Summary Group:
•Shefali
Khandhar Mody
•Nicole Tuma
•Jennifer Larsen
•David Loebsack
•Ron Milam
Pepperdine University
MSOD 619 - 2014
Impressions
Reviewer
Name
What were the Books Strengths What were the
Weaknesses
Shefali
•There is good supportive data and
the conclusions drawn from it are
logical.
•Takes a Johari window perspective
of global impressions of American
challenges, discussing topics
Americans might not see or want to
discuss openly
Was redundant at times to the
point of sensationalism
Nicole
Easy to read, not dense and offered
strong historical perspective on
current US situation.
Agree with Shefali. Also, as
someone who followed the
Occupy movement, most of
the content was review.
Would have liked to hear more
of the opposing view for
balance – more of a point,
counterpoint approach.
2
Impressions
Reviewer
Name
What were the Books Strengths What were the
Weaknesses
Jennifer
There is a lot of great stats that back
up his statements. I didn’t know the
percentages, but seeing these and
projections alert us to the fact we
need changes in policy because its
not sustainable.
Book could have been shorter.
He didn’t 100% back up the
perspective of the right or the
left. He presents a historical
viewpoint, but both the right
and the left has contributed to
this problem. However his
writing is more left leaning.
3
Ron
This is something I have been
thinking about because its so
evident in Los Angeles, a very
economically segregated city.
The author relentlessly goes
after the root causes and looked
at why this is threat to our
democracy. I really enjoyed it
and would recommend it to
anyone wanting to engage with
the issue of inequality.
While the book makes a
rational, factual argument
based on stats, will these
move the American
people? How does this
make this discussion more
mainstream? How can the
detailed criticisms in this
book translate into stories
of real people?
4
David
Very educational; very detailed
in articulation of the problems
and suggested solutions;
appreciated that author was upfront and honest that we were
getting an economic
perspectives from the left side
of the aisle. He dismantled
some popular opposing
arguments but would have liked
to hear more balance – more
about where the left and right
approaches meet (or don’t) in
the middle. Now that I’ve read
this, I would like to read a
similar book from the right to
balance out the perspective.
Book could have been
shorter.
Felt like there could have
been more balance in its
approach to articulating
economic policy views
from both sides of the
aisle. Author does this to
some degree, but I want to
hear what smart people
from both sides have to
say.
5
Impressions
Reviewer
Name
What Excited Us About
the Book
What Frustrated Us About
the Book
Shefali
By opening up the topics,
people will be more engaged
in these discussions and this
will bring about change
These are complex issues and
the solutions presented didn’t
consider consequences or how
to implement wasn’t considered
Nicole
I am excited about others
who have not been
introduced to or thought
critically about our economic
inequality to read this. I
would have liked to hear the
response of a 1%er to this.
I feel like this could have been a
30 page book. It did not need to
be 350 pages. Also, I feel like the
tone was very aggressively anitright, which is not the way to
inspire change. It only “preaches
to the choir” as others may
simply put it down or dismiss it.
6
Impressions
Reviewer
Name
What Excited Us About
the Book
What Frustrated Us
About the Book
Jennifer
Facts and figured to back up
the points that Stiglitz is trying
to make. Extensive research
and brought new perspective
of the problems we are facing
to me that I was not
previously aware of.
A better roadmap could
have been explored on
how to address the issue.
Lack of diversification of
viewpoints (have’s vs. have
nots)
Ron
He directly addressed a
challenging issue our
democracy faces.
He speaks about the 1%
and specifically
bankers/finance people
types as if they are all of
one mind.
7
Impressions
Reviewer Name
What Excited Us About the What Frustrated Us
Book
About the Book
David
The fact that there is hope for
our economic system, especially
for how we take care of the
poor, the marginalized and the
suffering.
I'm frustrated by politics in
general. Despite the fact that
we may have well-thought-out
solutions, what matters is how
politics are played -- not in
how good the ideas are. I'm
also frustrated by the thought
that our country may not live
up to the ideals we hold in our
hearts because of systematic
inequality; if everything Stiglitz
says is true, then it's possible
that the marginalizing of the
unempowered may be so
deeply rooted in our system
that we may never be able to
"remove the virus" and the
result may be a country we
hardly recognize in 50-100
years
8
Insights that Spoke to us
Shefali: I contemplated history and wondered if
the 50’s and 60’s were America’s golden age and
realized that every great westernized country has
had it’s turn then. The question I have now is the
US in a downturn, and how can we regain the
trust of our global partners?
 Nicole: I had not thought about how most idea
originators don’t actually get paid for their ideas –
it is the business person / marketer that
monetizes the idea. I keep trying to envision a
society in which this is not the case, but I simply
can’t. Does one exist

9
Insights that Spoke to us


Jen: The people that are so wealthy, they can’t
even fathom what life for the poor is like.
Ron: I’m curious to see a book that
profiles the 1% who are these people?
Are there more examples of folks like
Warrant Buffet and Bill Gates who are
more generous? What are the
assumptions about what a civil society
ought to be. The title of the book
doesn’t convey the emotion tied to this
issue.
10
Insights that Spoke to us

David: Two major insights. First, I keep going back to the
question: What are the basic assumptions I’m making about
how life, the world and “reality” work – and in this case, are
supposed to work. Stiglitz’s assumptions about the role of
government are starkly different from his political opponents.
Rather than discussing the validity of different proposals or
interpretations of events, the most potentially impactful
conversations will likely be lower down on the ladder of
inference, regarding the role of government. Second, it seems
like it’s human nature to collude with other like-minded people
to protect your joint “territory”. I don’t think the 1% are the
only ones that do this, although they are likely the ones that
have the biggest impact on the world because they do it. I’ve
seen tacit collusion everywhere I’ve worked, and speculate that
it’s a standard human response to the SCARF radar going off.
11
Ways in which these issues may
manifest in the session


Shefali: Countries like China and India have a
swelling of pride associated with their rise as
economic powers. Along with this rise, will
comes an “ego” that they know better. Will
they listen and trust American voices as we
consult there?
Nicole: It would be interesting to observe
how inequality shows up in China and how
racial inequality shows up.
12
Ways in which these issues may
manifest in the session
Ron: Since there is focus on collaboration in the session,
Power will be very important dynamic to be aware of. In
America the power distance is supposed to be low.The
fact is there is very high power distance. How are we
going to be perceived?
 David: Is there a trend in systems – no matter the size – for the
powerful to tacitly collude to maintain their power? If you can
have that phenomenon emerge on a national scale, that the 1%
can influence so many sectors of our country to maintain their
power, where else does this behavior play out? Where else does
tacit collusion take place in order to keep what is “had” by those
who have it, and away from those who don’t have it? Is this a
phenomenon of humanity, and of all organizational systems? If so,
we will see this, not only in China but in all of our sessions – and
this will likely be a major underlying issue to many of the
manifested “problems” we observe in our engagements.

13
Ways in which these issues may
manifest in the session

Jennifer: We come from a prestigious
expensive school, traveling to other
countries. If go to China and debating
inequality; its ironic. We come from a
country propagates equality, but we have so
much inequality. We have modeled Inequality
of developing nations. We need to be aware
of our privileged point of view when in
session.
14
What to look for in the session


Shefali: We need to be uber sensitive as we go
into China and always listen more than
prescribe. I feel gaining trust will be imperative
more so in China, than in other countries.
Nicole: I'd like to look for ways that power is
demonstrated in China in business and more
social settings. Is it clear who is in charge?
What earns power – how is it allocated? Is it
the same as respect? Is there as much prestige
with power?
15
What to look for in the session
Jennifer: Listen intently and try to suspend
my American lens. Respect in this culture is
highly valued.
 Ron: Examples for how to equalize unequal
power dynamics. How to you engage in the
dynamic?
 David: I echo Ron’s statement, but might
state it a different way: “How do we create
more awareness in the system about the
power dynamics?”

16
Primary Message
Causes of Inequality
 Economic Impact of Inequality
 1% vs 99%
 Role of Government
 Fair Performance metrics for the
economy and citizenry

17
Income Gap


Debate is not so much that it exists, but its meaning.
Stiglitz states that the 99% have to contend with:
Income growth mostly occurring at the top 1%
Americans at the bottom of the Income ladder are worse off
than they were at the beginning of the century
Gap is great in terms of annual income but even greater when
accumulated wealth is concerned
Middle class has hollowed out
Income mobility is negligible and income distribution is
disproportionate
The inequality in America is more than any other
industrialized country and the disparities are growing at a
faster pace compared to many other countries
18
Income Gap
Trickle down economics has done little
for America. There is a widening gap
between 1% and the 99%
 The Great Recession has worsened
inequality
 The economic engine is being unfairly
driven to serve the interests of the 1%
 America is not the land of opportunities
as is the popular notion the world over

19
Income Gap Key Quotes


“The simple story of America is this: the rich
are getting richer, the richest of the rich are
still getting richer, the poor are becoming
poorer and more numerous, and the middle
class is being hollowed out.”
“The level of inequality and the absence of
the opportunity that we see in the United
States today is not inevitable, nor is its
recent rise simply the product of inexorable
market forces.
20
Rent Seeking and American
Inequality
Rent Seeking in context of inequality makes reference to the
way the present political processes help the wealthy at the
expense of the middle and poor classes and in the form of
subsidies, laws aimed at lowering market competitiveness,
laws that give fat cat payments to CEOs and regulations that
support profit hungry corporations.
 Stiglitz argues that rent seeking activities result in seekers
getting a larger piece of the pie than increasing the size of
the overall pie.
 Rent seeking leads to distortions in resource allocation and
weakens the economy from the inside.
 Since rent seekers are part of the 1%, their wealth is used to
ensure they have contracts with Washington’s powerful to
ensure that their agendas are advanced.

21
Rent Seeking Key Quotes
“Countries rich in natural resources are
infamous for rent-seeking activities”
 “Macro-mismangement in all of its guises,
is a major source of inequality”

22
Not Playing by the Rules of
Democracy
Mistrust in the government stemming from inequality
manifests in the way the citizenry participate in
political processes
 Lack of trust in the government and financial sector
affects the functioning of markets and in times of
economic peril- such as the Great recession – fuel
mass agitations
 Globalization and technology can fuel structural
transformations. Government policies should address
this such that there are more winners than losers
 A fairer tax system is also key to closing in on the
growing inequality

23
Rules of Democracy Key Quotes
“Extreme concentration of income is
incompatible with real democracy”
 “Globalization, as it is being managed is
narrowing the choices facing our
democracies, making it more difficult for
them to undertake the tax and
expenditure policies that are necessary if
we are to create societies with more
equality and more opportunity.”

24
Framing Perceptions
Perceptions play an important role in politics. People
make decisions based on their long-standing perceptions
and beliefs about issues and events. This is precisely why
there should be a careful, well-graded and balanced
approach to understanding the role of the government
and the market.
 Those at the top try to frame perceptions through
discussions, adopting a language of fairness and marketing
ideas persuasively, to serve their own agendas. They are
mostly successful in manipulating public perceptions that
result in outcomes favoring them and not the citizenry as
a whole. The fact that beliefs are intrinsically malleable
does not help the cause of the 99%.

25
Framing Perceptions
A solid case for privatization and deregulation can be
developed when social returns and private rewards
are properly aligned.
 It is not possible to completely suppress ideas and as
the masses begin to look past the smoke and mirrors,
there is a greater likehood for positive change that
can close the widening inequality.
 One of the positive developments that reflect
inequality and economic performance inaccurately is
GDP (Gross Domestic Product). There are presently
efforts underway to create metrics that reflect
economic well-being and general welfare more fairly
and accurately.

26
Framing Perceptions Key Quotes


“The intellectual battle is often fought over
particular policies, such as whether taxes
should be raised on capital gains. But behind
these disputes lies this bigger battle over
perceptions and over big ideas- like the role
of the market, the state and the civil society.”
“…the powerful manipulate public
perception by appeals and efficiency, while
the real outcomes benefit only them.”
27
Is the Rule of the Law Unfair?
There is a general acknowledgement that a
democratic society cannot function with rules and
regulations that safeguard everyone’s interests. But it
is seen that there are trade-offs, with regulations
favoring one group over another.
 Wealthy groups that control the political process use
their power to develop an economic system that
advance their interests, through rules and laws.
 Abundant examples of circumventing the rule of law
by wealthy corporations and banks are testimony to
the fact that American judicial system does not
practice “justice for all”. This reflects and reinforces
inequality.

28
Rule of Law Key Quotes
“If economic power in a country becomes
too evenly distributed, political
consequences will follow.”
 “…but in today’s America, the proud
claim if “justice for all” is being replaced
by the more modest claim of “justice for
those who can afford it”.

29
Response to Great Recession




Multiple factors and Bush-era events are
responsible for the present fiscal deficit.
Budget cuts and austerity measures cannot
reduce deficit; government spending can.
High productivity investments and a
progressive tax system can jump-start the
economy.
Government can take advantage of the
principle of balanced-budget multiplier to
stimulate the economy.
30
Great Recession Key Quotes
“The worst myths are that austerity will
bring recovery and that more government
spending will not.”
 “The logic of why government spending
can be and has been effective in
stimulating the economy is compelling.”

31
Macroeconomics in context to
Inequality
The belief that markets work efficiently on their own
and government interference is unnecessary has
benefitted the financial sector and the 1%, widening
the inequality.
 American monetary and macroeconomic policies
have increased unemployment and lowered wages.
 To much focus has been placed on lowering inflation
instead of boosting employment and decreasing
inequality
 There is no such thing as a perfect macro economic
policy. Alternatively macroeconomic moentary
policies can contribute to better economic
performance and address inequality.

32
Macroeconomics Key Quotes


“Nothing affects the well-being of most
citizens more than the state of the macro
economy – whether there is full
employment and growth.”
Over the past quarter century
macroeconomic policies and institutions
have failed to produce stability; they fail to
produce sustainable growth; and, most
importantly, they failed to produce growth
that benefitted most citizens in our country”
33
Reform Agendas & Key Quotes

The government must give public investment
the attention it deserves. It can do this by:
Improving access to education by directing public
money to increasing support for state and nonprofit higher education systems,
Increase scholarships for the poor

“..whereas trickle down economies doesn’t
work, trickle-up economies may: all-even
those at the top – could benefit by giving
more to those at the bottom and the
middle.
34
Final Thoughts
Class inequality exists as much in America as
in any other industrialized economy.
 America is not a land of opportunity, but
opportunists, who make up a tiny sliver at
the top of the income ladder.
 The trend of greater concentration of
wealth at the top and lesser at the bottom
and middle can be attributed to several
factors. These factors become even more
significant when examined in the context of
the Great Recession

35
Final Thoughts
From predatory lending to rent-seeking (to which
the government continues to be a spectator) and
monopolistic attitudes, by and large, the financial
sector and certain large corporations have
distorted the economy, contributed to
disproportionately large income distribution at
the top and bottom and widened inequality
 The government rewards those at the top with
subsidies and does not take a strong enough view
of obscene fat cat pay, even during poor company
performance and through recession.

36
NEEDED CHANGES
Recognize that pure competition would take a
long time to be effective
 Keynes: “In the long run markets may work well,
but in the long run we are all dead.”
 Incomes should reflect contributions to output
 Higher standard of living will increase stability
 More equitable, effective taxation & financing
 Full, skilled employment & greater
Decentralization are crucial

Manufacturing Drops for 1st time in
3 years – July 3, 2012 Headline

Institute for Supply Management Report
Production & exports of manufactured goods
declined along with the number of new
orders

The decline comes as:
U.S. employers have cut back on hiring
Consumers have become more cautious
Europe is entering a recession
Manufacturing in China is also slowing
Source: Institute for Supply Management, In: The Arizona Republic
July 3, 2012
38
39
Our Current Dilemma
Technically, we have been out of
recession since June 2009,
but most people don’t believe it
and many are worse off today than
3 years ago
40
So, why do we feel so badly?





Unemployment is still much higher than usual for this
portion of the recovery in the business cycle
The political scene has led to gridlock in government
Workers’ share of income has fallen to historic lows
Uncertainty in global markets (Europe & China) is
causing some investors to postpone decisions
Demand and Supply in the housing sector have not
found a stable equilibrium in many locations
41
Analysis of Recession


What is different about this cycle?
Although recession technically ended three
years ago, we didn’t bounce back in terms of:
Rapid increase in GDP
Large decline in unemployment
Increase in personal income and spending
 Why
not?
42
A potential issue may be: The
Decline of the Middle Class

More and more attention is being paid to
this topic in the past couple years

“Workers’ wages and benefits make up
57.5 percent of the economy, an all-time
low.”

“Until the mid-2000s, that figure had been
remarkably stable – about 64 percent
through boom and bust alike
Source: Paul Wiseman, Associate Press, in The Arizona Republic. July 2,
2011
43
Increasing Income Inequality

The Gini Index is a measure of income
inequality that can range from 0 to 1.
The latest Gini Coefficient in U.S. is .468
The coefficient has increased by 20% over the
past 4 decades.
The U.S. number is similar to the Philippines
and Mexico!
 Zero indicates everyone gets the same income
 One indicates all the income is received by just one person
Source: As Middle Class Shrinks, P&G Aims High and Low. The Wall Street Journal, September 12,
2011.
44
Worldwide GINI Coefficients
45
Why is this a problem?

John Hobson – English economist (wrote in 1902)
The poor didn’t have enough money to buy goods
The rich couldn’t consume enough
Countries looked to external markets (Imperialism)
Multinationals then and now do the same thing
Investment in foreign markets is profitable
Imperialism leads to:
 High unemployment in the home country
 Increase in social unrest
 Increases in inequality of income and wealth
46
Coming Apart -The State of White America 1960-2010
-- Charles Murray (2012)

American ‘civic culture’ is dying as the
country evolves into a two-class society

The few ‘elites’ live in a totally different
culture than the rest of society and they
don’t have any clue how most people live
Source: Summary by Aaron Task. Daily Ticker, May 3, 2012.
47
Coming Apart
Charles Murray - 2012

The new role for “class” in our culture
wouldn’t mean so much except that it is this
narrow elite who control almost everything
Political system
Financial system
Media & information streams
Access to education

Murray concludes …….We are coming apart
48
Coming Apart -The State of White America 1960-2010
-- Charles Murray (2012)

Ernest Hemingway may have said that “the
difference between the rich and everyone
else is that the rich have more money”

But today, it’s more than money – it is an
entirely different culture and way of
life……..
49
Coming Apart
Charles Murray - 2012

Differences in.......
 Amount and type of TV shows & movies
Restaurants
Books & music
Views on marriage
Views on diet & smoking
Education of their children
How children spend their time
Source: Summary by Aaron Task. Daily Ticker, May 3, 2012.
50
Coming Apart
Charles Murray - 2012

The two classes rarely come in contact
because they are also separated
geographically regarding their zip-codes of
residence
Increased isolation
Less understanding
Increased indifference

There is NO COMMON IDEA of what it means to be
an American
Source: Summary by Aaron Task. Daily Ticker, May 3, 2012.
51
Coming Apart
Charles Murray - 2012
Historically, class has not been a part of
the American culture
 Today, there’s “an awful lot of people very
comfortable thinking they are the upper
class”
 They think, “why should I associate with
those bozos?”


Source:
A culture of separate classes is new to
America
Summary
by Aaron Task. Daily Ticker, May 3, 2012.
52
The Movie: Avalon (1990)
“Avalon was not just a place; it was a
time.”
Could the 60 years in the Post-WWII period
have been a time – a period in history that was
unique and one that won’t be repeated?
53
Is there a way out?
Maybe not!
 We may just be ‘pushing on a string’


The potential exists for a “lost decade” or
even several “lost decades” before the
economy finds a new normal.......and the
old normal may never return.
54
What about today’s tools?


Traditional expansionary tools aren’t
working….
Monetary Policy
 Interest rates are already low
 “Animal Spirits” have not been kindled

Investment is low because uncertainty is high

What can be gained by lowering interest
rates if businesses don’t wish to borrow?
55
What about today’s tools?
(continued)

Fiscal Policy
 Another stimulus plan would increase demand
by increasing the level of potential spending, but it
won’t happen:
 Going further into debt seems risky
 Raising taxes to fund it is just too unpopular
 Printing money would be inflationary
Government could reduce taxes again but:
 Public services and infrastructure are already lagging
 Lower taxes won’t generate more spending if people pay down
debt or increase savings instead of buy more goods
56
What Needs to Occur to End the
Lingering Effects of Recession?

Reduce Uncertainty….
Congress has to assume much of the blame. They need to
work together in order to build confidence




Housing has to return as a strong and stable sector,
but without the rise in speculative pricing
Credit needs to be made available to the middle
class which is currently not happening
Problems in Europe need to be resolved
And, people need to believe all of this can happen
What Needs to Occur to End the
Lingering Effects of Recession?

Notice that I did not include:
Reducing taxes
Balancing the federal budget


Tax rates & the annual deficits are less important
factors in the overall picture
Yet, these issues are politically popular & what
Congress addresses
Consumer Confidence Index
Date
Index
June 2012
62.0
May 2012
64.4
April 2012
68.7
June 2011
57.6
Most Recent Low
February 2009
25.3
Most Recent High
February 2012
70.8
Source: The Conference Board & Associated Press.
(90.0 represents healthy conditions)
59
Forecast for the U.S.

The U.S. will not return to a healthier state
so long as there is:
Anti-government sentiment that government is
the enemy & doesn’t create jobs
Anti-Federal Reserve sentiment
Worsening distribution of wealth & income
An unwillingness to work together in Congress

A double-dip recession is possible – particularly if the
‘fiscal cliff’ coming on January 1st is not addressed