MSOD 619

Summary Group: Shefali Khandhar ModyNicole TumaJennifer LarsenDavid LoebsackRon Milam

Pepperdine University MSOD 619 - 2014

ImpressionsReviewer NameWhat were the Books StrengthsWhat were the WeaknessesShefaliThere 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 openlyWas redundant at times to the point of sensationalismNicoleEasy 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. 2ImpressionsReviewer NameWhat were the Books StrengthsWhat were the WeaknessesJenniferThere is a lot of great stats that back up his statements. I didnt 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 didnt 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.34 RonThis 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?5DavidVery 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 dont) in the middle. Now that Ive 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. ImpressionsReviewer NameWhat Excited Us About the BookWhat Frustrated Us About the BookShefaliBy opening up the topics, people will be more engaged in these discussions and this will bring about changeThese are complex issues and the solutions presented didnt consider consequences or how to implement wasnt consideredNicoleI 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. 6ImpressionsReviewer NameWhat Excited Us About the BookWhat Frustrated Us About the BookJenniferFacts 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 (haves vs. have nots)RonHe 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. 7ImpressionsReviewer NameWhat Excited Us About the BookWhat Frustrated Us About the BookDavidThe 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 years8Insights that Spoke to usShefali: I contemplated history and wondered if the 50s and 60s were Americas golden age and realized that every great westernized country has had its 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 dont 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 cant. Does one exist9Insights that Spoke to usJen: The people that are so wealthy, they cant even fathom what life for the poor is like. Ron: Im 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 doesnt convey the emotion tied to this issue.

10Insights that Spoke to usDavid: Two major insights. First, I keep going back to the question: What are the basic assumptions Im making about how life, the world and reality work and in this case, are supposed to work. Stiglitzs 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 its human nature to collude with other like-minded people to protect your joint territory. I dont 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. Ive seen tacit collusion everywhere Ive worked, and speculate that its a standard human response to the SCARF radar going off.11Ways 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.12Ways in which these issues may manifest in the sessionRon: 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 dont 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. 13Jennifer: 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.14Ways in which these issues may manifest in the sessionWhat to look for in the sessionShefali: 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? 15What to look for in the sessionJennifer: 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 Rons statement, but might state it a different way: How do we create more awareness in the system about the power dynamics?16Primary MessageCauses of InequalityEconomic Impact of Inequality1% vs 99%Role of GovernmentFair Performance metrics for the economy and citizenry17Income 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 centuryGap is great in terms of annual income but even greater when accumulated wealth is concernedMiddle 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 countries18Income GapTrickle down economics has done little for America. There is a widening gap between 1% and the 99%The Great Recession has worsened inequalityThe 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 over19Income Gap Key QuotesThe 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.20Rent Seeking and American InequalityRent 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 Washingtons powerful to ensure that their agendas are advanced.2121Rent Seeking Key QuotesCountries rich in natural resources are infamous for rent-seeking activitiesMacro-mismangement in all of its guises, is a major source of inequality

22Not Playing by the Rules of DemocracyMistrust in the government stemming from inequality manifests in the way the citizenry participate in political processesLack 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 agitationsGlobalization and technology can fuel structural transformations. Government policies should address this such that there are more winners than losersA fairer tax system is also key to closing in on the growing inequality

23Rules of Democracy Key QuotesExtreme concentration of income is incompatible with real democracyGlobalization, 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.24Framing 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%.25Framing 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.26Framing Perceptions Key QuotesThe 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.27Is the Rule of the Law Unfair?There is a general acknowledgement that a democratic society cannot function with rules and regulations that safeguard everyones 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.28Rule of Law Key QuotesIf economic power in a country becomes too evenly distributed, political consequences will follow.but in todays America, the proud claim if justice for all is being replaced by the more modest claim of justice for those who can afford it.29Response 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.30Great Recession Key QuotesThe 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.31Macroeconomics 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 inequalityThere is no such thing as a perfect macro economic policy. Alternatively macroeconomic moentary policies can contribute to better economic performance and address inequality.

32Macroeconomics Key QuotesNothing 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 country33Reform Agendas & Key QuotesThe 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 doesnt work, trickle-up economies may: all-even those at the top could benefit by giving more to those at the bottom and the middle.34Final 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

35Final 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 inequalityThe 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.36NEEDED CHANGESRecognize that pure competition would take a long time to be effectiveKeynes: In the long run markets may work well, but in the long run we are all dead.Incomes should reflect contributions to outputHigher standard of living will increase stabilityMore equitable, effective taxation & financingFull, skilled employment & greater Decentralization are crucial37Manufacturing Drops for 1st time in 3 years July 3, 2012 HeadlineInstitute 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

38Source: Institute for Supply Management, In: The Arizona Republic July 3, 201239

Our Current DilemmaTechnically, we have been out of recession since June 2009,but most people dont believe it and many are worse off today than 3 years ago

40So, why do we feel so badly?

Unemployment is still much higher than usual for this portion of the recovery in the business cycleThe political scene has led to gridlock in governmentWorkers share of income has fallen to historic lowsUncertainty in global markets (Europe & China) is causing some investors to postpone decisionsDemand and Supply in the housing sector have not found a stable equilibrium in many locations

41Analysis of RecessionWhat is different about this cycle?Although recession technically ended three years ago, we didnt bounce back in terms of:

Rapid increase in GDPLarge decline in unemploymentIncrease in personal income and spending

Why not?42A 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 alike43Source: Paul Wiseman, Associate Press, in The Arizona Republic. July 2, 2011Increasing Income InequalityThe 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, 2011.44Worldwide GINI Coefficients

45Why is this a problem?John Hobson English economist (wrote in 1902)The poor didnt have enough money to buy goodsThe rich couldnt 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 countryIncrease in social unrestIncreases in inequality of income and wealth

46Coming 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 dont have any clue how most people live47Source: Summary by Aaron Task. Daily Ticker, May 3, 2012.Coming Apart Charles Murray - 2012The new role for class in our culture wouldnt 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 apart48Coming 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, its more than money it is an entirely different culture and way of life..49Coming Apart Charles Murray - 2012Differences in....... Amount and type of TV shows & moviesRestaurantsBooks & musicViews on marriageViews on diet & smokingEducation of their childrenHow children spend their time50Source: Summary by Aaron Task. Daily Ticker, May 3, 2012.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

51Source: Summary by Aaron Task. Daily Ticker, May 3, 2012.Coming Apart Charles Murray - 2012Historically, class has not been a part of the American cultureToday, theres an awful lot of people very comfortable thinking they are the upper classThey think, why should I associate with those bozos?

A culture of separate classes is new to America

52Source: Summary by Aaron Task. Daily Ticker, May 3, 2012.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 wont be repeated?

53Is 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.54What about todays tools?Traditional expansionary tools arent working.Monetary PolicyInterest rates are already lowAnimal Spirits have not been kindled

Investment is low because uncertainty is high

What can be gained by lowering interest rates if businesses dont wish to borrow?

55What about todays tools?(continued)Fiscal Policy Another stimulus plan would increase demand by increasing the level of potential spending, but it wont happen:Going further into debt seems riskyRaising taxes to fund it is just too unpopularPrinting money would be inflationaryGovernment could reduce taxes again but:Public services and infrastructure are already lagging Lower taxes wont generate more spending if people pay down debt or increase savings instead of buy more goods

56What 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 confidenceHousing has to return as a strong and stable sector, but without the rise in speculative pricingCredit needs to be made available to the middle class which is currently not happeningProblems 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 pictureYet, these issues are politically popular & what Congress addresses

Consumer Confidence IndexDateIndexJune 201262.0May 201264.4April 201268.7June 201157.6Most Recent LowFebruary 200925.3 Most Recent HighFebruary 201270.859Source: 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 & doesnt 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