Every few years I try and compile some general statistics that give you an idea of the situation in Romania. I have compiled the following from various news reports, surveys, studies and government reports. I hope this provides you with a window through which you can understand a little bit of the context in which we serve, the challenges we face, and the reasons for doing what we do.
While there may be progress, development or improvement in some areas, I present here a perspective from the lower class and the most vulnerable. Our hope and prayer is that their situation will change than they will experience a better future.
Our vulnerable friends’ experience with the government is listening to the campaign promises and then waiting another four years to see them again.
Street protests against economic hardship, corruption and government authoritarianism in 2012 led to the collapse of the governing coalition. In addition, the government has gone through the turbulence of repeated attempts to impeach the president Traian Basescu. We will have a new president this year. Elections will be held in November. Only recently has the investment grade risen after years of political turbulence. Hopefully, a semblance of stability will continue even in the face of regional conflicts and the harsh rhetoric that has ensued.
Romania placed 69 out of 177 countries on the corruption index. The Romanian parliament voted to exempt themselves and several other government officials from anti-corruption laws, which refer to actions such as abuse of office, bribery, and conflicts of interest by public officials, the law would no longer apply to them. According to the anti-corruption prosecutor’s office (DNA), 28 members of Parliament have been convicted or are on trial for various corruption charges. In addition, 100 mayors and vice-mayors are being investigated for such crimes as awarding contracts to family and friends. In our daily experience, there are still frequent implicit requests for bribes by medical practitioners, government officials, police officers and teachers.
Romania is a strategic partner in the North Atlantic Treaty Organization (NATO), and it has provided significant contributions of troops, equipment, and other assistance in Afghanistan and Kosovo. Romania has agreed to host elements of the U.S. Phased Adaptive Approach to European missile defense in the 2015 timeframe. The two countries signed a ballistic missile defense agreement in 2011 allowing the deployment of U.S. personnel, equipment, and anti-missile interceptors to Romania over the next five years. The United States and Romania also have adopted the bilateral Joint Declaration on Strategic Partnership for the 21st Century. The strength of NATO is now being tested in Romania and other countries on the alliance’s eastern border, as it faces the crisis in Ukraine.
Romania’s original target date for adopting the Euro was 2015, but the president stated that it was unfeasible. Romania’s GDP is between 50% and 55% lower than the Eurozone’s average. For the past few years, the government has continually overestimated economic outputs, resulting in budget deficits. But in the first quarter of 2013, Romania’s economy began to expand, although less than the government forecast. It grew by 3.5% in 2013 – due to a bumper harvest – with a predicted 4.2% growth in 2014.The country’s inflation rate in 2013 was 4.4%, Europe’s fastest, but is forecast to fall to 3.5% on average in 2014 as gradual government deregulation boosts energy prices. Currently, the country is authorizing and protesting policies concerning gold mining and land and water fracking. S&P recently upgraded Romania to investment grade after the economic crisis of 2008.
The average individual income is less than 350 Euros a month. In 2014, the minimum wage is being increased in two stages to RON 900, from the current RON 800 (USD$245). After several years of strong growth in the 2000s, Romania has been hit hard by the 2009 global recession and the Eurozone crisis, which have revealed systemic weaknesses in its economy.
Romania relied on a 20 billion-euro loan from the IMF between 2009 and 2011 to help it emerge from a two-year recession and withstand external shocks from the global financial crisis. As part of the loan agreement, the government cu public sector wages by 25% and raised the value-added tax from 19% to 24%.
The official unemployment rate is 7.2%. The lack of jobs is one of the primary drivers of people migrating out of the country. Still, there is an estimated 2.3 million Romanians working on the black market, more then a third of those legally employed.
In Galati, ArcelorMittal Sidex, the steel factory and largest employer, has not registered a profit since 2008 and has laid-off 19,000 workers in the past 11 years. So, the economic outlook for Galati is not great.
25 years have passed since the fall of communism and the restoration of property confiscated by the communist regime to their owners is still in process. Approximately 3 million hectares of arid land out of the 12 million has not been restituted, and almost 5 million of the hectares are split up in sections smaller than 1 hectare. This shows a lack of a united vision and efficient planning of agricultural land. So, although Romania has the capacity to feed 80 million people, it continues to import most of its food. The question remains: if the land was managed efficiently, who would cultivate it? The average yields are less than half of that of the EU. For its agricultural development, 300 million Euros are being loaned to Romania.
Absolute poverty declined from 35.9 percent in 2000 to 5.7 percent in 2008. Still, Romania is the European Union’s second-poorest state. Some 9.5 million people, or roughly half of the population, are receiving welfare, unemployment, housing and central heating aid, or other supplemental benefits on a monthly basis. That equates to a national expense of $3.2 billion a year.
One-fourth of young adults (ages 18 to 24 years old) live in relative poverty, the highest rate in the EU. 40% of this age group are at risk of social exclusion.(DPC report).Because of their lack of buying-power, youth are forced to live with their parents into adulthood, thus increasing the family size. About 45% of those with full-time jobs still live with their parents, compared with 38% in the EU.
Emigration and Migrant Orphans
Shortly after the 1989 so-called “revolution,” Ryszard Kapuściński said that the people abolished the dictator, not so that they could turn to the building of democracy, but so that they could open up the borders and leave. According to the latest census that was taken in 2011, Romania lost 2.68 million inhabitants in the last 10 years. The greatest loss of population in all of Romania was in Galati, which dropped 22.56% – from 298,589 in 2002 to 231,204 in 2011. It is now the 5th largest city in the country.
Romanians abroad are expected to send about USD 3.6 billion to their home country in 2013, making it the third largest volume of remittances to a developing country in the region (behind Poland and Russia), according to a recent World Bank report. The amount sent to Romania in 2013 is expected to be almost flat on 2012, and smaller than in 2011, when it reached USD 4.5 billion, as well as from 2010, when it stood at USD 4.9 billion.
Over the past year, there was much negative press in the UK as they removed travel restrictions on Romanians and Bulgarians. Although they expected to be overwhelmed by the flood of Romanian and Bulgarian immigrants, the total of 140,000 citizens from Romania and Bulgaria employed in Britain between January and March represented a decline of 4,000 when compared with the 144,000 in work in the last three months of 2013. Still, the stigma on Romania immigrants remains in many circles.
According to the Soros Foundation, Romania has about 350,000 children who are left without parents. The Romania Authority for Child Protection’s figure is much lower, stating that at least 82,000 children have at least one parent that has gone to work abroad. There have been reports of children as young as 12 killing themselves after their parents left. Some of these children also suffer from mental illnesses such as depression and often have trouble in school. Many drop out of school. Additionally, some may turn to crime and drugs to cope with their issues. Recently, new laws have been passed in Romania which will place fines up to 2,500 Euros for parents who do not leave children with appropriate guardians.
Children in Poverty
In the 1990s, Romania had over 6.6 million children. Today, due to a lower birth rate, there are 3.7 million children. As the birth rate falls, the life expectancy has increased, resulting in there being 1 child to every 2 adults in the 1990s to 1 child for every 4 adults today.
Over half of Romanian children are at risk of poverty and/or social exclusion, and one third lives in persistent poverty. The rate is highest in families with many children or with a single parent. About one in 10 children live in homes with no working adult. The rate of material deprivation is 3 times higher than the EU.
Poverty exists even where parents are working. One in three children live in poverty even where parents are working. One in every five families that have working adults still lives in poverty, and this rate is rising.
About 12% of rural households have no income other than the state subsidy for children.  10% of these children go to bed hungry and 12% are missing school so that they can work.
Sex Workers/ Child Trafficking
Girls and boys left without their parents are extremely vulnerable to being trafficked. Romania is a source, transit, and destination country for men, women, and children subjected to forced labor and women and children subjected to sex trafficking. Romania has become a major transit for the sale of people into the European Union. Victims as young as 12 years old are trafficked into Romania from destinations as far-reaching as Honduras, Afghanistan, the Congo, and China. Once they reach Romania, many of these victims are assigned for passage beyond into Western Europe. While Romanian law officially prohibits all forms of human trafficking, the country’s strategic geographic location — a crossroads between East and West — makes it a source, transit and destination country for the people trade. The country’s 2007 admission into the European Union brought more relaxed border regulations and enhanced its attraction for international human traffickers.
According to the US State Department, Romanians represent a significant source of trafficking victims in Europe. Romanian men, women, and children are subjected to forced labor in agriculture, domestic service, hotels, and manufacturing, as well as forced begging and theft in European countries. Children likely represent at least one-third of Romanian trafficking victims. Traffickers recruiting and exploiting Romanian citizens were overwhelmingly Romanian themselves. Frequently, traffickers first exploited victims within Romania before transporting them abroad for forced prostitution or labor. The Romanian government reported increasing sophistication amongst Romanian criminal groups, including the transportation of victims to different countries in Europe in order to test law enforcement weaknesses in each. The Government of Romania does not fully comply with the minimum standards for the elimination of trafficking; however, it is making significant efforts to do so. The government reported the identification of 1,043 victims in 2011. The government made strong prosecution efforts during the reporting period: the number of anti-trafficking prosecutions pursued was amongst the highest in Europe (480 prosecutions with 276 convicted in 2011), and built on partnerships with governments in destination countries to increase accountability for trafficking offenders. The government also conducted creative anti-trafficking prevention efforts to sensitize the population to trafficking in persons. Nevertheless, services available to protect and assist trafficking victims were very weak. For a third consecutive year, the government provided no funding to anti-trafficking NGOs, imperiling civil society’s victim protection.
There are high numbers of Romanians caught in the commercial sex. Although the government proposed legislation to legalize prostitution, it was not passed. Still, sex is sold on street corners, truck stops and the many erotic message parlors throughout the country.
Orphans and Child Abandonment:
In 2001, Romania placed a moratorium on international adoptions, and officially banned the practice four years later, citing widespread corruption in adoption practices across borders. Romania has no formal national assistance program for orphans after they leave state institutions. Most must leave at age 18, when they become legal adults. Few of the country’s 75,000 orphans know how to managemoney, find an apartment, prepare food or search for a job. Many end up homeless and turn to crime, like prostitution, when they age out.
The number of children abandoned in maternity wards dropped from 5130 in 2003 to 1315 in 2010.28% of children abandoned are Roma. NGOs claimed that the official statistics underestimated the problem, and that many children living in state institutions were never officially recognized as abandoned. Poverty, child marriage and mobility are the primary causes of child abandonment. But most potential adoptive parents refuse to adopt Roma children.
According to the Ministry of Labor, Family, and Social Protection, there were 63,847 children in state care. Of them 39,212 were in professional foster care, 1,878 in alternative care (with guardian), and 22,757 in public or private residential care.
Although contraception is accessible and inexpensive, the abortion rate remains high, with 52.7 reported abortions for every 100 live births. Still, this rate is 7 times lower than the past two decades.
Children on the Streets
According to the Directorate for the Protection of Children, at the end of September there were 1400 homeless children nationwide. NGOs working with homeless children believed there were actually two or three times that number. Some estimate that as many as 2,000 children live in tunnels that run under the city. The collapse of communism, which negatively impacted the economy has forced children into poverty. As a result, these children resort to begging and stealing to survive. Romania is aiming to end its reputation for neglect of children and is hoping to close large orphanages. As a result, children are returning to violent homes or ending up on the streets.
Children living on the streets suffer from social exclusion, and life on the streets usually results in serious health problems, chronic undernutrition, lack of schooling, illiteracy (around 50%), sexual and physical abuse, drug abuse, discrimination, and a diminished access to social services.
Education and School Drop-out Rates
Child Protective Services states that 56,000 children are not enrolled in the school system. Others, however, estimate the number at 100,000 children between 6 and 16 years of age that have dropped out of school.
Children living in rural communities are at greater risk of abandoning school. Also, with the state raising the mandatory grade that all children need to complete to 10, the drop-out rate has risen.
Child Abuse and Child Labor
Child abuse and neglect continued to be serious problems, and public awareness remained poor. The media reported several severe cases of abuse or neglect in family homes, foster care, and child welfare institutions. For example, within a period of six months, child welfare services identified 5,665 cases of child abuse, of which 570 involved physical abuse; 716 emotional abuse; 292 sexual abuse; 63 work exploitation; 24 sexual exploitation; 40 exploitation to commit criminal offenses; and 3,960 neglect. Of the reported cases, 2,732 were boys and 2,933 were girls. Most cases of abuse occurred in the family.
The government has not established a mechanism to identify and treat abused and neglected children and their families.
Romania law criminalizes adults who force children to work. Still, there is a high incidence of child begging, and the government is struggling to find and prosecute companies or individuals that illegally employ minors for work. The punishment is 7 years in prison. In 2008, 1072 cases of child labor had been reported, from which only 125 had been confirmed. In 2010, the Authority for Child Protection stated that there were only 412 children exploited by work. Although this number, as with the others the I present here, is hard to nail down, Save the Children Centers received 2,405 children who were exploited by labor. An older report states that 70,000 children needed to work instead of going to school, of which only a third who work on the streets are literate.
According to Save the Children, 86% of children are scolded by their teachers when they make mistakes 33% are ridiculed and 7% are beaten by their teachers. 57% of children suffer from anxiety, withdrawal, insecurity and stress at school.
38% of parents admit to physically abusing their children and 63% of children confess being beaten by their parents, while most parents think that smacking and yanking their ears is appropriate.
According to the Authority for Child Protection, the rate of child abuse has increase by 7% from 11,232 in 2010 to 12,074 in 2012. This includes emotional, physical, and sexual abuse, neglect and exploitation through labor or crime.
Violence against women, including spousal abuse, continues to be a serious problem, according to NGOs and other sources. The government did not effectively address it. The law prohibits domestic violence and allows police intervention in such cases. Amendments to the domestic violence law adopted in March 2012 provide for the issuance of restraining orders upon the victim’s request and for the payment by the abuser of some expenses, such as medical and trial expenses, or the cost of the victim’s accommodation in a shelter. While the criminal code imposes stronger sanctions for violent offenses committed against family members than for similar offenses committed against others, the courts prosecuted very few cases of domestic abuse. Many cases were resolved before or during trial when alleged victims dropped their charges or reconciled with the alleged abusers. In cases with strong evidence of physical abuse, the court can prohibit the abusive spouse from returning home. The law also permits police to penalize spouses with fines of 100 lei to 3,000 lei ($26.70 to $893) for various abusive acts. During 2012, 1,857 persons reported being victims of domestic violence, and 440 persons were sent to trial for domestic violence.
Compared to other EU countries, Romania has a low rate of drug use. Still, the use of psychoactive substances by youth under 16 years of age doubled in just four years. Heroine is the most commonly used drug, followed by marijuana.
42% of the elderly are at risk of poverty, which means having an income 60% below the country’s national average.
670,000 elder people and children with healthcare problems receiving government assistance. This is a rise from 80,000 Romanians receiving social benefits in 1992. The increase is due to citizens’ heightened awareness of government benefits.
5.2 children per 1,000 are affected by the divorce of their parents. Where the divorce rate is declining in other European countries, it is rising in Romania. This is partially because marriage is still commonly practiced.
Those with Disabilities and Mental Illnesses
EU funding of at least 24 million euros is propping up 50 residential institutions in Romania. Thousands of people with disabilities were being ‘warehoused’ in such institutions, segregated from society and subjected to inhumane conditions.
Today, the majority of children with disabilities (over 95%) do not live in state institutions. Still, the lack of school participation for children with disabilities is seven times higher than other children.
There have also been reports that some personnel in state institutions mistreated abandoned children with physical disabilities and subjected children in state orphanages to lengthy incarceration as punishment for misbehavior.
HIV/AIDS wrought devastation in Romania in the 1980s and 1990s. The victims were mostly small children infected in hospitals. Poor sterilization facilities and dubious medical practices, such as infected blood transfusions, were largely to blame. Those that did not die were often ostracized, and many were abandoned. Antiretroviral treatment is free and available to those who need it. Death rates have plummeted. In fact, Romania is now often cited as an example to other poor countries with major HIV/AIDS problems.
Yet a substantial number of Romanians with HIV still don’t know it. The generation infected in the 1980s and 1990s is now at reproductive age, and new cases are still appearing across the country, often years after infection. Health workers say sexual transmission is now the most common method.
According to official statistics, 11, 581 patients diagnosed with HIV and AIDS were registered as of December, with 741 new cases reported between January and December. Societal discrimination against persons with HIV/AIDS occurred, and many persons with the disease dropped out of school due to stigmatization, discrimination, or disease. In December, on International HIV Day, the National Union of Organizations of Persons with HIV/AIDS launched a campaign to increase awareness of HIV infection.
Romania spends just 5 percent of its gross domestic product on health care, about half the percentage of GDP Western European countries spend. 30% of medical professionals, about 10,000 people, have migrated out of Romania in order to work for better pay in western countries.
Only those with employment or who pay for health insurance have access to doctors. Medical care is supposed to be free for children. However, the children are often sent to the pharmacies to buy the necessary medication. Bribes across Romania accounted for $1 million a day in 2005, according to a World Bank report; more recent estimates are not available.
Although the infant mortality rate decreased from 26.9 in 2990 to 9 deaths per 1000 in 2012, it is still high – the highest in the EU and twice as high as the EU average. Romania also continues to suffer from transmittable diseases that can be prevented by vaccines. Tuberculosis is six times higher than the EU average, with Romania representing 25% of all TB cases in Europe – 15% of which are children.
Eight percent of Romanian children live in absolute poverty, compared to 35 percent among Roma children. 40% of Romani children are undernourished. 75 percent of Roma children do not complete the 8th grade. Roma children are significantly behind in education compared to non-Roma. Romani children were effectively segregated from non-Romani students and subject to discriminatory treatment.
Discrimination against Roma continued to be a major problem. Romani groups complained that police brutality, including beatings, and harassment were routine. Both domestic and international media and observers widely reported societal discrimination against Roma. Major human rights problems included police and gendarme mistreatment and harassment of detainees and Roma, including the death of three Roma at the hands of police and gendarmes.
Observers estimated that there were between 1.8 and 2.5 million Roma in the country, constituting approximately 10 percent of the total population. However, the preliminary results of the most recent official census, taken in fall 2011, counted 619,000 Roma, or 3.2 percent of the population.
Stereotypes and discriminatory language regarding Roma were widespread. Journalists and several senior government officials made statements that were viewed as discriminatory by members of the Romani community; the CNCD fined some individuals as a result. Anti-Roma banners, chants, and songs, particularly at large televised sporting events, were prevalent and widespread.
Romani communities were largely excluded from administrative and legal systems. According to surveys in 2007 and 2008, the latest data available on this matter, between 1.9 and 6 percent of Roma lacked identity cards, compared to 1.5 percent of non-Roma. The lack of identity documents excluded Roma from participating in elections, receiving social benefits, accessing health insurance, securing property documents, and participating in the labor market. Roma were disproportionately unemployed or underemployed.
The legal age of marriage is 18, although girls as young as 15 may legally marry in certain circumstances. Illegal child marriage was reportedly common within certain social groups, particularly the Roma. There were no public policies to prevent child marriages or government institutions that dealt with the problem.
 Some of the statistics are up to two years old as not all statistics are measured annually.
The Adevarul newspaper
 Eurostat 28
 Behr, Kiss the Hand that You Cannot Bite, xiii.
 Stracansky, Pavol, “Bringing Up a ‘Lost Generation'”.
 Eurostat 7
 xviii UE27
 Eurostat footnote 11
 Meghan Collins Sullivan, ‘Painful Lessons from Romania’s Decade-Old Adoption Ban’, Time, March 15, 2013.
In a chapter entitled `The Jubilee : Time Ceilings for the Growth of Money’, Geiko Muller-Fahrenholz says:
We enjoy time, we are carried along in the flow of time, everything is embedded in its time, so the very idea of exploiting the flow of time to take interest on money lent seemed preposterous. It does so no more because the sacredeness of time has disappeared, even before the sacredness of the land vanished from the memories of our modern societies. Instead capitalist market economies have been elevated to global importance; they are enshrined with the qualities of omnipotence that border on idolatry. So the question arises: does it make sense to attribute to money qualities that no created thing can ever have, namely eternal growth? Every tree must die, every house must one day crumble, every human being must perish.Why should immaterial goods such as capital – and its counterpart, debts – not also have their time? The capital knows no natural barriers to its growth. There is no jubilee to put an end to its accumulative power. And so there is no jubilee to put an end to debts and slavery. Money that feeds on money, with no productive or social obligation, represents a vast flood that threatens even large national economies and drowns small countries…But at the heart of this reregulation is the undisputed concept of the eternal life of money.
Does money have eternal life?
What ideas do we have to embed our economy in time and to appropriate the Jubilee to our capitalist markets?
A who’s-who’s of prominent economists in government and academia have all said that runaway inequality can causefinancial crises.
Extreme inequality helped cause the Great Depression, the current financial crisis … and the fall of the Roman Empire.
But inequality in America today is actually twice as bad as in ancient Rome , worse than it was in in Tsarist Russia,Gilded Age America, modern Egypt, Tunisia or Yemen, many banana republics in Latin America, and worse than experienced by slaves in 1774 colonial America.
Inequality has grown steadily worse:
There are 2 economies: one for the rich, and the other for everyone else.
Alan Greenspan said:
Our problem basically is that we have a very distorted economy, in the sense that there has been a significant recovery in our limited area of the economy amongst high-income individuals…
They are fundamentally two separate types of economies.
The world’s top economic leaders have said for years that inequality is spiraling out of control and needs to be reduced. Why is inequality soaring even though world economic leaders have talked for years about the urgent need to reduce it?
Because they’re saying one thing but doing something very different. And both mainstream Democrats and mainstream Republicans are using smoke and mirrors to hide what’s really going on.
And it’s not surprising … Nobel prize winning economist Joseph Stiglitz says that inequality is caused by the use of money to shape government policies to benefit those with money. As Wikipedia notes:
A better explainer of growing inequality, according to Stiglitz, is the use of political power generated by wealth by certain groups to shape government policies financially beneficial to them. This process, known to economists as rent-seeking, brings income not from creation of wealth but from “grabbing a larger share of the wealth that would otherwise have been produced without their effort”
Rent seeking is often thought to be the province of societies with weak institutions and weak rule of law, but Stiglitz believes there is no shortage of it in developed societies such as the United States. Examples of rent seeking leading to inequality include
- the obtaining of public resources by “rent-collectors” at below market prices (such as granting public land to railroads, or selling mineral resources for a nominal price in the US),
- selling services and products to the public at above market prices (medicare drug benefit in the US that prohibits government from negotiating prices of drugs with the drug companies, costing the US government an estimated $50 billion or more per year),
- securing government tolerance of monopoly power (The richest person in the world in 2011, Carlos Slim, controlled Mexico’s newly privatized telecommunication industry).
One big part of the reason we have so much inequality is that the top 1 percent want it that way. The most obvious example involves tax policy …. Monopolies and near monopolies have always been a source of economic power—from John D. Rockefeller at the beginning of the last century to Bill Gates at the end. Lax enforcement of anti-trust laws, especially during Republican administrations, has been a godsend to the top 1 percent. Much of today’s inequality is due to manipulation of the financial system, enabled by changes in the rules that have been bought and paid for by the financial industry itself—one of its best investments ever. The government lent money to financial institutions at close to 0 percent interest and provided generous bailouts on favorable terms when all else failed. Regulators turned a blind eye to a lack of transparency and to conflicts of interest.
Wealth begets power, which begets more wealth …. 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.
The financial industry spends hundreds of millions of dollars every election cycle on campaign donations and lobbying, much of which is aimed at maintaining the subsidy [to the banks by the public]. The result is a bloated financial sector and recurring credit gluts.
Two leading IMF officials, the former Vice President of the Dallas Federal Reserve, and the the head of the Federal Reserve Bank of Kansas City, Moody’s chief economist and many others have all said that the United States is controlled by an “oligarchy” or “oligopoly”, and the big banks and giant financial institutions are key players in that oligarchy.
Economics professor Randall Wray writes:
Thieves … took over the whole economy and the political system lock, stock, and barrel.
No wonder crony capitalism has gotten even worse under Obama.
No wonder Obama is prosecuting fewer financial crimes than Bush, or his father or Ronald Reagan.
Economist Steve Keen says:
“This is the biggest transfer of wealth in history”, as the giant banks have handed their toxic debts from fraudulent activities to the countries and their people.
Stiglitz said in 2009 that Geithner’s toxic asset plan “amounts to robbery of the American people”.
And economist Dean Baker said in 2009 that the true purpose of the bank rescue plans is “a massive redistribution of wealth to the bank shareholders and their top executives”.
Quantitative easing doesn’t help Main Street or the average American. It only helps big banks, giant corporations, and big investors. And by causing food and gas prices skyrocket, it takes a bigger bite out of the little guy’s paycheck, and thus makes the poor even poorer.
As I noted in March 2009:
The bailout money is just going to line the pockets of the wealthy, instead of helping to stabilize the economy or even the companies receiving the bailouts:
- Bailout money is being used to subsidize companies run by horrible business men, allowing the bankers to receive fat bonuses, to redecorate their offices, and to buy gold toilets and prostitutes
- A lot of the bailout money is going to the failing companies’ shareholders
- Indeed, a leading progressive economist says that the true purpose of the bank rescue plans is “a massive redistribution of wealth to the bank shareholders and their top executives”
As I wrote in 2008:
The game of capitalism only continues as long as everyone has some money to play with. If the government and corporations take everyone’s money, the game ends.The fed and Treasury are not giving more chips to those who need them: the American consumer. Instead, they are giving chips to the 800-pound gorillas at the poker table, such as Wall Street investment banks. Indeed, a good chunk of the money used by surviving mammoth players to buy the failing behemoths actually comes from the Fed.
Without the government’s creation of the too big to fail banks (they’ve gotten much bigger under Obama), the Fed’s intervention in interest rates and the markets (most of the quantitative easing has occurred under Obama), andgovernment-created moral hazard emboldening casino-style speculation (there’s now more moral hazard than ever before) … things wouldn’t have gotten nearly as bad.
Robert Reich has noted:
Some cheerleaders say rising stock prices make consumers feel wealthier and therefore readier to spend. But to the extent most Americans have any assets at all their net worth is mostly in their homes, and those homes are still worth less than they were in 2007. The “wealth effect” is relevant mainly to the richest 10 percent of Americans, most of whose net worth is in stocks and bonds.
The recovery has been the weakest and most lopsided of any since the 1930s.After previous recessions, people in all income groups tended to benefit. This time, ordinary Americans are struggling with job insecurity, too much debt and pay raises that haven’t kept up with prices at the grocery store and gas station. The economy’s meager gains are going mostly to the wealthiest.
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.
David Rosenberg points out:
The “labor share of national income has fallen to its lower level in modern history … some recovery it has been – a recovery in which labor’s share of the spoils has declined to unprecedented levels.”
The above-quoted AP article further notes:
Stock market gains go disproportionately to the wealthiest 10 percent of Americans, who own more than 80 percent of outstanding stock, according to an analysis by Edward Wolff, an economist at Bard College.
Indeed, as I reported in 2010:
As of 2007, the bottom 50% of the U.S. population owned only one-half of one percent of all stocks, bonds and mutual funds in the U.S. On the other hand, the top 1% owned owned 50.9%.***
(Of course, the divergence between the wealthiest and the rest has only increased since 2007.)
Professor G. William Domhoff demonstrated that the richest 10% own 98.5% of all financial securities, and that:
The top 10% have 80% to 90% of stocks, bonds, trust funds, and business equity, and over 75% of non-home real estate. Since financial wealth is what counts as far as the control of income-producing assets, we can say that just 10% of the people own the United States of America.
As Tyler Durden notes:
In today’s edition of Bloomberg Brief, the firm’s economist Richard Yamarone looks at one of the more unpleasant consequences of Federal monetary policy: the increasing schism in wealth distribution between the wealthiest percentile and everyone else. … “To the extent that Federal Reserve policy is driving equity prices higher, it is also likely widening the gap between the haves and the have-nots….The disparity between the net worth of those on the top rung of the income ladder and those on lower rungs has been growing. According to the latest data from the Federal Reserve’s Survey of Consumer Finances, the total wealth of the top 10 percent income bracket is larger in 2009 than it was in 1995.Those further down have on average barely made any gains. It is likely that data for 2010 and 2011 will reveal an even higher percentage going to the top earners, given recent increases in stocks.” Alas, t his is nothing new, and merely confirms speculation that the Fed is arguably the most efficient wealth redistibution, or rather focusing, mechanism available to the status quo. This is best summarized in the chart below comparing net worth by income distribution for various percentiles among the population, based on the Fed’s own data. In short: the richest 20% have gotten richer in the past 14 years, entirely at the expense of everyone else.
Lastly, nowhere is the schism more evident, at least in market terms, than in the performance of retail stocks:
Saks chairman Steve Sadove recently remarked, “I’ve been saying for several years now the single biggest determinant of our business overall, is how’s the stock market doing.” Privately-owned Neiman- Marcus reported “In New York City, business at Bergdorf Goodman continues to be extremely strong.”
In contrast, retail giant Wal-Mart talks of its “busiest hours” coming at midnight when food stamps are activated and consumers proceed through the check-outs lines with baby formula, diapers, and other groceries. Wal-Mart has posted a decline in same-store sales for eight consecutive quarters.
Indeed, as CNN Money pointed out in 2011, “Wal-Mart’s core shoppers are running out of money much faster than a year ago …” This trend has only gotten worse: The wealthy are doing great … but common folks can no longer afford to shop even at Wal-Mart, Sears, JC Penney or other low-price stores.
Durden also notes:
Another indication of the increasing polarity of US society is the disparity among consumer confidence cohorts by income as shown below, and summarized as follows: “The increase in equity prices has raised consumer spirits, particularly among higher-income consumers. The Conference Board’s Consumer Confidence index for all income levels bottomed in February/March of 2009. The recovery since then has been notable across the board, but nowhere as much as for those making $50,000 or more.”
When a country’s finance sector becomes too large finance, inequality rises. As Wikipedia notes:
Government policy has been encouraging the growth of the financial sector for decades:
(Economist Steve Keen has also shown that “a sustainable level of bank profits appears to be about 1% of GDP”, and that higher bank profits leads to a ponzi economy and a depression).
A major source if inequality is unemployment, underemployment and low wages.
The“jobless recovery” that the Bush and Obama governments have engineered is a redistribution of wealth from the little guy to the big boys.
The New York Times notes:
Economists at Northeastern University have found that the current economic recovery in the United States has been unusually skewed in favor of corporate profits and against increased wages for workers.
In their newly released study, the Northeastern economists found that since the recovery began in June 2009 following a deep 18-month recession, “corporate profits captured 88 percent of the growth in real national income while aggregate wages and salaries accounted for only slightly more than 1 percent” of that growth.
The study, “The ‘Jobless and Wageless Recovery’ From the Great Recession of 2007-2009,” said it was “unprecedented” for American workers to receive such a tiny share of national income growth during a recovery.
The share of income growth going to employee compensation was far lower than in the four other economic recoveries that have occurred over the last three decades, the study found.
And the jobs that have been created have been low-wage jobs.
For example, the New York Times noted in 2011:
The median pay for top executives at 200 big companies last year was $10.8 million. That works out to a 23 percent gain from 2009.
Most ordinary Americans aren’t getting raises anywhere close to those of these chief executives. Many aren’t getting raises at all — or even regular paychecks. Unemployment is still stuck at more than 9 percent.
“What is of more concern to shareholders is that it looks like C.E.O. pay is recovering faster than company fortunes,” says Paul Hodgson, chief communications officer for GovernanceMetrics International, a ratings and research firm.
According to a report released by GovernanceMetrics in June, the good times for chief executives just keep getting better. Many executives received stock options that were granted in 2008 and 2009, when the stock market was sinking.
Now that the market has recovered from its lows of the financial crisis, many executives are sitting on windfall profits, at least on paper. In addition, cash bonuses for the highest-paid C.E.O.’s are at three times prerecession levels, the report said.
The average American worker was taking home $752 a week in late 2010, up a mere 0.5 percent from a year earlier. After inflation, workers were actually making less.
AP pointed out that the average worker is not doing so well:
Unemployment has never been so high — 9.1 percent — this long after any recession since World War II. At the same point after the previous three recessions, unemployment averaged just 6.8 percent.
– The average worker’s hourly wages, after accounting for inflation, were 1.6 percent lower in May than a year earlier. Rising gasoline and food prices have devoured any pay raises for most Americans.
– The jobs that are being created pay less than the ones that vanished in the recession. Higher-paying jobs in the private sector, the ones that pay roughly $19 to $31 an hour, made up 40 percent of the jobs lost from January 2008 to February 2010 but only 27 percent of the jobs created since then.
Alan Greenspan noted:
Large banks, who are doing much better and large corporations, whom you point out and everyone is pointing out, are in excellent shape. The rest of the economy, foreign sales and foreign workers. As APnoted in 2010:Corporate profits are up. Stock prices are up. So why isn’t anyone hiring?
Actually, many American companies are — just maybe not in your town. They’re hiring overseas, where sales are surging and the pipeline of orders is fat.
The trend helps explain why unemployment remains high in the United States, edging up to 9.8% last month, even though companies are performing well: All but 4% of the top 500 U.S. corporations reported profits this year, and the stock market is close to its highest point since the 2008 financial meltdown.
But the jobs are going elsewhere. The Economic Policy Institute, a Washington think tank, says American companies have created 1.4 million jobs overseas this year, compared with less than 1 million in the U.S. The additional 1.4 million jobs would have lowered the U.S. unemployment rate to 8.9%, says Robert Scott, the institute’s senior international economist.
“There’s a huge difference between what is good for American companies versus what is good for the American economy,” says Scott.
Many of the products being made overseas aren’t coming back to the United States. Demand has grown dramatically this year in emerging markets like India, China and Brazil.
Government policy has accelerated the growing inequality. It has encouraged American companies to move their facilities, resources and paychecks abroad. And some of the biggest companies in America have a negative tax rate … that is, not only do they pay no taxes, but they actually get tax refunds.
And a large percentage of the bailouts went to foreign banks (and see this). And so did a huge portion of the money from quantitative easing. More here and here.
Capital Gains and Dividends
According to a study published last month by a researcher at the U.S. Congressional Research Service:
The largest contributor to increasing income inequality…was changes in income from capital gains and dividends.
Business Insider explains:
Drastic income inequality growth in the United States is largely derived from changes in the way the U.S. government taxes income from capital gains and dividends, according to a new study by Thomas Hungerford of the non-partisan Congressional Research Service.
Essentially, what Democrats have been saying about income inequality — that it’s in a large part due to favorable taxation and deduction policies for high income Americans — is largely right
The study … conclusively found that the wealthy benefitted from low tax rates on investment income, which in turn caused their wealth to grow faster.
Essentially, taxing capital gains as ordinary income would make the playing field more fair, and reduce over time income inequality.
Joseph Stiglitz noted in 2011:
Lowering tax rates on capital gains, which is how the rich receive a large portion of their income, has given the wealthiest Americans close to a free ride.
Indeed, the Tax Policy center reports that the top 1% took home 71% of all capital gains in 2012.
Ronald Reagan’s budget director, assistant secretary of treasury, and domestic policy director all say that the Bush tax cuts were a huge mistake. See this and this.
Article taken from The Big Picture – http://www.ritholtz.com/blog
URL to article: http://www.ritholtz.com/blog/2013/02/why-are-inequality-levels-skyrocketing/
Did you know the average American only spends 26.5% of their paycheck on housing?
I’m so thankful that I get to know these people:
I finally read Amartya Sen’s Development as Freedom – a book I should have read 10 years ago.
I definitely recommend it, especially to those interested in development.
Years ago, I read Sen’s On Ethics and Economics, which continues to lay out the thought for which he was awarded the Nobel Prize in economics. In Development as Freedom, he develops his thesis that by securing freedoms for people, development follows, and development further perpetuates freedom. Individuals experience freedom through access to food, education and medical care. This applies especially to women who suffer the most globally from “unfreedom” and disappearance, but who also contribute most effectively to development when they experience freedoms. For Sen, basic human rights of individuals are promoted in a blend of utilitarian and libertarian approaches, which he calls a “goal-rights system.” That is, he ties rights to their consequences (utilitarian) and also affirms their intrinsic importance (libertarian).
Freedom for Sen also includes political freedom (democracy), economic facilities (Smithean Capitalism), social opportunities, transparency guarantees, and protective security.
I do have a few questions for Sen. He talks about the environment as a public good while approving corporate farming and its benefits on increasing the food supply without mentioning any of its costs on the soil, water table or non-renewable energy consumption. As the poor suffer the most from these effects on the environment, how does he square this with his task that development is first and foremost an ally of the poor (p. 144)?
Sen acknowledges the irreversibility of globalization and criticizes its destructive effects on traditional cultures. Yet, in his promotion of capitalism, Sen has no critique for the destructive economic effects caused by multinational corporations and supranational institutions like the IMF and World Bank. In a book in which he is careful to nuance the positives and negatives of different positions, where is his nuanced position toward economic globalization?
Sen is straightforward about his approach being atheist. Freedom and development are the products of human efforts. His ethic is based on self-interest or, if one can move beyond that, the greater good of humanity. In his system, sin, what he calls “unfreedom,” is identified as being social or political. Here, it seems to me, his thesis moves from pragmatism to an unsustainable idealism. What about the unfreedoms of the individual? How is the individual set free from his own unfreedoms? Where do they have the power to act for freedom when the basis for action is compromised by unfreedom? And, when freedoms compete and conflict, whose freedom is pursued?