Not a merry Christmas for Americans, Europeans

By Satur C. Ocampo
At Ground Level | The Philippine Star

As the Christmas and New Year holidays approach, the air of economic uncertainty dampens the traditionally anticipated spirit of merriment and hope among the people in the United States and Europe.

Why? The financial and economic measures requiring more austerity instead of more spending, adopted by both the US and European Union leaders after laborious negotiations, fall short of what are needed to break the recession since 2008 in these industrialized states.

In fact, Nobel Prize economist Paul Krugman, who with like-minded colleagues had called for bigger state spending to create jobs and bolster growth, this week bluntly wrote: “It’s time to start calling the current situation what it is: a depression.”

True, the 1930s Great Depression is not being fully reprised. “But that’s cold comfort,” Krugman argues. “Unemployment in both America and Europe remains disastrously high.”

What embitters more Americans is the related sharp rise in poverty incidence, as the US Census Bureau revealed last month after it adopted a new poverty measurement intended to better count disposable income.

The New York Times editorial on Nov. 23 sums up the census findings this wise:

“Everyone needs to recognize a chilling reality: one in three Americans — 100 million people — is either poor or perilously close to it.” (That means the number of the poor in America is equal to the entire Philippine population!)

The data breaks down the 100 million into two categories: 1) 49.1 million “poor”, or those living below the poverty line (generally a family of four with $24,343 annual income); and 2) 51 million “near poor”, or those with incomes less than 50 percent above the poverty line.

Of the 51 million “near poor”, nearly 20 percent were lifted from poverty by benefits previously overlooked, but more than 50 percent were pushed down from higher income levels by “medical expenses, taxes, work-related costs, and other unavoidable outlays.”

The NYT editorial notes: “The rankings ignore the fact that many amenities of modern life — education, health care, child care, housing, and utilities — are increasingly out of reach for the poor and near poor.”

It describes the findings as the “worst downturn since the Great Depression,” preceded by “living standards being eroded by stagnating wages and tax and economic policies that favored the wealthy.” (In an earlier column piece, we featured US billionaire Warren Buffett who lamented this fact and called for higher taxation on the very rich.)

Another perspective on this issue is provided by Jorge G. Castaneda, formerly foreign minister of Mexico and now professor of Latin American and Caribbean studies. In an op-ed piece in the International Herald Tribune, he warns that the US is dangerously moving towards “dismantling its version of the welfare state…shredding its social safety net… expanding the gap between rich and poor.”

Castaneda cites a Bertelsmann Foundation study on social justice that shows the US “in dead last” among the rich countries, ranking below Spain and South Korea in poverty prevention, child poverty, health rating, and income inequality. A “worrisome signal,” he says, is that the percentage of national income held by the top 1 percent of Americans more than doubled in 27 years, from 10 percent in 1980 to 24 percent in 2007.

Though they didn’t build robust welfare states like the Europeans after World War II, Castaneda observes, “through private initiative and efforts to equalize opportunity,” the Americans “long ago ensured that a huge middle class would provide the social glue to hold their society together.”

If that middle class withers, he cautions, the US may become “what Latin America used to be… where a handful of immensely wealthy magnates wielded power over a sea of the poor.”

To avert such a disaster, Castaneda urges Americans to learn from these two lessons from Latin America’s experience:

First, “once inequality becomes entrenched, reversing it becomes extremely difficult.”

Second, “even after a large middle class emerges, yawning inequities between rich and poor severely strain any society’s cohesion and harmony.”

Castaneda cites the historical evidence:

1. Through most of the 20th century, Latin America (largely colonized) was regarded as the most unequal region in terms of wealth distribution. Some 50 years ago that began to change. Today extreme inequality remains only in Haiti, Honduras, Bolivia, and “maybe Nicaragua.”

2. Over the last 15 years, the middle class has become the majority in the populations of Chile, Brazil and Mexico — up to 55-60 percent — and to lesser extents in Uruguay, Costa Rica, and Colombia.

3. Yet inequality persists. Although the Gini coefficients (statistical measures of inequality) have declined in Latin America, they stay highest worldwide. In Brazil, Chile, and Mexico (altogether they account for 70 percent of the region’s population and GDP), the richest 10 percent still held 42 percent of national income in 2008-2009. For the US the equivalent figure was 29 percent.

How fares the Philippines on this equation? Per the 2009 family income and expenditure survey, the wealth gap (52 percent went to the better-off 20 percent, 48 percent to the poorer 80 percent) has hardly changed since 1985.

But take note: the net worth of the 25 richest Filipinos — Pl.02 trillion — equaled the combined incomes of 11.1 million families, or 55.4 million Filipinos.

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December 10, 2011

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