One of Those Charts

The last time we had a big overhaul of the federal tax code was in 1986. Back then, the poorest 90 percent of the population owned 3 1/2 times as much as the richest 1/10th of 1 percent. I’ll say that again. In 1986, the net worth of the least wealthy 90% of Americans was 3.5 times the net worth of the richest 0.1%.

That’s not the America we live in today. As of 2013, the richest 1/10th of 1 percent owned as much as the poorest 90 percent. To repeat: the net worth of the richest 0.1% was the same as the net worth of the poorest 90%. 

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I’m sure the red line goes even higher now and the blue line goes lower. We should keep this astounding economic inequality in mind when we have the opportunity to vote eleven months from now. That will be eleven months after the Republicans ram through another overhaul of the tax code, one that helps the richest Americans get even richer.

This Chart Shows Who’s Winning at Capitalism

Capitalism involves competition. Competition involves winning. This chart shows who’s winning. Unless we change the rules, it shows who’s already won.

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The gray line represents inflation-adjusted income growth in the U.S. between 1946 and 1980. The gray line is higher on the left side of the chart than on the right, because, in those years, annual income growth for low-income people (the people on the left of the chart) was higher than income growth for high-income people (the ones on the right). That meant people who made less money were gaining (however slowly) on people who made more.

As you can see, the red line goes in the other direction. It shows income growth between 1980 and 2014. The red line is higher, in fact way higher, on the right than on the left because income growth for high-income people (the ones on the right) was much higher than for low-income people (the ones on the left).

In other words, since 1980, people who made more money pulled away from people who made less. The fact that the red line goes straight up at the end shows that the people who made the most money (not just the 1% but the 0.1%, 0.01% and 0.001%) pulled away even faster. Thus, since 1980 (when Ronald Reagan was elected), the better off you were, the better off you’ve done. And the worse off you were, the worse off you’ve done.

The chart is from a column by David Leonhardt of The New York Times. He goes into some of the nuances and suggests ways to fix this growing inequality:

Different policies could produce a different outcome. My list would start with a tax code that does less to favor the affluent, a better-functioning education system, more bargaining power for workers and less tolerance for corporate consolidation.

He also notes that the president* and his Republican co-conspirators are trying to make the situation even worse. They want the opposite of what’s needed: even lower taxes for the rich, less money for public education, weaker unions and less competition for big corporations.

So the chart shows who’s been winning. What it doesn’t show is that the game may already be over. Increased wealth translates into increased political power. But the more power you have, the easier it is to change the rules so that you can accumulate even more wealth (viz. the Citizens United decision). From the point of view of the upper 0.001%, it’s a virtuous circle. For the rest of us, it’s vicious.

Unless we fight back – which means being more politically active, as in voting every chance we get – it will become even vicious-er. 

Capitalism and Inequality

Quote: “Since 1974, the top 1% and the bottom 50% have swapped their relative shares of the national income… Unless we radically transform our capitalist system, which will require building a movement capable of challenging and overcoming the power of those who own and direct our economic processes, working people in the United States face the likelihood of an ever-worsening future.”

Reports from the Economic Front

Defenders of capitalism in the United States often choose not to use that term when naming our system, preferring instead the phrase “market system.”  Market system sounds so much better, evoking notions of fair and mutually beneficial trades, equality, and so on.  The use of that term draws attention away from the actual workings of our system.

In brief, capitalism is a system structured by the private ownership of productive assets and driven by the actions of those who seek to maximize the private profits of the owners.  Such an understanding immediately raises questions about how some people and not others come to own productive wealth and the broader social consequences of their pursuit of profit.

Those are important questions because it is increasingly apparent that while capitalism continues to produce substantial benefits for the largest asset owners, those benefits have increasingly been secured through the promotion of policies –…

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This Week of All Weeks, Jane Addams Is Worth Thinking About

Jane Addams (1860-1931) isn’t famous these days. At one time, however, she was the most-admired woman in America and well-known throughout the world.

Wikipedia lists her occupation as “social and political activist, author and lecturer, community organizer, public intellectual”. Her tombstone in Cedarville, Illinois, describes her as a “humanitarian, feminist, social worker, reformer, educator, author, publicist, founder of Hull House, President [of the] Women’s International League for Peace and Freedom”. It also notes that she won the Nobel Peace Prize in 1931.

Addams fought for women’s suffrage and is considered the founder of the social work profession in the United States. Sociologists view her as a social theorist. Philosophers place her in the school of philosophy known as Pragmatism.  At her death, some compared Jane Addams, who never sought political office, to her hero, Abraham Lincoln.

As this horrible week comes to a close, it may help us to consider Jane Addams as an example of, in Lincoln’s words, “the better angels of our nature”.

Today, Addams is best known as the principal founder of Hull House, the first “settlement house” in the United States. It opened its doors in Chicago in 1889 and continued to operate until 2012. Its initial goal was to help recent immigrants find their place in American society, because Addams’s purpose in life was to convert her progressive ideas into action.

Here is a passage from Jane Addams and the Dream of American Democracy by Jane Bethke Elshtain:

The statement of purpose in Hull-House’s charter read: “To provide a center for a higher civic and social life; to institute and maintain educational and philanthropic enterprises, and to investigate and improve the conditions in the industrial districts of Chicago”; but this fails to capture the spirit and the manifold activities of Hull-House. Addams refined this statement over the years. It was a “place for enthusiasms”; it helped “give form to social life”; it offered “the warm welcome of an inn”; it was a place for mutual interpretation of the the social classes one to another; it responded to ethical demands and shared fellowship; it was a place for the life of the mind….

At the conclusion of her second autobiographical volume, The Second Twenty Years at Hull-House, Addams takes another stab at it: “It was the function of settlements to bring into the circle of knowledge and fuller life, men and women who might otherwise be left outside” [ p. 92].

The work of Hull House “gained expression in day nurseries, kindergarten classes, playgrounds, boys’ and girls’ clubs, a cooperative boardinghouse, theater workshops, music schools, language classes, reading groups, handicraft centers and eventually a Labor Museum” [p. 93].

In the early days, after Addams and a Hull House resident named Julia Lathrop came to the aid of a young woman, all alone, giving birth in a nearby tenement, Addams exclaimed:

“This doing things that we don’t know how to do is going too far. Why did we let ourselves be rushed into midwifery?” To which [Lathrop] replied: “If we have to begin to hew down to the line of our ignorance, for goodness’ sake don’t let us begin at the humanitarian end. To refuse to respond to a poor girl in the throes of childbirth would be a disgrace to us forevermore. If Hull-House does not have its roots in human kindness, it is no good at all” [p. 93].

We might say the same thing about the United States of America during the months and years ahead.

Organizing for the Future

A review at the London Review of Books caught my eye because the two books discussed both have the word “Postcapitalism” in their titles. Who doesn’t want to know what’s coming next?

The review didn’t convince me that anyone knows. Two possibilities are mentioned: Full Automation and Universal Basic Income. Presumably, “Full Automation” refers to automating as much as possible. More robots and smarter software should lead to fewer people having jobs. That might lead to everyone being guaranteed a basic income. Or it could lead to mass sterilization, with only lottery winners and good-looking people being allowed to reproduce.

What I found more interesting were some remarks about “austerity”, the recently popular attempt to stimulate world economies by reducing government spending:

In both books, the critical fronts are a total opposition to austerity and neoliberalism, and a focus on the possible consequences of increased automation, including the creation of a ‘surplus population’. The ‘real austerity project’, Mason argues, is ‘to drive down wages and living standards in the West for decades, until they meet those of the middle class in China and India on the way up’. As a result, ‘the next generation will be poorer than this one; the old economic model is broken and cannot revive growth.’ Those places which, in their different ways, have managed to insulate themselves – authoritarian China, Russia or Iran, residually social democratic northern Europe – will not be exempt: ‘By 2060, countries such as Sweden will have the levels of inequality currently seen in the USA.’

Further down in the article, there’s some practical discussion:

What the historical labour movement did, in Srnicek and Williams’s eyes, was set itself goals and demands – for pensions, social security, fewer working hours – and fight for them inside and outside the workplace. What they are really proposing … is that a new set of demands be agreed and doggedly insisted on, in the manner of the old left.

But how could enough of us agree and doggedly insist on a new set of demands? Maybe the authors of the books being reviewed have an answer, but the only way I can see that happening is through the creation of a mass movement like the labor movement of the 19th and 20th centuries. 

In his very good book The Age of Acquisition: The Life and Death of American Resistance to Organized Wealth and Power, Steve Fraser describes how organized labor contributed to the general welfare after the New Deal and World War 2:

…the labor movement of those years of uproar created – more than any other institution, public or private – a standard of living envied everywhere. In 1945, 40 percent of American families lived below the poverty line… By 1970, only 10 percent lived in poverty… Not only did the economy grow at an annual average of 4 percent during the postwar era, but that growth favored the poor more than the wealthy…it was the organized labor movement that compelled broad sectors of American industry still unwilling to engage in the new mechanisms of collective bargaining to nonetheless match the standards of living (wages, hours, vacations, holidays, pensions, health care and more) that unions were winning for their members….

An “American standard of living” and the forms of industrial democracy that made it possible … shattered the old order [196].

Perhaps globalization means that a race to the economic middle (or even the bottom) cannot be stopped. But it was organized labor and other progressive organizations that demanded and achieved progress in the past. I think it will have to be organized human beings, whether or not they have traditional jobs, who demand and achieve progress in the future.

Who’s On First? Private Property or Competition?

David Brin trained as a scientist, has written science fiction and consults with the government and corporations regarding what will happen next. He’s not an economist, but he’s written an interesting little article about right-wing ideology. It’s called “Stop Using Adam Smith and Friedrich Hayek to Support Your Political Ideology: The Irony of Faith in Blind Markets”. 

Brin cites John Robb, an author, “military analyst” and entrepreneur, as a big influence on his thinking. Robb isn’t an economist either, but here are a couple of paragraphs from his blog

The only way to manage an economy as complex as [ours] is to allow massively parallel decision making.  A huge number of economically empowered people making small decisions, that in aggregate, are able to process more data, get better data (by being closer to the problem), and apply more brainpower to weighing alternatives than any centralized decision making group.

In other words, central planning cannot cope with the economies of developed nations in the modern world. We need the Invisible Hand of the market. Yet: 

…an extreme concentration of wealth at the center of our market economy has led to a form of central planning.   The concentration of wealth is now in so few hands and is so extreme in degree, that the combined liquid financial power of all of those not in this small group is inconsequential to determining the direction of the economy.  As a result, we now have the equivalent of centralized planning in global marketplaces.  A few thousand extremely wealthy people making decisions on the allocation of our collective wealth.  The result was inevitable:  gross misallocation [of resources] across all facets of the private economy. 

Getting back to Brin, he argues that:

….across 4,000 years we’ve seen that whenever a small group of men become powerful enough to control an economy and command-allocate its resources, they will do so according to biased perceptions, in-group delusions and fatally limited knowledge. Whether they do the normal oligarchic thing—cheating for self-interest—or else sincerely try to “allocate for the good of all,” they will generally do it badly.

So what’s the solution? Brin says it’s competition: “the most creative force in the universe”: 

By dividing and separating power and—more importantly—empowering the majority with education, health, rights and knowledge, we enabled vast numbers of people to participate in markets, democracy and science. This has had twin effects, never seen in earlier cultures.

  1. It means everybody can find out when a person stumbles onto something cool, better or right, even if that person came from a poor background.
  2. It allows us to hold each other accountable for things that are wrong, worse or uncool, even when the bad idea comes at us from someone mighty.

…cutting through countless foolish notions that held sway for millennia—like the assumption that your potential is predetermined by who your father was—while unleashing creativity, knowledge, freedom, and positive-sum wealth to a degree that surpassed all other societies, combined.

Even the most worrisome outcomes of success, like overpopulation, wealth stratification and environmental degradation, come accompanied by good news— the fact that so many of us are aware, involved, reciprocally critical, and eager to innovate better ways.

Some have argued that cooperation has contributed just as much to human progress as competition has, but putting that issue aside, Brin arrives at his major point: the people who call themselves “conservatives” and claim to revere thinkers like Adam Smith and Friedrich Hayek, both of whom extolled the benefits of a competitive market, don’t really believe in competition:

The problem is that it’s all lip service on the right! Those who most loudly proclaim Faith In Blind Markets … are generally also those proclaiming idolatry of private property as a pure, platonic essence, a tenet to be clutched with religious tenacity, as it was in feudal societies. Obdurate, they refuse to see that they are conflating two very different things.

Private property—as Adam Smith made clear—is a means for encouraging the thing he really wanted: fair and open competition….But anyone who actually reads Adam Smith also knows that he went on and on about that “fair and open” part! Especially how excessive disparities of wealth and income destroy competition…. When today’s libertarians praise the creative power of competition, then ignore the unlimited [worship of property] that poisoned it across the ages, we are witnessing historical myopia and dogmatic illogic, of staggering magnitude….

But in rejecting one set of knowledge-limited meddlers—100,000 civil servants—libertarians and conservatives seem bent on ignoring market manipulation by 5,000 or so aristocratic golf buddies, who appoint each other to company boards in order to vote each other titanic “compensation packages” while trading insider information and conspiring together to eliminate competition. Lords who are not subject to inherent limits, like each bureaucrat must face, or rules of disclosure or accountability. Lords who (whether it is legal or not) collude and share the same delusions….

Hence, at last, the supreme irony.  Those who claim most-fervent dedication to the guiding principle of our Enlightenment: competition, reciprocal accountability and enterprise—our neighbors who call themselves conservative or libertarian—have been talked into conflating that principle with something entirely different. Idolatry of private wealth, sacred and limitless. A dogmatic-religious devotion that reaches its culmination in the hypnotic cantos of Ayn Rand. Or in the Norquist pledge to cut taxes on the rich under all circumstances—during war or peace, in fat years or lean—without limit and despite the failure of any Supply Side predictions ever, ever, ever coming true.

An idolatry that leads, inevitably to the ruination of all competition and restoration of the traditional human social order that ruled our ancestors going back to cuneiform tablets — Feudalism

As Paul Krugman has often pointed out, it’s not the 1% that’s the problem. It’s more like the 0.001% (Brin’s “golf buddies” and their ilk around the world) whose vast wealth makes them modern-day aristocrats. It’s also those who Krugman called “enablers” in today’s column – the minions who spread the “private property is sacred” and “government destroys liberty” gospel. If these so-called “conservatives” were true to the spirit of Adam Smith, they’d celebrate “mass education, civil rights, child nutrition and national infrastructure etc.”, which Brin mentions, as well as antitrust enforcement, workers’ rights and environmental protection, all of which have “empowered greater numbers of citizens to join the fair and open process of Smithian competition”.

PS – Brin’s article is on a site called Evonomics: The Next Revolution in Economics. It’s worth visiting.

Class In America

Nancy Isenberg, a history professor at Louisiana State, identifies five myths about class in America. Instead of listing the myths, I’ll turn them around and present the corresponding truths: 

  1. The working class isn’t mostly white and male
  2. Most Americans notice class differences
  3. America has less class mobility than other developed countries
  4. Talent and hard work make it easy to rise above your class
  5. Racial oppression is more serious than class oppression

My favorite paragraph:

Class power takes many forms. Its enduring force, its ability to project hatred toward the lower classes, was best summed up by two presidents 175 years apart. In 1790, then-Vice President John Adams argued that Americans not only scrambled to get ahead; they needed someone to disparage. “There must be one, indeed, who is the last and lowest of the human species,” he wrote. Lyndon Johnson came to the same conclusion in explaining the racism of poor whites: “If you can convince the lowest white man he’s better than the best colored man, he won’t notice you’re picking his pocket. Hell, give him somebody to look down on, and he’ll empty his pockets for you.”