Political policies have turned America into 'Richistan'
Democrats have largely been bystanders, or even part of the problem. Liberals' shift to "post-material" and lifestyle issues has marooned the working and middle classes.
Courtesy of Simon & Schuster
A new book, Winner-Take-All Politics (Simon and Schuster), by political scientists Jacob Hacker and Paul Pierson, tells an important story at once familiar and unfamiliar. They shed useful light on the familiar part, which is that over the past 30 years wealth and income inequality in the U. S. have grown — dramatically.
Since the late 1970s the wealthiest 1 percent of the nation's population has pocketed more than 35 percent of the real national income growth, which is more than the bottom 90 percent of the population combined. Or to look at from a different angle, between 1979 and 2006, the bottom 20 percent of the population had real income growth of .3 percent, the middle 20 percent real income growth of .7 percent, while the top 1 percent enjoyed real income growth of an astonishing 260 percent.
We have moved from the "Broadland" of the 30 years before 1979, when growing wealth was broadly shared by all sectors of the population, to "Richistan," where the lion's share of wealth goes to the top 1 percent. The tiny growth in real income of the middle class has been the consequences of working more (more hours and more family members in the job market).
That's the relatively familiar part of the story. The less familiar narrative is how this happened. Authors Hacker and Pierson trace the story of a “Thirty Years War,” that began in the Carter years, when the capital gains tax was slashed, payroll taxes raised, and unions crippled. They argue that this enormous shift in wealth is not the result of usual suspects, economic globalization or technological change that makes knowledge workers and the highly educated wealthy. Nor is it the consequence of the "unfettered market" taking its natural course. Rather, it is the result of government policy, that is, of politics. Politics and resulting policy have tilted the playing field in favor of the wealthy and the super-wealthy, the latter being the top one-tenth of the top 1 percent of the population.
Since the late '70s, business and corporate interests have fought, successfully, for lower tax rates (especially for the most affluent), deregulation of financial markets and executive pay, and erosion of the powers of countervailing groups, chief among them labor unions.
Though the campaign of organized business interests and their political allies began in the late '70s, it reached its zenith in the "aughts," the period from 2001 to 2007 just before today’s Great Recession. Beginning in 2001 there were six years of consecutive economic growth in America. And yet, during that period, the median income of non-elderly households actually fell while the percent of people living in poverty rose. As Hacker and Pierson drily note, “The news wasn’t all bad. Between 2002 and 2007 the real pretax incomes of those in the top 1 percent rose by 10 percent. Per year.”
The balance of their readable book tells the story of the Thirty Years War: the tremendous growth in conservative PACs, think-tanks, and advocacy groups; the huge sums of money raised to support the agenda of tax cuts; the ever obstructionist tilt of the Republican Party; and the role of the Democratic Party, which pretty much went with the flow, sometimes actively, sometimes passively.
But in some ways there may also be a real story beyond both the familiar story — growing income inequality and the widening gap between haves and have-nots — and the unfamiliar story — that this wasn’t the inevitable result of technological change or an emerging global economy, but the consequence of government policies which skewed the playing field and redistributed income and wealth upward.
The real story is the decline, even degradation, of the American middle class, which has gone from being the secure bulwark of American democracy and countless civic institutions to a social class where many are, as the saying goes, "just two pay checks from homelessness."
Where the middle class has stayed even economically, and that’s all they have done despite overall growth in the economy, it has been either by working more or borrowing more, often both. With the Great Recession, which was induced in large part by the failure to regulate banks and financial institutions so that the wealthiest might become wealthier still, neither option, working more nor borrowing more, remains available. The decline of a stable and secure middle class, who carried the freight for civil society, is the shocking story of the last 30 to 40 years in America.
A subplot of particular relevance to Seattle is what Hacker and Pierson describe as the shifting of liberalism away from the traditional "bread-and-butter" focus of older groups such as organized labor, to the social concerns of the more affluent — abortion rights, women's rights, environmentalism, and civil liberties. Advocacy groups for all these issues proliferated in this 30-year period. “And yet, they almost never focused their attention on the economic issues that most powerfully affected the working and middle classes," the authors write. "The result was a boon for the post-materialist causes of more affluent liberals, but it left traditional material causes with only a handful of energetic backers.”
One can see such an evolution in heavily liberal Seattle. Once a strong union city and a place where middle and working class people could afford to live, Seattle became increasingly focused on "post-material" cultural issues related to race, gender, sexual orientation, civil liberties, and the environment. Such a shift, whether locally or nationally, leaves the working class and much of the middle classes without any political champion for their material interests.
The result is both the "tax revolts" of the 1980s and '90s and more recently the Tea Party. The Republicans have managed to capture much of this vote, in large part by deploying the rhetoric of populism while playing a very different game in the policy trenches. The Bush Tax Cuts of 2001 are a good example of that scheme, with the bottom 80 percent of taxpayers receiving a $600 reduction in taxes, while the top 1 percent received $38,500.
But if the Republicans have been the spear carriers, the Democrats haven't been far behind. It was Bill Clinton who in 2000 signed legislation exempting financial institutions from regulation of derivates and other exotic financial instruments.
The larger point is that with a New Liberalism abandoning material concerns for post-material causes, working and middle-class voters not only had no one championing their mounting economic concerns but their worries and stresses were hardly even noticed.
Hacker and Pierson find bad news and good news in their main story line of the widening gap between the wealthy and the rest of us that is the fruit of government policy-making and politics. The bad news is that politics is the culprit and most Americans have remained clueless about how this unfolding redistribution of wealth and jeopardizing of the middle class has come about. The good news is that these changes are not the result of historical destiny or forces beyond our control. They are political and can be altered, though doing so will prove very difficult as the first two years of the Obama Administration have demonstrated.
The larger bad news is a culture in decline amid economic growth and incredible affluence for some.
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Comments:
Posted Wed, Nov 24, 3:39 p.m. Inappropriate
Since corporations are “people” and money is “free speech” the Citizens United decision by the Robert’s Court should be just about the end for our system as we thought we knew it. That's a lot of tooth paste to get back into the tube.
Nothing like that aroma of unfettered free market capitalism in the morning.
Posted Wed, Nov 24, 5:42 p.m. Inappropriate
It's interesting to watch Democrats nationally get more "populist" in the last month of an election. Nice work Anthony. Another factor is important. In the last 20 years, education has been the biggest determinant of income and during that period, income has reached it's greatest point of inequality since statistics have been kept. Post-secondary enrollment and completion has been flat since the mid-80s. Our post secondary system needs to be redesigned to meet the needs of working Americans. Finally, the decline in union membership has been a huge negative factor on middle income wages. I worked as a beef lugger in Dakota City, Nebraska in 1974 and made $10.50 an hour. People doing that same job in 2010 make less than that now.
Posted Wed, Nov 24, 5:56 p.m. Inappropriate
Sounds like an interesting book.
I've become rather skeptical of the argument that Democrats ceded the working class to the GOP by neglecting labor issues. I think a look at the demographics suggests that Democrats/liberals/progressives have maintained the urban base, while the Tea Party has its base in rural areas, where Democrats have been weak since LBJ's civil rights program. Also, the Tea Party is less heavily concentrated in the working class as is often portrayed.
Lest we view the 1950s as the Leave It To Beaver golden age, recall that poverty rates were higher back then. Here's a chart that illustrates the poverty rate from 1959 to 2008. Undoubtedly it is higher now as a result of the recession, but probably still less than in 1959.
http://en.wikipedia.org/wiki/File:US_poverty_rate_timeline.gif
The chart suggests that LBJ's War on Poverty has a lot of positive impact, and as the US moved away from Great Society policies, progress on the poverty front stagnated.
Anyway, I will be interested to know how the book challenges what I just wrote.
Posted Thu, Nov 25, 9:54 a.m. Inappropriate
I haven't read the book but your account describes a very troubling phenomenon. Blaming public tax policy may not be the entire story. I think about Wilt Chamberlain, who was I think the most dominant player in professional basketball for about ten years, and I doubt if his salary ever exceeded $100K. Johnny Unitas, paid even less. What happened in professional sports happened in business too; I think, looking back, that even Jack Welch (transformative CEO of GE) was underpaid (in the 1990s) by comparison to, let's say, President of the University of Washington in 2010. I think you have to at least consider the notion that some people, sports stars, brilliant inventor/entrepreneurs might be worth apparently outrageous rates of pay. Our society is willing to pay an unseemly price for its celebrities, sports figures and, yes, its CEOs. So, exceptional athletic skill (Michael Jackson), skills of self promotion (Madonna), sheer inventiveness (Sergei Brin) all command outsize pay. I think the point of the book (and this article) is aimed more at the people who invest rather than the people who operate
(a distinction that is recognized in the federal tax code) but I believe simply raising taxes on high incomes is unlikely to benefit those at the bottom of the income scale. Taxing Larry Ellison (CEO, Oracle) is not going to help either our economy or people on the bottom rungs.
Many lower income people are competing for work with illegal immigrants, workers in other less wealthy societies that for whatever reason don't pay their workers well but export products to the USA in a big way. The wealthy have avoided and, in some cases, profited by that competition. That does not mean the condition can be undone by changes in our tax law. Controlling immigration and putting some limits on imports might help more.
Posted Thu, Nov 25, 11:07 a.m. Inappropriate
Perhaps the relatively weak democratic shift to post-materialist issues among the Democrats reflects a recognition by the middle-class that their well-being could not longer be solved by income growth. A recognition that issues of women's rights, environmentalism, and civil liberties are actually more important then income growth in a wealthy country like the United States. Some how the rich missed this message and continue to get richer and less happy, dragging the rest of us down by growing the income gap, a much more important number then raw wealth. Meanwhile smart progressives have turned from simple trying to increase incomes to focusing on issues of social and environmental infrastructure, unfortunately perhaps ignoring the tax system that picks winners and losers.
Posted Thu, Nov 25, 12:30 p.m. Inappropriate
The results in income disparity can be explained in part by the arguments Barry Lynn makes in his book "Cornered". Lynn writes that theories associated with the Chicago school of economics were adopted during the early years of the Reagan administration. These policies promoted privatization and deregulation of industries. Lynn particularly points to a change in anti-trust law which permitted concentration of corporate power provided that it resulted in economic efficiency. In other words, before Reagan, anti-trust was pursued if it resulted in a reduction in competition. After Reagan though, corporate concentration was accepted if increased efficiency could be demonstrated.
As a consequence of this interpretation and the capital created by unregulated financial markets, we saw the boon of the mergers and acquisitions that resulted in the monopolies in businesses such as poultry (Tyson, Perdue), agriculture (Archer Daniels Midland, Monsanto), retail (Walmart), etc. Once industries are concentrated, free enterprise no longer works. Family farms become essentially indebted to the company store since they are obligated to purchase specific seed or follow corporate mandated practices. Lynn shares the story of Quizno's Subs where a franchisee is more than likely to pay his $25,000 fee to the company and never open an store and thus lose his investment. Or if he is able to open a store becomes essentially the equivalent of a tenant farmer paying a set share percentage of revenue to the corporation.
It is this corporate concentration that has captured American politics. As Robinson correctly explains, both Democrat and Republican parties are beholden to the corporate funds required to win election. Both parties have accepted the phraseology of Chicago school economics, in particular the term "free-market". Lynn argues that markets have never been free. They have always been politicized. And that anyone who believes in the power of the "free-market" is more than likely to be captured by the financiers that benefit by corporate concentration.
Posted Thu, Nov 25, 1:20 p.m. Inappropriate
jmrolls
You might be interested to know that Supreme Court nominee Robert Bork was the originator of the legal test for approving corporate concentration provided that efficiency is demonstrated. His book "The Antitrust Paradox" was influential in changing the U.S. Supreme Court's approach to anti-trust law. In that vein, the Citizen's United case should not be looked at in isolation. It is representative of a judicial philosophy aligned with an economic ideology.
Posted Thu, Nov 25, 2:35 p.m. Inappropriate
Those of you who think Wal Mart is a monopoly are, of course, free to buy their stock. In the case of Wal Mart it sells at a low multiple and has not done particularly well. You'd have made more money buying Nordstrom. Suggesting that Wal Mart has limited competition is just plain wrong. I think Perdue and Tyson have both lost money in recent quarters maybe just this last quarter turning a profit (I admit I have not checked but both companies have been struggling since grain prices started going up). A company like ADM competes world wide (which makes it look like even less of a monopoly) and has profited much more from the ethanol fiasco than any supreme court decisions. Corporations are not lovable and they are terrible to work for but I think reasonable people will admit they deliver products at low prices compared to the known alternatives. BTW, corporate tax rates in the US are among the highest in the world.
Posted Thu, Nov 25, 8:18 p.m. Inappropriate
That is interesting Pythagoras. My United reference was to provide a marker in this process of the envelopment of our system, and hopefully an easily understood windsock.
Posted Fri, Nov 26, 12:32 p.m. Inappropriate
Maybe unions once advocated for bread and butter for the working class. Do they still do so? I am not so sure.
More than half of union members now work in the public sector.
In WA, unions support sales tax increases to make our regressive tax system even worse. Conversely, the working class becomes susceptible to tea-party ideology when they see unionized government workers get a better deal than private sector workers.
It seems that the wealthy have successfully maneuvered unions and the working class into opposition with each other.
Posted Fri, Dec 3, 1:39 a.m. Inappropriate
The book "Free Lunch" released last year also illustrates the effect of government taxing the average person and giving that money away to cronies of the party in power.
That coupled with a monetary system which is actually a form of counterfeiting -- allowing people to sell worthless paper in exchange for hard earned property, labor and goods, is why we are in the situation we are today.
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