One response to this might be "better late than never". Actually, the spin on this story neglects to actually talk about the role S&P actually played in the financial crisis. But, apparently, the geniuses at S&P have now figured out what any normal person would understand: when a few people get all the marbles, not much is left for the others.
So, first, here's how the Times plays this:
Economists at Standard & Poor’s Ratings Services are the authors of the straightforwardly titled "How Increasing Inequality is Dampening U.S. Economic Growth, and Possible Ways to Change the Tide.” The fact that S&P, an apolitical organization that aims to produce reliable research for bond investors and others, is raising alarms about the risks that emerge from income inequality is a small but important sign of how a debate that has been largely confined to the academic world and left-of-center political circles is becoming more mainstream.And:
Then there are the economists in what can broadly be called the business forecasting community. They wear nicer suits than the academics, and are better at offering a glib, confident analysis of the latest jobs numbers delivered on CNBC or in front of a room full of executives who are their clients. They work for ratings firms like S&P, forecasting firms like Macroeconomic Advisers and the economics research departments of all the big banks.Well, the first part is a shrug.
The key difference, though, is that rather than trying to produce cutting-edge theory, they are trying to do the practical work of explaining to clients — companies trying to forecast future demand, investors trying to allocate assets — how the economy is likely to evolve. They’re not really driven by ideology, or by models that are rigorous enough in their theoretical underpinnings to pass academic peer review. Rather, their success or failure hinges on whether they’re successful at giving those clients an accurate picture of where the economy is heading.
It's the second part that is stupefying. S&P is hardly simply an academic, non-involved party that produces material not driven by ideology.
As I wrote almost two years ago, Standard & Poor's was found to have “deceived” and “misled” 12 local councils in Australia that bought triple-A rated constant proportion debt obligations (CPDOs) from an intermediary in 2006.
And, for even longer, we've known that ratings agencies are not simply neutral agencies. They, indeed, are centers of corruption, which led the Justice Department to investigate more than three years ago whether S&P improperly rated dozens of mortgage securities in the years leading up to the financial crisis.
Indeed, finally, the Justice Department sued S&P (though, in my view, nothing was going to change because this was a civil suit and no high-ranking company official will pay for any crimes); the suit is currently in court.
So, honestly, this feels like a PR ploy: someone at S&P wants to jump on top of the hand-wringing about inequality. No one is suggesting in this report any changes in the entire financial system.
If you read the report, it's kind of a mish-mash of information--you could collect mostly using Goggle and a day's work.
It has this pearl for example:
There is no shortage of proposals for tackling extreme income inequality. President Obama has proposed an increase in the hourly minimum wage to $10.10 from the current rate of $7.25, and the IMF recently called on lawmakers to boost the wage (though it refrained from suggesting a specific level). Managing Director Christine Lagarde said that doing so would help raise the incomes of millions of poor and working-class Americans and "would be helpful from a macroeconomic point of view" (58).So, using the "on the one hand this but on the other hand that" approach, these people, who are so worried about inequality, raise the entirely inadequate proposal to raise the minimum wage--which would still leave millions in poverty and is truly meek--and, then, immediately, they try to undercut the campaign with the same bogus arguments foisted by its enemies...and those who lives just fine with inequality.
An increase in the minimum wage would certainly carry with it short-term impacts, likely bringing 900,000 people above the poverty line in the second half of 2016--and, according to the CBO, lifting wages for 24 million workers at the next level above minimum wage. Fewer American households at or below the poverty line would also help bolster government balance sheets and likely improve state and local credit conditions.
But raising the minimum wage is not without negative consequences. Reduced labor demands resulting from higher wages could reduce potential hires by 500,000 jobs, according to CBO estimates (59). Further, while 49% of those workers making the minimum wage are under age 25, the CATO Institute reports that, of older workers (the other half of minimum wage earners), 29.2% live in poverty and 46.2% live near the poverty level, with family incomes less than 1.5 times the poverty line (60).
It does not take a genius to know that when you rob minimum wage workers of $300 billion just in the past five years, and keep wages low and destroy unions, that people can't afford to pay their bills and that hurts economic growth.
This isn't an exercise needing academic research or more argument.
It's all about political and economic power.
But, it is interesting that these people at the center of the corrupt system have to say something about inequality.