New Article: Emma Coleman Jordan, The Federal Reserve and a Cascade of Failures: Inequality, Cognitive Narrowness and Financial Network Theory, SSRN May 2015. Abstract below:
The recent financial crisis hollowed out the core of American middle-class financial stability. In the wake of the financial crisis, household net worth in the U.S. fell by 24%, for a loss of $16 trillion. Moreover, retirement accounts, the largest class of financial assets, took a steep drop in value, as did house prices, and these two classes of assets alone represent approximately 43% of all household wealth. The losses during the principal crisis years, 2007-2009, were devastating, “erasing almost two decades of accumulated prosperity,” in the words of a 2013 report. By the Federal Reserve. Beyond these direct household balance-sheet losses, 1 out of every 4 homeowners were underwater by 2009 with mortgages worth less than the value of their homes. If we add the 3.7 to 5 million foreclosures that forced Americans to move from the economic and emotional stability of family homes, we see a portrait of dramatic financial instability in the wake of the financial collapse. And the Federal Reserve’s commitment to low interest rates, so beloved on Wall Street, has prevented many families from rebuilding their wealth through interest on savings; these “zero-bound” interest rates are an impediment to middle-class recovery from the losses of the crisis.
By contrast, the financial sector, the cause of the crisis, has prospered from adversity, growing to 9% of GDP by 2010 even as it became less efficient. This is one of the highest shares of GDP in the past half century and represents 29% of all profits in America. The financial sector earns profits by pooling funds to bring net savers together with net borrowers in financial contracts, a process known as intermediation. Economist Thomas Philippon of New York University found that the profits from intermediation grew from less than 2% of GDP in 1870 to nearly 6% before the economic crash of 1929. After World War II, financiers gradually increased their share of the economy to 5% by 1980, close to what it had been before the crash. The focused deregulatory agenda of the Reagan administration and Alan Greenspan’s deregulatory passions at the helm of the Fed from 1987 to 2006 swelled the balance sheets of financial firms to the high point of 9% of GDP by 2010.
The return to investors did not match the growth in the financial sector’s share of GDP. So what did investors get for their money? Philippon says it’s impossible to beat the market in part because of high-frequency trading that locks out the ordinary investor through sophisticated high-speed computer transmission of orders with preferential cable and algorithmic access to the trading desks.
-Thanks to Emily B. for the heads up!
New Article: Darren Lenard Hutchinson, “Continually Reminded of Their Inferior Position”: Social Dominance, Implicit Bias, Criminality, and Race, 46 Wash. U. J.L. & Pol’y 23 (2014). Abstract below:
This Article contends that implicit bias theory has improved contemporary understanding of the dynamics of individual bias. Implicit bias research has also helped to explain the persistent racial disparities in many areas of public policy, including criminal law and enforcement. Implicit bias theory, however, does not provide the foundation for a comprehensive analysis of racial inequality. Even if implicit racial biases exist pervasively, these biases alone do not explain broad societal tolerance of vast racial inequality. Instead, as social dominance theorists have found, a strong desire among powerful classes to preserve the benefits they receive from stratification leads to collective acceptance of group-based inequality. Because racial inequality within criminal law and enforcement reinforces the vulnerability of persons of color and replicates historical injuries caused by explicitly racist practices, legal theorists whose work analyzes the intersection of criminality and racial subordination could find that social dominance theory allows for a rich discussion of these issues.
I have added “Inequality.org” under blogroll to the left, but it has lots of op-eds and other publications worth checking out. It is a project of the Institute for Policy Studies.
Article Review: Toni Williams, “By All Means Possible,” Jotwell, Oct. 6, 2014 (reviewing Thomas Mitchell, Growing Inequality and Racial Economic Gaps, 56 How. L. J. 849(2013)).
NOTE: it is great to see that Jotwell has expanded its coverage such that there is more space for coverage of poverty related articles.
New Article: Joseph Fishkin & William E. Forbath, The Anti-Oligarchy Constitution, 94 B.U. L. Rev. 671 (2014). Abstract below:
America has awakened to the threat of oligarchy. While inequality has been growing for decades, the Great Recession has made clear its social and political consequences: a narrowing of economic opportunity, a shrinking middle class, and an increasingly entrenched wealthy elite. There remains broad agreement that it is important to avoid oligarchy and build a robust middle class. But we have lost sight of the idea that these are constitutional principles.
These principles are rooted in a tradition we have forgotten – one that this Article argues we ought to reclaim. Throughout the nineteenth and early twentieth centuries, generations of reformers responded to moments of mounting class inequality and crises in the nation’s opportunity structure with constitutional claims about equal opportunity. The gist of these arguments was that we cannot keep our constitutional democracy – our republican form of government – without constitutional restraints against oligarchy and a political economy that maintains a broad middle class, accessible to everyone. Extreme class inequality and oligarchic concentrations of power pose distinct constitutional problems, both in the economic sphere itself and because economic and political power are intertwined; a “moneyed aristocracy” or “economic royalists” may threaten the Constitution’s democratic foundations.
This Article introduces the characteristic forms of these arguments about constitutional political economy and begins to tell the story of anti-oligarchy as a constitutional principle. It offers a series of snapshots in time, beginning with the distinctive political economy of the Jacksonian Democrats and their vision of equal protection. We then move forward to Populist constitutionalism, the Progressives, and the New Deal. The Constitution meant different things to these movements in their respective moments, but all understood the Constitution as including some form of commitment to a political economy in which power and opportunity were dispersed among the people rather than concentrated in the hands of a few. We conclude with a brief discussion of how this form of constitutional argument was lost, and what might be at stake in recovering it.