The Price of Inequality: How Today's Divided Society Endangers Our Future (60 page)

60.
See Project on Government Oversight’s report, “Bad Business: Billions of Taxpayer Dollars Wasted on Hiring Contractors,” September 13, 2011, available at
http://www.pogo.org/pogo-files/reports/contract-oversight/bad-business/co-gp-20110913.html
(accessed February 22, 2012). Reported in Ron Nixon, “Government Pays More in Contracts, Study Finds,”
New York Times
,
September 12, 2011.

61.
See the commission’s final report, “Transforming Wartime Contracting: Controlling Costs, Reducing Risks,” issued August 31, 2011, available at
http://www.wartimecontracting.gov/docs/CWC_FinalReport-lowres.pdf
. Reported by Nathan Hodge, “Study Finds Extensive Waste in War Contracting,”
Wall Street Journal
,
September 1, 2011, available at
http://online.wsj.com/article/SB10001424053111904716604576542703010051380.html
(accessed March 26, 2012).

62.
Stiglitz and Bilmes,
The Three Trillion Dollar War: The True Cost of the Iraq Conflict
(New York: Norton, 2008).

63.
We noted in chapter 2 that the world’s richest person, Carlos Slim, had his fortune built in the privatization of Mexico’s telephone monopoly. So pervasive is corruption in the privatization process that in my book
Globalization and Its Discontents
I referred to it as “briberization.”

64.
I describe the earlier episodes of this unfortunate drama in
Globalization and Its Discontents
. The saga of what happened since—repeated attempts to get government subsidies—with the company on the verge of bankruptcy today, confirms the criticisms leveled at the time. For other discussions, see Peter R. Orszag, “Privatization of the U.S. Enrichment Corporation: An Economic Analysis,” presented at the Brookings Institution, February 2000. See also Daniel Guttman, “The United States Enrichment Corporation: A Failing Privatization,”
Asian Journal of Public Administration
23, no. 2 (2001): 247–72. The most recent episodes are described in Geoffrey Sea, “USEC Pushback on Coffin Lid of Uranium Project,” available at
http://ecowatch.org/2011/usec
-pushback-on-coffin-lid-of-uranium-project/.

65.
In 2010 total contributions were $639 billion. See
http://www.ssa.gov/policy/docs/statcomps/supplement/2011/oasdi.html
.

66.
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.

67.
See
http://www.nytimes.com/2006/11/26/business/yourmoney/26every.html
. Chris Leonard, who describes more fully how those at the top try to affect perceptions of the rest, devotes a chapter to class warfare. He notes that, in the usual characterization, it “is always waged upward, never downward,” an all-­purpose weapon to be brought out whenever redistributive policies or taxes on the top are put on the table. He observes that it “references a conflict without any conceivable mobilized army.”
Rich People Things: Real Life Secrets of the Predator Class
(New York: Haymarket Books, 2010), pp. 53–55.

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
http://aspe.hhs.gov/hsp/indicators08/apa.shtml
#ftanf2 (accessed March 4, 2012).

69.
See, e.g., the keynote address by Dominique Strauss-Kahn, managing director, International Monetary Fund, Nanjing, March 31, 2011 “In the IMF, in particular, while the tradition had long been that capital controls should not be part of the toolbox, we are now more open to their use in appropriate circumstances, although of course countries should be careful not to use them as substitutes for good macroeconomic policies.” Available at
http://www.imf.org/external/np/speeches/2011/033111.htm
(accessed February 22, 2011).

70.
Dwight Eisenhower remarked about Sweden at a Republican National Committee breakfast in 1960, “I have been reading quite an article on the experiment of almost complete paternalism in a friendly European country. This country has a tremendous record for socialistic operation, following a socialistic philosophy, and the record shows that their rate of suicide has gone up almost unbelievably and I think they were almost the lowest nation in the world for that. Now, they have more than twice our rate. Drunkenness has gone up. Lack of ambition is discernible on all sides.” Dwight D. Eisenhower: Remarks at the Republican National Committee Breakfast, Chicago, Illinois, July 27, 1960.
Public Papers of the Presidents of the United States, Dwight D. Eisenhower
(Washington, DC: Government Printing Office, 1999), p. 605.

71.
In making comparisons across countries, one has to adjust for differences in cost of living. At 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. For instance, in terms of official exchange rates, per capita GDP in 2010 in the United States was more than 10 times that in China; adjusting for PPP, it is 6 times that in China. See World Bank Indicators database, available at
http://databank.worldbank.org/ddp/home.do?Step=12&id=4&CNO=2
(accessed March 26, 2012).

72.
See Janet Currie of Princeton University, “Inequality at Birth: Some Causes and Consequences,”
and the discussion of her work in chapter 1.

73.
For a discussion of some of these costs (not all easy to quantify) to the people of Papua New Guinea, see the 2011 Human Rights Watch report “Gold’s Costly Dividend: Human Rights Impacts of Papua New Guinea’s Porgera Gold Mine,” available at
http://www.hrw.org/sites/default/files/reports/png0211webwcover.pdf
(accessed March 7, 2012).

74.
Convened by President Sarkozy of France. Its report is available as Jean-Paul Fitoussi, Amartya Sen, and Joseph E. Stiglitz,
Mismeasuring Our Lives: Why GDP Doesn’t Add Up
(New York: New Press, 2010), and available at
http://www.stiglitz-sen-fitoussi.fr/en/index.htm
. (Translations are available in Chinese, Korean, Italian, and other languages.)

75.
This point was made right at the start, by the early developer of the national income accounts, Simon Kuznets, who noted that “the welfare of a nation can scarcely be inferred from a measure of national income.” Kuznets, “National Income, 1929–1932,” 73rd U.S. Cong., 2d sess., 1934, Senate doc. no. 124, p. 7.

Chapter Seven
J
USTICE FOR
A
LL?
H
OW
I
NEQUALITY IS
E
RODING THE
R
ULE OF
L
AW

1.
There are many instances where laws can be seen as preserving inequities. The laws that protected and preserved slavery offer the most profound example. Although slaves couldn’t vote, the Constitution treated each slave as three-fifths of a person for purposes of congressional representation, thus guaranteeing disproportionate representation in government for the white slave owners of the South. In the aftermath of the Civil War, Jim Crow laws ensured segregation and the economic disempowerment of African Americans. Like feudalism in Europe centuries earlier, landowners were able to hire labor at more favorable terms: in this case, the rule of law was used to enhance the wealth and income of white landowners.
There is a large literature describing labor coercion and legal frameworks that helped enforce it. See, e.g., S. Naidu, “Recruitment Restrictions and Labor Markets: Evidence from the Postbellum U.S. South,”
Journal of Labor Economics
28, no. 2 (2010): 413–45; Stanley Engerman, “Economic Adjustments to Emancipation in the United States and British West Indies,”
Journal of Interdisciplinary History
13 (1982): 191–220; S. Naidu and N. Yuchtman, “How Green Was My Valley? Coercive Contract Enforcement in 19th Century Industrial Britain,” NBER Working Paper no. 17051, 2011, available at
http://www.nber.org/papers/w17051
(accessed March 4, 2012).

2.
The as yet totally unsolved problem of nuclear waste disposal is another example of nuclear power plants’ not having to fully internalize the costs of their operations. With material that remains dangerous for tens of thousands of years, the cost of dealing with the waste is bequeathed to future generations, whether or not the company that runs the plant is around by that time.

3.
The question is made more complex because of the hidden and open subsidies to other forms of energy production, such as coal. The market is so distorted that it’s hard to judge what might emerge in an efficient market place.

4.
The settlement process is still under way. BP spent $20 billion to establish the Gulf Coast Claims Facility. The fund, which is administered by Kenneth Feinberg, has paid or approved for payment a total of $7.96 billion as of February 2012, according to the BP website, available at
http://www.bp.com/sectiongenericarticle.do?categoryId=9036580&contentId=7067577
(accessed March 4, 2012). The structure of the fund has not been without criticism. One legal scholar characterized it thus: “The Gulf Coast Claims Facility represents an unnoticed incremental trend toward the lawless, private resolution of mass claims. This resolution (in the case of the GCCF) was created by a culpable defendant, unbounded by legal norms, and administered by a heroic special master with limitless unreviewable discretion, who also is in the employ of the malefactor. Whatever else may be argued on behalf of the GCCF, this cannot be a good development.” L. Mullenix, “Prometheus Unbound: The Gulf Coast Claims Facility as a Means for Resolving Mass Tort Claims—A Fund Too Far,”
Louisiana Law Review
71 (2011): 823. As this book goes to press, an out-of-court settlement between BP and the lawyers for the plaintiffs is being considered. “Accord Reached Settling Lawsuit over BP Oil Spill,”
New York Times
, March 3, 2012, p. A1.
Propublica
maintained an active media oversight of the aftermath of the BP spill, including corruption in the clean-up process. See
http://www.propublica.org/topic/gulf-oil-spill/
.

5.
R. H. Coase, “The Problem of Social Cost,”
Journal of Law and Economics
3 (1960): 1–44.

6.
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 credit constrained, it may not be able to pay.

7.
In many cases, it is not always clear who is exerting an externality on whom. The driver who collides with another vehicle would not have got into an accident if the other driver had not been on the road. Other people’s smoking could not lead to cancer in a nonsmoker if the nonsmoker had not exposed himself to the “secondary” effects of smokers by being in the vicinity of the smoker. In these and most other cases, 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.

8.
John Stuart Mill in
On Liberty
(1869) distinguishes between other-regarding and self-regarding spheres of action. In his theory, individuals have the right to perform an action insofar as they do not harm others.

9.
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.

10.
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 the Georgia law, unlimited punitive damages for predatory lending under the Georgia Fair Lending Act would extend to RMBS holders in due course. This led to the amendment of the Georgia predatory lending statute in 2003. A similar chain of events happened in New Jersey, leading to the amendment of the New Jersey Homeownership Security Act of 2002 to appease lenders in June 2004. See also the discussion in B. Keys, T. Mukherjee, A. Seru, and V. Vig, “Did Securitization Lead to Lax Screening? Evidence from Subprime Loans,”
Quarterly Journal of Economics
125, no. 1 (2010): 307–62.

11.
One of the most important additional aspects was the preemption by federal bank regulators, notably the Office of the Controller of the Currency (OCC), which is the agency in the Treasury charged with overseeing banks, and OTS (the Office of Thrift Supervision, originally set up to oversee the savings and loans institutions), of stricter state regulation by claiming jurisdiction over national banks. This meant that if a state tried to regulate banks in its state more strictly, the tighter standards would extend only to state-chartered banks, which would then be less competitive than the nationally chartered institutions. Making matters worse, “some states, such as Georgia, have parity or wild card laws that exempt state-chartered banks and thrifts and their subsidiaries from state anti-predatory lending laws to the same extent as national banks and federal thrifts. . . .” P. McCoy and E. Reunart, “The Legal Infrastructure of Subprime and Nontraditional Home Mortgages,” Joint Center for Housing Studies Harvard University, UCC08-05. The head of the OCC tried to allay worries about this preemption: “Our approach . . . protects consumers where abusive practices are found.”
Speech available at
http://www.occ.gov/static/news-issuances/news-releases/2003/nr-occ-2003-57.pdf
. See the broader discussion of the role of preemption in Mike Konczal at
http://rortybomb.wordpress.com/2010/03/01/cfpa
-i-preemption-or-what-a-bad-cfpa-would-look-like/.