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[ Music ]
>> Good afternoon.
It's really great to see so many of you here.
My name is Dr. Denise Dewhurst, I'm a professor of psychology
and department chair for anthropology,
economics education, philosophy, and psychology here
at the Germantown campus.
This afternoon it is my great pleasure --
I know everybody says that, but it really is my great pleasure,
-- to introduce our speaker Professor Bruce Madariaga.
Many of you already know Professor Madariaga's story,
but always I think it's worth repeating.
Professor Madariaga never went to high school.
He had dropped out after junior high, bored,
disinterested, and unmotivated.
To use his words, a community college in Delaware saved him.
He went on to earn four college degrees, the last of which is
from Harvard University.
His first career was as a senior economist
for the United States federal government.
Luckily for us, he always had this idea of a second career,
and his second career was that he wanted to go back
and become a community college professor.
He started teaching for us part-time,
and in 2001 we were fortunate enough
to have him join our full time faculty.
In the time since, he has more than doubled the size
of our economics program here at the Germantown campus.
He has helped strengthen the discipline
of economics college-wide.
He's written a book, "Economics For Life," which is
in its third for fourth printing.
It is a standard adoption in classrooms, high school level,
community college level, four-year university level,
all over the United States and also in Canada.
Currently, he is a national science foundation economics
teaching facilitator.
What does that mean?
It means in that role he goes all
over the country helping people learn how
to do a better job teaching economics.
Making it understandable.
It's such an important discipline
in today's world for us to really get.
It won't surprise you when I tell you
that earlier this year he received the Montgomery College
outstanding faculty award.
I think now you understand why I feel so privileged to have him
as a colleague and very luckily to have him as a friend.
Professor Bruce Madariaga.
[ Applause ]
>> Professor Bruce Madariaga: Thank you very much, Denise.
Welcome, and thank you all for coming.
I have some important facts about our world
to share with you today.
But I have to warn you, they're not all happy facts.
Before I get to these facts I'd like to ask you
to open your imaginations.
Imagine for me two worlds.
I'll call the first world the fisherman's world.
In the fisherman's world people make a living catching fish
and selling their fish.
Some fishermen are more successful than others primarily
because they stay out there,
they work harder, they catch more fish.
But in the fisherman's world maybe the most successful
fisherman catches twice as much fish
as the least successful fisherman,
makes twice as much money.
Now imagine for me World Number Two.
World Number Two I'll call the gold prospector's world.
In the gold prospector's world people make a living
by finding gold.
And those that stay out there longer have a higher chance
of striking gold, finding gold.
But the primary determinant of success
in the gold prospector's world is luck.
Some people find gold and become very wealthy.
But most, they search and search,
find little, and struggle.
So I have two questions for you.
Two questions for you to ponder over the next 40 minutes.
First question is which world do you think is more
like our world?
The second question is which world -- fisherman's world,
gold prospector's world -- which world would you prefer to live
in so think about that, and I'll share
with you some facts about our world.
First some good news.
New world record.
We now have thousands of billionaires.
That's a good thing, it's good
that people succeed at such high levels.
Now you know, we all hear these words, millions
and billions and trillions.
It's hard to put such huge numbers in perspective.
Let me take a shot.
Based on my back of the envelope calculations, Bill Gates
and Warren Buffet, their net wealth is over $70 billion each.
So Bill could come to Montgomery County,
and he could start buying houses.
By my calculations, he could buy a house every hour
for the next twenty years and still have money left over.
Would have bought about half the houses in Montgomery county.
A billion is a big number.
That's a good thing.
It's good that people can succeed at such levels.
Now let me share another fact about our world.
[ Background noise ]
>> How can this be, in a world with thousands of billionaires?
Now I ask my students, I say well,
why don't we see this every day in the news?
Isn't it of the utmost importance?
And they pick up on it right away.
They say Professor M, that's not even news.
It happens every day.
Yeah. They're right about that.
Kind of like, you know, if a plane crashes we hear about it.
We have auto accidents every single day, many more people die
from auto accidents, but we don't hear about that.
That's not news.
Then my students say, Professor M, that doesn't happen here.
It happens far away.
And people don't care as much if it happens far away.
And I think they're right about that too.
But I never quite understood why.
Why should we care about somebody more
because of where they live?
Do we care -- should we care more about somebody who lives
on this side of the Mexican/Texas border
versus somebody on this side, does it really make sense.
If you live in Germantown do you care more about Germantownians
than Gaithersburgians?
They're not dumb.
My students say, Professor M, they say, that's a bummer.
That's depressing.
That's not going to sell on the news.
And I think they're right about that too.
So obviously we have wide inequality in our world.
But inequality in and of itself isn't necessarily unjust or bad.
For example, consider these three worlds.
World Number One we could call the socialist economy world,
right?
Where everybody makes the same income level.
World Number Two we could call the successful capitalist world,
where there's inequality,
but even the worst off earns more money
than in the socialist world.
Which world is more just?
Well, there's no scientific answer
to what's just and what's unjust.
Philosophers have been wrestling with that forever.
One philosopher John Rawls, he used the following test.
He said, suppose that we were all under a veil ignorance,
that we didn't know if we'd be a lucky winner or lucky --
unlucky loser if we entered World Number Two.
Given that, which world would people enter into,
World Number One or World Number Two, not knowing if you're going
to be a winner or a loser in World Number Two.
I'd be willing to guess that the vast majority
of you would enter World Number Two,
even though there's higher inequality in World Number Two.
Be that the case, using Professor Rawls' criteria,
World Number Two would be more just than World Number One,
even though it has more inequality.
Consider World Number Three, let's compare World Number One
with World Number Three.
World Number Three, there's even greater inequality.
And there may be greater poverty also.
But under a veil of ignorance,
not knowing whether you'd be a lucky winner or unlucky loser
in World Number Three, some of you may still choose --
maybe not all of you -- but some of you may still choose
to enter World Number Three versus World Number One.
Therefore, we can now conclude that inequality
or even poverty is necessarily unjust.
But what about the level of inequality in poverty
that exists in our world today?
That's what I want to explore with you.
Let's first start with America.
Income and wealth an equality in America.
New American record, now the highest income 1% earns almost
20% of all income in the United States.
That's a new record.
Income inequality has been steadily increasing in America
over the last four decades.
Income inequality is one thing,
weather inequality is something else.
You know the difference?
Income is what you earn in a year, wealth is the value
of all of your assets.
Wealth inequality may be a better measure of inequality.
And the story with wealth inequality is much
more shocking.
What I'd like to show you is a visualization of a serious --
results of a serious academic study.
>> There's a chart I saw recently
that I can't get out of my head.
A Harvard business professor and economist asked more
than five thousand Americans how they thought wealth was
distributed in the United States.
This is what they said they thought it was.
Dividing the country into five rough groups of the top, bottom,
and middle three 20% groups,
they asked people how they thought the wealth
in this country was divided.
Then he asked them what they thought was the
ideal distribution.
And 92%, that's at least nine out of ten of them,
said it should be more like this.
In other words, more equitable than they think it is.
Now that fact is telling, admittedly,
the notion that most Americans know
that the system is already skewed unfairly.
But what's most interesting
to me is the reality compared to our perception.
The ideal is as far removed from our perception of reality
as the actual distribution is
from what we think exists in this country.
So ignore the ideal for a moment.
Here's what we think it is again.
And here is the actual distribution.
Shockingly skewed.
Not only do the bottom 20% and the next 20%, the bottom 40%
of Americans barely have any of the wealth.
I mean, it's hard to even see them on the chart.
But the top 1% has more of the country's wealth than nine
out of ten Americans believe the entire top 20% should have.
Mind-blowing.
But let's look at it another way,
because I find this chart kind of difficult
to wrap my head around.
Instead, let's reduce the 311 million Americans
to just a representative 100 people.
Make it simple.
Here they are, teachers, coaches, fire fighters,
construction workers, engineers, doctors, lawyers,
some investment bankers, a CEO, maybe a celebrity or two.
Now let's line them up according to their wealth.
Poorest people on the left, wealthiest on the right,
just a steady row of folks based on their network.
We'll color code them as before based
on which 20% quintile they fall into.
Now let's reduce the total wealth of the United States,
which was roughly $54 trillion in 2009
to this symbolic pile of cash.
And let's distribute it among our 100 Americans.
Well, here's socialism.
All of the wealth of the country distributed equally.
We all know that won't work, we need to encourage people to work
and work hard to achieve that good old American dream
and keep our country moving forward.
So here's that ideal we asked everyone about.
Something like this curve.
This isn't too bad.
We've got some incentive as the wealthiest folks are now
about ten to twenty times better off than the poorest Americans.
But hey, even the poor folks aren't actually poor,
since the poverty line has stayed almost entirely off
the chart.
We have a super-healthy middle class with a smooth transition
into wealth, and yes, Republicans
and democrats alike chose this curve.
Nine out of ten people, 92%,
said this was a nice ideal distribution
of America's wealth.
But let's move on.
This is what people think America's wealth distribution
actually looks like.
Not as equitable, clearly.
But for me, even this still looks pretty great.
Yes, the poorest 20 to 30% are starting
to suffer quite a lot compared to the ideal,
and the middle class is certainly struggling more
than they were.
While the rich and wealthy are making roughly 100 times
that of the poorest Americans and about ten times
that of the still-healthy middle class.
Sadly, this isn't even close to the reality.
Here is the actual distribution of wealth in America.
The poorest Americans don't even register.
They're down to pocket change.
And the middle class is barely distinguishable from the poor.
In fact, even the rich between the top 10
and 20 percentile are worse off.
Only the top 10% are better off.
And how much better off?
So much better off that the top 2
to 5% are actually off the chart at this scale.
And the top 1%, this guy, well his stack
of money stretches ten times higher than we can show.
Here's his stack of cash restacked all by itself.
This is the top 1% we've been hearing so much about.
So much green in his pockets that I have
to give him a whole new column of his own
because he won't fit on my chart.
1% of America has 40% of all the nation's wealth.
The bottom 80%, 8 out of every 10 people or 80
out of these 100, only has 7% between them.
And this has only gotten worse in the last 20 to 30 years.
While the richest 1% take home almost a quarter
of the national income today, in 1976 they took home only 9%.
Meaning their share of income has nearly tripled
in the last 30 years.
The top 1% own half the country's stocks,
bonds, and mutual funds.
The bottom 50% of Americans own only half a percent
of these investments.
Which means they aren't investing.
They're just scraping by.
I'm sure many of these wealthy people have worked very hard
for their money.
But do you really believe
that the CEO is working 380 times harder
than his average employee?
Not his lowest paid employee, not the janitor,
but the average earner in his company.
The average worker needs to work more than a month
to earn what the CEO makes in one hour.
We certainly don't have to go all the way to socialism
to find something that is fair for hard working Americans.
We don't even have to achieve what most
of us consider might be ideal.
All we have to do is wake up and realize that the reality
in this country is not at all what we think it is.
>> The wealthiest 400 Americans have as much wealth
as the least wealthy 150 million Americans.
Fisherman's world, gold prospector's world.
The message from this video is clear.
Wealth inequality is way higher
than people think it is in America.
It's way, way, way higher than people want it to be in America.
And it's getting worse.
But everyone can be wealthy in America, right?
This is the land of opportunity.
All it takes is hard work, applying one's talents,
and we can all be wealthy.
It's not that simple.
There have been various studies of economic mobility
in the United States, and they all pretty much say
similar things.
This summary from the Brookings Institute,
very top notch think tank,
is that a child's economic prospects are pretty are very
much taught, the economic status of their parents.
The chances of a child born into a wealthy family of making it
into the top 5% income bracket is 22%.
A child born in poverty, the chances are just 1%.
Fisherman's world, gold prospectors world.
Well, that's a picture of inequality in America.
Let's turn our attention a little bit to poverty
and inequality globally.
There's about 7 billion people on our planet today.
Still, about 2.4 billion, that's about a third
of the world's population, live on $2 or less
of material goods and services.
It's hard to imagine.
This stat blows my mind,
the wealthiest three individuals have as much wealth
as the worst 600 million.
Fisherman's world, gold prospector's world.
Let's see where wealth and poverty exist in our world.
This map is a map of GDP per capita,
that's essentially income per person, okay?
So the dark blue areas, no surprises here,
are the wealthy countries of the world, North America,
western Europe, Australia, Japan,
some oil-rich Middle Eastern countries.
Least wealthy are the red areas.
Mostly Africa, some in Asia.
Now we all know that poverty reduces quality of life.
I want to show you how poverty not just quality
of life, but life itself.
Longevity of life.
The next slide is life expectancy world-wide.
Countries in the green, dark green,
have the longest life expectancies.
Notice the US is not in the top category.
Countries in the red especially the dark red,
have the shortest life expectancies.
Note that more than half of the countries
in Africa have life expectancies still today of under 50 years.
Now just to kind of visually show you the relationship
between income and life expectancy, let me just kind
of flip these back and forth a little bit.
pretty high correlation.
Not perfectly correlated, but pretty clear
that those countries with low income also have the lowest
life expectancies.
Poverty matters and matters a lot.
Quality of life and to life itself.
Independent of poverty, inequality can matter too.
In the last twenty years there's been an explosion of research
on the topic of happiness.
What makes people happy?
Psychology literature and economics literature,
one of the focuses of this literature is
that the relationship between income and wealth and happiness;
does money buy happiness.
Well, the jury is still out a bit on this literature,
but the literature strongly suggests
that money can buy happiness,
at least until people get their basic needs met.
Money is very good at buying the things
that get people's basic needs met.
But beyond that amount,
beyond that moment additional money seems
to generate very little extra happiness.
There seems to be diminishing returns to money
in producing happiness.
Well, that has some profound public policy consequences.
It means that we shouldn't necessarily be trying
to maximize wealth, because we really want
to maximize happiness, and they're not the same thing.
So a utilitarian, utilitarian is --
holds the moral framework that what is best, what act is best
or what policy is best is the one
that creates the most happiness.
A utilitarian would judge, then, that policies that would
in effect redistribute from the wealthy
to the poor would be just
because it would increase overall well-being.
Assuming that incentives to work are not destroyed.
So inequality matters, even beyond poverty
to people's well being.
Okay, so at this point I am willing to bet
that at least some of you believe that our world is more
like a gold prospector's world than a fisherman's world.
And I'm willing to bet that some of you
who believe the world is more
like a gold prospector's world would prefer the world
to be more like a fisherman's world.
Be that the case, the next question would be how do we make
that happen?
What can be done?
Well, what could public policy and governments do?
Well, first thing they can do is make matters worse.
Especially corrupt governments.
And of course corruption is rampant around the world,
many of the most poorest countries in the world are poor
because they're led by dictators more interested
in maintaining power than helping their people.
Even more wide-spread is bureaucratic corruption.
In many places of the world it's very hard to start a business
because one has to bribe government officials
to get the necessary permits and licenses.
It can take many, many, many, many months
and cost a lot of money.
As a consequence, businesses don't get started.
Here in the US the level of corruption is not as great,
but we have our own forms of corruption.
Wealthy individuals, corporations,
can use their wealth within the political system
to get added influence and very possibly to become more wealthy.
We're not going to fix this problem
without some serious campaign financial reform.
I don't see that happening any time soon.
Even well-meaning governments and government policy can
at times do more harm than good.
There are many examples of this, one example is
when governments try to keep prices low in order
to allow low income people to be able to purchase products
like price caps on gasoline or rent, or medicines.
Sounds good, but we have
to think past the initial effects of such policies.
Inevitably, they lead to shortages
and do more harm than good.
Even minimum wage laws, policy that's very popular
in this country, and I bet in this room as well,
have important adverse, unintended consequences.
Some of you may have heard
that Montgomery County Council has proposed increasing the
minimum wage from its current federal level,
7.25, up to 11.50 an hour.
Clearly well-meaning.
PG county is planning the same thing.
Good idea?
Well, maybe.
But one has to consider the intended consequences.
Businesses will adjust to this.
They may hire less workers, they may get technologies
to replace workers, they may hire $12 --
a couple $12 an hour workers
to replace three $8 an hour workers.
They may cut worker benefits, they may close down,
they may move to Virginia.
So it could cause unemployment of the people you're trying
to help, or maybe they'll raise prices,
which may mean high prices or low income consumers.
And even considering all that,
does the minimum wage target poverty very well?
Some people who get the minimum wage are teenagers looking
for job experience, and they may live in middle class families.
So we have to be wise.
One policy that economists often recommend
to help low income workers is expanding the earned income
tax credit.
It's a subsidy for low income workers.
It targets poverty, it's based on income,
and has actually been shown
to promote more employment, not less.
So we have to think things through.
But we can't strange capitalism and our market system.
Capitalism is a great wealth generator.
Just has this side effect of inequality.
Consider some of the successes.
Here in America, today, we have ten times the value of goods
and services to each person today
than the average person had 110 years ago in this country.
So it has worked for us.
Consider China.
30 years ago the extreme poverty rate in China was 85%.
Just 30 years ago.
Today it's under 15%.
This is the greatest economic miracle this planet has ever
seen in a 30 year period.
Part of the reason why it occurred is
because of movement towards capitalism,
where they converted communal land to private property,
expanded international trade , made some other reforms.
They brought 600 million people out of extreme poverty.
That's twice the number of people
that live in this country.
So we don't want to strangle capitalism.
By the way, inequality is on the rise in China today.
So are there public policies we can use in America
to reduce inequality without getting too much in the way
of work incentives and our market system?
Yeah, there are many.
And don't have time to get into a lot of them,
i just want to mention a couple.
Certainly, investments that help people, provide opportunities
for people, help them help themselves,
which would help them and help the community
as well are warranted.
Investments in education are certainly --
fall into that category.
There are others.
We can use our tax system to promote a more equitable America
without destroying work incentives.
There are ways.
Consider capital gains tax, some of you may have heard
of Warren Buffet, he used to go
around all the time saying my tax rate is lower
than my secretary's.
And it was, probably still is.
How can that be?
Well, it's because his secretary, just like you and I,
we pay our income taxes based
on our salaries, wages and salaries.
Warren Buffet doesn't make any salary.
He gets all of his income based on investments.
So he pays the capital gains tax which is lower
than the income tax rates that we pay.
Does that promote equity?
Is that just?
Consider the estate tax.
Congress over the last 15 years has been phasing
out the estate tax.
Today you can inherent from your parents solely
because you were born to a wealthy family five
and a quarter million dollars entirely tax free.
Does that promote equality?
Does that promote justice?
Does it promote work effort?
If somebody dropped five and a quarter million dollars on you,
would that want to make you work more, or maybe retire earlier?
So there are things we can do
from a public policy perspective,
to reduce inequality and make our country more just.
And there are things we can do as individuals also.
We can be active.
Certainly, we can be active.
Challenge for you, students out there, challenge for you.
How about a club, how about an inequality and justice club,
band together, figure out what you can do to make a difference.
And we can give.
But we do need to give wisely.
Let me share with you a couple of principles of smart giving.
Principle one, be sure to give in the way you can give best,
or using economics language,
according to your comparative advantage.
If you have a lot of money, give money.
Wouldn't make sense for Bill Gates to be handing out soup
at the soup kitchen, right?
His time is too valuable,
he should spend his time making money and giving that away
if he wants to do the most good.
If you have some free time
and don't have any money, give your time.
If you're like me today and you have a microphone,
give your voice.
Principle two, give to those who need it most.
You probably do the most good if you give to the neediest.
And remember, the neediest are probably not your neighbors,
they're probably in one of those red countries we showed a little
bit ago.
Principle three.
Give in a way that provides benefits not just
to the recipient but to the others as well.
Give it in a way that promotes positive spill-overs
to other people.
For example, giving to promote vaccination program
that would stop the spread of an infectious disease.
That would be a wise way to give,
you help the person vaccinated
and many others at the same time.
Other giving can do that too.
Giving for education,
small business loans can help whole communities.
Now I don't pretend to know the best way
for you or for me to give.
But let me leave you today with one example
of what I think is a smart way to give, if what your goal is
do as much good with as little money as possible.
Here's one example.
Yes, a child dies every minute in Africa from malaria.
It only costs $10 to manufacture and distribute a bed net
that can protect three children
from the risk of catching malaria.
There's a web site right there,
it takes two minutes to go to it.
This has been shown to be one
of the most cost effective ways to save a life.
For every 230 bed nets that are purchased,
three children are prevented from getting malaria,
and one child's life is saved.
So takes $2,300 to save a life
and save two other children from getting malaria.
That means we can go on that European vacation for a week,
or we can save a child's life and two others
from catching malaria.
I don't want to give you a guilt trip, but these are the kinds
of choices that face us.
In any case, in your own ways we all can make
positive differences.
And research backs me up on this, if you do what you can
to make a positive difference you'll make yourself
happier too.
So let's do what we can do.
Thank you all for listening.
Thank you very much.
[ Applause ]