Robert H. Frank of Cornell University, Adam Seth Levine of Vanderbilt University, and Oege Dijk of the European University Institute recently wrote a fascinating paper suggesting that inequality leads to more financial distress. They looked at census data for the 50 states and the 100 most populous counties in America, and found that places where inequality increased the most also endured the greatest surges in bankruptcies.
Here’s their explanation: When inequality rises, the richest rake in their winnings and buy even bigger mansions and fancier cars. Those a notch below then try to catch up, and end up depleting their savings or taking on more debt, making a financial crisis more likely.
[i]When inequality rises, the richest rake in their winnings and buy even bigger mansions and fancier cars. Those a notch below then try to catch up, and end up depleting their savings or taking on more debt, making a financial crisis more likely.[/i]
Ah, the creation of an infinite “victim” class. I am a “victim” because the guy down the street with his new Mercedes “forces” me to trade in my 12 year old Chevy Metro for a new Mercedes just like his. But, without his income I go into a financial death-spiral trying to keep up. Thus, my problem is his fault and his income no doubt should be confiscated so that it can be redistributed to the rest of us to “level the playing field”. Never mind that he spent 8 years in medical school and another 3 in residency before ascending to his lofty salary.
Dear New York Times: please go peddle that trash to Europeans who have spent centuries revelling in that type of class warfare. We in America believe in our own destiny, built on the foundation of rights granted to us by Almight God.
Wow, so the current financial mess is all the Rich’s fault? It’s good we know who’s to blame, especially since it’s the folks already in the stewpot. Wash your hands before dinner.
/sarcasm
I’ll remember to say a prayer of thanksgiving for the graces given to me; not only can I be content with what I’ve been blessed with, but I don’t resent people that have more than I. The two probably go hand in hand.
#1 I’d go along with the self-made-man concept if there were a level playing field, but that’s long gone. All those bags of cash delivered to congressmen and senators have ensured that the law is now skewed to favor the ultra rich. Neither you, nor I, or anyone else reading T19 has any hope of ever becoming one of those folks. Doctors and lawyers aren’t part of the rich either, they’re part of the scum with the rest of us. We all didn’t go to the right schools and don’t have the right friends.
‘Coverting’ can be defined as wishing for, longing for, or craving the property of another person.
Assuming that the person who is ‘coveting’ is earning enough income to take care of his basic needs and feels secure in his ability to continue doing so, then he shouldn’t be classified as ‘poor.’
If such a person bankrupts himself by unsucessfully living beyond his income, then its his fault, not the fault of the person with greater income.
You see examples of this all the time. That unneeded bigger home, that unnecessarily more expensive car, eating out at excessively expensive restaurants, that totally unnecessary trip to Las Vegas or Carribean cruise, that expensive boat with mooring fees, that dreamed for but unnecessary summer camp, that very expensive motor cycle, etc.
Turning ‘coveting’ into a ‘class warfare’ issue is pure nonsensical propaganda.
I know a multi-millionaire who bought more house than he could afford. Now, witht the current economy as it is he is chewing through equity at an allarming rate. He may lose everything.
My main gripe with the editorial is the premise of the class warfare assumption. If this were true why do so many live peacefully and with contentment in poverty while the rich so often blame those who are richer than themselves for their misery?
Don
[i]Neither you, nor I, or anyone else reading T19 has any hope of ever becoming one of those folks.[/i]
I personally have never had any hope of being “one of those folks”. In my consulting business I have met numerous CEO’s who have multi-multi millions but are on their third wife, can’t hardly remember their kids names from the first and second marriage, have had a couple of stents along the way, and never ever get to stop long enough to “smell the roses”.
Nope, have never had one moment of envy for that existence. I’m more than content with my humble existence in a modest little house on the gulf coast with an old sailboat that lets me see more wonders in an afternoon than those ultra-rich CEO’s will see in the rest of their lives.
In fact I am thankful for those CEO’s because they do the stuff I couldn’t stand to do. Like they say, “it’s a tough job, but somebody has to do it”. I’m just glad it ain’t me! Class envy is never what it is cracked up to be.
Not to mention that the rich buying new Mercedes causes middle class employees in Alabama to have a job, the McMansion keeps construction companies busy which allows blue collar workers to make a contented living.
The NY Times acts like all these material goods appear like magic instead of being made by employees who need jobs. No Mercedes, no McMansion, no employment. The more the rich are “soaked” the more the working and middle class are hurt. Just ask what is left of the ship-building profession after Clinton declared his “War on Yachts.”
Classical society was pyramid-shaped — a handful of elite at the top, a large mass of serfs at the bottom. Social mobility was zero.
American society has traditionally been lozenge-shaped — a handful of very rich at the top, a handful of very poor at the bottom, the bulk of the people somewhere in the middle. Upwards social mobility has been possible, at the cost of hard work.
What the article is pointing out is that we’re in danger of losing that — the astonishing concentration of more and more of the wealth of this country in fewer and fewer hands means that the middle class is being starved out. The lozenge is becoming the old-fashioned pyramid, and it’s becoming harder and harder to climb up it.
If something doesn’t happen to reverse this trend, you can kiss the American Dream goodbye.
Seems like people here don’t mind the idea of living in a banana republic.
Unfortunately, Billqs, the wealthy simply don’t buy enough mcmansions or mercedes. If they really wanted to help, they’d spend and spend rather than keep their money in savings. The rich spend, but they don’t spend enough. What they should do is spend money on the infrastructure. We don’t seem to want the government to do that.
How many cars does one need to be happy?
Actually, higher taxes might save the rich from some of their own sins. It may teach them there’s more to life than money. It might remind them that we have a duty to our country, to pay for its wars, to keep the infrastructure up.
To whom much is given, much is expected.
Granted, I know that people suppose that the rich purchase more wisely than the government. This is, in my view, an idealistic view of human nature. The rich make bad decisions, like everyone else, but they can get away with it. They run over bicyclists and avoid prosecution. They can speed at 100 miles an hour and their ticket is a trifle. They can pay for $30 bagels – just because they can.
I sympathize with Don, but the issue is this: why is it that those who do play by the rules can’t get a fair shake unless they become part of the entitled class that thinks they are morally better? Why shouldn’t we wonder why kids like Paris Hilton and the Kardashians are rewarded for their bad behavior while our own kids struggle to make ends meet? Should we feel sympathy for the 26 year old who cries because their bonus is only 1.9 million dollars, and spends their money on prostitutes and cocaine? While condemning the welfare mom who has to choose between welfare and working for minimum wage?
“..why is it that those who do play by the rules can’t get a fair shake unless they become part of the entitled class that thinks they are morally better?”
There is but on single answer that I can come up with for that quetion:
We suffer from a poor and inadequate education. Our State education has failed us.
Don
John (#9.) said,
“…why is it that those who do play by the rules can’t get a fair shake unless they become part of the entitled class that thinks they are morally better?”
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I detect a ‘non sequitur’ in the above attempt to link “play by the rules,” “get a fair shake,” “entitled class” and “morally better.”
This sounds more like the traditional ‘railing’ of the ‘have nots’ against those who ‘have.’
A person can be very poor and “morally better.” Take the widow who put her small copper coin, all that she had, into the treasury box at the Temple. And didn’t Jesus emphasize the hypocrisy, insincere/immoral behavior, of the comparitively much more well-to-do Pharisees in his teaching?
When it comes to human relationships, the possession or non-possession of wealth is not a determinant of a person’s morality or of his gentility.
And the passions of the ‘bitter mobs’ who jealously covet what others have bothers me equally as much as the obvious selfishness of some of the well-to-do.
Interesting post and comments. A few thoughts of my own:
1. Inequality is not the problem. The quote
leaves me shaking my head in wonder. This is absurd. People need to be financially responsible. I recall the housing bubble here in California five years ago – everyone was buying homes and just slapping the money down without proper inspections, without seriously discerning their ability to pay – all in this mad rush to get in on the action. We chose not to, because the prices were simply too high. Was there pressures to get in on the home buying? Yes there was. It seemed at the time, like everyone else was richer then we were, because we certainly didn’t seem to have the money to blow on homes and fancy cars that others did. But that wasn’t really the case in the end.
We are all responsible adults who should be accountable for our decisions. Sure enough, the bust came and all of these spendthrift lemmings got into deep financial trouble and foreclosures. Do I feel bad for these people? Yes, but should I bail them out? No. They refused to use common sense when the housing prices went up, and they had no problem denying us a common sense buying price by throwing money down the drain. So we don’t own a house. And why should I now subsidize these idiots so that they can stay in a house which they should never have bought in the first place?
Government redistributing wealth in the name of “inequality” to subsidize foolish people who spent more money then they could afford is to reward irresponsibility. That is alarmingly short-sighted policy.
2. I think that there is room to suggest that it is problematic that America is becoming less mobile economically and to criticize the fact that we seem to shield the very wealthy from consequences of their foolish actions (bailouts, anyone?). But these criticisms aren’t actually focused on the notion of “inequality”.
Technological progress and the commodification of those technologies makes income inequality less relevant. When I was finishing college, my P133 laptop with a 120MB HD and about 512MB memory cost $3000. Today, you can buy a laptop that is an order of magnitude more powerful, and half the weight, for $800. This is true for any number of products, and it complicates Kristoff’s analysis greatly.
#10 – interesting: Public education was one of the few things that allowed people into the middle class. Think the founder of Intel – when CUNY was free. If you compare, for example, schools in successful countries, you’ll find that they honor their teachers and confront poverty with much more sincerity. Generally, when someone is poor in our country, we blame them.
#11 – well – I agree with you. But the question is: what kind of society do we want to live in? I’m not, myself, interested in a classless society. That could only be reached through tyranny. But we have a few choices.
Do we want to live in an economy more similar to a gold rush? One person is lucky, while everyone else remains poor? Or more like a fishing society. Some decide they want one for supper, but the more industrious can take a few more because they work harder. They don’t have a right to the river, but are rewarded for their work.
Do we want a society that’s more like a highway where one lane goes fast, and the other two are stalled? Or do we want one where everyone moves forward, albeit at different speeds? It’s one thing to resent the rich for living in the fast lane. It’s another thing to feel that you’re not moving at all and watching all the other cars go by.
A transfer of wealth prevents people from establishing little monarchies; it also forces people to recognize the moral virtue that money isn’t everything. It also disincentivizes hoarding. It also ensures that the social contract is maintained voluntarily and not by force. The poor man mand and the rich man both pay the policeman and the legal system; and they must pay the system enough so that the watchmen are neutral.
“People need to be financial responsible” is kind of like saying “fat people just need to be thin.” the fact is that people are… irrational. The rich buy $30 dollar bagels and believe private jets make them more morally worthy than others. They think they don’t need to pay for wars or even go to war for the country: why? they’re rich!
I admit, I think Don Gandar has a very optimistic view of human nature. In a world where people are sinners, people exploit, take advantage of, con and backstab. To assume that there aren’t real predators in business and in the financial world seems quite idealistic and utopian. The “bitter” mob and the traders who buy and sell are the same people: just some have money and others don’t. And I think that the bitter mob has every right to wonder why we socialize the risk of the rich, while we’re frugal and mean toward the working man who builds the country and the unlucky poor who we find it easier to throw in jail, than to build schools worth having.
I see that my explanation of educational failure is too short.
We elected a president who has been known to be a part of chicago politics. Perhaps not the worst, but the best is not at all good there. The electorate vote for such a charactor because they have been taught to expect very little from there polititians. They expect little because it is in the interest of polititians to have the people expect little of them; “Let them eat cake” is the classic observation. The schools are paid for and managed by polititians.
Do you see my point?
Don
Don, I think that you’re saying that there are some institutional issues that have to be addressed when it comes to managing education. For politicians, education is a cheap political issue (every politician promises to do something about politics), that requires a lot to change. Still people don’t tend to listen to either teachers, or parents about what they need.
I admit, I’m always perplexed when people conflate Obama with the Chicago Machine. The actual picture is a lot more complicated than that. Obama went to Chicago because of Harold Washington. If you want to know how Mayor Washington ran things, read this.
http://chicago.straightdope.com/sdc20101021.php
The machine barely knew who Obama was until 2004.
A government purposely devaluing our dollar, stagnant incomes, fighting 2 wars, massive unemployment, massive underemployment, commodity prices shooting up, regulations that favor big businesses over smaller ones, a public that gets more worked up over American Idol than our country’s direction, people that spend hours on Farmville but don’t even know how to grow a vegetable, voter ignorance, government bail-outs of companies that are “too big to fail,” outsourcing of our best jobs….yeah I think we just might be called the “Banana Republic of America” soon (and note that I say this as an old-style, libertarian leaning, conservative)
“The machine barely knew who Obama was until 2004”
And which machine was that? I think Tony Resko’s machine knew him a lot longer than that. The Valerie Jarret machine sure knew him a lot longer than that. And the Rev in Chicago has known him for 20 years plus. Oh, and that guy who planted a bomb in the Pentagon, what was his name???? Known Obama a long time.
So, who was clueless until 2004? A lot of American I would say.