Globalization and inequality

This article actually states some of the obvious problems with ‘Free Trade’:

Globalization’s costs have been greater and more enduring than they expected, and government efforts to mitigate the effect on US workers have often proved insufficient.

“I think what we’ve learned is that US labor markets aren’t as flexible and self-correcting as I think we had presumed,” said Gordon Hanson, an economist at the University of California San Diego. “The uneasiness I have about the way we’ve handled globalization is not so much globalization itself. It’s that if you don’t have the right safety net, you’re going to impose an enormous amount of hardship.”

There is also mounting evidence the benefits of globalization have accrued disproportionately to upper-income households, while the costs have fallen heavily on the less affluent, contributing to the rise of economic inequality.

I know that’s hard to believe.

A 2005 study by the Peterson Institute for International Economics, a research group that is a strong proponent of trade deals, estimated that embracing trade had added 7.3 percent to America’s economic output — or about $10,000 in annual income for every household in the United States.

But the benefits are not distributed evenly. Trade increases overall prosperity by eliminating less-productive jobs.

In theory, the workers find new jobs. In practice, studies by Hanson and other economists show that in cities like Galesburg, global competition is increasing unemployment and reducing wages.

Josh Bivens, an economist at the liberal Economic Policy Institute, estimates that increased globalization, aided by a strong dollar that led to a persistent trade deficit, reduced the annual earnings of the roughly 70 percent of US workers without college degrees by about $1,800.

Joseph Stiglitz, a Columbia University economist and Nobel laureate, said the magnitude of these losses was large enough that increased trade may now be harming the US economy.

“The argument was always that the winners could compensate the losers,” Stiglitz said. “But the winners never do. And that becomes particularly relevant when we have a society with as much inequality as we have today.”

The two numbers ($10,000 in annual income  and without college degrees by about $1,800) seem a bit contradictory until you notice that one is talking about the mean and the other is breaking down the numbers–the rich get much richer and the rest get a bit poorer.

Ah well, those at the bottom just need to be smarter–everyone knows that education is key in the new economy, so they need to make sure to do well and go to college. Oh wait:

The slow death of in-state tuition is a case where declining public investment and selfish institutional interests tend to coincide. National public universities are cutting in-state enrollment in part to make up for state budget cuts. But they also have a strong desire to become more like elite private universities — Stanford, Duke, the Ivy League — that have the freedom to enroll the best and the brightest from around the world and charge whatever prices the market will bear. Budget cuts give them an excuse to become what they wanted to be all along.

This comes from this report which states:

But over the last 20 years, state disinvestment and institutional status-seeking have worked together, hand in hand, to encourage public colleges and universities to adopt the enrollment tactics of their private-college counterparts. For many of these schools, that has meant using their institutional aid dollars strategically in order to lure affluent out-of-state students to their campuses in order to climb up the rankings and increase their revenue. As a result, fewer institutional aid dollars are available to in-state students who come from less privileged backgrounds.

If you go to the charts on page 4 you see that in 1996 34% of institutional aid went to students whose parents were in the lowest income quartile and 16% to students whose parents were in the upper quartile. By 2012 25% of institutional aid went to students whose parents were in the lowest income quartile and 23% to students whose parents were in the upper quartile. And it’s easy to see why universities are doing this:

According to the nonprofit Center on Budget and Policy Priorities, the average state is spending 23 percent less per student on higher education than before the recession. Between 2008 and 2014, 37 states cut funding by 20 percent or more. The U.S. Government Accountability Office recently reported that public colleges now receive a greater share of their revenue from the tuition students and families pay than from state funding.

They give a couple of extreme examples, such as:

The University of South Carolina, for example, has become extremely aggressive in using non-need-based aid to attract out-of-state students. Since 2000, the share of nonresident freshmen at USC has grown by 23 percentage points to 45 percent.

Scott Verzyl, associate vice president for enrollment management, says that USC has looked to the out-of-state market out of necessity. Since the economic recession hit in 2007, the state has cut its annual appropriation to the university by 50 percent. Now, the state covers only about 10 percent of the school’s funding each year.

Thus even public education is starting to feed into the growing inequality. That’s where Bernie Sanders comes in:

On Tuesday, Sanders will hold a press conference in the nation’s capital at which he will introduce a plan to use a so-called Robin Hood tax on stock transactions to fund tuition at four-year public colleges and universities.

Sanders’ bill sets a 50-cent tax on every “$100 of stock trades on stock sales, and lesser amounts on transactions involving bonds, derivatives, and other financial instruments,” the group Robin Hood Tax on Wall Street said Monday in a press release.

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