One of the enduring puzzles is why so many poor and middle class people are so supportive of policies that benefit only the rich. The often cited reasons are that these people are either stupid or that they have a fantasy that they will be very rich someday and are protecting their future interests.

But via Kevin Drum, I heard about a new study that suggests another reason, which is that people have a highly distorted idea about where they themselves stand in the economic pecking order. The study asked people in Argentina in the ten income deciles to rank themselves as to which decile they thought they were in. “They found that everyone thought they were basically middle class. Poor people consistently overestimated their rank, and rich people consistently underestimated their rank.”

Why is this? “The authors suggest that this misperception may be related to the types of people respondents interact with, and therefore use as a reference point. If you’re mostly exposed to people earning about as much as you, you’re likely to think your earnings are average.”

The solution? Make people better aware of their true position. “In the Argentina study, for example, respondents were eventually informed about whether their own rankings estimates were too high or too low. This news changed people’s policy attitudes. People who thought they were relatively richer than they actually were started to demand higher levels of income redistribution when told they were actually relatively poor.”

These results are consistent with a study done in the US that I wrote about late last year which showed that people here think that wealth is more equitably distributed than it really is.

He discusses his new book Money and Power: How Goldman Sachs Came to Rule the World. The title pretty much says it all.

Part 1 of the interview:

Part 2, where he really dishes the dirt:

Reader Mark sent me this article that says that an IMF report predicts that in 2016, China will overtake the US as the world’s largest economy. There is some dispute about this because economic measures are hard to quantify, especially when purchasing power is factored in, as is done here. But the disagreements center on the date of overtaking. There seems to be a consensus that China will overtake the US at some point in the fairly near future.

As one analyst explains, “What we have done is traded jobs for profit. The jobs have moved to China. The capability erodes in the U.S. and grows in China. That’s very destructive. That is a big reason why the U.S. is becoming more and more polarized between a small, very rich class and an eroding middle class. The people who get the profits are very different from the people who lost the wages.”

The article speculates on the psychological effects on the US public of losing its place as the worlds biggest economy, a position it has held for over a century. My feeling is that the people in the US already have the sense that they are rapidly losing ground economically and so this will not come as a shock. What will come as a shock is when the US is no longer the world’s greatest military power. That will take longer to arrive since military power lags behind economic power.

This fierce advocate for those of us who are not part of the oligarchy reveals the fights that are taking place behind the scenes to prevent the oligarchy from gutting the measures she has proposed to give ordinary people the tools to avoid being suckered by the big financial interests.

She points out how the system really works. When debates are held in the open, ordinary people tend to win because their case is so obviously just. So what the oligarchy and its allies in government do is utter bland generalities in public and move the actual policy making into the back alleys where they can stick the knife in unseen and then pretend that they did not know what was going on. The metaphor is apt because the oligarchy are truly gangsters just with better clothes and manners.

The interview is in three parts and well worth watching in full. The latter parts are prompted after the first one.

Sometime ago, in my series on how poor people have dignity too, I praised the recent adoption of debit cards instead of food coupons as a good way for them to purchase food without others knowing that they were down on their luck.

But some people want to deny even that minimal level of dignity and label the poor with a scarlet, or rather orange, letter. An Arizona Republican legislator wants the debit cards to be a bright orange color. Of course, his stated reason is to prevent ‘fraud’, that useful word that disguises hateful motives as noble ones.

Anyone who drives in Cleveland knows that the roads are in terrible shape, with potholes everywhere. One study says that forty-one percent of Cleveland-area highways and major roads are in poor or mediocre condition. It is estimated that “the nation’s roads and bridges suffer from a funding shortfall of $134 billion to $194 billion annually, just to maintain present conditions.”

It has become so bad that on my way to and from work, I have memorized which lane I should be in to for each stretch of road in order to minimize the severity of the bumps, though they cannot be entirely avoided. I see other cars, perhaps not as familiar as I am, suddenly swerving as they try to avoid holes.

Poorly maintained roads are just one sign of a community and nation that is running out of money to maintain basic services. It will be followed by less street lightning, dirtier streets, unkempt parks, and so on.

Soon all the people who demanded that their taxes be lowered will begin to complain about the terrible state things are in and demand that something be done. Without raising their taxes, of course.

The Plain Dealer business section yesterday had two news items right next to each other. One was that luxury car sales in the region were up by more than 50% during the first quarter of 2011 and the other was that a local business that provides private jets to wealthy travelers quadrupled its first quarter sales when compared to last year.

It’s nice to know that the tax cuts for the rich are paying off. All the people in the region who lost their jobs and homes due to the recession should be able to find plenty of jobs washing and cleaning the luxury cars and jets. That’s how trickle-down economic theory works, no?

Nobel prize-winning economist Joseph Stiglitz writes about the fact that the top 1% of wealthy people in the US now rule the country and are ruining it.

It’s no use pretending that what has obviously happened has not in fact happened. The upper 1 percent of Americans are now taking in nearly a quarter of the nation’s income every year. In terms of wealth rather than income, the top 1 percent control 40 percent. Their lot in life has improved considerably. Twenty-five years ago, the corresponding figures were 12 percent and 33 percent. One response might be to celebrate the ingenuity and drive that brought good fortune to these people, and to contend that a rising tide lifts all boats. That response would be misguided. While the top 1 percent have seen their incomes rise 18 percent over the past decade, those in the middle have actually seen their incomes fall.
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Virtually all U.S. senators, and most of the representatives in the House, are members of the top 1 percent when they arrive, are kept in office by money from the top 1 percent, and know that if they serve the top 1 percent well they will be rewarded by the top 1 percent when they leave office. By and large, the key executive-branch policymakers on trade and economic policy also come from the top 1 percent. When pharmaceutical companies receive a trillion-dollar gift—through legislation prohibiting the government, the largest buyer of drugs, from bargaining over price—it should not come as cause for wonder. It should not make jaws drop that a tax bill cannot emerge from Congress unless big tax cuts are put in place for the wealthy. Given the power of the top 1 percent, this is the way you would expect the system to work.
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In recent weeks we have watched people taking to the streets by the millions to protest political, economic, and social conditions in the oppressive societies they inhabit. Governments have been toppled in Egypt and Tunisia. Protests have erupted in Libya, Yemen, and Bahrain. The ruling families elsewhere in the region look on nervously from their air-conditioned penthouses—will they be next? They are right to worry. These are societies where a minuscule fraction of the population—less than 1 percent—controls the lion’s share of the wealth; where wealth is a main determinant of power; where entrenched corruption of one sort or another is a way of life; and where the wealthiest often stand actively in the way of policies that would improve life for people in general.

As we gaze out at the popular fervor in the streets, one question to ask ourselves is this: When will it come to America? In important ways, our own country has become like one of these distant, troubled places.
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The top 1 percent have the best houses, the best educations, the best doctors, and the best lifestyles, but there is one thing that money doesn’t seem to have bought: an understanding that their fate is bound up with how the other 99 percent live. Throughout history, this is something that the top 1 percent eventually do learn. Too late.

Note that he does not ask if this state of affairs will cause riots in the streets in America like those occurring elsewhere in the world but when.

It is worth reading the whole thing.

Brad Reed describes one of the means by which the the rich pay absurdly low taxes.

But of course, these things are of no concern to the people with the serf-like mentality who think that the rich should be able to game the system to pay as little taxes as possible. These people will probably argue that these poor rich people are forced to adopt such stratagems because their taxes are too high so the solution is to reduce their taxes even more.