Obama is right to be worried about income inequality — it’s gotten a lot worse under his watch

Americans today are very worried about income inequality.

A Gallup poll this month found that 67 percent of Americans are unhappy with the distribution of income and wealth in the U.S. The disappointment goes across party lines — 54 percent of Republicans are dissatisfied, as well as 70 percent of Independents and 75 percent of Democrats:

And a growing number of people are worried that they can no longer get ahead simply by working hard, suggesting that inequality is becoming more entrenched.

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Is China’s economy headed for a crash?

In his assessment of the global economy’s performance 2013, legendary financier George Soros warned of dangers in the Chinese economy:

The major uncertainty facing the world today is not the euro but the future direction of China. The growth model responsible for its rapid rise has run out of steam.

That model depended on financial repression of the household sector, in order to drive the growth of exports and investments. As a result, the household sector has now shrunk to 35 percent of GDP, and its forced savings are no longer sufficient to finance the current growth model. This has led to an exponential rise in the use of various forms of debt financing.

There are some eerie resemblances with the financial conditions that prevailed in the U.S. in the years preceding the crash of 2008. [Project Syndicate]

That, as William Pesek notes, is a rather ominous conclusion. So is China due a crash?

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Who should the SEC punish next for the Madoff scandal? Itself.


J.P. Morgan Chase is nearing a settlement with federal regulators over the bank’s ties to convicted fraudster Bernie Madoff, reports The New York Times. The deal would involve penalties of up to $2 billion dollars and a rare criminal action. The government intends to use the money to compensate Madoff’s victims.

For two decades before his arrest, Madoff had banked with J.P. Morgan — and apparently laundered up to $76 billion through the bank. Employees at the bank had raised concerns about Madoff’s business. In 2006, a J.P. Morgan employee wrote after studying some of Mr. Madoff’s trading records that “I do have a few concerns and questions,” and expressed worry that Madoff would not disclose exactly which trades he had made. Madoff’s company turned out to be an elaborate ponzi scheme that stole an estimated $18 billion from clients; it collapsed in 2008.

Is it fair to blame J.P. Morgan for the activities of Madoff? Do banks have a responsibility to know if their clients are involved in criminal activities? I think so — banks should have strong checks and balances to prevent fraud and money laundering, because if they don’t then criminals like Madoff can get away with it for years and years. According to Robert Lenzner of Forbes, “J.P. Morgan never reported to the Treasury or the Federal Reserve a huge cache of checks going back and forth for seven years between Madoff’s Investment Account 703 and Bank Customer Number One, belonging to real estate developer Norman Levy, who died in 2005.”

By agreeing to pay the fine and the government’s rebuke, J.P. Morgan is admitting a failure of oversight. But it’s not as if J.P. Morgan is the only one to blame. Others on Wall Street had expressed concern about Madoff’s business much earlier.

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Is the rent really too damn high?

new study from Harvard University shows that in the last thirty years, rents have risen and the income of renters has fallen:

[America’s Rental Housing]

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There is a better alternative to raising the minimum wage

The U.S. Secretary of Labor Thomas E. Perez wants to raise the minimum wage.

In fact, the vast majority of Americans — 91 percent of Democrats, but also 76 percent of Independents and even 58 percent of Republicans — are in favor of raising the minimum wage.

This is an understandable position. After all, the gap between richest and poorest has grown very wide in recent years. But in my view, minimum wage laws are not good laws at all. That’s not out of lack of compassion for low-wage earners, or because I like inequality. That is because I think that there is a better way to achieve a decent standard of living for the poorest in society.

The minimum wage is a factor in creating unemployment. Despite what’s often said to the contrary, it’s true: Countries with no minimum wage tend to have much lower unemployment. Right now, America is suffering a serious deficit of jobs, with over three jobseekers for every available job. We need all the jobs we can get.

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Australia just scrapped its debt ceiling. America should, too.

Debt ceiling fights, it seems, have become a permanent fixture in American politics. Twice in the last couple of years, the United States has been days away from potentially irrevocable economic damage because Congress refused to raise the debt ceiling and let the Treasury issue more debt. The next debt ceiling fight is slated for March 2014.

But isn’t there a better way to increase a borrowing limit — and one that doesn’t freak out markets, investors, and, well, just about everyone every few months?

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