What Happens If The Pie Doesn't Grow?

Gillian Tett:


In the four decades after the second world war, the richest 1 per cent of Americans received just over 10 per cent of national income each year. However, from the 1980s that ratio rose sharply, until by 2007 it hit almost 25 per cent. The financial crisis has reversed this trend a little. Emmanuel Saez, a California-based economist, reckons the wealthiest incomes fell by 19.7 per cent in 2008, while the other 99 per cent of Americans saw earnings drop by 6.9 per cent. But a survey by the Pew Research Centre shows two-thirds of Americans think government policies have aided the wealthy in the past two years – at the expense of the poor and middle class.

In recent decades, American leaders have generally avoided discussing how the country divides up its economic pie, because of optimism that the pie would always grow. There was also little sense of resource constraint: this is a country founded by pioneers who believed that when land ran out in the East, you simply had to “Go West!”

But these days there is a growing recognition that resources are not always bottomless. There is also rising doubt about whether the economic pie will keep growing, given America’s structural woes.

So how will America respond? If the pie stops growing, can it be divided up without social fracture?

Sean Bielat.


If you're discouraged about the quality of the candidates running for public office these days, check out this guy, Sean Bielat, running against Rep. Barney Frank in Massachusetts' 4th Congressional District. The amazing thing is, he has a shot.

The Irish Banking Crisis.


It's getting worse, needless to say, and is the source of much anxiety across the Eurozone. Megan McArdle has a good round-up of the situation here. Gillian Tett addresses the issue of bank failure resolution here.

The Insanity of Government Spending.

New York City's street signs are in CAPITAL letters. The Federal government says that this is a "safety" issue. At a cost of roughly $27 million, it is requiring that the street signs be changed to "first letter capitalized, remainder lower case." This from a government that is anywhere from $55 trillion to $75 trillion in debt. It is literally insane.

Electric Cars Won't Save US.

Readers of this site are told on a regular basis that they should read Walter Mead's blog on a regular basis. Do what you're told!

The Goldman Sachs Advertising Campaign.


You never really know how or why bad advertising campaigns are put together. The one thing you know for sure is this: there are a lot of them. The most recent would be the Goldman Sachs print advertising campaign, which launched yesterday and which is reviewed here.

The reason that the GS advertising campaign is a complete waste of money is that it tells us something we already know (GS is good at its job) and fails to address the central issue facing the bank (its integrity). In blunter language, the problem that Goldman Sachs faces is that far too many people, including some of the firm's clients, view Goldman as untrustworthy at best and double-dealing slimeballs at worst.

This view, fair or not, is very widely held. And it will likely attract more adherents when people see this movie, which will be released soon. There is no way to dance around this "integrity issue." It must be addressed head-on.

The best way to do that, since Goldman Sachs executives proclaiming their integrity is an obvious non-starter, is to have respected people in the worlds of business, finance, diplomacy and national security speak directly to (and about) the firm's integrity. If Goldman CEO Lloyd Blankfein says the firm is not a den of thieves, that doesn't mean anything. He's talking his own book. If, on the other hand, Warren Buffet attests to the firm's bona fides, he's sticking his neck out (yes, I know he has a not insignificant investment in the firm, but his reputation means a lot more to him than his investment in GS preferred stock). If other leading figures in the world stick their necks out for Goldman Sachs, it will have a cumulative effect. The issue of Goldman Sachs' integrity as an operating business concern will abate.

It won't abate if they keep telling us that they helped a growth company find new investors. We already know that. Everyone (that they need to reach) already knows that.

Carried Interest.

I know a lot of these guys who started hedge funds. They are making large profits, taking home large incomes, but because of a rule called "carried interest," they are paying lower tax rates than their secretaries, or the janitor that cleans up the building. Or folks who are out there as police officers and teachers and small-business people. So all we've said is that it makes sense for them to pay taxes on it like on ordinary income.

-President Obama.


Does anyone disagree with this? Other than those who benefit from the carried interest loophole? The transcript of the entire interview can be found here.

Full Monty.


Colin Montgomery, EU Captain, says that he would not have made Tiger Woods one of his "captain's picks" for the upcoming Ryder Cup. Thanks for sharing, Colin. Give us a call after the matches have been played.