http://commons.wikimedia.org/wiki/File:20090529_Great_Wall_8185.jpg

Is China headed for disaster?

Newly released figures show that growth in China has slowed considerably. Deflation is setting in, according to the figures, due to weaker factory production and debt. Growth for 2015 is expected to be the weakest in 25 years.

Could this be a sign of China headed for economic disaster? Or is China is headed for economic stability instead?

Disaster?

According to The New York Times, Former Treasury secretary Henry M. Paulson thinks so.

“Frankly, it’s not a question of if, but when, China’s financial system will face a reckoning and have to contend with a wave of credit losses and dent restructurings,” wrote Paulson.

In his new, 340-page book on the nation, Dealing With China: An Insider Unmasks the New Economic Superpower, Paulson stresses the likelihood, but not the inevitability of a Chinese economic crisis.

Henry Paulson: Dealing with China

“Slowing economic growth and rapidly rising debt levels are rarely a happy combination.”

Mr. Paulson, along with many other analysts, is worried about China’s trust companies, which often use their profits to give out risky loans. Some have even gone as far as to label them a “time bomb.” However, the former Treasury Secretary wrote that good policy decisions by the Chinese government could avert such a crisis.

Unfortunately for China, transparency is virtually nonexistent in the Communist government. Citizens and the public cannot know the full depth of China’s economic issues if the government has all of the information.

Women working in a Chinese factory.  By Robert Scoble [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

Women working in a Chinese factory.
By Robert Scoble [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)%5D, via Wikimedia Commons

Reform?

According to an article in The Economist, “The robustness rests on several pillars. Most of China’s debts are domestic, and the government still has enough sway to stop debtors and creditors getting into a panic. The country is shifting the balance away from investment and toward consumption, which will put the economy on more stable ground.”

Although growth decreased, the economy still continues to grow. Last year, 13 million new urban jobs were created.

Pessimists are saying that China’s time of crash has come. However, China’s government is working to ensure that such a time never truly comes. The government is loosening control over interest rates and international monetary flow. Financial liberalization is the newest path for the country.

The government is also is sending more government from local to provincial funds, due to high local-government debt rates. Administratively, Prime Minister Li Keqiang has made it slightly easier for private businesses in the country. About 3.6 million private firms were created just last year.

Liberalization can indeed lead to instability, but China’s economic experts in the high ranks have the knowledge to avoid a crash. Reform won’t be easy, but China is beginning to lay the groundwork for a more stable economy.

Conclusion…

As stated in my book Wealth vs. Work: How 1 % Victimizes 99%, I believe that “China will eventually supersede America as the engine of growth and production within the next 20 to 25 years.”

From the point of view of highly qualified analysts, China’s economy is entering a dangerous zone. An economic crisis is definitively avoidable, considering China’s $4 trillion in reserves and experience in finance amongst top-ranking officials.

However, as Mr. Paulson said, “The longer they wait to address this problem, the more costly it will become and the more likely that it will disrupt the real economy.”

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The Decline of Labor Unions

In 2014, the union membership rate was a mere 11 percent in the U.S. This is down 0.2 percent from 2013, which does not seem like a notable decline. However, this is a 98-year low in America. To get some idea of this immense drop in union membership, the union membership rate was 20 percent in 1983 and 28 percent in 1954, according to Cornell University.

Labor unions are vital to the nation’s success. President Eisenhower himself once even said, “Labor is the United States. The men and women, who with their minds, their hearts and hands, create the wealth that is shared in this country–they are America.”

Policies against unions

However, government and policy have victimized unions for decades. The Taft Hartley Act of 1947 expanded employer rights at the expense of union rights. Some of the clauses prohibited closed shop for unions, secondary boycotts, and federal employee strikes. It was even referred to as the “slave labor” act by its opponents.

In 1978, labor unions put together a bill to strengthen the National Labor Relations Board. Big business significantly outspent labor efforts, ensuring that this bill did not pass.

In 1981, President Reagan dismissed 3,000 striking workers of the traffic controllers union. Businesses and Corporations began to hire strike breakers, effectively posing a viable threat to any union that dared to go on strike. There were 371 strikes in 1970; there were only 11 in 2010.

According to CNN, “For the sake of our economic and political future, however, America would be better off if we had more strikes.”

Labor Unions are essential to democracy and equality

The graph shows the rise of the Gini coefficient, which correlates with the rise in inequality. -Photo By Wushi-En [GFDL (http://www.gnu.org/copyleft/fdl.html), CC-BY-SA-3.0, via Wikimedia Commons]

The graph shows the rise of the Gini coefficient, which correlates with the rise in inequality.
-Photo By Wushi-En [GFDL (http://www.gnu.org/copyleft/fdl.html), CC-BY-SA-3.0, via Wikimedia Commons]

We need labor unions in the U.S. for a variety of reasons. First, the decline in unionization is correlated to the increase in income inequality. According to a study by the International Monetary Fund, about half of the increase in the Gini coefficient–a measure of inequality–and the significant rise in incomes of the top 10 percent can be explained by the decline in unionization. Historically, times of high union membership were also times of low inequality.

Second, unions provide a checks and balances system of sorts to the corporate world. Labor unions increase worker moral, protect basic worker rights, and are essentially the epitome of the middle class. Although there is corruption in some unions, there is also corruption in the corporate world. Even a flawed union can balance out a flawed corporation.

Unchecked corporations consume money and power, as presented in the quote from Wealth vs. Work below.

The fact is, however, people at the top of the pyramid are continuously redistributing wealth from the common people to their own pockets (this is the history of human kind), allying themselves with those who run the political system, writing self-serving rules concerning investments, credit, insurance, and banking. Even when the day of reckoning comes, and markets tank, the people in charge of corporate capitalism and finance manage to recover or get rescued by the system…

[In the 2008/2009 Recession], it was the ordinary worker who paid the bill. Money was redistributed from the bottom of the pyramid to the top…The rest of the world saw a system of government, which was supposed to regulate, monitor and hold people accountable, that allowed the robber barons of the twenty first century complete immunity and placed the rest of the world in jeopardy.”
-Wealth vs. Work: How 1% Victimizes 99%. pp. 138-139. Allan Ornstein

According to the New York Times, the decline in labor unions could help explain why CEOs of large corporations earned, on average, “20 times as much as the typical worker in 1965, and 296 times as much in 2013, according to the Economic Policy Institute.”

In the words of Elaine Bernard of Harvard University in the piece Why Unions Matter, “Because we have not yet succeeded in extending democracy to the workplace, democracy and civil society themselves are threatened.”

Thinking 2016: A short insight

2016 is fast approaching.

Hillary Clinton announced her run yesterday; Marco Rubio announced his today; and Rand Paul officially announced his run for president last week, joining Ted Cruz in the GOP running. Several other presidential hopefuls, such as Martin O’Malley and Jeb Bush, are expected to officially announce their campaigns soon, as well.

By United States Department of State (Official Photo at Department of State page) [Public domain], via Wikimedia Commons

By United States Department of State (Official Photo at Department of State page) [Public domain], via Wikimedia Commons

By US Senate (Email from the Office of Senator Marco Rubio) [Public domain], via Wikimedia Commons

By US Senate (Email from the Office of Senator Marco Rubio) [Public domain], via Wikimedia Commons

It’s time to really think about who will serve the country the best.

Government plays a key role in America’s class structure and whether the American dream runs on or off track. The story involves more than just tax rates, minimum wages, and Medicare benefits, but which political party is in power—which philosophy or doctrine controls human services and safety nets for people, whether the party supports and protects labor or business, and what kind of policies and level of transparency and accountability govern finance, technology, and globalization. We would like to think that we are alive and well and we have it all under control, and the stuff we overlook or cannot control doesn’t matter. But it does matter. It’s just that we don’t realize it or don’t want to face up to it. We would like to think there is very little difference between Democrats and Republicans, between liberal and conservative thought, and between free markets and regulated markets… But there is a difference, and it is bigger than most of us think. What we need is a government that cares more about people than property; and more about rising inequality and the shrinking middle class than denying it or arguing that what is good for the rich is good for the country, or what is good for labor or unions is nothing more than socialism.

(Wealth vs. Work: How 1% Victimizes 99%, p. 9, Allan Ornstein)

Presidential primaries often become more about who can garner the most donors, than they are about who will be best for the country.

Who do you think will treat the people of the U.S. with respect and why? Take into account social policy, treatment of labor unions, education policies, fiscal policies, etc. Do you think in today’s day and world there is room to care “more about people than property?”

With the election so crowded as of now…only time can tell. Personally, I’d like to see more support for labor unions and more taxing on the rich (More on that later).

According to the New York Times, the most likely/now running candidates are:

Dem:

Hillary Clinton

Martin O’Malley

Jim Webb

Lincoln Chafee

GOP:

Ted Cruz

Rand Paul

Marco Rubio

Jeb Bush

Scott Walker

Chris Christie

Mike Huckabee

Rick Santorum

Rick Perry

Bobby Jindal

Carly Fiorina

Ben Carson

Inequality on the rise, and why you should care

Why has the gap between the rich and the rest of us increased steadily in the last thirty years?

Some studies, such as Controversies about the Rise of American Inequality: A Survey by Robert J. Gordon and Ian Drew-Becker, list a number of reasons. These can include a decline of unionization, disparities in the growth of price indexes and in life expectancy between the rich and poor, investment opportunities among the rich, cheap foreign labor, and corporate exploitation.

However, there are innumerable factors that come into play, from both governmental and societal sources. The real question is: what are the main factors that have increased such unprecedented inequality.

Camden, New Jersey, which is the poorest per capita city in the U.S. By Phillies1fan777 at en.wikipedia [Public domain], from Wikimedia Commons

Camden, New Jersey, which is the poorest per capita city in the U.S By Phillies1fan777 at en.wikipedia [Public domain], from Wikimedia Commons

Result of Inequality

As a country, in the last thirty years, we have moved toward less manufacturing and productivity and to greater inequality and economic decline. We have also witnessed the decline of labor unions, the only large institution that represents working and middle class people against the lobbyists, lawyers and consultants of the money class.

The victims of this inescapable misfortune are the common people, the masses who find it difficult to find good-paying jobs. Certainly centuries-old stagnation has disappeared and our economic model has engineered great wealth for Americans, but wealth not for the majority but a tiny minority. In good times, few people questioned the America model of free enterprise and free markets, despite the fact we were producing fewer things and our recent wealth was based on financial engineering and excessive consumerism which has driven us into massive debt…

We are destined to an uncertain future, very different from projections of unlimited power and wealth that characterized speeches of our presidents and pundits from the Wilson era to the Reagan and Bus II era. President Obama inherited a misguided free-marker system, with minimal transparency and restraint, and attempted to redefine American capitalism. He is not only trying to create a more intrusive government as a counter weight to market forces, by he is also attempting to represent the needs of working people and the middle class.
-Allan Ornstein, Wealth vs Work: How 1% Victimizes 99%

Downtown Short Hills, NJ, one of the richest towns in the U.S... Only an hour and a half from Camden, NJ.  Daniel Case at the English language Wikipedia [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0/)], via Wikimedia Commons
Downtown Short Hills, NJ, one of the richest towns in the U.S… Only an hour and a half from Camden, NJ.
Daniel Case at the English language Wikipedia [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0/)%5D, via Wikimedia Commons

Why should we care?

Inequality, some may argue, is merely an inherent result of capitalist economies. However, inequality now is the highest it has been since the Great Depression, according to many studies. Historically, this bodes badly for business. Evidence of this is the drop in the Black Friday weekend spending by nearly 11% this past Fall, according to TIME Magazine.

More obvious, rising inequality is bad for society. In the book Ill Fares the Land by Tony Judt, he wrote, “There has been a collapse in inter-generational mobility: in contrast to their parents and grandparents, children today in the UK as in the US have very little expectation of improving upon the condition in which they were born.”

In today’s world, unless you are born rich, extraordinarily lucky, or graduate from an Ivy League college, your hopes of social mobility are far slimmer than they were 30 years ago.

I see this as the decline of the American dream…As you read this blog, what do you think are the main factors that have induced this unprecedented growth of inequality? Does social mobility still exist in your view? 

A push to enroll low-income students in elite universities

Colleges boast their religious, ethnic, and racial diversity…but can they brag about economic diversity?

Many selective, elite colleges tend to avoid enrolling many low-income students. This is because these students need financial aid. Colleges choose students with political connections, legacy preference, and athletic ability. Therefore, academic excellence and talent are ignored, while saving money and pleasing alumni are enforced practices.

“Children from advantaged homes have parents with political and social connections as well as alumni and business-related connections by birth that help them get into Ivy League colleges and high-paying jobs. Competition for good jobs requires that you get into the right university, not just a university. According to former Harvard President Lawrence Summers, “Just 3 percent of students at the nation’s top 146 colleges come from families in the bottom socioeconomic quartile,” that is the bottom 25 percent. These figures are echoed in a 2006 higher education report that less than 10 percent of the students in the most selective colleges come from the bottom half of the income scale, whereas 74 percent come from the top quarter, evidencing marked disparities based on income”
Wealth vs. Work: How 1% Victimize 99%. p. 214. Allan Ornstein

Prestigious institutions of higher learning discriminate against students on the basis of tuition and price out the majority of applications because of financial need.

In order to incentivize colleges to enroll more low-income students, the Jack Kent Cooke Foundation of Northern Virginia has announced a new, no-strings-attached $1 million prize. According to the New York Times, “it will be awarded each year to a college that excels in enrolling and graduating low-income high achievers.”

Noteremote [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], from Wikimedia Commons

Noteremote [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)%5D, from Wikimedia Commons

Several elite colleges, such as Vassar, Princeton, Harvard and Amherst, have begun to make changes in a similar direction. Vassar college will be the inaugural winner of the award, and plans on using the prize money to fund scholarships and orientation programs.

What other changes can be made to push colleges toward economic diversity? Do you think top universities need change?

If education won’t fix the income gap, what will?

“Will we accept an economy where only a few of us do spectacularly well?” asked President Obama in the State of the Union speech this past January. “Or will we commit ourselves to an economy that generates rising incomes and chances for everyone who makes the effort?”

However, a new study from the Hamilton Project, co-authored by Treasurer Secretary Lawrence Summers, says decreasing inequality won’t be so easy. In a simulation created by the study, one of every ten men in the U.S. without a B.A. suddenly graduated college (which in reality would be a huge national accomplishment.

The results were astounding:

According to a TIME magazine article on the issue, “The results show income in the bottom 25th percentile would increase from $6,100 to $8,720, and median income would increase from $34,000 to $37,060, while those with higher incomes were hardly affected.” This is barely a dent on the income distribution, and the majority of the nation’s money will still be concentrated at the top—the super rich.

-credits: The Hamilton Project, Increasing Education paper

-credits: The Hamilton Project, Increasing Education paper

I tend to have a more pessimistic view on economics. Thinking locally, societally, nationally and globally: failed aspirations are a part of life. We are chasing after dreams framed on achieving a certain income, without taking the appropriate time to notice the inequality that most of humanity faces. My view is outlined here in an excerpt:

“I have little patience with the central tenants of economics, for I think they are grand frameworks which often do not apply to the changing world, they are one-sided (in favor of the rich and super rich) and organized to keep ordinary people down. Despite all the gurus with big ideas who publish books or give speeches, and despite all the politicians who claim to represent people, the system has always worked for the favored few. Of course, if you believe in the gospel, or if you are some sought of Reaganite conservative, then you have a different explanation why there are so many poor and powerless people, so many working people who have to hold down two or three jobs to make ends meet, and why there are so many shameful social deficits within our society.” Source: Allan Ornstein, Wealth vs Work: How 1% Victimize 99%. P. xvii.

Now that this research has come out…What do you think could be a remedy for the income gap? Do you believe there is a fix at all? With such a complex, economic question comes thousands of answers and possibilities.

Is a private college education worth it?

Private versus public higher education is a consistently controversial topic. In my up-and-coming book, the third of my trilogy, Excellence vs. Equality, the economics of a college education are discussed.

For in-state tuition (tuition only; not including fees, room and board, etc.) in 2013/2014, the University of North Carolina – Chapel Hill charged $5,800; the University of Texas – Austin charged $9,000; and Ohio State University cost $9,750.

Now look at the prices of private schools in the following year:

US News Report of the 2015 Most Expensive Colleges and Tuitions

US News Report of the 2015 Most Expensive Colleges and Tuitions

The College Board reported that between 2009/2010 and 2013/2014, the net average cost of a public institution rose to about $3,000. Meanwhile, the net average cost of a private institution rose to about $12,000. These numbers are averaged to include cheaper private institutions, such as Brigham Young University, and to include average grants/scholarships/aid money. However, it still follows a general trend that private institutions cost at least 4 times as much as public ones.

Increasingly, a number of pundits are questioning the economic value of a college education. Given $50,000 per year for four years (cost for college tuition and room and board for many private colleges), that is $200,000 placed in a money market or insurance account at age 18, compounded at 4% per year for 50 years (22+45 = 67 years, the age when Social Security starts), yields a better lifetime return ($1.4 million) than the difference earned between a college graduate and high school graduate (slightly more than $900,000). At 6% the yield is $3.7 million and at 8% the yield is a whopping $9.4 million or $8.5 million more than the lifetime income between a college and high school graduate.-Allan Ornstein, Excellence v. Equality

In my opinion, investing the money that could be spent on a private institution, which relies on elitism and biased judgments instead of only merit, is money better spent.