An article from The Guardian with some interesting ideas on how to reduce inequality, rather than just arrest its growth. Note the outrage expressed over the disparity between CEO and average worker pay in Britain, which is modest by U.S. standards.

This week's revelation that the earnings of chief executives are now almost 100 times that of their average employee comes hard on the heels of a study by the Joseph Rowntree Foundation pointing to widespread dissatisfaction with the current gap between those at the top of the income scale and those at the bottom. It is time the government took more vigorous action to achieve the Labour party's basic aim of establishing a fairer and more equal society. This should be a key part of Gordon Brown's new programme.

It's a slow August day in DC. So here's a case for why a conception of deservingness based on work, contribution, and family ought to be at the center of arguments challenging inequality.

It's Necessary: We live in an ideological world where the distribution of resources is determined by choice and by perceptions of deservingness. Americans let rich people stay rich because they think they've earned it. To be sure, American political structures have barriers to redistributive policy. But by and large, if the large majority of voters, who aren't rich, strongly believed extreme inequality was unjust, they would have done something about it. They haven't. The perception that your income is due to your input needs to change.

Some recent policies have reduced poverty, i.e. SCHIP, the EITC, and the Child Tax Credit. I imagine arguments about need justified them. But if the goal is to end poverty and create a more equal society, a stronger argument has to be made. People deserve a whole lot more than they need. And the subtext of these policies is that people deserve to participate in these programs- they work, they're just kids, or they're parents trying to take care of their kids.

It's Persuasive: A convincing case about deservingness can be made with economic data and observation.

The poor work. Books like Nickle and Dimed, No Shame in My Game, and Off the Books have shown to a mass audience that poor people work and are skilled, that they're often getting ripped off, and they're operating in a different opportunity structure than everyone else. They aren't being properly rewarded.

Furthermore, other "have-nots" who aren't technically poor but make around or below the median wage are more productive than ever but aren't making much more money. So many studies have been done on this topic it's absurd. People are working hard, they're contributing more, yet they aren't getting a share of the return to increased productivity. On the flip side, wealthy people are getting far more than their productivity and effort entitles them.

One benefit of this approach is its simplicity. The goal ought to be bringing the median wage to where it would have been if it had tracked productivity growth over the last three decades. In the 1960s there was an acceptable level of inequality in pay scales, though not between races and genders.

Another plus: it could help build a coalition of the middle and lower classes. The CAP poverty plan, for example, is well-served by its vision of "progressive universalism," insofar as it doesn't exclusively target poor people or one race and neglect other have-nots. But it's still a vision shaped by perceptions of need instead of reciprocity and fairness.

And one caveat: some progressives don't want to talk about deservingness as regards the lower and middle class. There are people in need who aren't living up to their end of the bargain, for a variety of reasons. It'd be folly to exclude them entirely from new opportunities or basic needs programs, but someone has to draw a line somewhere. I don't know where that line is, and I find it difficult to speculate where it might be. Someone with a stronger stomach could probably do it.

Progressives might also be hesitant because they think they'll lose that argument. Hopefully this post will remove some doubts.

United for a Fair Economy and the Institute for Policy Studies just released a report on CEO pay. The average CEO of a Fortune 500 company makes more in a day than the average worker does in a year. Are CEOs really worth 364 times as much as workers?

CEO-WORKER PAY GAP: CEOs of large U.S. companies last year averaged $10.8 million in total compensation, over 364 times the pay of the average U.S. worker, a calculation based on data from an Associated Press survey of 386 Fortune 500 companies.

The top 20 private equity and hedge fund managers, pocketed an average $657.5 million, Forbes magazine estimates. That's 22,255 times the pay of an average U.S. worker.

Workers on the bottom rung of the economy have just received their first federal minimum wage increase in a decade. But the inflation-adjusted value of the new minimum, despite the hike, stands 7 percent below the minimum wage level a decade ago. CEO pay, in that decade, has increased over inflation by roughly 45 percent.

One of the great projects undertaken during the Bush political era has been to tune up liberalism. By no means is this a new project, but people have recently been working on it with renewed vigor.

One school of thought is that in order to make liberalism viable, we must more forcefully and precisely articulate what we always believed. One of this school's leading thinkers, George Lakoff, just produced a paper on how living wage campaigns should craft their message about the economy. Its strength is its dissection of conservative and liberal worldviews and value systems. Its weakness is mostly prescriptive.

If Lakoff had his way, liberalism would be no fun at all. A few examples of Lakoff's way of sucking the fun out of liberalism follow. I will respond as I imagine someone uninitiated in living wage agit-prop would:

Local communities make payments out of taxpayers' money to businesses in many forms: tax breaks, development subsidies, zoning changes that raise the value of businesses, local education and infrastructure development that contribute to business profitability, and most obviously, contracts (Payment-to-Corporations frame). It is only fair that businesses return some of these payments in the form of living wages to employees (Fiscal Fairness frame). They have that responsibility (Social Contract frame).

Man, more responsibility...I guess that's true, but what do those employees have to do with taxpayer money? I still believe people don't deserve to earn a living wage, because if they're poor, they're probably lazy or something.

An important aim of such reframing should be to destroy a major economic and moral fallacy, The Myth of the Self-Made Entrepreneur. Nobody makes it alone. The American taxpayer has supplied a huge infrastructure and makes enormous payments that allow entrepreneurs to succeed. Entrepreneurs are given enormous resources by the taxpaying public. They are not operating in a free market. They owe a lot — morally if not legally. The market is skewed toward them — and away from ordinary working people.

What a bummer. So what, nobody deserves anything? There's no fun in that.

Lakoff makes many other points, but essentially what he wants to do is replace everyone's values with his own- those of a compassionate, responsible liberal. But it seems far more realistic to tailor a message to prevailing conceptions of deserving-ness- like hard work, skills, and a commitment to family, friends and community.

I'm no cognitive scientist, but low-wage jobs aren't the same as low-skill jobs- that lots of them pay below what they ought to considering the work people put in and the skills that workers bring and gain on the job (See this article for more on that). A living wage ordinance is an adjustment to an exploitative market that has incorrectly priced the value of low-wage labor.

The same goes for things like the EITC and unionization rules. You could even say it's about health care, too; people who are working hard deserve health care even if their jobs don't provide it. Soon enough we won't be trying to insure kids, and even that has turned out to be harder than anyone thought it would be.

The CPS data released today undermine the president's claims that the economy is benefiting all Americans. They show that earnings of full-time, year-round workers in 2006 dropped for the third(!) year in a row. That household earnings have increased while individual earnings have decreased is a sign that American families are sending more members into the workforce just to maintain their current standard of living. The president touts the above-average productivity growth since 2001 as sign of a strong economy. But when strong productivity growth does not spur higher wages, the gains of the economy flow to the stock owners, and not to those who have contributed their labor.

And, as this table shows, individual worker earnings have yet to rise to their pre-recession levels in 1999.

Single-income households are becoming less and less viable as the costs of health care and energy continue to climb. But, we are virtually assured that the next time the president takes to the podium to discuss national, non-military affairs, he will crow about the increase in median household income as signs of a "robust" economy, and that to maintain this "fabulous" poverty reduction, Congress must not raise taxes and stymie the "strong and growing" economy. Meanwhile, back here in the really real world, the economic gains of the current recovery have in fact not made it to the pockets of most workers.

Photo by Flickr user AMANITO used under a Creative Commons license

While it is good news that the poverty rate declined and median household income increased compared to last year, when these numbers are compared to the bottom of the 2001 recession, the joy is somewhat tempered. Center on Budget and Policy Priorities has released a statement on the 2006 Poverty, Income, and Health Insurance figures highlighting the uneven distribution of gains of the current economic recovery.

The new figures are the latest evidence that the economic growth of the past few years has been very uneven, with the gains concentrated among the highest-income Americans. Too many low- and middle-income families are not sharing in the gains. These figures are inconsistent with claims that the policies of recent years have produced an outstanding economic track record.

The statement notes that compared to 2001, the beginning of the current recovery - the poverty rate remains above its nadir of 11.5%. In 2006, five years into an economic recovery, the poverty rate was 12.3%. The income figures are just as lackluster. In 2001, working age household (households headed by someone under the age of 65) real income was $1,300 higher the 2006 total of $54,726.

Income, Poverty, Health Insurance Coverage in the United States: 2006

• The poverty rate declined from 12.6% in 2005 to 12.3% in 2006. The number of people living in poverty has remained constant at 36.5 million
• Household median income in 2006 increased 0.7% to $48,200 from $47,845 in 2005
• The number and percent of those without health insurance increased to 47.0 million, or 15.8% from 44.8 million, or 15.3%

Slides from the Census's presentation can be found here, and speaker's remarks from the presentation can be found here

Paul Krugman's good column on SCHIP today has a paragraph that is worth examining.

Here's what I mean: The great majority of Americans believe that everyone is entitled to a chance to make the most of his or her life. Even conservatives usually claim to believe that. For example, N. Gregory Mankiw, the former chairman of the Bush Council of Economic Advisers, contrasts the position of liberals, who he says believe in equality of outcomes, with that of conservatives, who he says believe that the goal of policy should be "to give everyone the same shot and not be surprised or concerned when outcomes differ wildly."

It's funny this summary of the liberal-conservative divide is still being used. If I have my history right, it's a product of a debate that began in the early 1970s between two heavyweights, John Rawls and Robert Nozick. I don't quite have the time or the chops to do their debate justice, but it was unique to the era when it occurred, the "golden era" of growing equality, with the major disagreement being over how to address systemic racial injustice. Today, things look much different, and the gap between the very rich and everyone else, and the growing divergence between the median wage and productivity growth are much more important than they were in the 60s and 70s.

You'd think the way we talk about the difference between liberals and conservatives would change, but at least in the op-ed section of the NY Times, it hasn't.

Here's a suggestion: the most important difference between liberals and conservatives these days is over the reliability of the market to respond correctly to economic inputs. Conservatives think the market more accurately rewards things like hard work and talent the less government is involved. Liberals believe that government must intervene in the economy to ensure that effort is justly rewarded.

To me, inequality is "interesting" because it demonstrates that there is something deeply wrong with how our economy distributes things. The people at the top seem to be getting richer without doing anything to deserve it, while everyone else contributes more but doesn't get anything in return. This development has coincided with the retreat of government invervention in the economy.

Nozick and Rawls, to my knowledge, did not address the question of what best ensures the full return to labor and capital. Essentially, I imagine, it was taken for granted that people got their full return. It's time for the debate to move on.

I, however, beg to differ with White House spokesmodel spokesman Tony "Unsurprised" Fratto.

According to newly published IRS data, individuals making more than $1 million per year - less than a quarter of 1% of the population - captured 47% of the increase(!) in national income from 2000-2005. And, based on an analysis by Citizens for Tax Justice, that same sliver of taxpayers received 62% of the benefits from Bush's capital gains cuts.

Fratto responded to the data by saying that it "is not a very interesting story." His response also included this bizarre bit of incomprehensible gibberish: "There is no question that you will always have distributional concerns with a tax rate, a broad-based tax rate, at the very top of the income scale."

Because of the copious amount of media attention the July 23^rd minimum wage hike has received, it's possible you missed - what we here at the Budget Blog consider the best reporting on the subject to date - The Onion's coverage:

WASHINGTON, DC—Two weeks after the hourly federal minimum wage was raised from $5.15 to $5.85, families across the country were still celebrating the historic increase by running their electric fans, buying coveted half-gallons of milk, and, like Charice Williams of Shreveport, LA, purchasing name-brand ketchup to share with loved ones.

"I can't remember the last time I could afford Hunt's," said the 41-year-old mother of six, who for more than a decade has purchased ValuTime ketchup to garnish everything from Hamburger Helper to Tuna Helper. "Another couple dozen wage increases like this, and we'll be practically swimming in Heinz. Or at least my grandchildren will."

...

In Utica, NY, hotel maid Ernestine Caldwell has constantly worried about her husband's medical expenses since he was diagnosed with Alzheimer's disease earlier this year and forced to quit his job. But now that she'll be earning nearly $12,000 a year, Caldwell, 62, said she'll be able to pay off 1/64th of his medical expenses and finally start planning for her retirement by investing in higher-yield scratch-ticket games offered by the New York Lottery.

"For years, I've had to play 'Loose Change' or 'Straight 8's' while the $20 'Win for Life Spectacular' game has been out of reach," Caldwell said. "With this added income, though, I'll really be able to take advantage of all 15 ways to win. My husband deserves the best possible care."

Read more of the finest reporting on the minimum wage increase.

There's a complex relationship between the condition of the nation's capital markets and its macroeconomic performance. Equally complex is the parallel relationship between monetary policy set by the Fed the via interest rates and money supply and the far broader distributive fiscal policy options at the disposal of lawmakers. The past month's heavy losses among big, institutional investors coming at a time when the GDP has been contracting over the last couple of quarters are generating a spate of thought and opinion about this relationship.

The Federal Reserve Bank is charged almost exclusively with monitoring and seeking to contain inflation, consistent with maintaining capital liquidity needed for markets to operate. The Fed's appointed (not elected) governors may be concerned about unemployment, wages, and inequality, but have no constututional or statutory authority to address these directly. That can be done directly through fiscal policy -- the exclusive province of elected representatives.

An editorial in today's Los Angeles Times, Stay the course, urges: "When it comes to interest rates, the Federal Reserve should worry less about Wall Street and more about Main Street."

The editorial notes that "over the last two weeks [the Fed] has pumped billions of dollars into the economy and slashed the interest rate it charges banks for short-term loan [and now] the question is whether the Fed should do more." The Times argues against any further such action, saying that easy credit got us into the market contraction in the first place: "it would save investors who should suffer the consequences of their bad choices."

Wall Street certainly will use any excuse to clamor for easier money. But one of the main reasons the financial markets are in a fix today is that credit was too cheap for too long, which prompted lenders to take on irrational risks. Another reason is runaway financial innovation, which threw traditional lending standards out the windows.

Traditional lending standards, the choices of lenders and investors, wise or foolish, are well (and well kept) beyond the purview of the Fed. And what has any of this to do with the interests of Main Street, which the Times mentions only in the headline, or about job security, wages, and other issues of interest to many who work, shop, and meet on the corner of Wall Street and Main?

The always-edifying David Cay Johnston writes about the latest income data from IRS:

Americans earned a smaller average income in 2005 than in 2000, the fifth consecutive year that they had to make ends meet with less money than at the peak of the last economic expansion, new government data shows.

And after years of touting a fantabulousness of the economy, the White House reacts by saying that the new data "should not surprise anyone" because "the significant wrenching hits that our economy took in 2001 and 2002, so no one should be surprised that what a bubble economy created in the late 1990s and 2000, where economic data were skewed, would take some time to recover."

Uh, dude:

Total income listed on tax returns grew every year after World War II, with a single one-year exception, until 2001, making the five-year period of lower average incomes and four years of lower total incomes a new experience for the majority of Americans born since 1945.

Barbara Ehrenreich's take on the troubled stock market. Check it out, if only for the tongue-in-cheek phrases like "smashing the global financial system."

Somewhere in the Hamptons a high-roller is cursing his cleaning lady and shaking his fists at the lawn guys. The American poor, who are usually tactful enough to remain invisible to the multi-millionaire class, suddenly leaped onto the scene and started smashing the global financial system. Incredibly enough, this may be the first case in history in which the downtrodden manage to bring down an unfair economic system without going to the trouble of a revolution.

Poverty and inequality are big problems. But how big are they?

It's tempting to define them as only concerning aggrevied parties- the poor, the displaced, the underemployed. But the reality is that these problems have something to do with a whole lot of people. There's the aggrievee, and the aggriever. It takes two to tango.

So who are the aggrievers? In other words, who's getting rich under the new inequality? Who are the new Rockefellers and Morgans? And what exactly did they do to deserve all that money?

These question have to be answered in political narratives about social justice, I think. It must be established that grievances are being redressed with rewards that were going to undeserving parties. Otherwise, we'll have to do something wrong to make something right, which is not the most comfortable position.

Fortunately, there's a growing sense that too much wealth is owned by the undeserving- in this respect, Paris Hilton is the most effective advocate for greater equality I know, an unconscious traitor to her class. But this financial downturn we're in could be the kicker, if it spreads to the rest of the economy. Not only are the hedge funders not really as good at making money as we all thought, but they'll have made a royal mess out of the economy and too many people's lives.

Managers of capital are today's economic hero. Guys like Donald Trump, Warren Buffet and Robert Rubin practically have cult followings. Knock them off their pedestal, and who knows what will happen.

First up- start taxing them at the rate everyone else pays, and use that money to defer the taxation of the upper middle class under the Alternative Minimum Tax.

Reading an article about housing projects in New Orleans that are slated for demolition, I saw something that got me thinking about deserving-ness and inequality.

By the turn of the century, when I first walked through a New Orleans housing project for my own work (representing poor people facing the death penalty), I found it difficult to believe that the government could legally allow people to live in such squalor, with windows busted out on many units, with doors knocked in exposing interiors covered with graffiti, with children playing in trash-strewn common areas overgrown with weeds taller than them. By this point, America had given up on the notion of the deserving poor in favor of the view that identified the mostly working mothers who occupied the majority of these units as "welfare queens" having children in order to get bigger government checks.

It isn't just the nation. I'd argue that much of the progressive community has all but given up on making a strong case for a deserving poor and middle class.

EPI's Ross Eisenbrey wrote a great response to another economist whose love for the market has made him misrepresent the facts.

For example, the authors declare that it is a fact of nature "as unquestionable as the Earth rotating around the sun" that productivity — output per hour — drives wages. But the authors attempt to demonstrate this relationship by charting productivity against per capita income — a measure very different from wages. In fact, as the profit share of national income has increased over the last generation, per capita income has grown much faster than the typical worker's wage. The result has been a steep rise in inequality, with the rich getting much richer and working folks treading water.

Eisenbrey also makes what I think is the most critical point about inequality. This is why EPI is so awesome.

Productivity and wages should be related, and wages ought to rise as productivity increases. It's only fair, after all, that workers should benefit from their higher output. But productivity and wages don't necessarily rise in tandem. One of the biggest economic problems facing the country is the fact that over the last 30 years, productivity grew substantially while the wage of the typical American worker has barely increased after adjusting for inflation. The problem has been quite severe in recent years: from 2000 to 2005, productivity increased 17 percent while the median wage increased only 3 percent. Most economists, including Federal Reserve Chairman Ben Bernanke, have come to recognize this problem — but not the authors.

Workers deserve a higher wage because they have earned it. They produce more, they should get more.

Many academics are coming to the conclusion that the public cares most about who deserves what, rather than who gets what (via inclusionist.org). This research contradicts the model that reduces politics to self-interested, income-maximizing behavior, a powerful idea that's prevalent in elite discourse on both the left and the right. Turns out that reciprocity and fairness probably matter most.

How do you become deserving in this country? You work hard, you make a contribution, you have bad luck, etc. It's conditional, and it's about dignity more than it is about sympathy, I think.

There are nice ways of saying these things and there are not so nice ways. I don't care how people say it, as long as they say that people deserve higher wages because they've earned them. Not just because workers are human beings. Not just because they have unmet needs. Not just because other people don't need the money. And not just because otherwise evil corporations get it.

The Brooking's Katrina Index released its latest report on the slow-going hurricane recovery. The report explains a few of the policy barriers to a full recovery:

Despite this progress, many other obstacles to recovery remain.

• The Road Home program will stop accepting applications after July 31, largely due to the estimated $5 billion shortfall in the program. Neither Congress nor the Louisiana legislature have committed to providing additional funding for Road Home.
• Funding for the city's plan to redevelop 17 targeted neighborhoods has yet to be secured, stalling recovery czar Ed Blakely's plans to have "cranes up in the skyline" by September.
• Skyrocketing insurance rates continue to place a tremendous burden on residents and small businesses alike, leading to the termination of several plans to develop high rises and multi-family dwellings already approved by the state and city.

New Orleans probably has many problems it has to work out for itself, but a lack of funding should not be one of them.

Senate Majority Leader Harry Reid has announced that the Senate will vote on the nomination of Jim Nussle to be the new Director of the Office of Management and Budget on Monday, September 4 - the first day back from the August recess. Reid announced there will be three hours of debate on the nomination beginning at 2:30 pm. One hour each for the chairman and ranking member of the budget committee, and one hour controlled by Sen. Bernie Sanders (I-VT).

Sanders has announced a hold on Nussle's nomination because he has serious concerns about the nominee and his philosophical differences with the administration's fiscal policies. Sanders said:

President Bush is completely out of touch with the economic realities facing working families in America. Bush needs to hear the truth, not an echo. He needs a budget director who will make him face the facts, not fan his fantasies.

I thought I'd point up an interesting article I read over the weekend in Reason, a libertarian magazine.

It's a review of a critique by a leftist economist of F.A. Hayek, a strong advocate for free markets who challenged socialist economic policy when it was ascendant in the '30s and '40s (that's right- this leftist blogger is commenting on a libertarian review of a leftist critique of a libertarian economist). Socialist planned economies, Hayek argued, were hampered mostly by information asymmetries and distorted economic incentives that caused massive waste and discouraged work. Hayek made the case that markets served as more efficient means of distributing information, and that market actors over time could price goods more accurately than government agencies.

Much of Hayek's analysis has been borne out by failed planned economies in eastern Europe and Asia. But the review's author, a self-described libertarian economist, recognizes that neither history, nor libertarian principles alone, will convince more people to further relax governmental controls on the market. The key argument is an empirical one- which outperforms the other in achieving common goals, civil society or governmental interventions?

If Burczak is a bellwether, his book suggests the debate over markets vs. socialism will become more and more empirical. Do unconstrained markets produce outcomes for the least well-off that are at least as good as could be produced under other economic systems? Can political processes achieve the goals that critics of markets would like?

The review's author believes these questions have pro-market answers. But recent events and research reveal that they might not. This is the argument that can win the hearts and minds of people who don't reflexively support governmental intervention.

Information asymmetries still cause lots of waste, but they occur because the government isn't involved enough- i.e. in health care. And the free market has unleashed the screwy incentives that have so widened inequality and threaten ecological catastrophe. Meanwhile, the tonic of market competition just doesn't seem to cure what ails us- either in education, product, workplace and environmental regulation, or lending and credit practices, to name a few.

Sometimes the market is the problem, and you don't put out a fire by pouring fuel on it. In other cases, injecting market dynamics just doesn't solve the problem.

A convincing liberalism is one that does not cede the ground of governmental superiority. Liberals can make a selective argument for governmental efficacy and market inefficacy that convinces and helps broaden liberalism's appeal.

Since the beginning of the recovery in 2001, the income share of the top 1% grew 3.6 percentage points to 21.8% in 2005, greater than the 16.1% income share of the entire bottom half of all U.S. households. Correspondingly, the income shares of the bottom half and the upper-middle class dropped, respectively, by 1.4 and 2.3 percentage points. As a result, the top 1% of households gained $268 billion of total income and the bottom 90% lost $272 billion since 2001.