Tag Archives: Inequality

They Have Really Pretty Graphs

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A big way our antiquated political system has let us down (way down) in recent years is the growth of inequality. It all goes back to the Reagan Revolution:

In August 1981, President Reagan signed the Economic Recovery Tax Act of 1981, which enacted a 27% across-the-board federal income tax cut over three years, as well as a separate bill that reduced federal spending, especially in anti-poverty programs [Wikipedia].

The Tax Reform Act of 1986 was the top domestic priority of President Reagan’s second term. The act lowered federal income tax rates, decreasing the number of tax brackets and reducing the top tax rate from 50 percent to 28 percent [Wikipedia].

Income tax rates have fluctuated since then under Republican and Democratic administrations without much change to Reagan’s policies. And when we consider the many deductions, exemptions and loopholes that tax lawyers and accountants are paid to take advantage of for their moneyed clients, effective tax rates have always been lower than the official rates.

I was reminded of this history when somebody linked to a new site called Realtime Inequality. It was created by three UC Berkeley economists in order to show how different “income and wealth groups” benefit or fall behind when new growth numbers come out each quarter”:

Realtime Inequality provides timely and high-frequency estimates of the distribution of income and wealth in the United States. Our statistics distribute the totality of national income and household wealth across socio-economic groups and are updated each quarter when new macroeconomic numbers are published. (National income is similar to Gross Domestic Product and a better indicator of income earned by US residents.)

This makes it possible to estimate economic growth by socio-economic groups consistent with quarterly releases of macroeconomic growth, and to track the distributional impacts of government policies during and in the aftermath of recessions in real time. 

The site has graphs for both income and wealth that you can play around with for different groups and time periods. Thus, one measure of income growth between January 1980 and March 2022 shows that income (corrected for inflation) rose 333% for the top tenth of one percent and 26% for the bottom fifty percent.

x

While one measure of wealth for the same period grew by $89 million for the upper tenth of one percent and less than $10,000 for the bottom fifty percent.

y

It’s kind of fun to play with if you don’t think about it too hard.

Cutting Taxes for the Rich Simply Helps the Rich (Duh)

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Some counterintuitive ideas are fine. Others counterintuitive ideas are stupid (and self-serving).

A counterintuitive idea popular among conservatives is that helping the rich makes them productive while helping the poor makes them lazy. Another is that cutting taxes on the rich increases what the government collects in taxes. Sure it does!

From CBS News:

Tax cuts for the wealthy have long drawn support from conservative lawmakers and economists who argue that such measures will “trickle down” and eventually boost jobs and incomes for everyone else. But a new study from the London School of Economics says 50 years of such tax cuts have only helped one group — the rich.

The new paper by [two British economists] examines 18 developed countries — from Australia to the United States — over a 50-year period from 1965 to 2015. The study compared countries that passed tax cuts in a specific year, such as the U.S. in 1982 when President Ronald Reagan slashed taxes on the wealthy, with those that didn’t, and then examined their economic outcomes. 

Per capita gross domestic product and unemployment rates were nearly identical after five years in countries that slashed taxes on the rich and in those that didn’t, the study found. 

But the analysis discovered one major change: The incomes of the rich grew much faster in countries where tax rates were lowered. Instead of trickling down to the middle class, tax cuts for the rich may not accomplish much more than help the rich keep more of their riches and exacerbate income inequality, the research indicates.

“Based on our research, we would argue that the economic rationale for keeping taxes on the rich low is weak” said a co-author of the study. “In fact, if we look back into history, the period with the highest taxes on the rich — the postwar period — was also a period with high economic growth and low unemployment.”

Unquote.

But not to worry, conservatives! Facts have a well-known liberal bias.

The Pandemic’s Economic Pain Hasn’t Been Shared

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From The Associated Press:

In a stark sign of the economic inequality that has marked the pandemic recession and recovery, Americans as a whole are now earning the same amount in wages and salaries that they did before the virus struck — even with nearly 9 million fewer people working.

The turnaround in total wages underscores how disproportionately America’s job losses have afflicted workers in lower-income occupations rather than in higher-paying industries, where employees have actually gained jobs as well as income since early last year.

In February 2020, Americans earned $9.66 trillion in wages and salaries, at a seasonally adjusted annual rate, according to the Commerce Department data. By April, after the virus had flattened the U.S. economy, that figure had shrunk by 10%. It then gradually recovered before reaching $9.67 trillion in December, the latest period for which data is available.

Those dollar figures include only wages and salaries that people earned from jobs. They don’t include money that tens of millions of Americans have received from unemployment benefits or the Social Security and other aid that goes to many other households. The figures also don’t include investment income.

A separate measure tracked by the Labor Department shows the same result: Total labor income, excluding government workers, was 0.6% higher in January than it was a year earlier.

That is “pretty remarkable,” given the sharp drop in employment, said Michael Feroli, an economist at JPMorgan Chase.

The figures document that the vanished earnings from 8.9 million Americans who have lost jobs to the pandemic remain less than the combined salaries of new hires and the pay raises that the 150 million Americans who have kept their jobs have received.

The job cuts resulting from the pandemic recession have fallen heavily on lower-income workers across the service sector — from restaurants and hotels to retail stores and entertainment venues. By contrast, tens of millions of higher-income Americans, especially those able to work from home, have managed to keep or acquire jobs and continue to receive pay increases.

“We’ve never seen anything like that before,” said Richard Deitz, a senior economist at the Federal Reserve Bank of New York, referring to the concentration of job losses. “It’s a totally different kind of downturn than we’ve experienced in modern times.”

Of the nearly 10 million jobs that have been eliminated by the pandemic, 40% have been in restaurants, bars, hotels, arts, and entertainment. Retailers have lost nearly 400,000 jobs and many low-paying health care workers, such as nursing home attendants and home health care aides, have also been laid off.

On average, restaurant workers make just below $13 an hour, according to Labor Department data. Retail cashier pay is about the same. That’s less than half the economy-wide average of nearly $30 an hour.

“It tells the story of an economy that has really tanked for the most vulnerable,” said Elise Gould, an economist at the liberal Economic Policy Institute. “It’s shocking how small a dent that has made in the aggregate.”

The figures also underscore the unusually accelerated nature of this recession. . . . “This is one of the worst recessions we’ve ever had — compressed into one-tenth of the time that a normal recession would take,” said Ernie Tedeschi, policy economist at the investment bank Evercore ISI. . . .

The recovery in wages and salaries helps explain why some states haven’t suffered as sharp a drop in tax revenue as many had feared. That is especially true for states that rely on progressive taxes that fall more heavily on the rich. California, for example, said last month that it has a $15 billion budget surplus. Yet many cities are still struggling, and local transit agencies, such as New York City’s subway, have been hammered by the pandemic.

The wage and salary data also helps explain the steady gains in the stock market, which have been led by high-tech companies whose products are being heavily purchased and used by higher-income Americans . . .

This week, the New York Fed released research that underscored how focused the job losses have been. For people making less than $30,000 a year, employment has fallen 14% as of December. For those earning more than $85,000, it has actually risen slightly. For those in-between, employment has fallen 4%. . . .

Some companies have cut wages in this recession, but on the whole the many millions of Americans fortunate enough to keep their jobs have generally received pay raises at largely pre-recession rates. . . .

Unquote.

Another group that must have done relatively well is people who are retired. Social Security payments and pensions have stayed where they were and investment returns have generally been very good.

A Suggestion for Fixing America

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Two professors writing for Foreign Policy see a way to simultaneously repair our country’s politics and economics (I’ve left out some of their analysis). Whether or not it succeeded, it wouldn’t hurt:

According to the Brookings Institution, Biden won 509 counties to [the other guy’s] 2,547—that’s over five times as many won by [the Republican]. But here’s the kicker. Biden’s counties constitute 71 percent of the country’s Gross Domestic Product, [the loser’s] less than 30 percent. Surely we must somehow factor this into how we think about why people vote the way they do? How does growth, or the lack thereof, determine elections?

What we see in U.S. politics today is the death and dissolution of a particular social coalition that dominated politics and economics and underwrote social peace for three generations; call it the carbon coalition.

The carbon coalition was an encompassing political coalition, built on a set of agreements negotiated between 1932 and 1950, that distributed the income generated by the industrial economy among groups within society. In the auto and steel industries, the most dynamic of that era, United Auto Workers and General Motors signed the 1950 Treaty of Detroit, which tied pay to productivity. This created a path to prosperity for two generations of workers in manufacturing.

Meanwhile, to bring rural areas into the coalition, the urban middle class paid higher prices for food and accepted permanent agricultural subsidies so that farmers could enjoy higher incomes. These agreements drew together labor, business, and farmers; the North and the South; the Great Plains and the Great Lakes into one settlement. This broadly inclusive distributive coalition in turn softened the sectional and partisan divisions that had roiled U.S. politics almost continuously since the 1890s.

. . . This political coalition was in fact entirely dependent on a particular growth model: an extremely fossil fuel-intensive agro-industrial economy.

It is only a slight exaggeration to suggest that the United States’ postwar economy was a massive machine that transformed oil, coal, and natural gas into income and food. Consider the following: In 1971, automobile production directly and indirectly provided 1 of every 6 jobs in the U.S. economy. Most of these jobs were unionized, or, if not, most workers enjoyed wages and benefits that spilled over from union agreements. Then add to these jobs others created by the interstate highway program, by the oil and gas industry, and by the retail sale of gasoline and the repair and maintenance of automobiles. And then throw in jobs in aviation, shipping, and agriculture, which became increasingly energy intensive due to the use of diesel-fueled equipment and through the use of natural gas to manufacture artificial fertilizer. Finally come jobs in plastics and petrochemicals.

The carbon coalition distributed the income generated by the carbon economy. Elections determined those distributions. That model is now dying and indeed, given climate change, must die. The politics it made possible are dying too.

The carbon economy has been in decline for decades, but the [political effects are only now becoming visible.

The center of economic dynamism and wealth generation in the United States now lies in knowledge-intensive (or at least high-value-added) industries, some of which, like pharmaceuticals, are research intensive and some of which, like various forms of media, are creative.

Although this knowledge economy is diverse, these activities share one overarching commonality: None require (much less depend on) fossil fuels. Indeed, their survival over the long haul depends on successfully switching out of carbon completely. Productivity in these activities doesn’t come from more energy and bigger machines applied to faster assembly lines but from improvements in our ability to manipulate, analyze, and monetize information.

The economy that drives U.S. GDP growth today is already post-carbon. And though many of its activities are energy intensive (server farms consume more than more than 2 percent of the world’s electricity use; financial services consume more electricity than any other industry in New York City), the energy they consume can come as readily from wind and solar as from coal and natural gas. This isn’t the case for the internal combustion engine, for the steel from which its constructed, and for the oil extraction, refining, and distribution systems that support it. Nor is it true for an ammonia plant or for cement or aviation. Farmers cannot substitute solar energy for artificial fertilizer.

The U.S. economy is thus now divided in two: a growing and potentially sustainable post-carbon economy that can adapt to the realities of climate change and a carbon economy in decline that is unsustainable. . . .

Americans no longer live in the same economy.  Rather, they live in two incompatible models of economic growth. Those who remain embedded in the carbon economy quite rationally want to defend and rejuvenate that model. In contrast, those who have found a spot in the post-carbon economy largely embrace the future. . . .

Today, the firms and sectors that make up each of the two growth models fund elections and determine the strategy of their parties.

The post-carbon coalition dominates the Democratic Party. This coalition brings together a West Coast variant composed of high-margin agriculture (think wine), Big Tech, entertainment, and digital and high-end services and an East Coast variant based largely on financial services. These post-carbonites embrace some variant of the Green New Deal, which identifies the climate crisis as the most critical issue the country faces and offers a coherent policy response.

The carbon economy coalition that dominates the Republican Party includes export agriculture, carbon extraction, refinement and production, steel and other declining traditional industrial sectors, as well as low-wage and low productivity services (think Walmart over Accenture). This fragment of the original carbon coalition remains committed to defending and rebooting the carbon economy; this is what “Make America Great Again” means. . . .

The United States’ two coalitions cannot be brought together. Indeed, they are existential threats to each other. And on a population scale, each electoral coalition has more or less the same number of potential voters. As a result, elections are decided by thin margins in a race to the death. . . .

For almost half of U.S. states, the Green New Deal, which is—sotto voce—at the center of Biden’s platform, spells the end of their existing strategies—think fracking, refining, plastics, mining, logging, and so on. And for the other half of the states that support the deal, scaling back its objectives to attract support from the carbon coalition threatens the post-carbon coastal communities. . . .

There is only one way to fix this mess. The post-carbon coalition has to bribe what’s left of [the carbon coalition] to make [a] transition. Non-coastal, largely Republican states must be the epicenter of the green transition and be the recipients of most of the investment. After all, they have the most assets to turn around and the most to lose if they are not compensated. If all they are offered is “you decarbonize/we keep the money,” then all they will give back is more [right-wing radicalism].

There are clear parallels in U.S. history, such as the massive bribe that the urban sector began paying to farmers in 1933 with the Agricultural Adjustment Act and two generations of generous farm bills . . . thereafter. Yet the bribe this time must involve more than a subsidy; it requires exiting the carbon economy. For it to work, green investment must extend well beyond energy capture (solar and wind farms) and downstream into industries that are powered by alternatives. Massive investments in electric vehicle production, for instance, to support a rapid turnover of the U.S. motor vehicle fleet with U.S.-built cars and trucks, are required. . . .

Elections in the United States are not being fought over rival principles and certainly not over median voters. They are contested over which parts of the country will grow and how and who will pay for it. Recognizing this is the first step to fixing the deeper problem of the carbon transition for the good of all Americans.

Bad News (a Long Read)

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Looking out the window in a pleasant neighborhood, you don’t see the problems. But they’re very real.

This is the headline of an article in Time written by a businessman and a former labor leader: “The Top 1% of Americans Have Taken 50 Trillion Dollars from the Bottom 90%”:

Like many of the virus’s hardest hit victims, the United States went into the COVID-19 pandemic wracked by preexisting conditions. A fraying public health infrastructure, inadequate medical supplies, an employer-based health insurance system perversely unsuited to the moment—these and other afflictions are surely contributing to the death toll. But in addressing the causes and consequences of this pandemic—and its cruelly uneven impact—the elephant in the room is extreme income inequality.

How big is this elephant? A staggering $50 trillion. That is how much the upward redistribution of income has cost American workers over the past several decades.

This is not some back-of-the-napkin approximation. According to a groundbreaking new working paper by Carter C. Price and Kathryn Edwards of the RAND Corporation, had the more equitable income distributions of the three decades following World War II (1945 through 1974) merely held steady, the aggregate annual income of Americans earning below the 90th percentile would have been $2.5 trillion higher in the year 2018 alone. That is an amount equal to nearly 12 percent of [Gross Domestic Product] —enough to more than double median income—enough to pay every single working American in the bottom [90%] an additional $1,144 a month. Every month. Every single year.

Price and Edwards calculate that the cumulative tab for our four-decade-long experiment in radical inequality had grown to over $47 trillion from 1975 through 2018. At a recent pace of about $2.5 trillion a year, that number we estimate crossed the $50 trillion mark by early 2020. That’s $50 trillion that would have gone into the paychecks of working Americans had inequality held constant—$50 trillion that would have built a far larger and more prosperous economy—$50 trillion that would have enabled the vast majority of Americans to enter this pandemic far more healthy, resilient, and financially secure. . .

At every income level up to the 90th percentile, wage earners are now being paid a fraction of what they would have had inequality held constant. . . .On average, extreme inequality is costing the median income full-time worker about $42,000 a year. Adjusted for inflation using the [Consumer Price Index], the numbers are even worse: half of all full-time workers (those at or below the median income of $50,000 a year) now earn less than half what they would have [if] incomes . . . continued to keep pace with economic growth. And that’s per worker, not per household.

The next article I read was written for the Times Literary Supplement by a Columbia University researcher. “The Rich and the Rest” is a review of three books. The first book describes how corporate America and the rich have waged a successful war on science for the past seventy years:

A succession of administrations have frayed the social safety net and dismantled regulatory controls. Corporate money has bought unprecedented influence in electoral campaigns and reaped unprecedented political power in return. In The Triumph of Doubt: Dark Money and the Science of Deception, the epidemiologist David Michaels details many of the victories these corporate interests have won. Michaels, the former head of the Occupational Safety and Health Administration under the Barack Obama administration, spent years weighing the survival of workers and citizens against the short-term profits of corporations. In his book, he documents not only a shocking disregard for human welfare on the part of big business, but also a co-ordinated effort to compromise the culture of knowledge itself.

Michaels painstakingly explains the way medical researchers have documented the dangers of certain consumer products and industrial processes, beginning with smoking. . . . One early study “found that heavy smokers were fifty times as likely as non-smokers to contract lung cancer”. This was terrible news for the tobacco industry, which had burgeoned with the wartime practice (in both world wars) of issuing cigarettes to soldiers as standard rations. And so the industry responded by commissioning a public relations expert to set up a “research committee” to contest the findings. Unfortunately, the findings were solid, so the mission became the manufacture of doubt. Did tobacco use cause lung cancer? The evidence suggested that it did. Was tobacco the only cause of lung cancer? Of course not. So carcinogens like asbestos and radon became excuses for quashing public health measures concerning tobacco. Over time, an army of publicists, lawyers and corrupt scientists was assembled to prolong the public agony in the interest of squeezing every last nickel from the trade.

. . . Chapter by chapter, case by case, Michaels marches through the many ways corporate greed has co-opted science, law and government, in each case following the model set by Big Tobacco. . . .

Michaels’s book follows in the distinguished footsteps of the historians of science Naomi Oreskes and Erik M. Conway, whose Merchants of Doubt (2010) described how Big Tobacco’s proxies segued into climate change denial. Once again, even when the science was near unanimous, the purveyors of fossil fuels and industrial contaminants saturated the public sphere with specious arguments and outright falsehoods. In recent years oil companies have busily diversified and invested in alternative energy, but they have simultaneously waged war against environmental regulations to maximize every bit of profit from the existing industry before they abandon it, regardless of the human cost.

The second book tells the story of the fabulously wealthy Koch family. It was Fred Koch, a chemical engineer, who saw a great opportunity during the Texas oil boom in the early 20th century:

Fred cleverly predicted that subsidiary industries such as refineries and pipelines would pave the way to great fortunes. He was more concerned with profits than with politics – he built refineries for both Stalin and Hitler – and, while a highly successful businessman, he remained a fairly ordinary oil magnate: it took his sons to transform the company into a political and economic powerhouse. As Christopher Leonard writes in Kochland: The Secret History of Koch Industries and Corporate Power in America, Charles Koch, who was made company president in 1966, despised New Deal America.

His response was to create “a political influence network that is arguably the most powerful and far-reaching operation ever run out of an American CEO’s office … Charles Koch’s political vision represents one extreme pole in the ongoing debate about the role of government in markets; a view that government should essentially protect private property and do little else”. . . .

[Charles] turned the full beam of his method to politics in 2008, when the Obama administration and the Democratic Congress began to draft policies to respond to the climate crisis, endangering fossil fuel profits.

Koch and his associates have created a political assembly line to fund, organize and publicize an opposition. His donors’ gatherings . . . have collected millions of dollars, which have then funded organizations such as the American Legislative Exchange Council (ALEC), which in turn have leveraged influence-peddling among state legislators, and funded faux “grassroots” (or “astroturf”) organizations, such as Americans for Prosperity. These have orchestrated demonstrations and door-to-door canvassing during elections. Koch-funded groups have subverted language with Orwellian flair: Americans for Prosperity promotes regressive tax policies and wage suppression; the Heartland Institute promotes the despoliation of the American landscape by sowing doubt about climate and environmental hazards.

The review’s third book deals with America’s “compound epidemic of addiction, alcoholism and suicide”, an epidemic that obviously predated Covid-19:

The Princeton economists Anne Case and Angus Deaton survey this tragic landscape in Deaths of Despair and the Future of Capitalism. Case and Deaton call this situation the dark side of meritocracy, in which “the less educated are devalued and disrespected”. In this view, the collapse of social constructs, including marriage, institutional religion and trade unions, leaves people unmoored and their interests undefended. And while the elites of the past often regarded noblesse oblige and charity as the obligations of privilege and faith, modern American meritocracy, rooted in the founding religion of Calvinism, suggests that the happy “elect” are deserving of their good fortune, and that the “losers” are simply reaping what they sow. To help them is throwing good money after bad. Better to spend it on a sports arena.

The upshot is dire. The US has the highest infant mortality rate and the lowest life expectancy among industrialized nations – a situation that the Covid-19 crisis has cast into sharp relief. The US accounts for 4 per cent of the world’s population but more than 25 per cent of global deaths from the pandemic. . . .

Nowhere are the flaws of unfettered capitalism better illustrated than in the opioid crisis (here as in Michaels’s book). It is a tragically familiar tale: a powerful pharmaceutical company creates a new market for addictive painkillers by encouraging and incentivizing doctors to record pain levels as the fifth vital sign (after temperature, pulse, respiration and blood pressure). Once this subjective symptom is recorded, the drug can be prescribed, having been falsely advertised as unlikely to lead to addiction. Billions of dollars in profit are then realized, at a dire cost: to this day millions remain addicted; more than 67,000 Americans died from overdoses in 2018 alone. In this cycle of immiseration, a dysfunctional society breeds pain, then creates a revenue stream from a treatment that infinitely compounds it.

Yet millions of voters, in particular struggling White men with high school educations, support the Republican Party, the party of big business. They have their reasons, despite the fact — revealed by the study described in that Time article — that “by far the single largest driver of rising inequality these past forty years has been the dramatic rise in inequality  between white men”. Again from the Time article:

The $50 trillion transfer of wealth the RAND report documents has occurred entirely within the American economy, not between it and its trading partners. . . . [This] upward redistribution of income, wealth, and power wasn’t inevitable; it was a choice—a direct result of the trickle-down policies we chose to implement since 1975.

We chose to cut taxes on billionaires and to deregulate the financial industry. We chose to allow CEOs to manipulate share prices through stock buybacks, and to lavishly reward themselves with the proceeds. We chose to permit giant corporations, through mergers and acquisitions, to accumulate the vast monopoly power necessary to dictate both prices charged and wages paid. We chose to erode the minimum wage and the overtime threshold and the bargaining power of labor. For four decades, we chose to elect political leaders who put the material interests of the rich and powerful above those of the American people.

I’ll conclude this avalanche of dysfunction with a passage from a densely-written classic, Politics and Markets, by Charles Lindblom (I’m going to finish it this time). It was published, coincidentally or not, in 1976:

One obstruction to polyarchy [rule by the many] is the privileged position of businessmen [by which Lindblom means their tremendous control over the functioning of a nation’s economy]. It is a rival . . . to the polyarchal control of government [since government must induce businessmen to keep the economy going]. Another obstruction is the disproportionate influence of businessmen in interest-group, party and electoral politics. It permits businessmen to win . . . disproportionately in their many polyarchal struggles. . . But now suppose that the business influence strikes even deeper in a particular way. Consider the possibility that businessmen achieve an indoctrination of citizens so that citizens’ volitions serve not their own interests but the interests of businessmen. The privileged position of business comes to be widely accepted. In electoral politics, no great struggle need be fought [202] . . . 

. . . Despite universal suffrage, income distribution in the polyarchies [like the US and UK] has not changed greatly. . . In few of the polyarchies is there serious discussion, even among the politically active, of major alterations of the distribution of wealth and income. And citizens are extraordinarily ignorant on the issue. . . [208].

Two recent studies of British working-class attitudes and opinions agree in finding both a narrow range of opinion and widespread deference of working class to upper class — this in a society many of whose nineteenth-century leaders feared that universal suffrage would bring about demands for a more equal sharing of income and wealth, so obviously advantageous did they see such policies for the mass of voters. It is one of the world’s most extraordinary social phenomena that masses of voters vote very much like their elites. They demand very little for themselves [208-209].

Lindblom was calling attention to economic inequality before America became vastly more unequal. Now the public is more aware of inequality, but that’s because inequality is so much worse. Nevertheless, “masses of voters [continue to] vote very much like their elites”. What would the professor make of our situation in the year 2020? (I bet he’d recommend voting.)