The Price of Inequality

The unfairness of a situation in which so many lost their homes and their jobs while the bankers enjoyed large bonuses was grating. Location 93

Note: Unfairness is not a conception that a Conservative can understand, but nevertheless, when enough people feel taken advantage of, it becomes a problem; they wont’ want to live that way. It goes back to the old argument. “It’s you’re own fault.” But if markets were actually aligned with how human psychology worked, we wouldn’t have this problem. You could say Socialism “works” if every single person just acted perfectly in accordance with how you need them too. When people are being taken advantage of en masse, it creates a society they do not want to live in, and our Declaration of Independence gives us the right to change our governance and market system accordingly.

The virtue of the market is supposed to be its efficiency. But the market obviously is not efficient. The most basic law of economics—necessary if the economy is to be efficient—is that demand equals supply. But we have a world in which there are huge unmet needs—investments to bring the poor out of poverty, to promote development in less developed countries in Africa and other continents around the world, to retrofit the global economy to face the challenges of global warming. At the same time, we have vast underutilized resources—workers and machines that are idle or are not producing up to their potential. Unemployment—the inability of the market to generate jobs for so many citizens—is the worst failure of the market, the greatest source of inefficiency, and a major cause of inequality. Location 112

America had created a marvelous economic machine, but evidently one that worked only for those at the top. Location 124

But government has also played a major role in these advances, a fact that free-market advocates typically fail to acknowledge. On the other hand, markets can also concentrate wealth, pass environmental costs on to society, and abuse workers and consumers. For all these reasons, it is plain that markets must be tamed and tempered to make sure they work to the benefit of most citizens. Location 138

Their ideology simply won’t works for very few people. You can’t realistically expect the vast majority of 350 million people to work feverishly for their entire life, see their work barely sustain them while others have so much, get taken advantage of, and somehow be happy with it and desire no change. Who really thinks this way? Once again we get back to the common argument. If one person fucks up, sure it might be their own fault. But if everyone is doing poorly is it really everyone’s fault or is there something wrong with your system? You apparently have a organization of institutions set up in such a way as to be against the fundamental nature of the human condition. 

And that has to be done repeatedly, to ensure that they continue to do so. That happened in the United States in the Progressive Era, when competition laws were passed for the first time. It happened in the New Deal, when Social Security, employment, and minimum-wage laws were passed. The message of Occupy Wall Street—and of so many other protesters around the world—is that markets once again must be tamed and tempered. The consequences of not doing so are serious: within a meaningful democracy, where the voices of ordinary citizens are heard, we cannot maintain an open and globalized market system, at least not in the form that we know it, if that system year after year makes those citizens worse-off. One or the other will have to give—either our politics or our economics. Location 141

Once again we see why this is one of the greatest books ever written. It addresses every major argument Conservatives have on pragmatic grounds. When most people are suffering, who really believes they will, or even should, sit idly by and let it happen. “Just work harder” is a meaningless statement, as it assumes everyone that isn’t rich is lazy, which further assumes you have a market system that rewards hard work with wealth, which is a Conservative myth. They are working as hard as they can. If that’s not enough something else needs to change. 

In the United States and Europe, things seemed more fair, but only superficially so. Those who graduated from the best schools with the best grades had a better chance at the good jobs. But the system was stacked because wealthy parents sent their children to the best kindergartens, grade schools, and high schools, and those students had a far better chance of getting into the elite universities. Location 153

It was rightly perceived to be grossly unfair that many in the financial sector (which, for shorthand, I will often refer to as “the bankers”) walked off with outsize bonuses, while those who suffered from the crisis brought on by these bankers went without a job; or that government bailed out the banks, but was reluctant to even extend unemployment insurance for those who, through no fault of their own, could not get employment after searching for months and months;7 Location 165

Note: While conservatives frame the argument such that, we all do better when the wealthy do better because they invest in capital and provide jobs for the rest of us, this is another good example of how the wealthy do in fact, get rich off of the backs of the poor. Who’s the one who walks away with a Golden Parachute when a company tanks and it’s employees go under. Or, when the bankers get wealthy by securitizing mortgages, wiping them off their books, then bringing down the financial system, who is it that suffers? The wealthy eat the candy and the rest of us get sick. We suffer for their reckless profiteering. Through speculation outside of normal market forces, they distort the market, and when it collapses, they walk away when everyone else suffers.

What happened in the midst of the crisis made clear that it was not contribution to society that determined relative pay, but something else: bankers received large rewards, though their contribution to society—and even to their firms—had been negative. The wealth given to the elites and to the bankers seemed to arise out of their ability and willingness to take advantage of others. Location 170

Note: Level 10 – One of the most important examples of a refutation to the argument that a person’s wealth is based off of what they contribute to society.

The chances of an American citizen making his way from the bottom to the top are less than those of citizens in other advanced industrial countries. Location 176

Note: Why could this be? Most other industrialized countries have larger government involvement than ours, lets mobility is up. An example of positive influence by Government.

If no one is accountable, if no individual can be blamed for what has happened, it means that the problem lies in the economic and political system. Location 191

Note: Their axiom is that markets are perfect. Clearly something went wrong here. You can only blame so many actors. Either it was somebody, a market failure, or government. If everything is lain at the doorstep of the government, you have to examine the other 120 systemic bank failures, and blame every one of those on Government as well. Impossible to do.

The majority of Americans have simply not been benefiting from the country’s growth. Location 207

Note: Chris and the like always talk about how growth is the most important thing. However, we have been growing, for decades. The growth is going to only the very top. In the dimension the 99 percent are living in, there is no growth. The growth we are told about happens only in the wealth of the very top. Not very encouraging.

While this book focuses on equality and fairness, there is another fundamental value that our system seems to be undermining—a sense of fair play. A basic sense of values should, for instance, have led to guilt feelings on the part of those who were engaged in predatory lending, who provided mortgages to poor people that were ticking time bombs, or who were designing the “programs” that led to excessive charges for overdrafts in the billions of dollars. What Location 210

Note: Good idea for people like Joe, who are sickened by the idea of fairness. For someone will hand someone else a gun, knowing this person will shoot themselves with it, then go on to benifit from it, seems a sick and ignoble activity to pursue. While it might not be criminal, decent people don’t think it should be encouraged, and is certainly nothing to brag about. There is something important, about providing real value in an exchange, not just illusionary value. In addition, it also shows another way in which a person making wealth isn’t really providing value. They are providing an oppurtunity for the person to ruin themselves. Perhaps not illegal, and perhaps a good oppurtunity to have for some…but nothing to encourage. This doesn’t speak to politics, but instead, to the national sense of good. Is it good to provide someone with an oppurtunity that you know they cannot handle, that might lead to their run, only so that you can benefit.

Something has happened to our sense of values, when the end of making more money justifies the means, which in the U.S. subprime crisis meant exploiting the poorest and least-educated among us. Location 214

Capitalism seems to have changed the people who were ensnared by it. The brightest of the bright who went to work on Wall Street were like most other Americans except that they did better in their schools. They put on hold their dreams of making a lifesaving discovery, of building a new industry, of helping the poorest out of poverty, as they reached out for salaries that seemed beyond belief, often in return for work that (in its number of hours) seemed beyond belief. But then, too often, something happened: it wasn’t that the dreams were put on hold; they were forgotten. 11 Location 219

Note: It is worth asking, if a systems economic incentives bring in all of the greatest minds from other areas into money movement? Imagine if Einstien, drawn in by massive salaries, had gone to work in Hedge Fund management. A few lucky investors would have become very wealthy. And billions would have lost out on the world his genius created. Imagine if Bohr, Von Neuman, Tesla, and those that have cured disease went into Wall Street. What are the offsetting costs of having incentives that bring the greatest talent from other areas. Is the greatest benefit to society, really and truly, the movement of money in the stock market?

Exxon similarly used its money to try to persuade Americans that the evidence on global warming was weak, though the National Academy of Sciences had joined every other national scientific body in saying that the evidence was strong. Location 226

Note: Global Warming

And while the economy was still reeling from the misdeeds of the financial sector, the BP oil spill showed another aspect of corporate recklessness: lack of care in drilling had endangered the environment and threatened jobs of thousands of those depending on fishing and tourism in the Gulf of Mexico. Location 228

Note: An example of how the pursuit of profit can cause disaster that puts many out of work, offsetting the benefits they create in jobs.

If markets had actually delivered on the promises of improving the standards of living of most citizens, then all of the sins of corporations, all the seeming social injustices, the insults to our environment, the exploitation of the poor, might have been forgiven. But to the young indignados and protestors elsewhere in the world, capitalism is failing to produce what was promised, but is delivering on what was not promised—inequality, pollution, unemployment, and, most important of all, the degradation of values to the point where everything is acceptable and no one is accountable. Location 230

Note: Great passage on how, for the good Capitalism has created for us, there are many important things, outside of market forces and norms, that are badly damaged as a result. What are the prices of such things?

The failures in politics and economics are related, and they reinforce each other. A political system that amplifies the voice of the wealthy provides ample opportunity for laws and regulations—and the administration of them—to be designed in ways that not only fail to protect the ordinary citizens against the wealthy but also further enrich the wealthy at the expense of the rest of society. Location 255

Note: Great passage on how a government reinforced by the wealthy will serve those interests and not those of the majority.

This brings me to one of the central theses of this book: while there may be underlying economic forces at play, politics have shaped the market, and shaped it in ways that advantage the top at the expense of the rest. Any economic system has to have rules and regulations; it has to operate within a legal framework. There are many different such frameworks, and each has consequences for distribution as well as growth, efficiency, and stability. The economic elite have pushed for a framework that benefits them at the expense of the rest, but it is an economic system that is neither efficient nor fair. Location 258

Note: Level 9 – A good foundation to work from, to address people like Chris’s mockery of the idea that “Greedy CEOs exploit you so you don’t get what you deserve” Attacking it from a different angle, that they help create the rules that allow them keep their privilaged position, provides a strong argument that they indeed do enrich themselves at the expense of the rest of us.

Given a political system that is so sensitive to moneyed interests, growing economic inequality leads to a growing imbalance of political power, a vicious nexus between politics and economics. And the two together shape, and are shaped by, societal forces—social mores and institutions—that help reinforce this growing inequality. Location 265

Note: A starting fundamental argument on how greater inequality harms a society.

The two demands are related: unfettered markets do not work well, as we have seen. For markets to work the way markets are supposed to, there has to be appropriate government regulation. But for that to occur, we have to have a democracy that reflects the general interests—not the special interests or just those at the top. Location 273

Note: Another good starting point to demonstrate that greater equality leads to a more equal voice, and regulations that reflect the interests of a society, not just a very few, who “earned” their wealth through manipulation and favorable regulations put in place by their influence anyway. In a sense, the wealthy create their own “market” to begin with, purpetuating their own success at the expense of the rest of us. It could leave a weakness in that this could be pinned on government, but one could reply that bad government is as bad as no government, but better government is better than both.

Critics of redistribution sometimes suggest that the cost of redistribution is too high. The disincentives, they claim, are too great, and the gains to the poor and those in the middle are more than offset by the losses to the top. It is often argued on the right that we could have more equality, but only at the steep price of slower growth and lower GDP. The reality (as I will show) is just the opposite: we have a system that has been working overtime to move money from the bottom and middle to the top, but the system is so inefficient that the gains to the top are far less than the losses to the middle and bottom. We are, in fact, paying a high price for our growing and outsize inequality: not only slower growth and lower GDP but even more instability. And this is not to say anything about the other prices we are paying: a weakened democracy, a diminished sense of fairness and justice, and even, as I have suggested, a questioning of our sense of identity. Location 298

Note: Pay attention to this, this could be the Holy Grail we have been looking for. Pay attention to this, it could address every argument we’ve ever faced from a conservative, especially Chris, and provide a whole new framework to work from. This is what we’ve been wanting. A way to justify redistribution as a way to benefit society as a whole, with economic, and historical evidence.

It was clear that something was wrong with the standard model, just as it was clear to me, having grown up in Gary, that something was wrong with a standard model that said the economy was efficient and there was no unemployment or discrimination. It was the realization that the standard model didn’t describe well the world we lived in that set me off on a quest for alternative models in which market imperfections, and especially imperfections of information and “irrationalities,” would play such an important role.21 Location 365

Note: There is so much that goes wrong with the Economies of the world. How can you pin it all on Government. What even is, a perfect market? What even is a desirable outcome? Again, it comes down to the problem, they define their argument as a tautology. But that doesn’t tell you anything. It’s only two ways of saying the same thing, with not justification. Does a desirable outcome even enter into the equation? What if a “Free Market” leads to the destruction of the world? Where is the line where freedom meets social ends. No one agrees that murder is okay. Why is Economics any different?

There was greater inequality wherever one sliced the income distribution; even within the top 1 percent, the top 0.1 percent of income earners was getting a larger share of the money. By 2007, the year before the crisis, the top 0.1 percent of America’s households had an income that was 220 times larger than the average of the bottom 90 percent.3 Wealth was even more unequally distributed than income, with the wealthiest 1 percent owning more than a third of the nation’s wealth.4 Location 467

Note: Important Inequality Stats

America has been growing apart, at an increasingly rapid rate. In the first post-recession years of the new millennium (2002 to 2007), the top 1 percent seized more than 65 percent of the gain in total national income.5 While the top 1 percent was doing fantastically, most Americans were actually growing worse-off. 6 Location 474

Note: Statistics on wealth inequality, and links to evidence. Also important to note this “growing pie” we’re always told about by conservatives that justifies anything, is a growing pie only for the very wealthy.

If the rich were growing richer and if those in the middle and at the bottom were also doing better, that would be one thing, especially if the efforts of those at the top were central to the successes of the rest. We could celebrate the successes of those at the top and be thankful for their contributions. But that’s not what’s been happening. Location 478

Note: The entire conservative mantra. If it is effectively dismantled, it is one of the most important chapters we’ve ever read.

In fact, the gains of the “recovery” since the recession have accrued overwhelmingly to the wealthiest Americans: the top 1 percent of Americans gained 93 percent of the additional income created in the country in 2010, as compared with 2009.10 The poor and middle had most of their wealth in housing. As average house prices fell more than a third between the second quarter of 2006 and the end of 2011,11 a large proportion of Americans—those with large mortgages—saw their wealth essentially wiped out. At the top, CEOs were remarkably successful in maintaining their high pay; after a slight dip in 2008, the ratio of CEO annual compensation to that of the typical worker by 2010 was back to what it had been before the crisis, to 243 to 1.12 Location 486

Note: That myth of the growing pie continues to be blown out of the water. It only goes to the very top.

But this book shows that both the magnitude of America’s inequality today and the way it is generated actually undermine growth and impair efficiency. Part of the reason for this is that much of America’s inequality is the result of market distortions, with incentives directed not at creating new wealth but at taking it from others. It is thus not surprising that our growth has been stronger in periods in which inequality has been lower and in which we have been growing together. Location 545

Note: If true, it is the most profound nail in the coffin of the fundamental conservative argument, and supports the argument that the Rich do get rich off the backs of the poor.

It has a long pedigree—and has long been discred. As we’ve seen, higher inequality has not led to more growth, and most Americans have actually seen their incomes sink or stagnate. What America has been experiencing in recent years is the opposite of trickle-down economics: the riches accruing to the top have come at the expense of those down below.21 Location 554

But even households of individuals with a bachelor’s degree or higher have not done well—their median income (adjusted for inflation) fell by a tenth from 2000 to 2010. Location 567

Note: Bush

We noted earlier that the income of a typical full-time male worker has stagnated for a third of a century, and that of those who have not gone to college has declined. To keep incomes from declining even more than they have, work hours per family have increased, mostly because more women are joining the workforce alongside their husbands. Our income statistics do not take into account either the loss of leisure or what this does to the quality of family life. Location 709

Note: It is worth noting that for the same amount of work, or even more work, we aren’t getting more purchasing power, while leisure – getting to do things you enjoy doing and the things you actually live for, are declining. Your money buys you a better TV on absolute terms, but outside of cooler gadgets, we are working harder for a lower standard of living, all seen since the Reagan Era. How can this be considered progress? Links demonstrating stagnant wages are the perfect nail in the coffin to Conservative ideology.

The decline in living standards is also manifested in changing social patterns as well as hard economic facts. An increasing fraction of young adults are living with their parents: some 19 percent of men between twenty-five and thirty-four, up from 14 percent as recently as 2005. For women in this age group, the increase was from 8 percent to 10 percent.57 Sometimes called the “boomerang generation,” these young people are forced to stay at home, or return home after graduation, because they cannot afford to live independently. Even customs like marriage are being affected, at least for the moment, by the lack of income and security. In just one year (2010), the number of couples who were living together without being married jumped by 13 percent. Location 712

Note: Two victims of lessened security and heightened Inequality just to put a face on it.

The consequences of pervasive and persistent poverty and long-term underinvestment in public education and other social expenditures are also manifest in other indicators that our society is not functioning as it should: a high level of crime, and a large fraction of the population in prison.59 While violent-crime statistics are better than they were at their nadir (in 1991),60 they remain high, far worse than in other advanced industrial countries, and they impose large economic and social costs on our society. Residents of many poor (and not so poor) neighborhoods still feel the risk of physical assault. It’s expensive to keep 2.3 million people in prison. The U.S. incarceration rate of 730 per 100,000 people (or almost 1 in 100 adults), is the world’s highest and some nine to ten times that of many European countries.61 Some U.S. states spend as much on their prisons as they do on their universities. ** Location 719

Note: How Poverty Effects us, for those unwilling to accept it as a problem.

Money that is spent on “security”—protecting lives and property—doesn’t add to well-being; it simply prevents things from getting worse. Yet we consider these outlays part of the country’s gross domestic product (GDP) as much as any other expenditure. If America’s growing inequality leads to more spending to prevent crime, it will show up as an increase in GDP, but no one should confuse that with an increase in well-being. ** Location 728

Note: An example of where GDP doesn’t tell you anything about increased standard of living.

An increasingly large number of Americans can barely meet the necessities of life. These individuals are said to be in poverty. The fraction of those in poverty 65 was 15.1 percent in 2010, up from 12.5 percent in 2007. And our discussion above should have made clear how low the standard of living is of those at that threshold. At the very bottom, by 2011 the number of American families in extreme poverty—living on two dollars a day per person or less, the measure of poverty used by the World Bank for developing countries—had doubled since 1996, to 1.5 million. 66 The “poverty gap,” which is the percentage by which the mean income of a country’s poor falls below the official poverty line, is another telling statistic. At 37 percent, the United States is one of the worst-ranking countries in the Organization for Economic Cooperation and Development (OECD), the “club” of the more developed countries, in the same league as Spain (40 percent), Mexico (38.5 percent), and Korea (36.6 percent). ** Location 740

Note: To those who claim we have no poverty here. Poverty

It may be true that “the poor always ye have with you,” but that doesn’t mean that there have to be so many poor, or that they should suffer so much. We have the wealth and resources to eliminate poverty: Social Security and Medicare have almost eliminated poverty among the elderly. 70 And other countries, not as rich as the United States, have done a better job of reducing poverty and inequality. ** Location 764

Note: Two examples of things that have helped poverty, which in tern chains together to help other things, seen in close passages as well.

In the recent crisis, however, bank executives received outsize bonuses for outsize losses, and firms fired workers, claiming they couldn’t afford them, only to use the savings to increase executive bonuses still more. The result was that admiration at their cleverness turned to anger at their insensitivities. ** Location 833

Note: Level 9 – If that isn’t a fantastic example of the Rich getting richer at the expense of the poor, there never was one. Of course, to the Conservative Sociopaths, naturally this is impossible. Entropy is a good example. While overall Entropy Increases, it can decrease in a localized system, and this is how work is performed. Disorganization increases overall, but planets can form in pocks of order. The Economy as a whole is not zero sum – the pie grows larger each year. But in Localized systems, i.e. companies and corporations, there is only so much wealth, and to the extent that the top executives make more, the rest have to make less. Since the entire economy is largely made up of Localized systems within a larger one, in that sense the rich certainly do get rich at the expense of the poor. With few exceptions, everyone you will meet on the street tomorrow makes their actual living from a localized system, with limited resources. Inequality, Rich off Poor, Zero Sum

The standard mantra in the United States claims that the taxes required to finance these benefits stifle growth. Far from it. Over the period 2000 to 2010, high-taxing Sweden, for example, grew far faster than the United States—the country’s average growth rates have exceeded those of the United States—2.31 percent a year versus 1.85 percent. 95 As a former finance minister of one of these countries told me, “We have grown so fast and done so well because we had high taxes.” Of course, what he meant was not that the taxes themselves led to higher growth but that the taxes financed public expenditures—investments in education, technology, and infrastructure—and the public expenditures were what had sustained the high growth—more than offsetting any adverse effects from the higher taxation. ** Location 866

Note: Taxation and Growth. One of the most important passages so far in the book. Higher taxation, and why it works,with historical evidence.

(a) Recent U.S. income growth primarily occurs at the top 1 percent of the income distribution. (b) As a result there is growing inequality. (c) And those at the bottom and in the middle are actually worse-off today than they were at the beginning of the century. (d) Inequalities in wealth are even greater than inequalities in income. (e) Inequalities are apparent not just in income but in a variety of other variables that reflect standards of living, such as insecurity and health. (f) Life is particularly harsh at the bottom—and the recession made it much worse. (g) There has been a hollowing out of the middle class. (h) There is little income mobility—the notion of America as a land of opportunity is a myth. (i) And America has more inequality than any other advanced industrialized country, it does less to correct these inequities, and inequality is growing more than in many other countries. Location 909

Nor can the Right really deny the fact that government can help ameliorate poverty—it has done so especially effectively among the elderly. And that means that cutbacks in government programs, including Social Security, unless they are very carefully designed, are likely to increase poverty. Location 927

Note: Social Security as a means to ameliorate poverty.

We’ll show that, for the most part, not only should we not blame the poor for their plight but also that the claim of those at the top, that they earned their money “on their own,” doesn’t have much merit. We’ll see that the 1 percent are by and large not those who earned their incomes by great social contributions—the great thinkers who have transformed our understanding of the world or the great innovators who have transformed our economy. We’ll also explain why creating a more equal society can create a more dynamic economy. Location 953

Note: Good way to say the greatest contributors aren’t the wealthiest.

The simple thesis of this chapter is that even though market forces help shape the degree of inequality, government policies shape those market forces. Much of the inequality that exists today is a result of government policy, both what the government does and what it does not do. Government has the power to move money from the top to the bottom and the middle, or vice versa. Location 971

Note: What government doesn’t do can be as important as what it does do.

In a modern economy government sets and enforces the rules of the game—what is fair competition, and what actions are deemed anticompetitive and illegal, who gets what in the event of bankruptcy, when a debtor can’t pay all that he owes, what are fraudulent practices and forbidden. Government also gives away resources (both openly and less transparently) and, through taxes and social expenditures, modifies the distribution of income that emerges from the market, shaped as it is by technology and politics. Location 1006

Note: Different ways in which Government effects outcome.

Competitive forces should limit outsize profits, but if governments do not ensure that markets are competitive, there can be large monopoly profits. Competitive forces should also limit disproportionate executive compensation, but in modern corporations, the CEO has enormous power—including the power to set his own compensation, subject, of course, to his board—but in many corporations, he even has considerable power to appoint the board, and with a stacked board, there is little check. Location 1019

Note: Wonderful argument against the idea that a CEO is paid what he “Produces.” It’s largely based on an arbitrary number based on his own stacked board. Furthermore, the biggest way in which competitive forces contribute to inequality is if markets are not competitive. Government can smooth the ripples of an uncompetitive market.

Economists have a name for these activities: they call them rent seeking, getting income not as a reward to creating wealth but by grabbing a larger share of the wealth that would otherwise have been produced without their effort. Location 1031

Note: Great foundation to demonstrate how those with more wealth and power, and self reinforce their own position in the market through influence. Further distorting market forces.

To put it baldly, there are two ways to become wealthy: to create wealth or to take wealth away from others. The former adds to society. The latter typically subtracts from it, for in the process of taking it away, wealth gets destroyed. A monopolist who overcharges for his product takes money from those whom he is overcharging and at the same time destroys value. To get his monopoly price, he has to restrict production. Location 1037

To take just one example, the railroad barons of the nineteenth century provided an important service in constructing the railroads, but much of their wealth was the result of their political influence—getting large government land grants on either side of the railway. Location 1042

Note: All the way back to the argument with Chris from early 2011, and the argument over railroad. They also got to be where they were, from government help.

In the aftermath of the financial crisis, no one today would argue that the bankers’ pursuit of their self-interest has led to the well-being of all. At most, it led to the bankers’ well-being, with the rest of society bearing the cost. It wasn’t even what economists call a zero-sum game, where what one person gains exactly equals what the others lose. It was a negative-sum game, where the gains to winners are less than the losses to the losers. Location 1053

Note: Best example available of ethical egoism being a load of horseshit.

There is a simple reason for why financiers’ pursuit of their interests turned out to be disastrous for the rest of society: the bankers’ incentives were not well aligned with social returns. When markets work well—in the way that Adam Smith hypothesized—it is because private returns and social benefits are well aligned, that is, because private rewards and social contributions are equal, as had been assumed by marginal productivity theory. In that theory, the social contribution of each worker is exactly equal to the private compensation. People with higher productivity—a larger social contribution—get higher pay. Location 1058

Note: Best description yet, anywhere, why the financial crisis was harmful and how the market failed to align benifit based on self interest. Addresses why ethical egoism failed.

Markets by themselves often fail to produce efficient and desirable outcomes, and there is a role for government in correcting these market failures, that is, designing policies (taxes and regulations) that bring private incentives and social returns into alignment. Location 1065

Note: If you have to explain the progressive vision of the role of government in an economy in one sentence, this its it.

When these are not aligned, we say there is a market failure, that is, markets fail to produce efficient outcomes. Private rewards and social returns are not well aligned when competition is imperfect; when there are “externalities” (where one party’s actions can have large negative or positive effects on others for which he does not pay or reap the benefit); when there exist imperfections or asymmetries of information (where someone knows something relevant to a market trade that someone else doesn’t know); or where risk markets or other markets are absent (one can’t, for instance, buy insurance against many of the most important risks that one faces). Since one or more of these conditions exist in virtually every market, there is in fact little presumption that markets are in general efficient. This means that there is an enormous potential role for government to correct these market failures. Location 1070

Note: A year and a half of study, summarized in this paragraph,one of the best summaries in our library, of that which a have felt forever, why markets aren’t efficient at all, and need government correction.

But those governmental failures were no accident: the financial sector used its political muscle to make sure that the market failures were not corrected, and that the sector’s private rewards remained well in excess of their social contributions—one of the factors contributing to the bloated financial sector and to the high levels of inequality at the top. Location 1080

Note: Beginning the foundation of why inequality is what it is.

For instance, as Smith noted, there are incentives for firms to work to reduce market competition. Moreover, firms also strive to make sure that there are no strong laws prohibiting them from engaging in anticompetitive behavior or, when there are such laws, that they are not effectively enforced. Location 1086

some of the most important innovations in business in the last three decades have centered not on making the economy more efficient but on how better to ensure monopoly power or how better to circumvent government regulations intended to align social returns and private rewards. Location 1094

Making markets less transparent is a favorite tool. The more transparent markets are, the more competitive they are likely to be. Bankers know this. That’s why banks have been fighting to keep their business in writing derivatives, the risky products that were at the center of AIG’s collapse,8 in the shadows of the “over the counter” market. In that market, it’s difficult for customers to know whether they’re getting a good deal. Everything is negotiated, as opposed to how things work in more open and transparent modern markets. And since the sellers are trading constantly, and buyers enter only episodically, sellers have more information than buyers, and they use that information to their advantage. This means that on average, sellers (the writers of the derivatives, the banks) can extract more money out of their customers. Location 1097

While lack of transparency results in more profits for the bankers, it leads to lower economic performance. Without good information, capital markets can’t exercise any discipline. Location 1105

Note: The market can’t tease out these market distorting behaviors because the information isn’t available.

One of the ways that those at the top make money is by taking advantage of their market and political power to favor themselves, to increase their own income, at the expense of the rest. Location 1115

Note: The thesis for the main argument against Chris.

The financial sector has developed expertise in a wide variety of forms of rent seeking itself. We’ve already mentioned some, but there are many others: taking advantage of asymmetries of information (selling securities that they had designed to fail, but knowing that buyers didn’t know that); Location 1116

But the form of rent seeking that is most egregious—and that has been most perfected in recent years—has been the ability of those in the financial sector to take advantage of the poor and uninformed, as they made enormous amounts of money by preying upon these groups with predatory lending and abusive cr card practices. Location 1121

Note: Most glaring example of wealthy gaining wealth by taking advantage of the poor.

Earlier, we labeled as rent seeking many of the ways by which our current political process helps the rich at the expense of the rest of us. Rent seeking takes many forms: hidden and open transfers and subsidies from the government, laws that make the marketplace less competitive, lax enforcement of existing competition laws, and statutes that allow corporations to take advantage of others or to pass costs on to the rest of society. Location 1157

Note: The single tool we were looking for in response to Chris’s specifically, but the conservatives generally, argument that the rich do not get rich at the expense of the poor. That, the entire premise is a fallacy, a myth. Although we suspected this was incorrect, and we knew it went on in the world, it wasn’t until now, that we had the tool to articulate it. Rent Seeking, in which one with wealth or power, distorts the market outside of usual market forces to insure the distrubution of wealth continues to flow upward, and to them. It is in itself, a market failure.

The term “rent” then was extended to include monopoly profits, or monopoly rents, the income that one receives simply from the control of a monopoly. Location 1162

Note: Origen of Rent seeking

Countries rich in natural resource are infamous for rent-seeking activities. It’s far easier to get rich in these countries by gaining access to resources at favorable terms than by producing wealth. This is often a negative-sum game, which is one of the reasons why, on average, such countries have grown more slowly than comparable countries without the bounty of such resources.14 Location 1166

Note: Another way in which earning money doesn’t tell us that you are producing something. Merely collecting rent for land already owned doesn’t create anything new.

It’s not hard to become wealthy if the government sells you for $500 million a mine that’s worth $1 billion. Location 1180

Note: A way in which you can justify higher taxation on the earning of oil CEOs, if you can demonstrate that their company bought land from the government at half it’s market worth. This tells us the company is already subsadized, and already owes back to the public wealth it was given. This could be a long sought after justifiation for capping oil CEO pay, why we were so outraged by it, and a way to argue that they are not entirely entitled to all of this salary. Another year long debate settled. But we’d need research.

By looking at those at the top of the wealth distribution, we can get a feel for the nature of this aspect of America’s inequality. Few are inventors who have reshaped technology, or scientists who have reshaped our understandings of the laws of nature. Think of Alan Turing, whose genius provided the mathematics underlying the modern computer. Or of Einstein. Or of the discoverers of the laser (in which Charles Townes played a central role)16 or John Bardeen, Walter Brattain, and William Shockley, the inventors of transistors.17 Or of Watson and Crick, who unraveled the mysteries of DNA, upon which rests so much of modern medicine. None of them, who made such large contributions to our well-being, are among those most rewarded by our economic system. **Location 1191

Note: Memorize this. This passage, along with the one of government contribution in How Markets Fail, is likely to be the most important passage, addressing the most arguments the most sharply, that we have ever come across in our 1000s of pages of readings. The book is worth the money for this passage. In summation, one paragraph is a catch-all, unarguable refutation of market fundamentalism altogether, with examples. From Sean, Chris, Jon, Jeremy, and everyone else, this is the underline, of the fallacy of Market Fundamentalism. What you make doesn’t tell us what you contribute to society. It merely tells us how good some people are at marketing, distorting markets, rent seeking, (a new market failure), or selling things that might be popular but an have little to say has “contributed” to society. Conservatives will flail and struggle against it, but after refinement, there’s not much left they can do. They might say someone wealthier has benefited society more through job creation (Snookie, and her ’empire’ employ thousands), but it only appears scary at the surface. When you example how foundation these contributions were, Einstein and relativity and GPS, Lasers, and most o modern technology, transistors and all of modern electronics, how many jobs did that create?

But many of these “geniuses” built their business empires on the shoulders of giants, such as Tim Berners-Lee, Location 1201

Note: You wouldn’t argue against the private sector. The case is too hard. You would argue against the elimination of government and public research. The partnership between these two, is responsible for much of the technology we enjoy today. Public research, done by giants allowed the private sector to flourish, which in fact, is it’s purpose. You won’t frame that they are competitors. You would do better to frame them as symbiotic. Public Research exists to help the private sector create wealth.

A closer look at the successes of those at the top of the wealth distribution shows that more than a small part of their genius resides in devising better ways of exploiting market power and other market imperfections—and, in many cases, finding better ways of ensuring that politics works for them rather than for society more generally. Location 1204

Note: One sentence argument for everyone, why the wealthy are so wealthy, and those who have done more are not so.

Internationally, there is the case of Carlos Slim, a Mexican businessman who was ranked by Forbes as the wealthiest person in the world in 2011. Thanks to his dominance of the telephone industry in Mexico, Slim is able to charge prices that are a multiple of those in more competitive markets. He made his breakthrough when he was able to acquire a large share in Mexico’s telecommunications system after the country privatized it, 21 a strategy that lies behind many of the world’s great fortunes. Location 1212

What’s beautiful about this is it provides evidence and examples to the previous claim. You can easily just say “Most rich people manipulate the system instead of providing value.” But if you don’t have examples and cannot provide evidence when asked to prove it, your argument will fall flat and fail. Privatization is always the answer we’re told, but here is a clear cut example, like many, where doing so led to exactly the disease it was meant to relive, higher prices than the market would normally bear through monopoly power.

They help write the complex tax laws in which loopholes are put, so their clients can avoid taxes, and they then design the complex deals to take advantage of these loopholes. They helped design the complex and nontransparent derivatives market. They help design the contractual arrangements that generate monopoly power, seemingly within the law. Location 1228

Note: A way in which money and incentives impell those to distort the market, literally through law, to gain more wealth. Be careful, some might blame the government to begin with, for existing and allowing this to happen. Without government they say, no tax laws would exist to distort.

Even without a government grant of monopoly, firms can create entry barriers. A variety of practices discourage entry, such as maintaining excess capacity, so that an entrant knows that, should he enter, the incumbent firm can increase production, lowering prices to the point that entry would be unprofitable.28 Location 1245

Note: Entry Barriers are one way in which firms can discourage entry and keep an effective monopoly, by articifially lowering prices below normal market clearing prices and undercut possible competition.

Three factors contributed to this increased monopolization of markets. First, there was a battle over ideas about the role that government should take in ensuring competition. Chicago school economists (like Milton Friedman and George Stigler) who believe in free and unfettered markets31 argued that markets are naturally competitive32 and that seemingly anticompetitive practices really enhance efficiency. Location 1257

Note: Friedman and his ilk started it off, Reason one why monopoly power has increased in the US

A second factor giving rise to increased monopoly is related to changes in our economy. The creation of monopoly power was easier in some of the new growth industries. Many of these sectors were marked by what are called network externalities. An obvious example is the computer operating system: just as it’s very convenient for everyone to speak the same language, it’s very convenient for everyone to use the same operating system. Increasing interconnectivity across the world naturally leads to standardization. Those with a monopoly over the standard that is chosen benefit. Location 1272

Note: Second reason for increased monopoly power in United States

That’s where the third factor that has increased monopoly power in the United States comes in: businesses found new ways of resisting entry, of reducing competitive pressures. Location 1278

Note: Third Reason monopoly power in the United States has increased.

the incentives and capabilities to dominate in a host of other applications.37 No wonder, then, that Microsoft’s profits have been so enormous—an average of $7 billion per year over the last quarter century, Location 1292

Note: Another great example of how one’s wealth doesn’t tell us what they’ve “contributed” to society. Who knows how much better off we’d be if Netscape had survived, lowering the price of Microsoft products and making them more accessible to everyone, offering more choices, better productivity with less errors.

Take the example of banks. While there are hundreds of banks, the big four share between them almost half of the country’s banking assets,40 a marked increase from the degree of concentration fifteen years ago. In most smaller communities, there are at most one or two. When competition is so limited, prices are likely to be far in excess of competitive levels.41 That’s why the sector enjoys profits estimated to be more than $115 billion a year, much of which is passed along to its top officials and other bankers—helping create one of the major sources of inequality at the top.42 Location 1301

Note: There’s one of your biggest reasons for inequality, right there.

Rights simply specify what various economic players are entitled to: Location 1541

wealthiest use their political power to benefit excessively the corporations they control, much-needed revenues are diverted into the pockets of a few instead of benefiting society at large. Location 1991

The rich resist taxes, but taxes allow society to make investments that sustain the country’s growth. When little money is invested in education, for lack of tax revenues, schools do not produce the bright graduates that companies need to prosper. Taken to its extreme—and this is where we are now—this trend distorts a country and its economy as much as the quick and easy revenues of the extractive industry distort oil- or mineral-rich countries. Location 1994

Note: There’s one great rebuttal to the “punish success” narrative right there.

It is perhaps no accident that this crisis, like the Great Depression, was preceded by large increases in inequality:2 when money is concentrated at the top of society, the average American’s spending is limited, or at least that would be the case in the absence of some artificial prop, which, in the years before the crisis, came in the form of a housing bubble fueled by Fed policies. The housing bubble created a consumption boom that gave the appearance that everything was fine. But as we soon learned, it was only a temporary palliative. Location 2011

Moving money from the bottom to the top (my note: or instead of the verb “moving” which might indicate redistribution, you might say inequality effects wherein new wealth all goes to the top or policies that result in a de factor “move” of money from the low to the top) lowers consumption because higher-income individuals consume a smaller proportion of their income than do lower-income individuals (those at the top save 15 to 25 percent of their income, those at the bottom spend all of their income).The result: until and unless something else happens, such as an increase in investment or exports, total demand in the economy will be less than what the economy is capable of supplying—and that means that there will be unemployment. Location 2017

Note: Continued, and very good. Now they might content that this saving results in investment or “job creation” but investment happens against a background of confidence and demand. Investment tends to be low if investors have no confidence that a venture is going to pay off. If people aren’t buying, there is low demand, and national confidence is low, people don’t want to risk their investment. 

As we’ve seen, the top 1 percent of the population earns some 20 percent of U.S. national income. If that top 1 percent saves some 20 percent of its income, a shift of just 5 percentage points to the poor or middle who do not save—so the top 1 percent would still get 15 percent of the nation’s income—would increase aggregate demand directly by 1 percentage point. But as that money recirculates, output would actually increase by some 1½ to 2 percentage points.4 In an economic downturn such as the current one, that would imply a decrease in the unemployment rate of a comparable amount. With unemployment in early 2012 standing at 8.3 percent, this kind of a shift in income could have brought the unemployment rate down close to 6.3 percent. Location 2023

Note: Major reason for less inequality

unlikely to remain so low, had every incentive to pay out as much as they felt that they could do safely—without jeopardizing too much the future viability of the firm. But that meant smaller cash reserves left on hand for any investment opportunities that came along. Investment, outside of real estate, actually fell, Location 2069

Note: Lower taxes can actually reduce investment

But while the bankers’ compensation schemes demonstrated some of what was wrong with the so-called incentive pay systems, the problems were more pervasive. Stock options were as one-sided as bankers’ compensation—executives did well when things went well, but didn’t suffer commensurately when stocks went down. But stock options also encouraged dishonest accounting that made it seem that the company was doing well, so the stock price would go up. Location 2480

Note: Another example of the Social Recognition Fallacy, whereby all compensation is said to be based off of what you contribute. So CEOs are just worth that much more. But anyong can be lucky, and be on the receiving and of a windfall from short term stock options. Also, it is an incentive to cook the books, making the company look like it is performing better than it actually is, to pump up the stock prices, in order to reap better rewards at the top from Stock Incentives. So this is a glaring example of how CEOs certainly do NOT always deserve what they get paid. CEO pay, Rich off Poor,

Part of the creatively dishonest accounting involved accounting for the stock options themselves, so shareholders wouldn’t know how much the value of their shares was being diluted by newly issued options. When the Financial Accounting Standards Board (the nominally independent board that sets accounting standards), supported by the Securities and Exchange Commission and the Council of Economic Advisers, tried to force companies to provide honest accounting of what they were giving their executives, the CEOs replied with a vehemence that demonstrated their commitment to deception. The proposed reforms didn’t require firms to do away with stock options, but only to reveal what was being given to their executives in a way that their shareholders could easily grasp. We wanted to make markets work better, by having better information. Location 2484

Note: Another example of where regulation would have led to more efficiant markets through more symmetric information. But of course the CEOs would have none of this. Assymetric Information, CEO Pay, Regulation,

Stock option incentive pay rewarded executives when there was a stock market boom for which they could fairly claim no cr. It also gave CEOs a big bonus whenever the price of what they sold soared or the price of a critical input fell—regardless of whether there was anything they had done to bring these price changes about. Fuel costs are critical for airlines, meaning that airline CEOs got a bonus anytime the price of oil fell. A good incentive system might base pay on how the company performs relative to others in the industry, but few firms do this. That’s testimony either to their lack of understanding of incentives or to their lack of interest in having a reward structure that is related to performance, or to both. Location 2496

Note: Another fantastic example of how CEO Pay and Executive Compensation is often anything at all but a reflection of their contribution to the company or society. Great Example. Level 9, CEO Pay, Rich off Poor
Individuals can often be better motivated by intrinsic rewards—by the satisfaction of doing a job well—than by extrinsic rewards (money). To take one example, the scientists whose research and ideas have transformed our lives in the past two hundred years have, for the most part, not been motivated by the pursuit of wealth. This is fortunate, for if they had, they would have become bankers and not scientists. It is the pursuit of truth, the pleasure of using their minds, the sense of achievement from discovery—and the recognition of their peers—that matters most. Location 2509

Most (or at least many) teachers enter their profession not because of the money but because of their love for children and their dedication to teaching. The best teachers could have earned far higher incomes if they had gone into banking. It is almost insulting to assume that they are not doing what they can to help their students learn, and that by paying them an extra $500 or $1,500, they would exert greater effort. Location 2516
Note: The Conservative argument and the laffer curve.
We observed in the last chapter that President Reagan, for instance, claimed that by making the tax system less progressive—lowering taxes at the top—one would actually raise more money, because savings and work would increase. He was wrong: tax revenues fell significantly. President Bush’s tax cuts fared no better; they, like those of Reagan, simply increased the deficit. President Clinton raised taxes at the top, and America experienced a period of rapid growth and a slight diminution in inequality. Of course, the Right is right in noting that if marginal tax rates were near 100 percent tax rates, incentives would be significantly weakened, but these examples show that we’re nowhere near the point where this should be of concern. Indeed, University of California professor Emmanuel Saez, Thomas Piketty of the Paris School of Economics, and Stefanie Stantcheva of the MIT Department of Economics, carefully taking into account the incentive effects of higher taxation and the societal benefits of reducing inequality, have estimated that the tax rate at the top should be around 70 percent—what it was before President Reagan started his campaign for the rich. Location 2554
Note: This addresses Chris, and the entire Libertarian argument that lower taxes bring in more revenue, with examples.
As we commented, one of the reasons that so many of our corporations pay so little is that they are not taxed on income of foreign subsidiaries until they bring it home, a provision of the tax code that encourages these firms to invest abroad rather than in the United States. Eliminating these provisions would both increase progressivity and strengthen the U.S. economy. Location 2573
Note: Tax code incentivising investment abroad instead of here.
The fact that tax cuts for the rich have increased the deficit and the national debt substantially has another effect: it has created pressure to reduce government support for investments in education, technology, and infrastructure. The Right has underestimated the importance of these public investments, which not only can yield high returns directly but provide the basis of high-return private-sector investment. Earlier I mentioned the contribution that government investments in research and technology had made (including the first telegraph line that spanned North America in the nineteenth century, and the creation of the Internet and the foundations of the first browser in the twentieth). Location 2578
Note: Amazing point that lost tax revenue resulting if deficits cuts spending to other highly beneficial public goods
A corporate CEO will not exert less effort to make the company work well simply because his take-home pay is $10 million a year rather than $12 million. In any case, the possible loss of effort in socially productive activities from taxing the few in the top 1 percent—which, because of the huge inequality in our society, raises large amounts of money—pales in comparison with the effects on the many more numerous who would have to face higher tax rates to raise the same amount of money. Location 2587
Note: Possibly the most important passage in the book. The reason we bought it. This is the thesis argument against Chris, Freedman, and everyone.
Perhaps the most essential point is this: no one succeeds on his own. There are plenty of bright, hardworking, energetic people in developing countries who remain poor—not because they lack abilities or are not making sufficient effort, but because they work in economies that don’t function well. Americans all benefit from the physical and institutional infrastructure that has developed from the country’s collective efforts over generations. What’s worrying is that those in the 1 percent, in attempting to claim for themselves an unjust proportion of the benefits of this system, may be willing to destroy the system itself to hold on to what they have. Location 2605
Note: Jesus couldn’t have said this better.
I have emphasized how the country has to act together, cooperatively, if the country’s problems are to be solved. Government is the formal institution through which we act together, collectively, to solve the nation’s problems. Location 2679
Note: One of the simplest and yet best explanations for the role of government. The frame is easy, accessible, and convincing. Every society will have collective problems and issues that can’t be solved by markets.
If every business contract had to be enforced by one party’s taking the other to court, our economy, and not just our politics, would be in gridlock. Location 2688
Note: Another fatal flaw in punt kicking everything to private courts.
A related experiment gives even stronger evidence of the importance that individuals attach to fairness: most individuals would rather accept an inefficient outcome—even hurting themselves—than an unfair one. In what is known as the ultimatum game, the second player has the right to veto the division proposed by the first player. If the second player exercises his veto, neither party gets anything. Standard economic theory suggests a clear strategy: the first player keeps 99 dollars for himself, giving 1 dollar to the other player, who accepts it, because 1 dollar is better than zero. In fact, offers typically average about 30 to 40 dollars (or 30–40 percent of the total sum in a game with different quantities), and the second player tends to veto the al Location if he is offered less than 20 dollars.15 He is willing to accept some inequity—he realizes he is in the less powerful position—but there is a limit to how much inequity he will stand for. He would rather have zero than, say, $20—a 4-to-1 split is too unfair.16 Location 2781
Note: A direct answer to people like Joe and Chris, who balk in disgust at the mere mention of the word “fair.” Direct experimental evidence demonstrates wihtout doubt, that fairness is simply and plainly something that people in this society value. Even to the point of fault, breaking the rules of standard economic theory, they will punish those who give them an unfair deal if they are able. A person would rather get nothing, than something, in order to galvanize the social moar of fairness. Acting in his own self interest, it might be said that he is acting in a way that is impelling the person to give him a better deal, and thus, increase his money, and while this is true, it is still against a background of fairness. He would go home with nothing, before accepting a deal he saw as grossly unfair. The Libertarian ideal is all about people pursuing what they want. And it is plain and simple, that fairness is something that people in a society WANT.
Other research, comparing individuals’ views about what a good distribution of income might look like with their perceptions of inequality in the United States confirms that most think there is too much inequality. And these views were held broadly across very different demographic groups, men and women, Democrats and Republicans, and those at the top and those with lower incomes. Indeed, in most people’s ideal distribution, the top 40 percent had less wealth than the top 20 percent currently holds. Equally striking, when asked to choose between two distributions (shown on a pie chart), participants overwhelmingly chose one that reflected the distribution in Sweden over that in the United States (92 percent to 8 percent).20 Location 2797
Note: A very important and telling conclusion. People are probably not sure where they rank in the distribution, but they know for certain, they want a fair society. To “vote away” wealth is “stealing” only if the wealth was completely and unarguably earned fairly. But rent seeking, many tools in this book, demonstrate a large portion of this wealth was due to rules skewed in their favor. A background of public goods that allowed one to earn the wealth, education, protection, and society that is more coheisive, are all things that contribute to ones wealth, and require taxation to pay for. Also, a CEO isn’t nessesarily an owner, by any means. He’s voting himself more money, without the corrosponding production.
competition. One of the reasons, we were told, that we had to have weak financial regulations was that if we didn’t, financial firms would move overseas. In response to a proposal to tax bank bonuses, London firms threatened to leave the country. In these cases, one might argue: good riddance. The cost to society—the bailouts, the economic disruption, the inequality—of the financial sector’s excesses far outweighs the few jobs that companies in the sector create. The speculators will leave; but those engaged in the kind of finance that really matters—lending to local firms—will stay. These have to be here. Location 3068
Note: One of the ways to address one of the most common conservative arguments, that regulation will just make companies move overseas. It’s not a particular strong argument, but it is a decent foundation to start with. Speculators who don’t create many jobs might leave, but, not the real lenders who impell business, which need to be here. Other comparisons might be able to be made.
But the American model is losing some of its luster. It’s not just that the American model of capitalism didn’t provide sustained growth. It’s more that others are beginning to realize that most citizens have not benefited from that growth, and such a model is not very politically attractive. And they are sensing, too, the corruption (American style) of our political system, rife with the influence of special interests. Location 3094
Note: Another great point. We are told that taxation, regulation, and *any* infringement on economic “freedom” will cause “job creators” to leave, businesses and speculator and a whole host of liassez faire heroes to leave en masse. But how attractive is a system in which so few get to enjoy the spoils of their labor. The American Model is losing some of it’s luster. Those “regulations” and “taxes” reduce inequality, insure more people enjoy higher wages, and increase mobility. All things many new entrepreneurs are looking for when coming to start a business. If we are a country where only a very select few will make it, where mobility continues to decline, our economy becomes more like a lottery, and far less attractive to aspiring business owners who see only likely failure in relation to other, more mobile countries.
Markets can sometimes create their own reality. If there is widespread belief that markets are efficient and that government regulations only interfere with efficiency, then it is more likely that government will strip away regulations, and this will affect how markets actually behave. In the most recent crisis what followed from deregulation was far from efficient, but even here a battle of interpretation rages. Members of the Right tried to blame the seeming market failures on government; in their mind the government effort to push people with low incomes into homeownership was the source of the problem. Widespread as this belief has become in conservative circles, virtually all serious attempts to evaluate the evidence have concluded that there is little merit in this view. But the little merit that it had was enough to convince those who believed that markets could do no evil and governments could do no good that their views were valid, another example of “confirmatory bias.” Location 3246
Note: Great passage on how markets become a self fulfilling proficy. If you’re convinced Obama being elected will ruin your business, it will. You will fire people out of fear, not reason, then blame the job losses on Obama, even though he might have had absolutely nothing to do with it.
The experiment highlighted the importance of social perceptions: low-caste individuals somehow absorbed into their own reality the belief that lower-caste individuals were inferior—but only so in the presence of those who held that belief. Location 3264
Note: Remember this for other reason. Tony Robbins and acting according to what you believe
But the crisis showed to everyone what economic research had long revealed—the argument was a sham. As we noted in chapter 4, what was called incentive pay was anything but that: pay was high when performance was high, but pay was still high when performance was low. Only the name changed. When performance was low, the name changed to “retention pay.” Location 3281

On the other side of this battle are countering beliefs: fundamental beliefs in the value of equality, and analyses such as those presented in earlier chapters that find that the high level of inequality in the United States today increases instability, reduces productivity, and undermines democracy, and that much of it arises in ways that are unrelated to social contributions, that it comes, rather, from the ability to exercise market power—the ability to exploit consumers through monopoly power or to exploit poor and uneducated borrowers through practices that, if not illegal, ought to be. Location 3290
Note: Great summery on refuting the idea of market fundamentalism and CEO pay being the result of “contribution”
Those who don’t want the state to stop the rent seeking from which they benefit so much, and don’t want it to engage in redistribution or to increase economic opportunity and mobility, emphasize the state’s failings. (Remarkably, this is true even when they are in office and could and should do something to correct any problem of which they are aware.) They emphasize that the state interferes with the workings of the markets. At the same time that they exaggerate the failures of government, they exaggerate the strengths of markets. Most importantly for our purposes, they strive to make sure that these perceptions become part of the common perspective, that money spent by private individuals (presumably, even on gambling) is better spent than money entrusted to the government, and that any government attempts to correct market failures—such as the proclivity of firms to pollute excessively—cause more harm than good. Location 3298
Note: Good way to explain how the wealthy self interested protect their own interests And the justification thereof
Note: Good way to explain how the wealthy self interested protect their own interests And the justification thereof. Good for copy and paste
With the Great Depression, when one out of four workers was out of a job, it was hard for anyone but a devoted ideologue to see markets as always efficient. Location 3336
Note: Level 10 – Unless they pin the entire Depression on government, they have a hell of a case to try to sell.
Out of these experiences, out of observations that markets often fail, but so do governments, the idea advocated here—that there needs to be a balanced role between markets, the state, and civil society—naturally evolved. What that balance would be could differ across countries and over time. In East Asia there arose the idea of the developmental state, one that orchestrated development, but used market mechanisms. There were some enormous successes, the fastest sustained growth ever, with huge reductions in poverty, and large gains for the vast majority of citizens. Location 3341
Note: Worth research, could be very valuable to demonstrate socialism as effective. Chris would be devastated
(Of course, as earlier chapters pointed out, that didn’t happen: growth in the era of deregulation and lower taxes was slower, and the country grew apart.) Location 3351
Note: Level 9 – Find the research, and verify again. A great example of the entire philosophy of the right debunked
Today those who wish to preserve societies’ inequalities actively seek to shape perceptions and beliefs to make such inequalities more acceptable. Location 3387
Note: Good to copy and paste. Simply, the belief that inequality is good or unharmful is largely a result of rhetoric from the right enforcing this belief, in the face of any evidence to the contrary.
But this notion was based on deeply flawed logic. Indeed, if markets fully revealed all the information to all market participants, no one would have any incentive to gather information about publicly traded assets, since those who did not spend the money would have equal access to the information. If the efficient-markets hypothesis were true, it would ironically mean that stock markets would necessarily be very inefficient, since no one would gather any information.36 Location 3481
Note: Interesting rebuttle to the efficiant market hypothesis
But it’s worse than that. To the extent that the algorithmic traders succeed in outwitting those who do the real research, the returns to research fall; there will be less investment in information, and markets actually will convey less of the information that we care about. Location 3510
Note: Interesting
There was no mention of the idea that stopping the flood of foreclosures might be a good thing for resuscitating the economy—and helping ordinary citizens. Location 3614
Note: Alternative to bailout
A central thesis of chapters 2 and 3 is that market failures—and the failure of government to circumscribe them—play a key role in explaining inequality in America. At the top there are rents (such as monopoly rents); at the bottom there is underinvestment in human capital. Hidden subsidies that distort the market and rules of the game that give an upper hand to those at the top have compounded the problems. Location 3633
Note: Level 9 – If you have to explain the summary of this book in one sentence, type one argument about why inequality is increasing, this is it.
Economic theory has shown that markets work well when private and social returns are well aligned, and don’t when they are not. Market failures are pervasive. Externalities, for instance, are not limited to the environment. Our banks polluted the global economy with toxic mortgages, and their failures brought the global economy to the brink of ruin, imposing huge costs on workers and citizens throughout the world. Some of these market failures are easy, in principle, to correct: a firm that is polluting can be charged for the pollution it creates. But the distortions caused by imperfect and asymmetric information are present everywhere, and are not so easily corrected. Managers do not always act in the interests of “stakeholders” (including shareholders), and there’s little that they can do about it. Location 3641
Note: Level 8 – Market Failure and systemic externalize damage
But if you listened only to arguments from the Right, you would have thought that markets always worked and government always failed. They worked hard to create this perception within the public, most simply by ignoring private market failures and government successes. Location 3649
Note: Bring this up to a Chris or a Jon, to gauge what level of reason they are willing to accept.
And they’ve tried to ignore—and to get others to ignore—the distributive consequences of these market failures, who gains and who loses when private rewards and social returns are not well aligned. The crisis provided an instance where it was easy to see the winners and losers; but in almost every case, whether it’s environmental pollution or predatory lending or abuses of corporate governance, it is those at the top who are the winners, and the rest who are the losers. Location 3651
Note: Another way the Rich get rich off the poor
Of course, not every government effort is successful, or as successful as its advocates would have liked. Indeed, when the government undertakes research (or supports new private-sector ventures), there should be some failures. A lack of failures means you are not taking enough risks. Success occurs when the returns from those projects that succeed are more than enough to offset the losses on those that fail. And the evidence in the case of government research ventures is unambiguously and overwhelmingly that the returns from government investments in technology on average have been very, very high—just think about the Internet, the Human Genome Project, jet airplanes, the browser, the telegraph, the increases in productivity in agriculture in the nineteenth century, that provided the basis for the United States’ moving from farming to manufacturing. When I was chairman of the Council of Economic Advisers, we assessed the average social returns on government R&D, and it turned out to be well in excess of 50 percent, far higher in other areas of investment (including private sector R&D). Location 3654
Note: Level 10 – And iconic reason behind the entire progressive belief in government assistance in research. One to read again and again. Fundamental support for government, and evidence that is has helped grow the economy.
We have seen myriad instances of this kind of complementarity: a government initiative created the Internet, but private-sector firms like Google built many of products and applications that have placed it at the center of people’s lives and our economy. Location 3666
Note: Level 10 – Both demonstrates that government research crated the Internet and heads off the libertarian rebuttle outright, preemptively, by addressing how the private sector brought the invention to the forefront. This demonstrates that the governments role is to help, not to compete. And uses a traditional example.
That there are successes and failures in both the public and the private sector is clear. And yet many on the right seem to think only the government can fail. Part of the reason for these disparate perceptions about markets and governments has to do with the theory of equilibrium fictions described earlier. Those who believe in markets discount information about market failure while assigning high saliency to examples of government failure. They can easily recall examples of failed government programs, but the massive failures of our financial system in the run-up to the Great Recession are quickly forgotten, described as an anomaly, or blamed on the government. Location 3669
Note: Use word for word to address market fundamentalism and invite opponent to be intellectually honest. Heads off argument that it’s always governments fault. This whole chapter can be highlighted.
The fact of the matter is that there has been no successful large economy in which the government has not played an important role, and in the countries with the most rapid growth (such as China) and in those with the highest standards of living (such as those in Scandinavia),56 the government plays a very important role. Location 3674
Note: Level 10 – Use as opening argument for Democrat position vs any traditional non government position.
After the Great Depression, government succeeded in regulating the financial sector, producing almost four decades of financial stability and rapid growth, with banks focusing on lending, providing the money needed for the rapid expansion of our enterprises. Government helped make markets act the way markets are supposed to function, by reducing the scope for fraud and consumer deception and enhancing competition. But beginning with President Reagan and continuing through President Clinton, government stepped back. The deregulation led to instability; with less oversight, there was more fraud and less competition. Location 3683

This also applies to liberalization initiatives, including the disastrous liberalization of electric power in California. Enron, one of the big advocates of the liberalization and an outspoken advocate of the wonders of the market (before it went down in 2001, the largest corporate bankruptcy ever recorded up to that point), manipulated the California electricity market to make millions and millions for itself, a transfer of money from ordinary citizens of that state to Ken Lay, its CEO, and the others who ran the company. Bush officials blamed the shortages that Enron had managed to create on excessive environmental regulation that discouraged new construction. The reality was otherwise: as soon as Enron’s market manipulations to inflate prices were exposed and regulations were restored, the shortages disappeared. Location 3723
Note: Good example
Opponents of regulation always complain that it’s bad for business. Regulations that prevent pollution, of course, are bad for businesses that would have otherwise polluted. Regulations that prevent child labor are bad for businesses that would have exploited children. Regulations that prevent American companies from engaging in bribery or abuses of human rights may be bad for businesses that engage in bribery or human rights abuses. As we’ve seen, private rewards and social returns often differ; and when they do, markets don’t work well. The task of government is to align the two. Location 3731
Note: God – And one of the most beautiful and succinct passages on the role of government and the virtues of a democratic system of regulation ever found in literature. A cornerstone and prevailing argument in our political belief system. An opener worthy of any other. Anyone against this is one who wants to live in a different world.
If it were true, as some have claimed, that new banking regulations will stifle innovation, we still would have to weigh the benefits of the regulation against the costs. If regulations can prevent another near-collapse of the banking system, the benefits would be enormous, possibly in the trillions of dollars. And well-designed regulations did succeed in ensuring the stability of our financial system for decades, so regulations can work. Moreover, this period of tight financial regulation was also one of rapid economic growth, a period in which the fruits of that growth were more widely shared than they are today. By contrast, in the period of “liberalization” the growth of a typical citizen’s income was far lower than in the period of regulation. Location 3735
Note: Level 8 – Even if regulation stifled innovation, (despite the fact that we had huge growth during the time of regulation) it has to be weighed against the benefits of a more stable economy
But during the 2008 crisis, corporate welfare reached new heights. In the great bailout of the Great Recession, one corporation alone, AIG, got more than $150 billion—more than was spent on welfare to the poor from 1990 to 2006.68 Location 3770
Note: Wanna talk about welfare? Corperations get more welfare than the entire rest of the population combined…for 16 total years. And that’s just one corperation. Welfare – For Rich, and anyone else expousiong the problems of welfare, here is evidence, complete with a link, demonstating Corperations, and a BUSH Republican administration, are more guilty of welfare than anyone else combined for 16 years. Welfare is only a problem for Republicans when it goes to needy people. I’ve never heard one complain about Corperate Welfare, which makes the other look like a joke. It’s a special kind of hypocracy to indict Obama, or the Democrats for “Welfare” when one of their presidents gave more “Welfare” to ONE company than the rest of the population combined.
There is a role for government in providing a safety net, in “social protection,” but it should be protecting individuals and families against the risks that they face, especially those against which they cannot insure; it should not be protecting corporations from facing the consequences of bad business judgments or providing subsidies to enrich their coffers. Markets can’t work if there isn’t some discipline—if companies get only the upside of the risks, with taxpayers bearing the losses. Location 3776
Note: Good indictment of Republican policies for Corperate welfare and the hypocracy therin.
Even if the American economy produces more goods and services, if, year after year, most Americans have lower and lower incomes, our economy is not performing well. Location 3814
Note: Biggest point in equality
America, for instance, gets worse health outcomes, in terms of longevity or virtually any other measure of health performance, but spends more money. If we were measuring performance, the lower efficiency of America’s sector would count against the United States, and France’s health care sector output would be higher. As it is, it’s just the reverse: the inefficiency helps inflate America’s GDP number. Location 3824

If we measure our success by GDP, that’s what we’ll push for, and we’ll pay insufficient attention to what’s happening to most Americans. To take another example: critics of, say, environmental regulations suggest that they are costly, that they reduce growth. But how we see that trade-off depends on how we measure output. If in our measurements of GDP, we take into account the cost of environmental degradation, then better environmental regulation may actually improve GDP correctly measured. Location 3842
Note: Excellent, and directly addresses Sean (and others) argument that regulation hinders growth. It matters what you look for in “growth”
And they’ve tried to ignore—and to get others to ignore—the distributive consequences of these market failures, who gains and who loses when private rewards and social returns are not well aligned. The crisis provided an instance where it was easy to see the winners and losers; but in almost every case, whether it’s environmental pollution or predatory lending or abuses of corporate governance, it is those at the top who are the winners, and the rest who are the losers. Location 3872
Note: Great passage not demonstrating how the wealthy get rich at the expense of the poor but also about market failure.
Devoted ideologues on each side will cherry-pick examples and draw from them broad generalizations. Location 3872
Note: Great articulate
As the old poem goes, “No man is an island.” In any society what one person does may hurt, or benefit, others. Economists refer to these effects as externalities. When those who injure others don’t have to bear the full consequences of their actions, they will have inadequate incentives not to injure them, and to take precautions to avoid risks of injury. We have laws to provide incentives for each of us to avoid injuries to others—to their property, their heath, and the public goods (such as nature) that they enjoy. Location 3912
Note: Great description of an externality
We embody these ideas, for instance, in the “polluter pays principle,” which says that polluters should pay for the full consequences of their actions. Not paying the full consequences of one’s action—for instance, for the pollution caused by production—is a subsidy. It is equivalent to not paying the full cost of labor or capital. Location 3918
Note: Good description of the flaw in the Coase Theorem, “The Polluter Pays Principle” You’re the one causing harm. Also, not being forced to pay for your externalized costs is the equivalent of a subsidy
No economist would suggest that distortionary subsidies to labor or capital should be preserved to save jobs. Location 3921
Note: Level 10 – God. Awesome response to the idea that pollution regulation hurts jobs. Those jobs were paid for by subsidy to begin with.
Forcing corporations to compensate those injured doesn’t really undo the harm. Even if the family of someone who dies because of unsafe work conditions is compensated, the person isn’t brought back to life. That’s why we can’t rely just on incentives. Some people are risk takers—especially when others bear most of the risk. Location 3931
Note: Good Rebuttal to Libertarianism and the idea of just taking someone to court after the fact on everything. This would be a great standard reply for someone like Jeremy who will not accept anything outside of “private power.” Some things need to be in place to keep people from being harmed in the first place. And, if a company is large enough to pay the “costs” of the court case, then the risks associated with those actions adding to harm would be monetarily worth it, and simply an input cost. Also, saying wealthy people go to jail all the time doesn’t tell us anything about Libertarianism. Of course wealthy people go to jail all the time. That’s our POINT. Because we live in a society where the state prosecutes based off of existing laws defined by the state and judicial process. Because if someone punches you in the face, they go to jail whether you can afford to take them to court or not. The fact that wealthy people go to jail right now is an argument in OUR favorite. “Yes! Thank you! You got it! In a democratic society, wealthy people are not immune to consequences. Because we have a transcendent power to appeal to!
Each individual’s liberties have to be curtailed when they impose harms on others. One person’s liberty to pollute deprives another of her health. One person’s liberty to drive fast deprives another of his right not to be injured. Location 3952
Note: Simple refutation of Coase Theorem
Early on in the housing bubble, it became clear that the banks were engaged not only in reckless lending—so reckless that it would endanger the entire economic system—but also in predatory lending, taking advantage of the least educated and financially unsophisticated in our society by selling them costly mortgages and hiding details of the fees in fine print incomprehensible to most people. Location 3972
Note: Very well said, and framed in a way pursuasive to most people. The hallmark of the reason we are a Democrat, that “Choosing” to do something uninformed, is not real consent.
The ratings agencies, today best known for their role in calling pools of F-rated mortgages A-rated securities, also had a hand in sustaining fraudulent lending practices. They should have welcomed the actions of states like Georgia: the law meant that the agencies would not need to assess whether mortgages in a given pool were fraudulent or inappropriate. Instead, Standard & Poor’s, one of the leading rating agencies, threatened not to rate any of Georgia’s mortgages. Location 3977
Note: Standard and Poors Blackmailed the Legislature.
In a simpler world, the adage caveat emptor (“let the buyer beware”) might have been appropriate; but not in today’s complex world. A regulatory agency for financial products is needed to prevent not just fraud but also abusive, deceptive, and inappropriate products.13 Location 3988
Note: Just as the Food and Drug Administration protects consumers against deceptive, dangerous and ineffective drugs. We have a precident for this.
Even many financial institutions recognized that some regulation was needed: without bank and insurance regulations ensuring the soundness of these institutions, individuals would be reluctant to turn over their money to banks and insurance companies, lest they never get it back. Individuals on their own would never be able to assess the financial conditions of these large and complex institutions; it has proven hard enough for experienced government regulators to do so.14 Location 3991
Note: Level 9 – Awesome. Regulation can actually serve to help financial markets, by giving the consumer a measure of trust in what they are buying, and so making them more comfortable giving their hard earned money to these institutions. The idea that regulation axiomotically harms growth and markets just ins’t true. Furthermore, every single person being able to simply rate and research and know the validity of every mortgage, bank, or financial product is not realistic. The Government can play a very important role in fleshing out one of the most pervasive market failures, assemetric information.
How they are shaped obviously has strong distributional consequences, but the incentive effects can be equally powerful. If debts can’t be discharged, or can’t be discharged easily, lenders have less of an incentive to be careful in lending—and more of an incentive to engage in predatory lending. Location 4011
Note: Incentive effects of Bankruptcy Laws
The change in the law introduced a system of “partial indentured servitude.” An individual with, say, debts equal to 100 percent of his income could be forced to hand over to the bank 25 percent of his gross, pretax income for the rest of his life. This is because the bank could add on, say, 30 percent interest each year to what a person owed. In the end, a mortgage holder would owe far more than the bank ever lent. The debtor would end up working, in effect, one-quarter time for the bank.16 Location 4015
Note: Bank adds an arbitrary amount, outside of market forces in effect, enslaving the person. Complain about the Government, the banks are worse.
We saw earlier that inequality in the United States has been rising steeply and is likely to continue to increase. One of the reasons is the growing inequality of opportunity, related in part to educational opportunity. Location 4034
Note: One of the main reasons for inequality
negotiation. The banks (she charged) had acted both deceptively and fraudulently; they had not only improperly foreclosed on troubled borrowers (citing fourteen instances), relying to do so on fraudulent legal documentation, but they had also, in many cases, promised to modify loans for homeowners and then reneged on the promise. Location 4140
Note: Just another example among many where a bank, firm, or company makes a promise, gives you information from which you make a decision, then turns around and lies entirely. That is not a contract.
The discussion of this chapter, along with that of chapter 6, has shown how the financial sector made sure that the “rule of law” works in its favor almost always, and against ordinary Americans. It has the resources, the organization, and the incentives to do so; and it accomplished what it set out to do, through a multifaceted attack that included reforming bankruptcy laws to increase their power over borrowers, ensuring that private, for-profit schools could get access to student loans, almost regardless of standards, abolishing usury laws, preventing legislation to curtail predatory lending, and circumventing the procedural safeguards, weak as they were, to make sure that only individuals who really owed money would lose their homes. But in lending and in foreclosures they targeted the weak, the poorly educated, the poor. Moral scruples were set aside in the grand quest to move money from the bottom to the top. Location 4151
Note: Another great summery of how the Rich do in fact, get rich off the backs of the poor. Not by employing them and paying them low wages, not that’s too obvious. It’s far more insidious and backhanded, far less obvious, how they distribute money from the poor to the top.
The mortgage debacle and the persistence of predatory lending and bankruptcy “reform” have raised deep questions about “the rule of law,” which is the universally accepted hallmark of an advanced, civilized society. The rule of law is supposed to protect the weak against the strong and ensure fair treatment for all. In the wake of the subprime mortgage crisis, it has done neither. Instead of a rule of law that protected the weak, we had laws and regulations and a system of enforcement that further empowered the already powerful banks. In moving money from the bottom to the top, they worsened the problems of inequality in both tails of the income and wealth distribution. Location 4163
Note: Another great summery of the role of the rule of law, and how the banks used law against the poor and middle class to empower themselves.
Even access to the legal system is expensive, and that gives an advantage to large corporations and the wealthy. We talk about the importance of intellectual property, but we have designed an expensive and unfair intellectual property regime that works more to the advantage of patent lawyers and large corporations than to the advancement of science and small innovators.40 Location 4175
Note: A clear cut example of how the wealthy can get wealthy from the “backs of the poor.” You can take advantage of laws and patents, and if no one has the money to make a substantive case against you, you’ve gotten wealthy off the backs of someone else.
There has been an arms race; and it’s an arms race in which the banks that engage in fraud or the firms that engage in anticompetitive practices have the big advantage, especially since private firms do what they can to circumscribe government’s ability to spend. Location 4194
Note: Level 9 – Excellent point on the Libertarian idea of punt kicking everything to the private court system. It leaves rights once again, up to the highest bidder. In effect, one can grow large enough to have an entire budget dedicated to court cost, do whatever they want, and simply treat court cases as an input cost. You could even murder and rape and steal with impunity in Jeremys vision, since you can buy litigation in your favor. Also, high court costs are another form of inequality, as the wealthy, through money, have more access to the rules of the game and desirable outcomes. Law is needed independent of wealth.
The system also suits the banks: the cost is low relative to the profits they reap from their fraudulent behavior, and, had they admitted guilt, the evidence could have been used against them in private litigation brought by those the fraud injured in their attempt to recover their losses. The banks know that most of their victims don’t have the legal resources to challenge them without the government’s help. No one can claim that justice is really being done in this system. An economic system in which there is a pattern of such abuses can’t work well: fraud distorts the economy and undermines trust. Location 4207
Note: Another good anti libertarian argument
But in the case whose settlement Judge Rakoff rejected, Citibank and some of the other banks had gone beyond keeping silent on the risks: they had falsely told investors that an independent party was choosing the portfolio’s investments. While investors lost $700 million in the deal, Citibank made $160 million. Location 4220
Note: Level 10 and Chris, another way the Rich get rich off the backs of the poor. Through tacit fraud and asymmetric information
It would seem we have an economic and legal system that provides incentives for bad behavior: the executives’ pay goes up when profits go up, even if the profits are based on fraud; but the company’s shareholders pay the fines. In many cases the executives who were responsible for the fraudulent behavior have been long gone. Location 4226
Note: Another back breaker to Chris’s argument that CEOs are tautilogically worth their salaries
So large were the surpluses that Fed chairman Alan Greenspan fretted that the entire national debt would soon be repaid, and that would make the conduct of monetary policy difficult. (The way the Federal Reserve increases or decreases interest rates is to sell or buy government Treasury bills, but if there was no government debt, there would be no Treasury bills to buy and sell.) Location 4268
Note: An ineresting advantage to having a Debt, the ability to conduct monetary policy through increasing or decreasing interest rates through the sale of Treasury Bills, for which debt is nessesary.
It wasn’t long before the surpluses turned to deficits under the influence of four major forces. The first was the tax cuts themselves. The intervening years have shown the magnitude by which they exceeded what the country could afford: by 2010 the Congressional Budget Office (CBO) was predicting that if the tax cuts were extended for the next decade, the budgetary costs for 2011–20 would be $3.3 trillion.6 Of the 2012 budget deficit, around a fifth is attributed to the Bush tax cuts.7 Location 4279
Note: Listen to this, as far as politics go, nothing is more important to address a main rival in Chris than this. Here is the reason for the main thing he bitches about. Another backbreaker for Conservatives, the Bush Tax cuts are one of the biggest contributors to the debt altogether. While this is well known, the ccounter giving someone a tax cut doesn’t spent anything, doesn’t address the spending that a functioning country needs. But there you go, a fifth of that deficit right there are the Bush Tax Cuts.
The second contributor to the dramatic change in the country’s fiscal position was the expenses incurred in the wars in Iraq and Afghanistan, with budgetary costs (over the long run) estimated to exceed $2 to $3 trillion dollars. The budgetary costs will, in fact, go on for decades: almost 50 percent of returning troops are eligible to receive some level of disability payment, and such payments and health care costs for these veterans are likely to approach or exceed a trillion dollars.8 Even as the Iraq war was being brought to an end in 2011, war spending still accounted for at least 15 percent of the 2012 budget deficit.9 Location 4283
Note: And there you have it, 35% of Obama’s “Deficit” is Bush’s fault, 20% his tax cuts, and 15% his two wars, both of which also accrue interest that compounds onto the debt. Knowing this would have eliminated almost anything Chris had for a year.
The cost of weapons systems has soared even as the government has tried to rein it in: the $382 billion Lockheed Martin F-35 Joint Striker Fighter by itself costs half of the entire Obama stimulus program.12 Location 4302
Note: Another mortal wound for the conservatives. For all the bitching over the Obama stimulus, for all the endless railing and screaming over an act which would infuse billions into the economy and support new infrastructure and research, ONE program, that of the F-35 Joint Strike Fighter was HALF of the ENTIRE stimulus.
(One can understand why so many people are upset with current budget priorities: there is money for a fighter jet that critics say doesn’t help in the types of conflicts the United States finds itself in, and likely will in the future, but there’s no more money to help homeowners stay in their homes.) Location 4304
Note: A great testiment to the differences in priorities. Weapons over that which keeps American people from Suffering.
The third large source of the increase in the deficit was the new Medicare drug benefit, and while the benefit itself made sense, part of the cost was another huge “rent”—this time not to the military contractors but to the pharmaceutical industry. Location 4307
Note: Again, Bush is shown to be a massive contributor to the deficit still.
The biggest difference between the world of 2001, when we expected a large federal budget surplus, and the world of 2011, when we faced yawning deficits as far as the eye could see, though, was the Great Recession. Any recession causes a decrease in revenues and an increase in expenditures (for unemployment insurance and social programs), and a recession of the magnitude of the Great Recession of 2008 causes a major reversal in the fiscal position of a country. Location 4311
Note: And there you have, the 4th biggest contributor, again a wound suffered under the reign of Bush. The preceeding two pages have provided perhaps the most daming indictment of Bush and Conservatives policies and exonoration of Obama for the current financial deficits we have ever seen, and in debates with people like Frank, Malcolm, Jon, and the Ringleader Chris, perhaps the most indespensible pages we have seen. It might be level 10, or God. But pure and simple, Almost all of the Deficits are Bush’s fault.
but almost half (48 percent) of the entire deficit was a result of the underperformance of the economy, which led to lower tax revenues and higher expenditures on unemployment insurance, food stamps, and other social protection programs. Location 4317
Note: We were in a RECESSION! What about that, do they not understand. When people are not earning money, they are not paying as much in taxes. Eviscerating spending as would have thrilled the Conservatives would only have plunged millions into suffering, left them with no income or revanue, further decreasing demand and exasperating the downward pressure on producting, and made the recession worse. The private sector they laud as their God had it’s oppurtunity to spend but was NOT doing it, because in a recession, there is no confidence in the market, and no demand to spur oppurunities for investment.
Making the tax system fair is one such reform. Right now, as we noted in chapter 3, speculators are taxed at a fraction of the rate of those who work for their living. It’s a prime example of how those in the 1 percent have convinced the rest of society that what is in their interests is in the interests of all. The lower tax rates on capital gains didn’t lead to higher sustainable growth, but rather fed two speculative booms: it’s not an accident that, in quick succession, after the capital gains tax cuts of 1997 and the early 2000s, America experienced both a tech bubble and a housing bubble.16 Location 4331
Note: Level 10 – Bordering on God level, this provides an indictment not only of current tax policy favoring the wealthy, demonstrates how lower taxes on speculation based income could actually CAUSE problems, as cheap, easy and loose money for investment historically has led to over speculation, and an artificial bidding up of prices of sectors over their legitimate market value, as we directly saw during the tech bubble and housing bubble.
So too, Bush argued successfully in 2003 for a (temporary) cut on the tax on dividends, to a maximum of 15 percent, less than half the rate paid by someone who receives a comparable income in the form of wages and salaries. The claim was that it would lead to more investment by firms in plant and equipment, but it didn’t. Arguably, it may have had the opposite effect. As we observed in chapter 4, firms were, in effect, encouraged to pay out dividends while the tax rates were low, leaving fewer funds inside the corporation for a good investment project, should one have turned up.17 Location 4336
Note: Here we see how low taxes on dividends can actually lead to LESS investment in capital, as in an attempt to avoid taxation, one pays out the dividends instead of investing them into capital.
A basic principle of economics holds that it is highly efficient to tax rents because such taxes don’t cause any distortion. A tax on land rents doesn’t make the land go away. Location 4351
Note: Good point to make regarding the tirelessly trotted out argument that taxation makes people work less. Taxing land isn’t going to make it go away. If we can frame most of the wealth and earnings of the top as a result of rents, it could be one of the most powerful weapons we have, because such taxes would be nondistortionary, and money the person was not entitled to anyway.
Firms that are not paying the full costs they impose on others are, in effect, being subsidized. Location 4364

There are still other ways of raising more revenue: closing the hidden subsidies to corporations buried in our tax code (what we referred to in chapter 6 as corporate welfare), Location 4381
Note: A quick counter to the conservative idea that we are the party of welfare. Review over this provides the counter needed to show they are the party of welfare, only for the wealthy.
Earlier chapters showed that, with those at the very top paying a smaller percentage of their income in taxes than those who are not so well-off, our tax system is not fair—and is widely perceived not to be fair. Location 4384
Note: And there is Chris’s rebuttle right there (once again, it’s throughout the book) that the tax system is arlready in favor of the wealthy as a measure of proportion. They already pay less by percentage than most.
Levying additional taxes involves a simple principle: go where the money is. Since money has been increasingly going to the top, that’s where additional tax revenues have to come from. It’s really that simple. The Location 4389
Note: Simple justification for progressive taxation. If you have 15 Trillion in debt you want to pay off, are you going to get it from the poor people?
In short, if we were serious about deficit reduction, we could easily raise trillions of dollars over the next ten years simply by (a) raising taxes on people in the top—because they get so much of the nation’s economic pie, even small increases in tax rates raises substantial revenues; (b) eliminating loopholes and special treatment of the kind of income earned disproportionately by the top—from lower tax rates for speculators and dividends to exemption of municipal interest; (c) eliminating the loopholes and special provisions of the individual and corporate tax system that subsidize corporations; (d) taxing rents at higher rates; (e) taxing pollution; (f) taxing the financial sector, at least to reflect in part the costs it has repeatedly imposed on the rest of the economy; and (g) making those who get to use or exploit our nation’s resources—resources that rightfully belong to all Americans—pay full value. Location 4394
Note: Short Summery of how to increase tax revanue and reduce the budget deficit and debt, through taxation of high earners and those already at an advantagous position in the tax sytem, enjoying tax free rents and other means of market advantage.
The government could borrow today to invest in its future—for example, ensuring quality education for poor and middle-class Americans and developing technologies that increase the demand for America’s skilled labor force, and simultaneously protect the environment. These high-return investments would improve the country’s balance sheet (which looks simultaneously at assets and liabilities) and yield a return more than adequate to repay the very low interest at which the country can borrow. All good businesses borrow to finance expansion. And if they have high-return investments, and face low costs of capital—as the United States does today—they borrow liberally. Location 4432
Note: Level 10 – The most succinct progression articulation of deficit spending, and the strength of running a deficit if its to your advantage, ever seen. Most conservatives complain about deficits for the sake only of complaining about deficits. Very few things are good or bad in a vacuum; it is context that matters. If we can borrow for investments that will yeild higher net returns and ultimately strengthen the country, why would we ignore this advanatage? Progressives look at all options. Conservatives only a few, and blind themselves to all others.
The rating agencies—still trusted in spite of their incredibly bad performance in recent decades— Location 4440
Note: Saying we were downgraded by the rating agencies is laughable. The same rating agencies that gave the toxic mortgages and securities all AAA ratings, and helped to sink the Economy? That tells us just about all we need to know about how trustworthy they are.
Money spent paying for foreign contractors in Afghanistan doesn’t stimulate the American economy; money spent paying unemployment benefits to the long-term unemployed does, simply because these individuals are so strapped that they tend to spend every dollar given to them. Location 4458
Note: Unbiased justification for unemployment outside of moral principles, quite simply its stimulatory effects outweigh its contractionary effects. People have a hard time because it’s “giving money to someone else” but in reality, high unemployment is going to mean reduced demand and possibly a recession, so those dollars will wind up spend right back in the economy increasing demand. Box 1 – Nikki at the Williamsburg Office was an Independent, but claimed she was leaning Republican. Her main justification was no different than many others, some form of what they see as “Welfare.” Unemployment was her main boogieman. We need not attack whether it’s a large or small portion of spending; that doesn’t matter to them. In their mind, it’s wrong because it’s money going to somewhere else. We need only point out, how it benefits their interests, along with providing a form of “psychic insurance” in knowing that if you lose your job, you’ll at least not starve to death or wind up utterly homeless and freezing, at least not for a while. There is utility in knowing we live in a country that at least will give us some window of time before we die of no income. However, more importantly, from a fiscal standpoint, people without jobs aren’t spending money, and since their spending is your income, you’re not selling products. Nikki doesn’t benefit when she has to kick someone out of their apartment because they can’t pay the rent. They still owe the money, but courts costs and years pursuing it aren’t worth it. If dozens, even hundreds couldn’t pay, it would be a nightmare for the apartment complex indeed. But, thanks to unemployment, people can have the peace of mind of knowing they can survive for a while, be able to look for a job, and Nikki might not also have to lose hers as a result of everyone defaulting on their rent. For what would amount to a miniscule pittance out of her check, she might have avoided losing her income altogether in the form of lost demand for the product that pays her salary. The same could be said for million upon millions of people in an economy. Recessions are predicated on lost employment and suppressed demand. Alleviating that has the double effect of reducing human suffering and stimulating the economy, paying back its investment, and staving off recession.
But then the issue is inflation, and at present the markets just don’t think that inflation is a significant risk. One can infer that both from the very low interest rate that the government has to pay on its long-term debt and even more from what it has to pay for inflation-protected bonds (or more accurately, the difference between the returns on ordinary bonds and inflation-protected bonds). Location 4479
Note: God – Inflation – This is what the “God” tag is meant to be used for. Those 6 or 7 things in a book that if you had to take anything away, they would be it. An evisceration of the Conservative inflation argument greater even than Krugman’s. Their ultimate arbiter is the market. The market verdict it supreme in their world. By the very barometer they wield so adamantly against Liberalism, inflation is not an imminent threat. And examples are directly given in specific rebuttal. With Krugman, there isn’t much left for the Inflation argument to survive on.
With four applicants for every job, however, it should be obvious that the problem today is not the lack of applicants for jobs, but the lack of jobs.38 If more people searched, there would just be that many more people applying for the few jobs that were available. There would essentially be no change in the level of employment.39 Location 4662
Note: Level 10 – Dead Cold Logic, Friedmaneske style, a razer tool that can be used once and for all, to quickly put to bed the argument the “It’s your own fault” argument. You don’t have to appearl to morality, psychology, get mad, or resort to anectodes. It’s just simple math. If there are 4 applicants for every job, only one gets hired. If there are 90 for every job, one gets hired. Jobs don’t open up because more people apply. Only when demand goes up. There are only so many jobs available. And there are already 4 applicants per job. They can spar and quibble over the morality and fortitute and bullshit all they want, “Well it’s better than sitting at home” and dozens of other arguents. But in the end, it doesn’t address their actualy argument. It isn’t their fault. There arn’t enough jobs. It’s Math, nothing more.
If government, say, increases spending, GDP increases by a multiple of that amount. The relationship between the increase in GDP and the increase in government spending is called the multiplier. Not surprisingly, those on the right say that the multiplier is small—and maybe even near zero. Of course, when the economy is at full employment, more government spending won’t increase GDP. It has to crowd out other spending. Location 4751
Note: Only when the economy is at full employment does Government spending crowd out private
When things were going well, most people were prospering and could persuade themselves that those who weren’t had only themselves to blame. But with the recession of 2008, the story stopped making sense. Too many people who “played by the rules, studied hard, worked hard” were just getting by, or not even getting by. The system wasn’t working. Location 4819

For instance, in response to the real estate bubble, it would have made more sense to raise the down payment requirements for mortgages than to raise interest rates; one didn’t want to slow down productive investments, just to dampen the bubble. Location 4901
Note: Good point when the FED and interest rates are blamed as the blanket causes of the housing crisis. The housing bubble was merely an ancillary effect of the low interest rates. The did not want to hinder or discourage other forms of productive investment and wealth creation. So by lowering interest rates you make all borrowing more expensive, for cars, production, and entrepreneurship. There were other ways to fend off the housing bubble.
Even if the lower rates that banks paid for funds had been passed on to borrowers, in most sectors there wouldn’t have been much increased investment, given the low level of capacity utilization—the economy already had more than enough capacity to produce whatever was demanded. So, besides cheap money for the banks—a hidden subsidy—there really wasn’t much benefit to lowering the interest rate. Location 4905
Note: Good point on effective bank subsidies and liquidity traps, when demand is too low for lower interest rates to spur investment.
The lower interest rates might have dampened spending in other ways. Persons nearing retirement, seeing that they would have to put away that much more in safe government bonds to get the retirement income they desired, would have to save more. As would parents saving to put their kids through school. Even cursory attention to the distributional consequences of such policies would have raised doubt about the effectiveness of the low interest rate policy. Location 4913
Note: Good point on offsetting effects of lower interest rates. It’s not inflation, it’s middle class investment that takes it on the chin.
The Fed and its chairman Alan Greenspan were instrumental in stripping away the regulations that had been so important in ensuring that the financial system served the country well in the decades after the Great Depression. Location 4956
Note: A good opener. Now we need evidence.
The recognition that outsize bonuses gave financial professionals incentives to engage in excess risk taking and shortsighted behavior should also have led to tight regulations on the design of bonuses. Location 4972
Note: Chris would go apeshit if he heard this, screaming that who are we to take away the freedom of people to pay what they want for labor that benefits them. We need only point out most of these banks acquire their wealth through effective subsidies in the film of lower interest rates, moral hazard to the extent they know they will be bailed out allowing risk taking, that they are the ones using other people’s money, and a dozen other rebuttals throughout this book.
And yet, it seems that under current arrangements public officials are being held accountable for something over which they do not control one of the main levers. Location 5057
Note: A very important point to bring up when Obama is blamed for lack of job creation. (Even though job growth has been fine under Obama)
his free-market beliefs were based more on ideological conviction than on economic analysis. Location 5152
Note: A good way to explain almost anything from the Conservative idealogy. They are more interested in an idealogy, not pragmatic reality. It doesn’t matter how the world actually works, so long as an ideal is kept, at the expense of everything else.
Friedman also had views about banking regulations—like most other regulations, he thought, they interfered with economic efficiency. He advocated “free banking,” the idea that banks should be effectively unrestrained, an idea that had been tried, and failed, in the nineteenth century. He found a willing student in the Chilean dictator Augusto Pinochet. Free banking did lead to a burst of economic activity as new banks were opened and cr flowed freely. But just as it didn’t take long for America’s deregulated banking industry to bring the American economy to its knees, Chile, too, experienced its deepest downturn in 1982. It would take Chile more than a quarter century to pay back the debts that the government incurred in fixing the problem. Location 5172
Note: Explain that unregulated banking as simply never worked in any case in history. Even in Chile, when Friedman’s ideas ghave them free reign, a downturn hit hard in 1982, and it took them 25 years to clean up the mess. There simply always is eventual disaster when banking runs rampant without restriction.
Monetarism was based on the assumption that the velocity of circulation—the number of times a dollar bill turns over in a year—was constant. And while in some countries and in some places that had been true, in the rapidly changing global economy of the end of the twentieth century, it was not. Location 5185
Note: A good beginning to a rebuttle of monetarism that would be hard to find without study.
As they quickly abandoned monetarism, they looked for a new religion consistent with their faith in minimal intervention in the markets. Location 5188
Note: A nice, even sarcastic way to poke the Libertarian ideal of how when one of their theories is discred they go seeking a new “religion” to prop up their faith in markets.
Most developing countries faced higher rates of inflation not because of poor macromanagement but because oil and food prices were soaring, and these items represent a much larger share of the average household budget in developing countries than in rich ones. In China, for example, inflation approached 8 percent or more. In Vietnam it reached 23 percent.47 Inflation targeting meant that these developing countries should have raised their interest rates, but inflation in these countries was, for the most part, imported. Raising interest rates wouldn’t have much impact on the international price of grains or fuel.48 Location 5204
Note: A very good point to bring up regarding inflation. That the source of inflation is very important, not merely just blanket inflation. If you rely heavily on grain and oil to survive, and these prices go up, you’re going to see your dollar appear weaker. Interest rates won’t have much effect on this.
Inflation, as it is put, is the cruelest tax. It affects everybody indiscriminately and especially the poor, who are least able to bear it. But ask someone who has been out of a job for four years what he would prefer—another year of unemployment or a slight increase in inflation from, say, 1 percent to 2 percent. The answer is unambiguous. The toll unemployment takes on workers is high and hard to manage. Better some job whose pay has declined in real terms by a few percent than no job. Location 5227
Note: A way to explain that there are things far worse than inflation, and if we have to focus on something, employment is far more important that inflation. That, if by stimulating the economy with a stimulus, or increasing the money supply increases inflation modestly while bringing down unemployment, that is a far bigger improvement to well being that merely fussing about inflation.
While the advocates of these policies may claim that they are the best policies for all, this is not the case. There is no single, best policy. As I have stressed in this book, policies have distributive effects, so there are trade-offs between the interests of bondholders and debtors, young and old, financial sectors and other sectors, and so on. I have also stressed, however, that there are alternative policies that would have led to better overall economic performance—especially so if we judge economic performance by what is happening to the well-being of most citizens. Location 5292
Note: Policies and which ones are the “best” comes down to how “best” is used. All policies have tradeoffs, and understanding that is one of the most important things. The idea is that what improves the well-being of the most citizens is the policy that is “best” to the Democrat ideal, not simply the best for only the wealthiest, which are supposed to benifit the rest indirectly.
What’s been happening in America has also been happening in many countries around the world. But it is not inevitable. It is not the inexorable workings of the market economy. There are societies that have managed things far better, even in a world where market forces and the dominant policy paradigm lead to substantial inequality because of differences in ability, effort, and luck. Those societies produce a standard of living higher than that of the United States for most of their citizens, measured not just in terms of income but in terms of health, education, security, and many other aspects that are key to determining the quality of life. And some societies where inequality was far worse than in the United States have looked over the precipice, seen what might lie ahead, and retreated: they have managed to reduce the degree of inequality, to help the poor and to extend education. Location 5315
Note: It’s not inevitable. It doesn’t have to be this way. If all we are concerned about is blind religion and idealogy at any cost, then most of our society can suffer. If we are concerned with the people of our country living better lives, it can be done. It has been done elsewhere. Republicans see a world through only a religion. They do not care about the ends. We see a world through pragmatic concerns, and that is the difference.
Those market forces are shaped by politics, by the rules and regulations that we as a society adopt, by the way our institutions (like the Federal Reserve, our central bank, and other regulatory agencies) behave. Location 5324
Note: Three line summary of the causes of Inequality.
The central argument is that the model that best describes income determination at the top is not one based on individuals’ contributions to society (the “marginal productivity theory” introduced earlier), even though, of course, some at the top have made enormous contributions. Much of the income at the top is instead what we have called rents. These rents have moved dollars from the bottom and middle to the top, and distorted the market to the advantage of some and to the disadvantage of others. Location 5330
Note: The fundamental thesis of the entire book and perhaps the fundamental argument against Chris’s entire idealogy, as well as almost any Libertarian and Conservative we have ever seen.
A more efficient economy and fairer society will also come from making markets work like markets—more competitive, less exploitive—and tempering their excesses. The rules of the game matter not just for the efficiency of the economic system but also for distribution. The wrong rules lead to a less efficient economy and a more divided society. Location 5334
Note: If government policy allows rents, why not get rid of government. Well here is why. Government can make markets more competitive, less exploitive, and more efficient. Everything is based off of the foundational rules of the game. So policy from that very point can determine distribution.
Finally, making the society more equal is likely to affect the prevailing ideology that influences our microeconomic and macroeconomic policies. We have identified several myths on which this ideology depends. We can break out of the viscious cycle where the political domination of the top leads to beliefs and policies that enhance economic inequality and reinforce their political domination. Location 5340
Note: Level 10 – A foundational and fundamental argument about how the reduction of Inequality matters by increasing the well-being of a society for everyone.
Chapter 2 showed how so much of the wealth at the top is derived, in one way or another, from rent seeking and rules of the game that are tilted to advantage those at the top. The distortions and perversions of our economic system are pervasive, but the following seven reforms would make a big difference. Location 5365
Note: The Following single page may be the most important in the book, in that it undelines the main problems, how Government can correct them, and thus, an entire justification for the Democrat Party position in an Economy as it relates the the well-being of the people.
Every loan is a contract between a willing borrower and a willing lender, but one side is supposed to understand the market far better than the other; there is a massive asymmetry in information and bargaining power. Accordingly, the lender should bear the brunt of the consequences of a mistake, not the borrower. Location 5410
Note: Level 10 – One of the most convincing and accesible arguments for bank regulation. Illustrates also, how the rich and powerful – bankers and those in the financial sector – do get rich at the expense of the poor and others.
As we saw in chapter 2, the amounts of government giveaways to corporations are huge, ranging from the no-bargaining provision in drugs, to the cost-plus Halliburton contracts in defense, to the poorly designed auctions for oil, to the giving away of spectrum to TV and radio, to the below-market royalty rates for minerals. These giveaways are a pure transfer, from the rest of the population to corporations and the wealthy; but in a world of budget constraints, they are more than that, for they result in less spending on high-return public investments. Location 5421
Note: Great summary of how Republicans are more in favor of welfare than Democrats, that while Democrats favor helping those in need, Republicans favor welfare for those already wealthy by “giving away” advantagous market positions. So the next time someone bitches about the only reason someone votes for a Democrat is because he wants free stuff, you can explain that the only reason someone Votes for a Republican is because he wants someone else to get free stuff, unless he’s rich, then he wants it to go to him. But in short, this is a brief list you can bring up quickly as an example of substantive corporate welfare.
Among the most dangerous forms of corporate welfare are ones that limit liability for the damage the industries can cause—whether it’s limited liability for nuclear power plants or for the environmental damage of the oil industry. Not bearing the full cost of one’s action is an implicit subsidy, so all those industries that impose, for instance, environmental costs on others are, in effect, being subsidized. Like so many of the other reforms discussed in this section, these would have a triple benefit: a more efficient economy, fewer of the excesses at the top, improved well-being for the rest of the economy. Location 5433
Note: Insightful framing of corporate welfare very few would see and nearly impossible to refute. When others bear the cost imposed on society of these companies, not only are they receiving a substantive subsidy, but we are paying for it, effectively paying their CEO. So yes, when someone says we have no right to complain Bout what CEOs make because it’s not our money, yes it most certainly is our money, not only in government subsidies but in costs imposed on society by these companies for which we pay for.
A fair tax system would tax speculators at at least the same rate as those who work for their income. It would ensure that those at the top pay at least as large a percentage of their income in taxes as those with lower incomes.5 The corporate tax system should be reformed, both to eliminate loopholes and to encourage more job creation and investment. Location 5454
Note: Again, the wealthy make most of their money from investments, but this is income, so it is anything but clear why this should somehow be exempt from taxes. Naturally we’re told taxing investments will discourage these wonderful benevolent saints of beauty to stop gracing us with their kindness of investing and roll up the sidewalks and their will just be no more jobs. But if people stop doing things because they get taxed, why doesn’t everyone stop working? We tax that. If I could make only 8 million from and investment instead of 9 million, I’d still do it, and so would anyone who wasn’t a liar. Also, and probably more importantly, most investment is speculative, especially in stocks and new enterprises. You didn’t know how much you were going to make any way! So a taxing this “work” the same rate as everyone else already pays on a sum they didn’t know the result of anyway is going to just make them stop investing. Bullshit, plain and simple. Finally, “they will stop investing and it will kill jobs” is a red herring. It’s work and deserves to be taxed no less than any other work. Keep the main point in mind.
Improving access to education. Opportunity is shaped, more than anything else, by access to education, and the direction we have been going (income-segregated residential communities, sharply decreased public support for higher education—and the resulting sharp increases in tuition in public colleges and restrictions on places available in engineering and other high-demand but high-cost fields) can be reversed as well, but it will take a concerted national effort. What can be done to improve access to education, and, in particular, to improve the quality of public education, would itself take a tome.9 Location 5474
Note: Education is among the most important areas of improvement for reducing inequality, for nothing is more important for a person to be able to take advantage of the opportunities the Economy has to offer than Education. Without this, one is not free in the sense that they are not possess the freedom of opportunity, the freedom to take part in everything that the Economy has to offer. Not only does Education create human capital that is second to none in importance for a growing economy, but allowing everyone a level playing field in taking part in the Economy is first and foremost facilitated by equal access in Education. This means financially too. A national effort is needed.
Public money should be used to expand support for state and nonprofit higher educational systems and to provide scholarships to ensure that the poor have access. Location 5483
Note: Public funding for those who cannot otherwise afford education should continue to be offered in the form of grants, assistence, and scholarship. Knowledge is a public good, and everyone benifits from a more educated society.
This inefficient and antiquated system has contributed greatly to the reality that the United States has the most inefficient and poorest-performing, overall, health care system among the advanced industrial countries. Location 5492
Note: Alright Chris and other ilk like him. Our healthcare system is lauded by the right, when it is useless to all who can’t afford it. A fast way of summerizing the fact that for all our technology, the actual delivery of this healthcare is abysmal. Public health is another thing that benifits everyone in society, and grows an Economy.
Correcting trade imbalances. One of the reasons that total demand is so weak is that the United States imports so much—more than half a trillion dollars more than we export.14 If exports create jobs, then imports destroy jobs; and we’ve been destroying more jobs than we’ve been creating. Location 5551
Note: A very interesting and enlightening insight into how the trade imbalance and globalization contributes to the desctruction of jobs and subsequently lower demand, and possibly further inequality as well. This did not occur to us. If textiles are imported in, that’s textile jobs that no longer need to be filled here at home. More research would be required to see how all this fits together (Who is doing the importing, and why.)
We explained why trickle-down economics doesn’t work: growth doesn’t automatically benefit all. Location 5610
Note: Single sentance summary as good as any why Trickle Down Economics doesn’t work. Growth goes to the top, not everyone else, and we want a solution for everyone.
One can raise taxes on corporations that don’t invest and lower taxes on those that do, and on those that create jobs. Doing that is more likely to lead to growth than the kinds of across-the-board tax reductions that some businesses demand. Location 5614
Note: Taxation as a lever to create jobs.
Government investments—in infrastructure, education, and technology—underpinned growth in the last century, and they can form the basis of growth in this century. Location 5617
Note: A single sentance for why I am a Democrat, and as important to remember as any other.
As the economic historian Alex Fields has pointed out,20 the decades of 1930s, ’40s, ’50s, and ’60s were periods of high productivity increases—higher than the decades before and after—and much of this success had to do with public investments. Location 5618
Note: Our old Gold Standard for evidence that government has a positive role to play in the Economy. The decades of the 40s through the 60s were some 30 years of the highest taxation, along with the largest public investment in our history, and we sustained some of the greatest growth in our nation’s history, along with shared growth for everyone, reduced inequality, and rising wages for everyone. You will never fail to meet the standard response to this, that it was not Government or Public Investments that lead to this increase in prosperity, but only that we had an open playing field after the destruction of the world’s manufacturing sector after WWII, when we were the only ones left standing. However, to this, we need only channel William Lane Craig and a response similar to what he would come up with. Either government spending did or did not contribute to prosperity in those years. If it did not, it was an open manufacturing sector. If it did, it was both, but the fact that two events occur congruently does not mean at all that one is simply negated entirely. The fact that the two happened to occur during the same decades does not tell us that the spending had no effect on prosperity. It is a Red Herring Fallacy. The fact that WWII had destroyed some of the worlds manufacturing sector does not address the fact that government spending did indeed provide a wealth of fertile soil for the next decades to grow. They are two entirely separate events, and one does not negate the other.
Throughout this book, I’ve emphasized that what matters is not just growth, but what kind of growth (or, as it’s sometimes put, the quality of growth). Growth in which most individuals are worse-off, where the quality of our environment suffers, where people endure anxiety and alienation, is not the kind of growth that we should be seeking. Location 5628
Note: Good rebuttle to Chris and his short sighted view that nothing else but and only growth matters. Meaningful growth that actually increases the well being of the people of the country is what is important, otherwise what is the point?
But, as we argued in chapter 6, if it’s desirable to give corporations a fresh start, it’s equally valuable to give families a fresh start. Current policy is devastating families and communities. We need a homeowners’ Chapter 11 that would write down what the family owes, in return for a share of the capital gain when the house is sold. Location 5644
Note: Why can’t regular people get the same protection that corperations enjoy?
We all benefit from having a well-functioning democracy and society. But because we all benefit, anyone can be a free rider.23 Location 5659
Note: In a sense, the most fundamental argument for the Democrat Party, covering progressive taxation, education, infrastructure, health care, technology, public research, and even the alliviation of poverty. These are things that everyone, from a pauper to a wealthy mogal, benifit from. There is even a sense in which the wealthiest benifit from living in a soceity that is deemed by other countries to be more just and fair, and thus, more likely for these countries to trade with us and allow these wealthy people to earn their wealth. In a sense, by framing everything through this lens, we can justify anything from predatory lending to any form of taxation and reasonable public spending.
Everyone possesses self-interest in a narrow sense: I want what’s good for me right now! Self-interest “properly understood” is different. It means appreciating that paying attention to everyone else’s self-interest—in other words, to the common welfare—is in fact a precondition for one’s own ultimate well-being.27 Location 5713
Note: Magnificent, and underlies the importance of highlighting, even calling into question many of the other highlights, since this one is so important. Most of these people only see the world in terms of selfishness, their own gain and no one elses. But, if we can frame their good as dependant on the good of others, then we have a pure clear sky for justifying, even within the Republicans own framework, our policies.
4. More precisely, the top 1 percent control about 35 percent of the wealth. If the value of the home is excluded, i.e., “nonhome wealth,” the number is considerably larger: the top 1 percent owns two-fifths of the nation’s wealth. Edward N. Wolff compares both figures in “Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze—an Update to 2007,” Levy Institute Working Paper no. 589, March 2010, available at (accessed February 28, 2012). The Federal Reserve is the original source for the net-worth figures, including home wealth; see Arthur B. Kennickell, “What’s the Difference? Evidence on the Distribution of Wealth, Health, Life Expectancy and Health Insurance Coverage,” paper prepared for the 11th Biennial CDC/ATSDR Symposium, September 23, 2007, available at (accessed February 28, 2012). Note that the top 1 percent income may not perfectly overlap the top 1 percent wealth holders—these are two different categories. The top 1 percent of income earners own “only” about 25 percent of the nation’s wealth. See Arthur B. Kennickell, “Ponds and Streams: Wealth and Income in the U.S., 1989 to 2007,” staff working paper in the Finance and Economics Discussion Series, Federal Reserve Board, Washington, DC, January 7, 2009, p. 36, available at (accessed February 29, 2012). Location 5857
Note: Evidence to follow up on the disparity of income and wealth
The top 1 percent of income earners received some 60 percent of the gains during the country’s economic expansion between 1979 and 2007. While the real after-tax household income of the 1 percent grew by 275 percent in that period, the bottom fifth’s average real after-tax household income rose only 18 percent. Indeed, the bottom 90 percent of earners got just a fourth of what the top 0.1 percent gained. Based on data from, Piketty and Saez, “Income Inequality in the United States, 1913–1998,” and the updates on Saez’s website, cited in n. 2, above. See EPI Briefing Paper, October 26, 2011, cited in n. 3, above; and Josh Biven, “Three-Fifths of All Income Growth from 1979–2007 Went to the Top 1%,” Economic Policy Institue, October 27, 2011, available at (accessed February 28, 2012). The CBO 2011 study, cited in n. 1, above, presents a similar picture. Location 5872
Note: More evidence for income inequality.
8. Adjusted for inflation, male median income in 2010 was $32,137; in 1968 it was $32,844. See table T-5 of the U.S. Census Bureau’s income report, available at (accessed February 13, 2012). (Of course, the median worker today is a different person from the median person in 1968, and these numbers can be affected by immigration of unskilled workers.) Location 5885

While those at the bottom and middle have seen their income fall in this century, the divide between the rich and the poor has been growing for a third of a century. Between 1979 and 2007, the after-tax income for the top 1 percent income earners increased 275 percent. For the 21st through 80th percentiles, the increase was just below 40 percent. For the bottom 20 percent, the increase was only 18 percent. The net result of this is that the “the share of household income after transfers and federal taxes going to the highest income quintile grew from 43 percent in 1979 to 53 percent in 2007” (for the 1 percent the increase was from 8 percent to 17 percent), whereas the share of after-tax and transfer income for all other quintiles fell (all by between 2 and 3 percentage points). See CBO, “Trends in the Distribution of Household Income.” The threshold for belonging to the top 1 percent of income earners in 2010 when capital gains are included, according to Piketty and Saez, “Income Inequality in the United States, 1913–1998,” and Location 5918
Note: Income disparity stats
See Carmen Reinhart and Kenneth Rogoff, This Time Is Different: Eight Centuries of Financial Folly (Princeton: Princeton University Press, 2009). Location 6376
Note: Get this, how deregulation led to financial crisis.
While what is “unfair” or “unethical” depends on “norms,” and there may be disagreements about what is or is not fair, the experiment focused on situations where there would be broad consensus on what was fair or ethical. Similarly, much of the financial sector behavior that I criticize below violates virtually any sense of “fairness” or “ethics.” Location 6411
Note: One of the best, most importantly articulated arguments about fairness ever seen, with utility in visually every argument against Chris, and anyone who calls into question fairness as an unreal construct. Also a fascinating study to look up.
The World Wide Web Consortium he founded decided that its standards should be based on royalty-free technology, so that they could easily be adopted by anyone. Like Jobs, Bill Gates is often heralded as an innovator, but even though the adoption of his products is nearly universal now, that is due more to his business acumen—and near-monopoly of the market—than to the uniqueness of the technology he sells. Location 6427

high priest of this religion, Milton Friedman Location 6492
Note: Good way to articulate someone expousing an economic belief no different than a religous one.
One of Netscape’s founders, Marc Andreessen, was part of the team at the University of Illinois at Urbana-Champaign that developed Mosaic, the first widely used web browser, which was a project of the university’s National Center for Supercomputing Applications (one of the original sites of the National Science Foundation’s Supercomputer Centers Program). See the website of the NCSA, (accessed March 3, 2012); and John Markoff, “New Venture in Cyberspace by Silicon Graphics Founder,” New York Times, May 7, 1994, available at (accessed March 3, 2012). 36. For an overview Location 6510
Note: Evidence – Just one piece of evidence needed to demonstrate the internet as we know it today was made possible by government funded research.
Karen E. Dynan, Jonathan Skinner, and Stephen P. Zeldes, “Do the Rich Save More?,” Journal of Political Economy 112, no. 2 (2004): 397–444. Location 6968

6. For a more complete telling of this story, see J. E. Stiglitz, The Roaring Nineties (New York: Norton, 2003). Location 6987
Note: Get
“Extending the Bush Tax Cuts Is the Wrong Way to Stimulate the Economy,” report by the Joint Economic Committee Majority Staff, Chairman Charles E. Schumer; Vice Chair Rep. Carolyn B. Maloney, April 2008. Location 6992
Note: Get
See Peter Diamond and Emmanuel Saez, “The Case for a Progressive Tax: From Basic Research to Policy Recommendations,” Journal of Economic Perspectives 25, no. 4 (2011): 165–90; and Thomas Piketty, Emmanuel Saez, and Stefanie Stantcheva, “Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities,” NBER Working Paper 17616, 2011, available at (accessed March 1, 2012). For an accessible discussion of the second paper’s findings, see the same authors’ article “Taxing the 1%: Why the Top Tax Rate Could Be over 80%,” Vox, December 8, 2011, available at (accessed March 6, 2012). Some earlier, idealized economic models suggested that it was optimal not to tax interest income (income from capital), but subsequent research showed that this result was not robust: capital taxation is desirable. See, e.g., Thomas Piketty and Emmanuel Saez, “A Theory of Optimal Capital Taxation,” working paper, 2011, Paris School of Economics and University of California at Berkeley, available at (accessed February 27, 2012); and J. E. Stiglitz, “Pareto Efficient Taxation and Expenditure Policies, with Applications to the Taxation of Capital, Public Investment, and Externalities,” presented at conference in honor of Agnar Sandmo, Bergen, Norway, January 1998. Location 7238
Note: Jesus Christ resources. Get these and read in regards to progressive taxation.
Alexander J. Field, A Great Leap Forward: 1930s Depression and U.S. Economic Growth (New Haven: Yale University Press, 2011). Location 7252

See Torsten Persson and Guido Tabellini, “Is Inequality Harmful for Growth?,” American Economic Review 84, no. 3 (June 1994): 600–21. Location 7260
Note: Most important thing to look up
For a sample of the large literature, see, e.g., Daniel Kahneman, Jack L. Knetsch, and Richard H. Thaler, “Fairness and the Assumptions of Economics,” Journal of Business 59, no. 4 (1986): S285–S300; Gary E. Bolton and Axel Ockenfels, “ERC: A Theory of Equity, Reciprocity, and Competition,” American Economic Review 90, no. 1 (March 2000): 166–93; Armin Falk, Ernst Fehr, and Urs Fischbacher, “On the Nature of Fair Behavior,” Economic Inquiry 41, no. 1 (January 2003): 20–26; Daniel Kahneman, Jack L. Knetsch, and Richard H. Thaler, “Fairness as a Constraint on Profit Seeking: Entitlements in the Market,” American Economic Review 76, no. 4 (1986): 728–41; Amartya Sen, “Moral Codes and Economic Success,” in Market Capitalism and Moral Values, ed. C. S. Brittan and A. Hamlin (Brookfield, VT: Aldershot, 1995). Location 7348
Note: Research on Fairness
See in particular the report The Financial Crisis Inquiry Report of the bipartisan National Commission on the Causes of the Financial and Economic Crisis in the United States, which concluded that Fannie Mae and Freddie Mac “contributed to the crisis, but were not a primary cause” (p. xxvi). The report is available at (accessed February 20, 2012). Only one member, Peter J. Wallison of the American Enterprise Institute, dissented. Other, more academic studies have confirmed and supported their findings. Location 7615
Note: We think Chris believes Freddy and Fannie are the biggest reasons of the crisis. This is exactly what we need to refute.
preconceptions. Charles Lord and coauthors carried out important research on belief polarization: they showed research results on the death penalty to two groups of people, pro– and anti–capital punishment. They found that people tended to hold that research that agreed with their original views had been better conducted and was more convincing than research that conflicted with their original views, and they tended to have a stronger position after reading about research that supported their position. Charles Lord, Lee Ross, and Mark Lepper, “Biased Assimilation and Attitude Polarization: The Effects of Prior Theories on Subsequently Considered Evidence,” Journal of Personality and Social Psychology 37, no. 11 (1979): 2098–109. Location 7655
Note: Excellent example of confirmatory bias, and how people are unwilling to accept any evidence against their position under the belief that the methedology used to conduct the experiments confirming their side was more accurate and reliable. A good starting point would be to ask, “Could any evidence change your view? Would you believe this no matter what? If so, what evidence would you accept? If no evidence would suffice, how would you consider this a rational position to even hold?”
The reason is that the person on the other side has already such a strong frame, a perspective, through which he sees the world, that the contrary evidence is highly discounted and the confirming evidence given undue weight. Location 7689
Note: Articulate
For instance, a debt-to-equity conversion that gives the lender a share in the capital gain when the house is sold in return for a write-down of the principal. Homeowners still have an incentive to maintain their homes, houses aren’t thrown onto the market, depressing housing prices; families are given a “fresh start” (a basic principle in all bankruptcy law); the costly foreclosure process is avoided. The homeowner pays a price—the loss of (a substantial fraction) of his capital gain, so “moral hazard” is averted. In Freefall (New York: Norton, 2010), I refer to this as a homeowners’ Chapter 11, by way of analogy to laws governing corporations, that give corporations a fresh start by allowing a similar conversion of debt to equity. Location 7779
Note: Good alternative to bailouts that helps homeowners. Debt to equity
Kenneth Rogoff and Carmen M. Reinhardt, This Time Is Different: Eight Centuries of Financial Folly (Princeton: Princeton University Press, 2009), describe hundreds of financial crises in the last eight hundred years, eighteen banking crises in the developed world since World War II alone. Earlier, the late Charles Kindleberger of MIT described repeated crises in his classic Manias, Panics, and Crashes: A History of Financial Crises Location 7797

The Congressional Budget Office (CBO) has found that administrative costs under the public Medicare plan are less than 2 percent of expenditures, compared with approximately 11 percent for private plans under Medicare Advantage. (CBO, “Designing a Premium Support System for Medicare,” November 2006, 12.) According to Centers for Medicare and Medicaid Services, Medicare’s inflation-adjusted cost per beneficiary increased 500 percent from 1969 to 2009, while the private insurance companies’ real-cost increased 800 percent for the same period. See Similarly, several studies suggest that the cost of Medicaid, the health program for the poor, is lower than if the services were provided privately. See Jack Hadley and John Holahan, “Is Health Care Spending Higher under Medicaid or Private Insurance?” Inquiry 40, no. 4 (Winter 2003–04): 323–42; and “Medicaid: A Lower-Cost Approach to Serving a High-Cost Population,” policy brief by the Kaiser Commission on Medicaid and the Uninsured, March 2004. See also Paul Krugman, “Medicare Saves Money,” June 12, 2011, available at Location 7802

study of partial privatization of social security (pensions) in the UK showed that these transactions’ costs in effect lowered pensions by 40 percent; taking an extra 1 percent out in one year might not seem like a lot, but when taken year after year, the amounts cumulate. See Mamta Murthi, Michael Orszag, and Peter Orszag “Administrative Costs under a Decentralized Approach to Individual Accounts: Lessons from the United Kingdom,” in New Ideas about Old Age Security, ed. R. Holzmann and J. Stiglitz (Washington, DC: World Bank: 2001). Location 7812
Note: Public vs Private retirement
Moreover, no private insurance company provides insurance against the risk of inflation, which, though low now, could become once again high, as it was in the 1970s. Location 7840

68. The U.S. federal government spent about $140 billion on its Temporary Assistance to Needy Families and Assistance and Aid to Families with Dependent Children programs in the form of “Expenditures on Cash Benefits and Administration” between 1990 and 2006. See “2008 Indicators of Welfare Dependence, Appendix A, Program Data,” provided by the U.S. Department of Health and Human Services, available at (accessed March 4, 2012). Location 7848
Note: Welfare – For Rich, and anyone else expousiong the problems of welfare, here is evidence, complete with a link, demonstating Corperations, and a BUSH Republican administration, are more guilty of welfare than anyone else combined for 16 years. Welfare is only a problem for Republicans when it goes to needy people. I’ve never heard one complain about Corperate Welfare, which makes the other look like a joke. It’s a special kind of hypocracy to indict Obama, or the Democrats for “Welfare” when one of their presidents gave more “Welfare” to ONE company than the rest of the population combined.
current exchange rates (e.g., how many euros trade for a dollar), living may be cheaper in one country than in another. (The difference can depend, of course, on what one spends one’s money on. Someone having to buy health care in the United States has a much lower standard of living that a comparably sick person in France.) Economists refer to the comparisons attempting to make (albeit imperfect) adjustments for cost of living as PPP (purchasing power parity) comparisons. Location 7864

This is especially the case when there are information asymmetries—where one party has easier access to information. If one group has less information about the harm than another (a common situation), then the more informed is in a better position to avoid the harm. Other market imperfections can also affect the efficiency of alternative assignments of property rights. For example, if one group is cr constrained, it may not be able to pay. Location 7917
Note: So once again, rights go to the highest bidder. You pay for rights, and if you don’t have the money, someone gets to blow smoke in your face and impose a harm on you.
there is a broad consensus: those who drive safely should have the right to drive without worrying about the risk of an accident from a reckless driver; ordinary citizens should have the right to breathe clean air. Location 7924
Note: The person acting recklessly or imposing the harm or inconvenience is the ones responsible for the harm. Otherwise, all systems of law break down and you can do anything.
And to shape beliefs and perceptions that shape the presumptions that are so critical as judges and juries make judgments about the merits of either side in a court case. Location 7929
Note: Great articulation of how distorted ideologies feed on themselves
For a discussion, see G. Morgenson and Joshua Rosner, Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon (New York: Times Books, 2011). More specifically, the ratings agencies claimed that they could not rate RMBS based on mortgages originated in New Jersey and Georgia, on the grounds that the RMBS holder would be liable under state Consumer Protection or Predatory Lending Law. Under Location 7931

Just as the Food and Drug Administration protects consumers against deceptive, dangerous, and ineffective drugs. Location 7952

A New York Times orial described bank practices that “deliberately buried information, requiring consumers to visit three Web pages and scroll through 50 pages of text to find fee information.” Location 7970
Note: One of the most relevant passages in the book, a direct demonstration of how firms go to great lengths to create substantive information asymmetries in order to intentionally deceive customers, then say “it’s their own fault” when the person steps on one of their landmines. The principle of “Willing buyer and seller” and “both parties are made mutually better off” is pretty well thrown out the window here.
High interest rates predictably lead to more risk for several reasons. Only those engaged in high-risk activities are willing to pay the high interest rates (the “selection” effect); to get returns to pay back the loan with interest requires the borrower to undertake highly risky activities (the incentive effect); and lenders, comforted by the high returns they get from those loans that are paid back, may put less effort into screening. See J. E. Stiglitz and A. Weiss, “Cr Rationing in Markets with Imperfect Information,” American Economic Review 71, no. 3 (June 1981): 393–410. In the United States beginning in 1980, federal laws increasingly preempted state laws that attempted to restrict usury. Location 8023
Note: Interesting
The U.S. government benefited from the bubble, for a while, which masked its true financial position, as it did that of ordinary Americans: some of the revenues were from artificial capital gains and profits from bubble prices, so that even after reversing the four actions described above, there might still be a deficit. Besides, health care inflation has exceeded overall inflation, necessitating further expenditures for Medicare and Medicaid. Location 8194

As we noted in earlier chapters, a defense of these subsidies is that they increase employment. But as we noted there, too, the responsibility for maintaining the economy at full employment lies with macroeconomic policy (monetary policy and fiscal policy). If macroeconomic policy is managed well, we can have an economy at full employment, without these subsidies. If macroeconomic policy is not managed well, we won’t have full employment, even with the subsidies. Location 8225
Note: Good point to make in regards to employment and subsidies to private industry.
As an obvious example, a tax cr to corporations that do invest provides incentives for firms to invest and provides them the cash to do so. Location 8258

Gary Engelhardt and Jonathan Gruber show that increases in Social Security benefits can explain all of the 17 percentage point decline in poverty that occurred between 1960 and 2000. “Social Security and the Evolution of Elderly Poverty,” NBER Working Paper 10466 (2004). Location 8266

A variant of this, remarkably held by some serious economists, is that they aren’t really unemployed; they’re just “enjoying” leisure. Of course, normally, someone enjoying leisure should be happy, which is not the case for most of those out of a job. But, in this view, that’s a problem for psychology, not for economics. Location 8276

There is a standard argument among conservatives against deficit spending, that the anticipation of increased tax liabilities in the future so increases savings, as workers today prepare for those future tax burdens, that aggregate demand is unaffected. The argument is called the Barro-Ricardian equivalence theorem, after the Harvard professor Robert Barro, who discussed it in his paper “On the Determination of the Public Debt,” Journal of Political Economy 87, no. 5 (1979): 940–71. But subsequent work, such as my paper “On the Relevance or Irrelevance of Public Financial Policy,” in The Economics of Public Debt: Proceedings of a Conference Held by the International Economic Association at Stanford, California (London: Macmillan Press, 1988), pp. 4–76, explains that the result holds true only on very peculiar conditions, e.g., perfect capital markets and perfect altruism across generations. In fact, when Bush lowered his taxes on the rich and the deficit soared, household savings rates fell, moving in just the opposite direction predicted by Barro’s theory. Location 8345
Note: For those that start the deficit spending drives down demand due to anticipation of higher taxes shit
The consumption of the poor and middle is, as we have noted, often constrained by their resources, but this is not so true of those at the top, which is why increasing temporarily their capacity to consume today is not likely to have much effect on consumption levels. Location 8408
Note: Empowering the wealthy won’t make much difference, they can already do what they want. Letting them keep a fee more millions won’t matter since they more or less buy whatever they want to anyway. The middle class will spend almost everything they get.
For a breakdown of where the money went, see Location 8442

Probably the most important deregulatory measure was the repeal in 1999, under President Clinton, of part of the Glass-Steagall Act of 1933 which separated investment banks (responsible for managing wealthy individuals’ and corporations’ money) and commercial banks. The repeal is also known as the Citigroup Relief Act because it legalized a merger of Citibank with securities and insurance services that had occurred in 1998. Location 8449

JPMorgan Chase benefited through the Bear Stearns bailout. In another instance of questionable governance, Stephen Friedman became chairman of the Federal Reserve Bank of New York in January 2008, while he was simultaneously a member of the board of Goldman Sachs and had a large holding in Goldman stock. He resigned in May 2009 after the controversy over the obvious conflicts of interest (including share purchases, which enabled him to make $3 million). Location 8492
Note: Though it does partially throw government under the bus, we can simply say it’s bad government, and furthermore, self interest doesn’t always help others, and profit corrupts most things
See the fuller discussion in chapters 2 and 3 and Thomas Piketty, Emmanuel Saez, and Stefanie Stantcheva, “Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities,” NBER Working Paper 17616, available at; and Peter Diamond and Emmanuel Saez, “The Case for a Progressive Tax: From Basic Research to Policy Recommendations,” Journal of Economic Perspectives 25, no. 4 (2011): 165–90. As we noted earlier, President Obama has endorsed the “Buffett rule,” the notion that the tax system, at a minimum, should be progressive, with those at the top paying at least as high a rate as other Americans. Location 8660
Note: Resource – Could be an incredible resource providing direct evidence that progressive taxation is more efficient. They would then at least be met with the burden of refuting it.
Because taxes on rents are nondistortionary, taxes on income derived (at least to some extent) from rents should be higher. See, e.g., Partha Dasgupta and J. E. Stiglitz, “Differential Taxation, Public Goods, and Economic Efficiency,” Review of Economic Studies 38, no. 2 (April 1971): 151–74. To the extent that we can target rents in our tax on higher-income individuals, there is in fact no adverse effect: the only difference is that the public will be compensated a little more for the costs that these monopolists impose on them. Location 8665
Note: An easy to miss resource and point that could literally become the foundation of anti-Libertarian and anti conservative economic debate. If we can demonstrate that most of the wealthy derive their income from rents, we could demonstrate three profound ideas, that not only do the wealthiest in fact make their money from exploiting the middle class, but that their wealth is not commensurate with their contribution, and finally and perhaps most importantly, not only are we justified in taxing them more on moral grounds, but that doing so won’t even hurt job creation on pragmatic grounds. Look all this up.
In the 1990s, we maintained a trade deficit and full employment, even with a government surplus; but the circumstances were unusual—an investment burst fueled by a stock market bubble (the tech bubble). And it was not sustainable. Location 8698
Note: Rebuttle to the coming answer from the right that during times in the 90s of high imports we have low unemployment. Already brought up by Cato Institute.
government. They had long been turned over to the private sector—Fannie Mae in 1968—but the government took them over in the midst of the financial crisis. Location 8727
Note: Another rebuttle to Chris’s inevitable argument that it was Government through Freddie and Fannie that created the whole crisis.
Chapter 4 defined the concept of a “public good” in the technical sense in which economists use that term—something from which everyone benefits. Because everyone benefits, whether he pays for the good or not, everyone is tempted to let others pay for the good—which is referred to as being a free rider. That’s why such goods have to be publicly provided if they are to be provided in adequate supply. Location 8730
Note: Good point that we know but cannot be stressed enough because it forms the basis of all Democratic idealogies, in that, all politicies we believe in are justified in that since everyone benifits, everyone pays.