse off than they were at the beginning of the century

Gap is great in terms of annual income but even greater when accumulated wealth is concerned

Middle class has hollowed outIncome mobility is negligible and income distribution is

disproportionateThe inequality in America is more than any other

industrialized country and the disparities are growing at a faster pace compared to many other countries

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Income GapTrickle down economics has done little

for America. There is a widening gap between 1% and the 99%

The Great Recession has worsened inequality

The economic engine is being unfairly driven to serve the interests of the 1%

America is not the land of opportunities as is the popular notion the world over

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Income Gap Key Quotes“The simple story of America is this: the

rich are getting richer, the richest of the rich are still getting richer, the poor are becoming poorer and more numerous, and the middle class is being hollowed out.”

“The level of inequality and the absence of the opportunity that we see in the United States today is not inevitable, nor is its recent rise simply the product of inexorable market forces.

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Rent Seeking and American Inequality Rent Seeking in context of inequality makes reference

to the way the present political processes help the wealthy at the expense of the middle and poor classes and in the form of subsidies, laws aimed at lowering market competitiveness, laws that give fat cat payments to CEOs and regulations that support profit hungry corporations.

Stiglitz argues that rent seeking activities result in seekers getting a larger piece of the pie than increasing the size of the overall pie.

Rent seeking leads to distortions in resource allocation and weakens the economy from the inside.

Since rent seekers are part of the 1%, their wealth is used to ensure they have contracts with Washington’s powerful to ensure that their agendas are advanced.

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Rent Seeking Key Quotes“Countries rich in natural

resources are infamous for rent-seeking activities”

“Macro-mismangement in all of its guises, is a major source of inequality”

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Not Playing by the Rules of DemocracyMistrust in the government stemming from

inequality manifests in the way the citizenry participate in political processes

Lack of trust in the government and financial sector affects the functioning of markets and in times of economic peril- such as the Great recession – fuel mass agitations

Globalization and technology can fuel structural transformations. Government policies should address this such that there are more winners than losers

A fairer tax system is also key to closing in on the growing inequality 23

Rules of Democracy Key Quotes

“Extreme concentration of income is incompatible with real democracy”

“Globalization, as it is being managed is narrowing the choices facing our democracies, making it more difficult for them to undertake the tax and expenditure policies that are necessary if we are to create societies with more equality and more opportunity.”

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Framing PerceptionsPerceptions play an important role in politics.

People make decisions based on their long-standing perceptions and beliefs about issues and events. This is precisely why there should be a careful, well-graded and balanced approach to understanding the role of the government and the market.

Those at the top try to frame perceptions through discussions, adopting a language of fairness and marketing ideas persuasively, to serve their own agendas. They are mostly successful in manipulating public perceptions that result in outcomes favoring them and not the citizenry as a whole. The fact that beliefs are intrinsically malleable does not help the cause of the 99%. 25

Framing PerceptionsA solid case for privatization and deregulation

can be developed when social returns and private rewards are properly aligned.

It is not possible to completely suppress ideas and as the masses begin to look past the smoke and mirrors, there is a greater likehood for positive change that can close the widening inequality.

One of the positive developments that reflect inequality and economic performance inaccurately is GDP (Gross Domestic Product). There are presently efforts underway to create metrics that reflect economic well-being and general welfare more fairly and accurately.

26

Framing Perceptions Key Quotes

“The intellectual battle is often fought over particular policies, such as whether taxes should be raised on capital gains. But behind these disputes lies this bigger battle over perceptions and over big ideas- like the role of the market, the state and the civil society.”

“…the powerful manipulate public perception by appeals and efficiency, while the real outcomes benefit only them.”

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Is the Rule of the Law Unfair?There is a general acknowledgement that a

democratic society cannot function with rules and regulations that safeguard everyone’s interests. But it is seen that there are trade-offs, with regulations favoring one group over another.

Wealthy groups that control the political process use their power to develop an economic system that advance their interests, through rules and laws.

Abundant examples of circumventing the rule of law by wealthy corporations and banks are testimony to the fact that American judicial system does not practice “justice for all”. This reflects and reinforces inequality.

28

Rule of Law Key Quotes“If economic power in a country

becomes too evenly distributed, political consequences will follow.”

“…but in today’s America, the proud claim if “justice for all” is being replaced by the more modest claim of “justice for those who can afford it”.

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Response to Great RecessionMultiple factors and Bush-era events are

responsible for the present fiscal deficit.Budget cuts and austerity measures

cannot reduce deficit; government spending can.

High productivity investments and a progressive tax system can jump-start the economy.

Government can take advantage of the principle of balanced-budget multiplier to stimulate the economy.

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Great Recession Key Quotes“The worst myths are that

austerity will bring recovery and that more government spending will not.”

“The logic of why government spending can be and has been effective in stimulating the economy is compelling.”

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Macroeconomics in context to InequalityThe belief that markets work efficiently on their

own and government interference is unnecessary has benefitted the financial sector and the 1%, widening the inequality.

American monetary and macroeconomic policies have increased unemployment and lowered wages.

To much focus has been placed on lowering inflation instead of boosting employment and decreasing inequality

There is no such thing as a perfect macro economic policy. Alternatively macroeconomic moentary policies can contribute to better economic performance and address inequality.

32

Macroeconomics Key Quotes“Nothing affects the well-being of most

citizens more than the state of the macro economy – whether there is full employment and growth.”

Over the past quarter century macroeconomic policies and institutions have failed to produce stability; they fail to produce sustainable growth; and, most importantly, they failed to produce growth that benefitted most citizens in our country”

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Reform Agendas & Key Quotes

The government must give public investment the attention it deserves. It can do this by:Improving access to education by directing

public money to increasing support for state and non-profit higher education systems,

Increase scholarships for the poor“..whereas trickle down economies

doesn’t work, trickle-up economies may: all-even those at the top – could benefit by giving more to those at the bottom and the middle.

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Final ThoughtsClass inequality exists as much in America

as in any other industrialized economy. America is not a land of opportunity, but

opportunists, who make up a tiny sliver at the top of the income ladder.

The trend of greater concentration of wealth at the top and lesser at the bottom and middle can be attributed to several factors. These factors become even more significant when examined in the context of the Great Recession

35

Final ThoughtsFrom predatory lending to rent-seeking (to

which the government continues to be a spectator) and monopolistic attitudes, by and large, the financial sector and certain large corporations have distorted the economy, contributed to disproportionately large income distribution at the top and bottom and widened inequality

The government rewards those at the top with subsidies and does not take a strong enough view of obscene fat cat pay, even during poor company performance and through recession.

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NEEDED CHANGES

Recognize that pure competition would take a long time to be effective

Keynes: “In the long run markets may work well, but in the long run we are all dead.”

Incomes should reflect contributions to output Higher standard of living will increase stability More equitable, effective taxation & financing Full, skilled employment & greater

Decentralization are crucial

Manufacturing Drops for 1st time in 3 years – July 3, 2012 Headline

Institute for Supply Management ReportProduction & exports of manufactured

goods declined along with the number of new orders

The decline comes as:U.S. employers have cut back on hiringConsumers have become more cautiousEurope is entering a recessionManufacturing in China is also slowing

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Source: Institute for Supply Management, In: The Arizona Republic July 3, 2012

Our Current Dilemma

Technically, we have been out of recession since June 2009,but most people don’t believe it and many are worse off today than 3 years ago

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So, why do we feel so badly?

Unemployment is still much higher than usual for this portion of the recovery in the business cycle

The political scene has led to gridlock in government

Workers’ share of income has fallen to historic lows

Uncertainty in global markets (Europe & China) is causing some investors to postpone decisions

Demand and Supply in the housing sector have not found a stable equilibrium in many locations

41

Analysis of RecessionWhat is different about this cycle?Although recession technically

ended three years ago, we didn’t bounce back in terms of:

Rapid increase in GDPLarge decline in unemploymentIncrease in personal income and

spending

Why not?42

A potential issue may be: The Decline of the Middle ClassMore and more attention is being

paid to this topic in the past couple years

“Workers’ wages and benefits make up 57.5 percent of the economy, an all-time low.”

“Until the mid-2000s, that figure had been remarkably stable – about 64 percent through boom and bust alike

43

Source: Paul Wiseman, Associate Press, in The Arizona Republic. July 2, 2011

Increasing Income Inequality

The Gini Index is a measure of income inequality that can range from 0 to 1.The latest Gini Coefficient in U.S. is .468The coefficient has increased by 20%

over the past 4 decades.The U.S. number is similar to the

Philippines and Mexico!

Zero indicates everyone gets the same incomeOne indicates all the income is received by just one person

Source: As Middle Class Shrinks, P&G Aims High and Low. The Wall Street Journal, September 12, 2011.

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Worldwide GINI Coefficients

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Why is this a problem?John Hobson – English economist (wrote in

1902)The poor didn’t have enough money to buy

goodsThe rich couldn’t consume enoughCountries looked to external markets

(Imperialism)Multinationals then and now do the same thingInvestment in foreign markets is profitableImperialism leads to:

High unemployment in the home country Increase in social unrest Increases in inequality of income and wealth

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Coming Apart -The State of White America

1960-2010 -- Charles Murray (2012)

American ‘civic culture’ is dying as the country evolves into a two-class society

The few ‘elites’ live in a totally different culture than the rest of society and they don’t have any clue how most people live

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Source: Summary by Aaron Task. Daily Ticker, May 3, 2012.

Coming Apart Charles Murray - 2012The new role for “class” in our

culture wouldn’t mean so much except that it is this narrow elite who control almost everythingPolitical systemFinancial systemMedia & information streamsAccess to education

Murray concludes …….We are coming apart

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Coming Apart -The State of White America

1960-2010 -- Charles Murray (2012)

Ernest Hemingway may have said that “the difference between the rich and everyone else is that the rich have more money”

But today, it’s more than money – it is an entirely different culture and way of life……..

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Coming Apart Charles Murray - 2012Differences in.......

Amount and type of TV shows & movies

RestaurantsBooks & musicViews on marriageViews on diet & smokingEducation of their childrenHow children spend their time

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Coming Apart Charles Murray - 2012The two classes rarely come in

contact because they are also separated geographically regarding their zip-codes of residenceIncreased isolation Less understanding Increased indifference

There is NO COMMON IDEA of what it means to be an American

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Coming Apart Charles Murray - 2012Historically, class has not been a

part of the American cultureToday, there’s “an awful lot of

people very comfortable thinking they are the upper class”

They think, “why should I associate with those bozos?”

A culture of separate classes is new to America

52


The Movie: Avalon (1990)

“Avalon was not just a place; it was a time.”

Could the 60 years in the Post-WWII period have been a time – a period in history that was unique and one that

won’t be repeated?

53

Is there a way out?Maybe not!We may just be ‘pushing on a

string’

The potential exists for a “lost decade” or even several “lost decades” before the economy finds a new normal.......and the old normal may never return.

54

What about today’s tools?Traditional expansionary tools aren’t

working….Monetary Policy

Interest rates are already low “Animal Spirits” have not been kindled

Investment is low because uncertainty is high

What can be gained by lowering interest rates if businesses don’t wish to borrow?

55

What about today’s tools?(continued)Fiscal Policy

Another stimulus plan would increase demand by increasing the level of potential spending, but it won’t happen:

Going further into debt seems risky Raising taxes to fund it is just too unpopular Printing money would be inflationary

Government could reduce taxes again but:

Public services and infrastructure are already lagging Lower taxes won’t generate more spending if people

pay down debt or increase savings instead of buy more goods

56

What Needs to Occur to End the Lingering Effects of Recession?Reduce Uncertainty….

Congress has to assume much of the blame. They need to work together in order to build confidence

Housing has to return as a strong and stable sector, but without the rise in speculative pricing

Credit needs to be made available to the middle class which is currently not happening

Problems in Europe need to be resolvedAnd, people need to believe all of this

can happen

What Needs to Occur to End the Lingering Effects of Recession?Notice that I did not include:

Reducing taxesBalancing the federal budget

Tax rates & the annual deficits are less important factors in the overall picture

Yet, these issues are politically popular & what Congress addresses

Consumer Confidence Index

Date Index

June 2012 62.0

May 2012 64.4

April 2012 68.7

June 2011 57.6

Most Recent Low

February 2009 25.3

Most Recent High

February 2012 70.8

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Source: The Conference Board & Associated Press. (90.0 represents healthy conditions)

Forecast for the U.S.The U.S. will not return to a healthier

state so long as there is:Anti-government sentiment that government

is the enemy & doesn’t create jobsAnti-Federal Reserve sentimentWorsening distribution of wealth & incomeAn unwillingness to work together in

Congress

A double-dip recession is possible – particularly if the ‘fiscal cliff’ coming on January 1st is not addressed

summary group: shefali khandhar mody nicole tuma jennifer larsen david loebsack ron milam pepperdine...

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