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By Robert Reich.
I was in Seattle, Washington, recently, to congratulate union and community organizers who helped Seattle enact the first $15 per hour minimum wage in the country.
Other cities and states should follow Seattle’s example.
Contrary to the dire predictions of opponents, the hike won’t cost Seattle jobs. In fact, it will put more money into the hands of low-wage workers who are likely to spend almost all of it in the vicinity. That will create jobs.
Conservatives believe the economy functions better if the rich have more money and everyone else has less. But they’re wrong. It’s just the opposite.
The real job creators are not CEOs or corporations or wealthy investors. The job creators are members of America’s vast middle class and the poor, whose purchases cause businesses to expand and invest.
America’s wealthy are richer than they’ve ever been. Big corporations are sitting on more cash they know what to do with. Corporate profits are at record levels. CEO pay continues to soar.
But the wealthy aren’t investing in new companies. Between 1980 and 2014, the rate of new business formation in the United States dropped by half, according to a Brookings study released in May.
Corporations aren’t expanding production or investing in research and development. Instead, they’re using their money to buy back their shares of stock.
There’s no reason for them to expand or invest if customers aren’t buying.
Consumer spending has grown more slowly in this recovery than in any previous one because consumers don’t have enough money to buy.
All the economic gains have been going to the top.
The Commerce Department reported last Friday that the economy grew at a 4.6 percent annual rate in the second quarter of the year.
So what? The median household’s income continues to drop.
Median household income is now 8 percent below what it was in 2007, adjusted for inflation. It’s 11 percent below its level in 2000.
It used to be that economic expansions improved the incomes of the bottom 90 percent more than the top 10 percent.
But starting with the “Reagan” recovery of 1982 to 1990, the benefits of economic growth during expansions have gone mostly to the top 10 percent.
Since the current recovery began in 2009, all economic gains have gone to the top 10 percent. The bottom 90 percent has lost ground.
We’re in the first economic upturn on record in which 90 percent of Americans have become worse off.
Why did the playing field start to tilt against the middle class in the Reagan recovery, and why has it tilted further ever since?
Don’t blame globalization. Other advanced nations facing the same global competition have managed to preserve middle class wages. Germany’s median wage is now higher than America’s.
One factor here has been a sharp decline in union membership. In the mid 1970s, 25 percent of the private-sector workforce was unionized.
Then came the Reagan revolution. By the end of the 1980s, only 17 percent of the private workforce was unionized. Today, fewer than 7 percent of the nation’s private-sector workers belong to a union.
This means most workers no longer have the bargaining power to get a share of the gains from growth.
Another structural change is the drop in the minimum wage. In 1979, it was $9.67 an hour (in 2013 dollars). By 1990, it had declined to $6.84. Today it’s $7.25, well below where it was in 1979.
Given that workers are far more productive now – computers have even increased the output of retail and fast food workers — the minimum wage should be even higher.
By setting a floor on wages, a higher minimum helps push up other wages. It undergirds higher median household incomes.
The only way to grow the economy in a way that benefits the bottom 90 percent is to change the structure of the economy. At the least, this requires stronger unions and a higher minimum wage.
It also requires better schools for the children of the bottom 90 percent, better access to higher education, and a more progressive tax system.
GDP growth is less and less relevant to the wellbeing of most Americans. We should be paying less attention to growth and more to median household income.
If the median household’s income is is heading upward, the economy is in good shape. If it’s heading downward, as it’s been for this entire recovery, we’re all in deep trouble.
New Year’s Update for Trump Voters
January 10th, 2018By Robert Reich.
Almost one year in, it’s time for another update for Trump voters on his election promises:
1. He told you he’d cut your taxes, and that the super-rich like him would pay more. You bought it. But his new tax law does the opposite. By 2027, according to the nonpartisan Tax Policy Center, the richest 1 percent will have got 83 percent of the tax cut and the richest 0.1 percent, 60 percent of it. But more than half of all Americans — 53 percent — will pay more in taxes. As Trump told his wealthy friends at Mar-a-Lago just days after the tax bill became law, “You all just got a lot richer.”
2. He promised to close “special interest loopholes that have been so good for Wall Street investors but unfair to American workers,” especially the notorious “carried interest” loophole for private-equity, hedge fund, and real estate partners. You bought it. But the new tax law keeps the “carried interest” loophole.
3. He told you he’d repeal Obamacare and replace it with something “beautiful.” You bought it. But he didn’t repeal and he didn’t replace. (Just as well: His plan would have knocked at least 23 million off health insurance, including many of you.) Instead, he’s doing what he can to cut it back and replace it with nothing. The new tax law will result in 13 million people losing health coverage, according to the Congressional Budget Office.
4. He told you he’d invest $1 trillion in our nation’ crumbling infrastructure. You bought it. But after his giant tax cut for corporations and millionaires, there’s no money left for infrastructure.
5. He said he’d clean the Washington swamp. You bought it. But he’s brought into his administration more billionaires, CEOs, and Wall Street moguls than in any administration in history, to make laws that will enrich their businesses, and he’s filled departments and agencies with former lobbyists, lawyers and consultants who are crafting new policies for the same industries they recently worked for.
6. He said he’d use his business experience to whip the White House into shape. You bought it. But he has created the most dysfunctional, back-stabbing White House in modern history, and has already fired and replaced so many assistants (one of them hired and fired in a little more than a week) that people there barely know who’s in charge of what.
7. He told you he’d “bring down drug prices” by making deals with drug companies. You bought it. But now the White House says that promise is “inoperative.”
8. He promised “a complete ban on foreign lobbyists raising money for American elections.” You bought it. But foreign lobbyists are still raising money for American elections.
9. He told you “I’m not going to cut Social Security like every other Republican and I’m not going to cut Medicare or Medicaid.” You bought it. But he and House Speaker Paul Ryan are already planning such cuts in order to deal with the ballooning deficit created, in part, by the new tax law for corporations and the rich.
10. He promised “six weeks of paid maternity leave to any mother with a newborn child whose employer does not provide the benefit.” You bought it. But the giant tax cut for corporations and the rich doesn’t leave any money for this.
11. He said that on Day One he’d label China a “currency manipulator.” You bought it. But then he met with China’s president Xi Jinping and declared “China is not a currency manipulator.” Ever since then, Trump has been cozying up to Xi.
12. He said he wouldn’t bomb Syria. You bought it. But then he bombed Syria.
13. He said he’d build a “wall” across the southern border. You believed him. But there’s no money for that, either. Chief of staff John Kelly says it is “unlikely that we will build a wall, a physical barrier, from sea to shining sea.”
14. He promised that the many women who accused him of sexual misconduct “will be sued after the election is over.” You bought it. He hasn’t sued them, presumably because he doesn’t want the truth to come out.
15. He said he would not be a president who took vacations. “I would not be a president that takes time off,” he promised, and he called Barack Obama “the vacationer-in-Chief.” You bought it. But since becoming President he has spent nearly 25 percent of his days at one of his golf properties for some portion of the day, according to Golf News Network, at a cost to taxpayers of over $77 million. That’s already more taxpayer money on vacations than Obama cost in the first 3 years of his presidency. Not to mention all the money taxpayers are spending protecting his family, including his two sons who travel all over the world on Trump business.
16. He said he’d force companies to keep jobs in America, and that there would be “consequences” for companies that shipped jobs abroad. You believed him. But despite their promises, Carrier, Ford, GM, and the rest have continued to ship jobs to Mexico and China. Carrier (a division of United Technologies) has moved ahead with plans to send 1,000 jobs at its Indiana plant to Mexico. Notwithstanding, the federal government has rewarded United Technologies with 15 new contracts since Trump’s inauguration. Last year, Microsoft opened a new factory in Wilsonville, Oregon, that was supposed to herald a new era in domestic tech manufacturing. But in July, the company announced it was closing the plant. More than 100 workers and contractors will lose their jobs when production shifts to China. GE is sending jobs to Canada. IBM is sending them to Costa Rica, Egypt, Argentina, and Brazil. There have been no “consequences” for sending all these jobs overseas.
17. He promised to revive the struggling coal industry and “bring back thousands” of lost mining jobs. You bought it. But coal jobs continue to disappear. Since Trump’s victory, at least 6 plants that relied on coal have closed or announced they will close. Another 40 are projected to close during the president’s four-year term. Utilities continue to switch to natural gas instead of coal.
18. He promised to protect steel workers. But according to the American Iron and Steel Institute, which tracks shipments, steel imports were 19.4 percent higher in the first 10 months of 2017 than in the same period last year. That import surge has hurt American steel workers, who were already struggling against a glut of cheap Chinese steel. For example, ArcelorMittal just announced it will soon lay off 150 of its 207 steel workers at its plant in Conshohocken, Pennsylvania.
19. He said he’d make America safer. You believed him. But according to Mass Shooting Tracker, there have been 377 mass shootings so far this year, including 58 people killed and hundreds injured at a concert in Las Vegas, and 26 churchgoers killed and 20 injured at a church in Texas. Trump refuses to consider any gun controls.
20. He said he’d release his taxes. “I’m under a routine audit and it’ll be released, and as soon as the audit is finished it will be released,“ he promised during the campaign. He hasn’t released his taxes.
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Why President Hillary Clinton Will Need Bernie’s “Political Revolution” to Get Anything Done
August 30th, 2016By Robert Reich.
It looks increasingly likely that Hillary Clinton, a self-described “progressive who likes to get things done,” will have her chance starting next January. But how much that’s progressive will she actually be able to get done?
The Senate may flip to the Democrats but there’s almost no way Democrats will get the sixty votes they need to stop Republicans from filibustering everything she says she wants to do.
She’s unlikely to have a typical presidential honeymoon because she won’t be riding a wave of hope and enthusiasm that typically accompanies a new president into office. She’s already more distrusted by the public than any major candidate in recent history. On Election Day many Americans will be choosing which candidate they loathe the least.
She hasn’t established a powerful mandate for what she wants to get done. Her policy proposals are admirably detailed but cover so much ground that even her most ardent supporters don’t have a clear picture of what she stands for. And she’s had to spend more time on the campaign trail attacking Trump’s outrage du jour than building a case for a few big ideas.
To say nothing of the moneyed interests – wealthy individuals, big corporations, and Wall Street –that are more powerful today than at any time since the Gilded Age, and don’t want progressive change.
Even if Hillary sincerely intends to raise taxes on rich Americans in order to pay for universal child care, affordable higher education, and infrastructure spending, the moneyed interests have the clout to stop her.
They’ll also resist any effort to raise the federal minimum wage to $12 an hour, require employers to offer paid family leave, or push them to share their profits with employees.
The heart of American politics is now a vicious cycle in which big money has enough political influence to get laws and regulations that make big money even bigger, and prevent laws and rules that threaten its wealth and power.
Before Hillary can accomplish anything important, that vicious cycle has to be reversed. But how?
Bear with me a moment for some pertinent history.
As economist John Kenneth Galbraith noted in the 1950s, a key legacy of the New Deal was creating centers of economic power that offset the power of giant corporations and Wall Street: labor unions, small retail businesses, local banks, and political parties active at the state and local levels.
These alternative power centers supported policies that helped America’s vast middle and working classes during the first three decades after World War II – the largest infrastructure project in American history (the Interstate Highway program), a vast expansion of nearly-free public higher education, Medicare and Medicaid, and, to pay for all this, high taxes on the wealthy. (Between 1946 and 1980, the top marginal tax rate never dipped below 70 percent.)
But over the last three decades, countervailing power has almost vanished from American politics. Labor unions have been decimated. In the 2012 presidential election, the richest 0.01 percent of households gave Democratic candidates more thanfour times what unions contributed to their campaigns.
Small retailers have been displaced by Walmart and Amazon. Local banks have been absorbed by Wall Street behemoths.
And both political parties have morphed into giant national fund-raising machines. The Democratic National Committee, like its Republican counterpart, is designed mainly to suck up big money.
So where can Hillary look for the countervailing power she’ll need to get the progressive changes she says she wants?
The most promising source of a new countervailing power in America was revealed in Bernie Sanders’s primary campaign: millions of citizens determined to reclaim American democracy and the economy from big money. (Donald Trump’s faux populism tapped into similar sentiments, but, tragically, has channeled them into bigotry and scapegoating.)
That movement lives on. Organizers from the Sanders campaign have already launched Brand New Congress, an ambitious effort to run at least 400 progressive candidates for Congress in 2018, financed by crowd-sourced small donations and led by a nationwide network of volunteers. Sanders himself recently announced the formation of “Our Revolution,” to support progressive candidates up and down the ticket.
Hillary Clinton has been relying on big money to finance her presidential campaign, but she’s always been a pragmatist about governing. “A president has to deal in reality,” she said last January in response to Sanders. “I am not interested in ideas that sound good on paper but will never make it in real life.”
The pragmatist in her must know that the only way her ideas will make it in real life is if the public is organized and mobilized behind them.
Which means that once she enters the Oval Office, she’ll need the countervailing power of a progressive movement – i
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The Coin of the Realm: How Inside Traders Are Rigging America
January 7th, 2015
Robert B. Reich.
A few years ago, hedge fund Level Global Investors made $54 million selling Dell Computer stock based on insider information from a Dell employee. When charged with illegal insider trading, Global Investors’ co-founder Anthony Chiasson claimed he didn’t know where the tip came from.
Chiasson argued that few traders on Wall Street ever know where the inside tips they use come from because confidential information is, in his words, the “coin of the realm in securities markets.”
Last week the United States Court of Appeals for the Second Circuit, which oversees federal prosecutions of Wall Street,agreed. It overturned Chiasson’s conviction, citing lack of evidence Chaisson received the tip directly, or knew insiders were leaking confidential information in exchange for some personal benefit.
The Securities and Exchange Act of 1934 banned insider trading but left it up to the Securities and Exchange Commission and the courts to define it. Which they have – in recent decades so narrowly that confidential information is indeed the coin of the realm.
If a CEO tells his golf buddy that his company is being taken over, and his buddy makes a killing on that information, no problem. If his buddy leaks the information to a hedge-fund manager like Chiasson, and doesn’t tell Chiasson where it comes from, Chiasson can also use the information to make a bundle.
Major players on Wall Street have been making tons of money not because they’re particularly clever but because they happen to be in the realm where a lot of coins come their way.
Last year, the top twenty-five hedge fund managers took home, on average, almost one billion dollars each. Even run-of-the-mill portfolio managers at large hedge funds averaged $2.2 million each.
Another person likely to be exonerated by the court’s ruling is Michael Steinberg, of the hedge fund SAC Capital Advisors, headed by Stephen A. Cohen.
In recent years several of Cohen’s lieutenants have been convicted of illegal insider trading. Last year Cohen himself had to pay a stiff penalty and close down SAC because of the charges, after making many billions.
SAC managed so much money that it handed over large commissions to bankers on Wall Street. Those banks possessed lots of inside information of potential value to SAC Capital. This generated possibilities for lucrative deals.
According to a Bloomberg Businessweek story from 2003, SAC’s commissions “grease the super-powerful information machine that Cohen has built up” and “wins Cohen the clout that often makes him privy to trading and analyst information ahead of rivals.”
One analyst was quoted as saying “I call Stevie personally when I have any insight or news tidbit on a company. I know he’ll put the info to use and actually trade off it.” SAC’s credo, according to one of its former traders, was always to “get the information before anyone else.”
Insider trading has also become commonplace in corporate suites, which is one reason CEO pay has skyrocketed.
CEOs and other top executives, whose compensation includes piles of company stock, routinely use their own inside knowledge of when their companies will buy back large numbers of shares of stock from the public – thereby pumping up share prices — in order to time their own personal stock transactions.
That didn’t used to be legal. Until 1981, the Securities and Exchange Commission required companies to publicly disclose the amount and timing of their buybacks. But Ronald Reagan’s SEC removed these restrictions.
Then George W. Bush’s SEC allowed top executives, even though technically company “insiders” with knowledge of the timing of their company’s stock buybacks, to quietly cash in their stock options without public disclosure.
But now it’s normal practice. According to research by Professor William Lazonick of the University of Massachusetts, between 2003 and 2012 the chief executives of the ten companies that repurchased the most stock (totaling $859 billion) received 58 percent of their total pay in stock options or stock awards.
In other words, many CEOs are making vast fortunes not because they’re good at managing their corporations but because they’re good at using insider information. It’s the coin of their realm, too.
None of this would be a problem if the only goal were economic efficiency. The faster financial markets adjust to all available information, confidential or not, the more efficient they become.
But profiting off inside information that’s not available to average investors strikes many as unfair. The “coin of the realm” on Wall Street and in corporate boardrooms is contributing to the savage inequalities of American life.
If Congress and the Securities and Exchange Commission wanted to reverse this and remove one of the largest privileges of the realm, they could. But they won’t, because those who utilize those coins also have a great deal of political power.
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Why the Economy is Still Failing Most Americans
October 22nd, 2014Comments Off on Why the Economy is Still Failing Most Americans
Real Business Leaders Want to Save Capitalism
July 12th, 2014By Robert Reich.
A few weeks ago I was visited in my office by the chairman of one of the country’s biggest high-tech firms who wanted to talk about the causes and consequences of widening inequality and the shrinking middle class, and what to do about it.
I asked him why he was concerned. “Because the American middle class is the core of our customer base,” he said. “If they can’t afford our products in the years ahead, we’re in deep trouble.”
I’m hearing the same refrain from a growing number of business leaders.
They see an economic recovery that’s bypassing most Americans. Median hourly and weekly pay dropped over the past year, adjusted for inflation.
Since the depths of the Great Recession in 2009, median real household income has fallen 4.4 percent, according to ananalysis by Sentier Research.
These business leaders know the U.S. economy can’t get out of first gear as long as wages are declining. And their own businesses can’t succeed over the long term without a buoyant and growing middle class.
They also recognize a second danger.
Job frustrations are fueling a backlash against trade and immigration. Any hope for immigration reform is now dead in Congress, and further trade-opening agreements are similarly moribund. Yet the economy would be even worse if America secedes into isolationism.
Lloyd Blankfein, CEO of Goldman Sachs, warned recently on “CBS This Morning” that income inequality is “destablilizing” the nation and is “responsible for the divisions in the country.” He went on to say that “too much of the GDP over the last generation has gone to too few of the people.”
Blankfein should know. He pulled in $23 million last year in salary and bonus, a 9.5 percent raise over the year before and his best payday since the Wall Street meltdown. This doesn’t make his point any less valid.
Several of business leaders are suggesting raising the minimum wage and increasing taxes on the wealthy.
Bill Gross, Chairman of Pimco, the largest bond-trading firm in the world, said this week that America needs policies that bring labor and capital back into balance, including a higher minimum wage and higher taxes on the rich.
Gross has noted that developed economies function best when income inequality is minimal.
Several months ago Gross urged his wealthy investors, who benefit the most from a capital-gains tax rate substantially lower than the tax on ordinary income, to support higher taxes on capital gains. “The era of taxing ‘capital’ at lower rates than ‘labor’ should now end,” he stated.
Similar proposals have come from billionaires Warren Buffettand Stanley Druckenmiller, founder of Duquesne Capital Management and one of the top performing hedge fund managers of the past three decades. Buffett has suggested the wealthy pay a minimum tax of 30 percent of their incomes.
The response from the denizens of the right has beenpredictable: If these gentlemen want to pay more taxes, there’s nothing stopping them.
Which misses the point. These business leaders are arguing for changes in the rules of the game that would make the game fairer for everyone. They acknowledge it’s now dangerously rigged in the favor of people like them.
They know the only way to save capitalism is to make it work for the majority rather than a smaller and smaller minority at the top.
In this respect they resemble the handful of business leaders in the Gilded Age who spearheaded the progressive reforms enacted in the first decade of the twentieth century, or those who joined with Franklin D. Roosevelt to create Social Security, a minimum wage, and the forty-hour workweek during the Depression.
Unfortunately, the voices of these forward-thinking business leaders are being drowned out by backward-lobbying groups like the U.S. Chamber of Commerce that are organized to reflect the views of their lowest common denominator.
And by billionaires like Charles and David Koch, who harbor such deep-seated hatred for government they’re blind to the real dangers capitalism now faces.
Those dangers are a sinking middle class lacking the purchasing power to keep the economy going, and an American public losing faith that the current system will deliver for them and their kids.
America’s real business leaders understand unless or until the middle class regains its footing and its faith, capitalism remains vulnerable.
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Raising Taxes on Corporations that Pay Their CEOs Royally and Treat Their Workers Like Serfs
May 15th, 2014
By Robert Reich.
Until the 1980s, corporate CEOs were paid, on average, 30 times what their typical worker was paid. Since then, CEO pay has skyrocketed to 280 times the pay of a typical worker; in big companies, to 354 times.
Meanwhile, over the same thirty-year time span the median American worker has seen no pay increase at all, adjusted for inflation. Even though the pay of male workers continues to outpace that of females, the typical male worker between the ages of 25 and 44 peaked in 1973 and has been dropping ever since. Since 2000, wages of the median male worker across all age brackets has dropped 10 percent, after inflation.
This growing divergence between CEO pay and that of the typical American worker isn’t just wildly unfair. It’s also bad for the economy. It means most workers these days lack the purchasing power to buy what the economy is capable of producing — contributing to the slowest recovery on record. Meanwhile, CEOs and other top executives use their fortunes to fuel speculative booms followed by busts.
Anyone who believes CEOs deserve this astronomical pay hasn’t been paying attention. The entire stock market has risen to record highs. Most CEOs have done little more than ride the wave.
There’s no easy answer for reversing this trend, but this week I’ll be testifying in favor of a bill introduced in the California legislature that at least creates the right incentives. Other states would do well to take a close look.
The proposed legislation, SB 1372, sets corporate taxes according to the ratio of CEO pay to the pay of the company’s typical worker. Corporations with low pay ratios get a tax break.Those with high ratios get a tax increase.
For example, if the CEO makes 100 times the median worker in the company, the company’s tax rate drops from the current 8.8 percent down to 8 percent. If the CEO makes 25 times the pay of the typical worker, the tax rate goes down to 7 percent.
On the other hand, corporations with big disparities face higher taxes. If the CEO makes 200 times the typical employee, the tax rate goes to 9.5 percent; 400 times, to 13 percent.
The California Chamber of Commerce has dubbed this bill a “job killer,” but the reality is the opposite. CEOs don’t create jobs.Their customers create jobs by buying more of what their companies have to sell — giving the companies cause to expand and hire.
So pushing companies to put less money into the hands of their CEOs and more into the hands of average employees creates more buying power among people who will buy, and therefore more jobs.
The other argument against the bill is it’s too complicated. Wrong again. The Dodd-Frank Act already requires companies to publish the ratios of CEO pay to the pay of the company’s median worker (the Securities and Exchange Commission is now weighing a proposal to implement this). So the California bill doesn’t require companies to do anything more than they’ll have to do under federal law. And the tax brackets in the bill are wide enough to make the computation easy.
What about CEO’s gaming the system? Can’t they simply eliminate low-paying jobs by subcontracting them to another company – thereby avoiding large pay disparities while keeping their own compensation in the stratosphere?
No. The proposed law controls for that. Corporations that begin subcontracting more of their low-paying jobs will have to pay a higher tax.
For the last thirty years, almost all the incentives operating on companies have been to lower the pay of their workers while increasing the pay of their CEOs and other top executives. It’s about time some incentives were applied in the other direction.
The law isn’t perfect, but it’s a start. That the largest state in America is seriously considering it tells you something about how top heavy American business has become, and why it’s time to do something serious about it.
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The Distributional Games
April 14th, 2014
By Robert B. Reich.
Every year I ask my class on “Wealth and Poverty” to play a simple game. I have them split up into pairs, and imagine I’m giving one of them $1,000. They can keep some of the money only on condition they reach a deal with their partner on how it’s to be divided up between them. I explain they’re strangers who will never see one other again, can only make one offer and respond with one acceptance (or decline), and can only communicate by the initial recipient writing on a piece of paper how much he’ll share with the other, who must then either accept (writing “deal” on the paper) or decline (“no deal”).
You might think many initial recipients of the imaginary $1,000 would offer $1 or even less, which their partner would gladly accept. After all, even one dollar is better than ending up with nothing at all.
But that’s not what happens. Most of the $1,000 recipients are far more generous, offering their partners at least $250. And most of partners decline any offer under $250, even though “no deal” means neither of them will get to keep anything.
This game, or variations of it, have been played by social scientists thousands of times with different groups and pairings, with surprisingly similar results.
A far bigger version of the game is now being played on the national stage. But it’s for real — as a relative handful of Americans receive ever bigger slices of the total national income while most average Americans, working harder than ever, receive smaller ones. And just as in the simulations, the losers are starting to say “no deal.”
According to polls, they’ve said no deal to the pending Trans Pacific Trade Agreement, for example, and Congress is on the way to killing it.
It’s true that history and policy point to overall benefits from expanded trade because all of us gain access to cheaper goods and services. But in recent years the biggest gains from trade have gone to investors and executives while the burdens have fallen disproportionately on those in the middle and below who have lost good-paying jobs.
By the same token, most Americans are saying “no deal” to further tax cuts for the wealthy and corporations. In fact, some are now voting to raise taxes on the rich in order to pay for such things as better schools, as evidenced by the election of Bill de Blasio as mayor of New York.
Conservatives say higher taxes on the rich will slow economic growth. But even if this argument contains a grain of truth, it’s a non-starter as long as 95 percent of the gains from growth continue to go to the top 1 percent – as they have since the start of the recovery in 2009.
Why would people turn down a deal that made them better off simply because it made someone else far, far better off?
Some might call this attitude envy or spite. That’s the conclusion of Arthur Brooks, president of the American Enterprise Institute, in a recent oped column for the New York Times. But he’s dead wrong.
It’s true that people sometimes feel worse off when others do better. There’s an old Russian story about a suffering peasant whose neighbor is rich and well-connected. In time, the rich neighbor obtains a cow, something the peasant could never afford. The peasant prays to God for help. When God asks the peasant what he wants God to do, the peasant replies, “Kill the cow.”
But Americans have never been prone to “kill the cow” type envy. When our neighbor gets the equivalent of new cow (or new car), we want one, too.
Yet we are sensitive to perceived unfairness. When I ask those of my students who refuse to accept even $200 in the distribution game why they did so, they rarely mention feelings of envy or spite. They talk instead about unfairness. “Why should she get so much?” they ask. “It’s unfair.”
Remember, I gave out the $1,000 arbitrarily. The initial recipients didn’t have to work for it or be outstanding in any way.
When a game seems rigged, losers may be willing to sacrifice some gains in order to prevent winners from walking away with far more — a result that might feel fundamentally unfair.
To many Americans, the U.S. economy of recent years has become a vast casino in which too many decks are stacked and too many dice are loaded. I hear it all the time: The titans of Wall Street made unfathomable amounts gambling with our money, and when their bets went bad in 2008 we had to bail them out. Yet although millions of Americans are still underwater and many remain unemployed, not a single top Wall Street banker has been indicted. In fact, they’re making more money now than ever before.
Top hedge-fund managers pocketed more than a billion dollars each last year, and the stock market is higher than it was before the crash. But the typical American home is worth less than before, and most Americans can’t save a thing. CEOs are now earning more than 300 times the pay of the typical worker yet the most workers are earning less, and many are barely holding on.
In 2001, a Gallup poll found 76 percent of Americans satisfied with opportunities to get ahead by working hard, and only 22 percent were dissatisfied. But since then, the apparent arbitrariness and unfairness of the economy have taken a toll. Satisfaction has steadily declined and dissatisfaction increased. Only 54 percent are now satisfied, 45 percent dissatisfied.
According to Pew, the percentage of Americans who feel most people who want to get ahead can do so through hard work has dropped by 14 points since about 2000.
Another related explanation I get from students who refuse $200 or more in the distribution game: They worry that if the other guy ends up with most of the money, he’ll also end up with most of the power. That will rig the game even more. So they’re willing to sacrifice some gain in order to avoid a steadily more lopsided and ever more corrupt politics.
Here again, the evidence is all around us. Big money had already started inundating our democracy before “Citizens United vs. Federal Election Commission” opened the sluice gates, but now our democracy is drowning. Only the terminally naive would believe this money is intended to foster the public interest.
What to do? Improving our schools is critically important. Making work pay by raising the minimum wage and expanding the Earned Income Tax Credit would also be helpful.
But these are only a start. In order to ensure that future productivity gains don’t go overwhelmingly to a small sliver at the top, we’ll need a mechanism to give the middle class and the poor a share in future growth.
One possibility: A trust fund for every child at birth, composed of an index of stocks and bonds whose value is inversely related to family income, which becomes available to them when they turn eighteen. Through the magic of compounded interest, this could be a considerable sum. The funds would be financed by a small surtax on capital gains and a tax on all financial transactions.
We must also get big money out of politics — reversing “Citizens United” by constitutional amendment if necessary, financing campaigns by matching the contributions of small donors with public dollars, and requiring full disclosure of everyone and every corporation contributing to (or against) a candidate.
If America’s distributional game continues to create a few big winners and many who consider themselves losers by comparison, the losers will try to stop the game — not out of envy but out of a deep-seated sense of unfairness and a fear of unchecked power and privilege. Then we all lose.
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Why The Three Biggest Economic Lessons Were Forgotten
February 25th, 2014By Robert Reich.
Why has America forgotten the three most important economic lessons we learned in the thirty years following World War II?
Before I answer that question, let me remind you what those lessons were:
First, America’s real job creators are consumers, whose rising wages generate jobs and growth. If average people don’t have decent wages there can be no real recovery and no sustained growth.
In those years, business boomed because American workers were getting raises, and had enough purchasing power to buy what expanding businesses had to offer. Strong labor unionsensured American workers got a fair share of the economy’s gains. It was a virtuous cycle.
Second, the rich do better with a smaller share of a rapidly-growing economy than they do with a large share of an economy that’s barely growing at all.
Between 1946 and 1974, the economy grew faster than it’s grown since, on average, because the nation was creating the largest middle class in history. The overall size of the economy doubled, as did the earnings of almost everyone. CEOs rarely took home more than forty times the average worker’s wage, yet were riding high.
Third, higher taxes on the wealthy to finance public investments — better roads, bridges, public transportation, basic research, world-class K-12 education, and affordable higher education – improve the future productivity of America. All of us gain from these investments, including the wealthy.
In those years, the top marginal tax rate on America’s highest earners never fell below 70 percent. Under Republican President Dwight Eisenhower the tax rate was 91 percent. Combined with tax revenues from a growing middle class, these were enough to build the Interstate Highway system, dramatically expand public higher education, and make American public education the envy of the world.
We learned, in other words, that broadly-shared prosperity isn’t just compatible with a healthy economy that benefits everyone — it’s essential to it.
But then we forgot these lessons. For the last three decades the American economy has continued to grow but most peoples’ earnings have gone nowhere. Since the start of the recovery in 2009, 95 percent of the gains have gone to the top 1 percent.
What happened?
For starters, too many of us bought the snake oil of “supply-side” economics, which said big corporations and the wealthy are the job creators – and if we cut their taxes the benefits will trickle down to everyone else. Of course, nothing trickled down.
Meanwhile, big corporations were allowed to bust labor unions, whose membership dropped from over a third of all private-sector workers in the 1950s to under 7 percent today.
Our roads, bridges, and public-transit systems were allowed to crumble under the weight of deferred maintenance. Our public schools deteriorated. And public higher education became so starved for funds that tuition rose to make up for shortfalls, making college unaffordable to many working families.
And Wall Street was deregulated — creating a casino capitalism that caused a near meltdown of the economy six years ago and continues to burden millions of homeowners. CEOs began taking home 300 times the earnings of the average worker.
Part of the reason for this extraordinary U-turn had to do with politics. As income and wealth concentrated at the top, so did political power. The captains of industry and of Wall Street knew what was happening, and some played leading roles in this transformation.
But why didn’t they remember the lessons learned in the thirty years after World War II – that widely-shared prosperity is good for everyone, including them?
Perhaps because they didn’t care to remember. They discovered that wealth is also relative: How rich they feel depends not just on how much money they have, but also how they live in comparison to most other people.
As the gap between America’s wealthy and the middle has widened, those at the top have felt even richer by comparison. Although a rising tide would lift all boats, many of America’s richest prefer a lower tide and bigger yachts.
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