economics: finance

The 1% in America have an out-sized influence on the political process. What policies do they support? And do their priorities differ from those of less wealthy Americans?

Political scientist Benjamin Page and two colleagues wanted to find out, so they started trying to set up interviews with the richest of the rich. This, they noted, was really quite a feat, writing:

It is extremely difficult to make personal contact with wealthy Americans. Most of them are very busy. Most zealously protect their privacy. They often surround themselves with professional gatekeepers whose job it is to fend off people like us. (One of our interviewers remarked that “even their gatekeepers have gatekeepers.”) It can take months of intensive efforts, pestering staffers and pursuing potential respondents to multiple homes, businesses, and vacation spots, just to make contact.

Persistence paid off. They completed interviews with 83 individuals with net worths in in the top 1%.  Their mean wealth was over $14 million and their average income was over $1 million a year.

Page and his colleagues learned that these individuals were highly politically active. A majority (84%) said they paid attention to politics “most of the time,” 99% voted in the last presidential election, 68% contributed money to campaigns, and 41% attended political events.

Many of them were also in contact with politicians or officials. Nearly a quarter had conversed with individuals staffing regulatory agencies and many had been in touch with their own senators and representatives (40% and 37% respectively) or those of other constituents (28%).

These individuals also reported opinions that differed from those of the general population. Some differences really stood out: the wealthy were substantially less likely to want to expand support for job programs, the environment, homeland security, healthcare, food stamps, Social Security, and farmers. Most, for example, are not particularly concerned with ensuring that all Americans can work and earn a living wage:

Only half think that the government should ensure equal schooling for whites and racial minorities (58%), only a third (35%) believe that all children deserve to go to “really good public schools,” and only a quarter (28%) think that everyone who wants to go to college should be able to do so.

The wealthy generally opposed regulation on Wall Street firms, food producers, the oil industry, the health insurance industry, and big corporations, all of which is favored by the general public. A minority of the wealthy (17%) believed that the government should reduce class inequality by redistributing wealth, compared to half of the general population (53%).

Interestingly, Page and his colleagues also compared the answers of the top 0.1% with the remainder of the top 1%. The top 0.1%, individuals with $40 million or more net worth, held views that deviated even farther from the general public.

These attitudes may explain why politicians take positions with which the majority of Americans disagree. “[T]he apparent consistency between the preferences of the wealthy and the contours of actual policy in certain important areas,” they write, “— especially social welfare policies, and to a lesser extent economic regulation and taxation — is, at least, suggestive of significant influence.”

Lisa Wade, PhD is an Associate Professor at Tulane University. She is the author of American Hookup, a book about college sexual culture; a textbook about gender; and a forthcoming introductory text: Terrible Magnificent Sociology. You can follow her on Twitter and Instagram.

Ah, capitalism.

The thing about our time is that we just might value individuality more than at any other point in the history of human life and, yet, at the same time, we have more capacity to mass produce goods and ideas than ever.

Enter: the marketing of mass-produced individuality. That is, the new Sex Pistols-themed Mastercard. Now available at virginmoney.com/virgin/credit-cards/rebellion.

Now that is a URL of the times.

Their slogan? “Bring a bit of rebellion to your wallet.”

I know almost nothing about punk music but I know that the Sex Pistols were foundational and that the message of the music was anti-establishment. So, the appearance of the band on credit cards with an APR of 18.9% is, sociologically speaking, hilarious.

Hey, maybe you can buy a replica of a famous punk musician’s guitar with it! It comes pre-stressed, so it totally looks like you play it a lot and probably treat it like shit because who the fuck cares. And it also comes with some stickers that look vaguely anarchical and you can make it your own depending on which stickers you choose and where you put them!

Sociologist Brady Potts wrote a post about this guitar a few years ago. He asked: “What can we unpack from this guitar?” And wrote:

Pretty much the history of modernity. You start with “the guitar” – an instrument traditionally produced by artisans called luthiers. But this particular style of guitar – the Fender Telecaster – is the first commercially successful mass-produced solidbody electric guitar. (Henry Ford:Driving::Leo Fender:Rocking.) Introduced in 1950 as the Esquire… assembled on a factory line from mass-produced interchangeable parts, sold in stores and catalogs, heard most often via media and broadcast for most music consumers, the 1966 Fender Telecaster is truly a Modern guitar.

And now you can buy it with a Sex Pistols credit card. Nope, looks like they’re sold out. Sorry, you’ll just have to buy your identity somewhere else.

Thanks to @NotDrSnit for the tip!

Lisa Wade, PhD is an Associate Professor at Tulane University. She is the author of American Hookup, a book about college sexual culture; a textbook about gender; and a forthcoming introductory text: Terrible Magnificent Sociology. You can follow her on Twitter and Instagram.

Yesterday, the New York Times had a story about the enormous sums that hedge funders took home last year.

Last year, the hedge fund industry had returns of only 3 percent on average… But the top 25 managers still managed to earn $11.62 billion in compensation in 2014.

Kenneth C. Griffin of Citadel… $1.3 billion… James H. Simons of Renaissance Technologies was second with $1.2 billion, and Raymond Dalio of Bridgewater Associates was third with $1.1 billion. William A. Ackman of Pershing Square Capital was a close fourth, earning $950 million in 2014.

I know it sounds like a lot, but 2014 was an off year. That $11.62 billion was barely half what the top 25 hauled in the year before. I guess there’ll be some belt tightening.

The point though is that in an efficient market system like ours, people get what they are worth to the economy, don’t they?

“Does Finance Benefit Society?” is the title of a paper by Luigi Zingales, an economist who has had posts at Harvard and Chicago’s Booth School of Business. Here is the short version of his answer to the question:

At the current state of knowledge there is no theoretical reason or empirical evidence to support the notion that all the growth of the financial sector in the last forty years has been beneficial to society.

Zingales is no flaming radical. The right-wing website The Daily Caller says he is “an advocate of free market economics and limited government.” The trouble is that the hedge funders and bankers keep messing up those free market models with their rent-seeking and fraud.  (A table at the end of the paper summarizes cases of fines paid to the U.S. Government 2012-2014. And those are just the ones where someone got caught.)

A couple of other quotes on the same theme:

If political power is disproportionately in the hands of large donors – as it is increasingly the case in the United States – why is the negative public perception of finance a problem? Rich financiers can easily buy their political protection. In fact, this is precisely the problem.

Many financial activities tend to have a private return that is much higher than the (perceived) social return.

Furthermore, I am not aware of any evidence that the creation and growth of the junk bond market, the option and futures market, or the development of over-the-counter derivatives are positively correlated with economic growth.

A pdf of the paper is here.

Originally posted at Montclair SocioBlog and Pacific Standard.

Jay Livingston is the chair of the Sociology Department at Montclair State University. You can follow him at Montclair SocioBlog or on Twitter.

In the lasts 15 years, student debt has grown by over 1,000% and the debt held by public colleges and universities has tripled.  Where is the money going?

The scholars behind a new report, Borrowing Against the Future: The Hidden Costs of Financing U.S. Higher Education, argue that profit is the culprit.  They write:

Scholars have offered several explanations for these high costs including faculty salaries, administrative bloat, and the amenities arms race. These explanations, however, all miss a crucial piece of the puzzle.

Sociologist Charlie Eaton and his colleagues crunched the numbers and found that spending on actual education has stagnated, while financial speculators have been taking an increasing amount of money off of the top.

Higher education fills the pockets of investors in three ways:

• Interest on student loans, paid by students and parents.
• Interest paid by colleges who take out loans to fund projects — everything from new academic buildings to luxury dorms and stadiums — ultimately repaid with tuition hikes and higher taxes.
• And profit from for-profit colleges (with “dismal graduation rates, by the way).

Take a look at this figure breaking down the sources of the rise in the cost of higher education.  Interest on debt — taken on by both students and the colleges they attend — has risen.  Meanwhile, direct profits from for-profit colleges have skyrocketed.

Overall, Eaton and his colleagues found that Americans are spending $440 billion dollars a year on higher education and that 10% of that goes into the pockets of investors who are skimming profit off of all forms of higher education.

Want more?  Read their report or watch their summary:

Cross-posted at Pacific Standard.

Lisa Wade, PhD is an Associate Professor at Tulane University. She is the author of American Hookup, a book about college sexual culture; a textbook about gender; and a forthcoming introductory text: Terrible Magnificent Sociology. You can follow her on Twitter and Instagram.

Do Millennials really carry more debt than their parents and grandparents did at their age? Yes, according to a new study by sociologist Jason Houle.  “In order to participate in society and gain economic independence,” he writes, “many young adults today must take a massive financial risk.”  Or, as he puts it, “out of the nest and into the red.”

The graph below compares the amount of debt held by three generations in young adulthood (adjusted for inflation and controlled for other variables). Notice that the median debt load has grown, but the average debt load has grown much faster. This means that, while debt has grown over all, averages are also pulled up by a small number of young people that have really high levels.

Some evidence suggests that high debt individuals may be coming from lower income families. They take on debt as young people because the adults in their lives have already maxed out. They can’t count on their parents, for example, to take out a second mortgage on the house in order to pay for their college education. So, if they want to go to college, they have to take on the debt themselves.

Houle’s analysis, however, also shows that the kind of debt has changed across the three generations. The pie charts below reveal that the proportion of debt accounted for by home or car loans has shrunk, while the proportion accounted for by education loans and unsecured debt, like credit cards, has risen.

Moreover, Houle argues that this profile of generation Y’s debt is class specific:

The more advantaged are able to take on debt that helps them pursue a middle class lifestyle and build their wealth, while the less advantaged must take on debt to pay their bills and keep their heads above water.

So, is massive financial risk the new recipe for success?

For some, the answer may be yes. But for many, the gamble does not pay off. Students that take out college loans, for example, are more likely to drop out of college than those who have a parent that can pay. The combination of school loans and minimum-wage jobs can add up to a lifetime of economic insecurity. But, without other resources, not risking at all almost guarantees failure in this economy.  For this reason, Houle argues, the availability of credit and acquisition of debt may be just another driver of income and wealth inequality.  It’s a disturbing story that you can read in more depth here.

Lisa Wade, PhD is an Associate Professor at Tulane University. She is the author of American Hookup, a book about college sexual culture; a textbook about gender; and a forthcoming introductory text: Terrible Magnificent Sociology. You can follow her on Twitter and Instagram.

Officially our most recent recession began December 2007 and ended June 2009.  The following chart provides an important perspective on the recovery period.

Stocks and profits have enjoyed a remarkable recovery.  While income is slightly up over the period, it is critical to remember that this is average income and the increase largely reflects gains for those at the very top of the income distribution.  Jobs and housing have yet to recover.

So, with returns to capital booming, it is easy to understand why business leaders are relatively content with current policies and, by extension, political leaders are reluctant to rock the boat.

Unfortunately, current policies are unlikely to do much to improve the job prospects or income of most workers.  In fact, the rise in business profits owes much to our depressed labor conditions.  Unless something dramatic happens, we can expect the next few years to look very much like the past few years.

Cross-posted at Reports from the Economic Front and Pacific Standard.

Martin Hart-Landsberg is a professor of economics at Lewis and Clark College. You can follow him at Reports from the Economic Front.

The dominant firms in the U.S. and other major capitalist counties are happily making profits, but they aren’t interested in investing them in new plants and equipment that increase productivity and create jobs.  Rather they prefer to use their earnings to acquire other firms, reward their managers and shareholders, or increase their holdings of cash and other financial assets.

The chart below, taken from a Michael Burke post in the Irish Left Review, shows trends in both U.S profits and investment .

As you can see the increase in profits (in orange) has swamped the increase in investment (in blue) over the relevant time period; in fact, investment in current dollars has actually been falling.

Looking at the ratio between these two variables helps us see even more clearly the growth in firm reluctance to channel profits into investment.  The investment ratio (investment/profits) was 62% in 1971, peaked at 69% in 1979, fell to 61% in 2000 and 56% in 2008, and dropped to an even lower 46% in 2012.

According to Burke,  if U.S. firms were simply to invest at the level they did in 1979, not even the peak, the increase in investment in the American economy would exceed $1.5 trillion, close to 10% of GDP.

The same dynamic is observable in the other main capitalist economies:

In 1995 the investment ratio in the Euro Area was 51.7% and by 2008 it was 53.2%. It fell to 47.1% in 2012. In Britain the investment ratio peaked at 76% in 1975 but by 2008 had fallen to 53%. In 2012 it was just 42.9% (OECD data).

So what are firms doing with their money? As Burke explains:

The uninvested portion of firms’ surplus essentially has only two destinations, either as a return to the holders of capital (both bondholders and shareholders), or is hoarded in the form of financial assets. In the case of the U.S. and other leading capitalist economies both phenomena have been observed. The nominal returns to capital have risen (even while the investment ratio has fallen) and financial assets including cash balances have also risen.

So, with firms seeing no privately profitable outlet for their funds, despite great societal needs, their owners appear content to reward themselves and sock away the rest in the financial system.  In many ways this turns out to be a self-reinforcing dynamic.  No wonder things are so bad for so many.

Cross-posted at Reports from the Economic Front.

Martin Hart-Landsberg is a professor of economics at Lewis and Clark College. You can follow him at Reports from the Economic Front.