Posts Tagged ‘elites’

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In the midst of the novel coronavirus pandemic, every story, every piece of information, reveals the degree to which our current economic and social institutions have failed us.

The data show us both how widespread the effects of the COVID crisis are and how uneven those effects are. At each turn, they represent a profound critique of U.S. capitalism.

Consider, for example, the information contained in the Census Bureau’s Household Pulse Surveys, which were initiated in late April of this year.

Based on the latest survey, which was conducted between 18 and 23 June 2020, we can see in the chart at the top of the post that almost half (48.1 percent) of U.S. households experienced a loss of employment income since mid-March. The members of those households had either lost their jobs, saw their working hours shortened, or had their pay cut.

But the loss didn’t affect all households equally. For the seventy percent of U.S. households earning less than $100 thousand a year, more than 52 percent had suffered a loss of income. In contrast, about 38 percent of Americans earning more than that experienced a loss of income. And, of course, their large employers have received massive bailouts from the federal government.

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A similarly unequal story emerges from the breakdown of the data according to race and ethnicity in the chart above. While 43.5 percent of White households experienced a loss of income since 13 March of this year, both Black and Hispanic households suffered much more—54.2 percent and 60 percent, respectively.

Both pieces of information challenge the idea that “we’re all in this together.” We never have been, and we certainly aren’t as the consequences of the COVID crisis force Americans to confront how they’ve been abandoned to their own unequal fates by the economic and political elites of their country.

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Obscene levels of economics inequality in the United States are now so obvious they’ve become one of the main topics of public and political discourse (alongside and intertwined with two others, the climate crisis and the impeachment of Donald Trump).*

Most Americans, it seems, are aware of and increasingly incensed by the grotesque and still-growing gap between a tiny group at the top—wealthy individuals and large corporations—and everyone else. And this sense of unfairness and injustice is reflected in both the media and political campaigns. For example, Capital & Main, an award-winning nonprofit publication that reports from California, has launched a twelve-month long series on economic inequality in America, “United States of Inequality: 2020 and the Great Divide,” leading up to next year’s presidential election. And two of the leading presidential candidates in the Democratic Party, Bernie Sanders and Elizabeth Warren, have responded by making economic inequality one of the signature issues of their primary campaigns, regularly describing the devastating consequences of the enormous gap between the haves and have-nots and proposing policies (such as a wealth tax) to begin to close the gap and mitigate at least some of its effects.**

As if on cue, we’re also seeing a pushback. It should come as no surprise that America’s billionaires—from Starbucks CEO Howard Schultz to multi-billionaire hedge-fund manager Leon Cooperman—have gone on the offensive, complaining about how the various tax proposals, if enacted, would reduce what they consider to be the fortunes they’ve earned and undermine two areas they alone control: private philanthropy and corporate innovation.*** And ironically, as Paul Waldman has claimed,

the more billionaires keep talking about how their taxes shouldn’t be raised, the more likely it is that their taxes will in fact be raised, one way or another.

Similarly predictable is the attempt to rejigger the numbers so that inequality in the United States appears to be much less than official sources report. For example, according to the Census Bureau [pdf], in 2018, the top quintile of households (with an average income of $233.9 thousand) had 17 times more than the bottom quintile (whose average income was only $13.8 thousand).**** Phil Gramm and John F. Early argue that “this picture is false” because it focuses only on money income and excludes both taxes and transfer payments.***** Their conclusion?

America already redistributes enough income to compress the income difference between the top and bottom quintiles. . .down to 3.8 to 1 in income received.

There is one kernel of truth in Gramm and Early’s analysis: while the rich pay more in taxes, government transfers make up a much larger share of income of those at the bottom.****** But their calculations dramatically overstate the extent to which taxes and transfers decrease the degree of economic inequality in the United States. That’s because they fail to include unreported capital income, including dividends and interest paid to tax-exempt pension accounts and corporate retained earnings (which are included in other data sets, such as G. Zucman, T. Piketty, and E. Saez, “Distributional National Accounts: Methods and Estimates for the United States” [http://gabriel-zucman.eu/usdina/]).

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As is clear in the table above, in 2014 (the last year for which data are available), the system of taxes and transfers only reduces the degree of inequality (measured as the ratio of top 10 percent average incomes to bottom 50 percent average incomes) from 18.7 to 1 to 10.1 to 1. And if we focus on post-tax cash incomes (thus excluding non-cash transfers, essentially Medicaid and Medicare), the resulting correction is even less: to 11.8 to 1. In both cases, the decrease in inequality is much less than in the Gramm and Early calculations.

The fact is, there are severe limits on what taxes and transfers can achieve in the face of the massive changes in the pre-tax distribution of income that have occurred in the United States since 1979. 

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As readers can see in the table above, while the average pre-tax incomes of the bottom 50 percent of Americans stagnated from 1979 to 2014, those of the top 10 percent increased by 100 percent and the incomes of the top 1 percent soared by even more, 183 percent.

If we compare the real incomes of the same groups after taxes and transfers, it’s clear that while the incomes of the bottom 50 percent of Americans did in fact inch upward from 1979 to 2014 (by a total of 18 percent, or only 0.5 percent a year), progressive taxes and transfers did not hamper the upsurge of income at the top: the average post-tax incomes of the top 10 percent doubled (by 2.86 percent a year) and those of the top 1 percent grew by more than 160 percent (by 4.8 percent a year).*******

The small group at the top continues to pull away from everyone else, both before and after taxes and transfers.

In my view, the degree of economic inequality in the United States is so severe that it can’t be sidetracked by billionaire complaints or swept away by the calculations of conservative economists. And, for that matter, it can’t be solved by enacting more taxes on the ultra-rich and more transfer payments for the rest of Americans. The problem is simply too large and systemic.

Only by understanding and attacking the roots of the inequality that has characterized the U.S. economy for decades now will we be able to close the enormous gap that has undermined the American Dream and shredded the fabric of political and social life in the United States.

 

*But, contra New York University historian Timothy Naftali, this is not the first time “we are having a national political conversation about billionaires in American life.” In fact, I’d argue, it’s a recurring debate in American history, stretching back at least to the rise of populism in the late-nineteenth century (and perhaps earlier, for example, to Shays’ Rebellion) and including the strike wave after the Panic of 1873, the anti-trust movement of the early-twentieth century, the crash of 1929 and the First Great Depression, and most recently the attacks on finance and the Occupy Wall Street movement during the Second Great Depression. In all those cases, Americans engaged in an intense national discussion of inequality and the role of the economic elite in political and social life.

**Even centrist Democrats have taken up, if only timidly, the banner of the anti-inequality campaign. For example, Rep. Brendan Boyle (D-PA), who has endorsed Joe Biden for the Democratic nomination, told The Washington Post he is crafting a new wealth tax proposal to introduce in the House of Representatives. And Rep. Don Beyer (D-VA), who last month endorsed South Bend Mayor Pete Buttigieg, has released a plan (with Sen. Chris Van Hollen of Maryland) for a new surtax on incomes over $2 million.

***The one area they don’t mention, which they also seek to control, is American politics—through lobbying, campaign donations, and the like. Wealthy individuals and large corporations attempt to exert such control although, as we just saw in Seattle—with Amazon’s $1.5 million campaign to unseat a socialist member of Seattle’s city council, Kshama Sawant—they’re not always successful.

****Money income includes the following categories: earnings; unemployment compensation; workers’ compensation; Social Security; supplemental security income; public assistance; veterans’ payments; survivor benefits; disability benefits; pension or retirement income; interest; dividends; rents, royalties, and estates and trusts; educational assistance; alimony; child support; financial assistance from outside of the household; and other income. The ratio of top to bottom rises to an astounding 60 to 1 in terms of only earnings. 

*****The Wall Street Journal column doesn’t explain how the alternative calculations were conducted. But Early, in a Cato Institute report [pdf], does explain their methodology.

******According to my calculations from the most comprehensive source (from G. Zucman, T. Piketty, and E. Saez, “Distributional National Accounts: Methods and Estimates for the United States” [http://gabriel-zucman.eu/usdina/]), in 2014, the bottom 50 percent of Americans received 74 percent of their post-tax income from transfers while, for the top percent, it was 19.5 percent.

*******What of the billionaires? Between 1979 and 2014, the average real post-tax incomes of the top .001 percent grew by 387 percent (or 11.1 percent a year), almost as much as their pre-tax incomes.

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One of the courses I’m offering this semester is A Tale of Two Depressions, cotaught with one of my colleagues, Ben Giamo, from American Studies. It’s a comparison of the conditions and consequences of the two major crises of capitalism during the past hundred years, the 1930s and the period after the crash of 2007-08.*

It just so happens the Guardian is also right now revisiting the 1930s. Readers will find lots of interesting material, from some evocative street photography from the period (including bread lines, hunger marches, and various protests) to classics of political theater (from Bertolt Brecht and Federico García Lorca to John Dos Passos and Clifford Odets).

I’ve been writing about the Second Great Depression, in mostly economic terms, since 2010. For the Guardian, the idea is that the situation then, in the 1930s, offers lessons for us today—partly for economic reasons but, increasingly, given the victory of Donald Trump and the growth of other right-wing populist-nationalist movements in Europe, in political terms.

Larry Elliott focuses on the economics. Unfortunately, he makes the mistake many commit, by starting with the stock-market crash of 1929—which, as it turns out, was the trigger, but not the cause, of the First Great Depression. He does a much better job examining the different responses to the two precipitating crashes (yes, there were lessons were learned, especially in the United States, with the quick bailout of Wall Street), including identifying those who were left out of the post-2009 recovery.

Wage increases have been hard to come by, and the strong desire of governments to reduce budget deficits has resulted in unpopular austerity measures. Not all the lessons of the 1930s have been well learned , and the over-hasty tightening of fiscal policy has slowed growth and caused political alienation among those who feel they are being punished for a crisis they did not create, while the real villains get away scot-free . A familiar refrain in both the referendum on Brexit and the 2016 US presidential election was: there might be a recovery going on, but it’s not happening around here. . .

The winners from the liberal economic system that emerged at the end of the cold war have, like their forebears in the 20s, failed to look out for the losers. A rising tide has not lifted all boats, and those who do not consider themselves the beneficiaries of globalisation have grown weary of hearing how marvellous it is.

The 30s are proof that nothing in economics is inevitable. There was eventually a backlash against the economic orthodoxies and Skidelsky can see why there is another backlash happening today. “Globalisation enables capital to escape national and union control. I am much more sympathetic since the start of the crisis to the Marxist way of analysing things.

And then, of course, there’s the political backlash, the topic of the most recent piece in the series. Jonathan Freedland begins by noting the differences between the two periods: the fact that ultra-nationalist and fascist movements managed to seize power in Germany, Italy, and Spain in the 1930s, which has not (yet) happened in the more recent period. Trump, for example, has criticized the media but has not (yet) closed any sites down. Nor has he suggested Muslims wear identifying symbols.

These are crumbs of comfort; they are not intended to minimise the real danger Trump represents to the fundamental norms that underpin liberal democracy. Rather, the point is that we have not reached the 1930s yet. Those sounding the alarm are suggesting only that we may be travelling in that direction – which is bad enough.

There are other warning signs, which suggest closer parallels between the 1930s and today: the shattering of the faith in globalization’s ability to spread the wealth, the growing hostility to those deemed outsiders, and a growing impatience with the rule of law and with democracy. Then, as now, capitalism faces a profound crisis of legitimacy.

In the end, Freedland takes comfort in our having a memory of the 1930s: “We can learn the period’s lessons and avoid its mistakes.” What he fails to acknowledge, however, is that economic and political elites in the 1930s also had vivid memories—of the great crashes of 1873 and 1893 and, of course, the horrors of the “war to end all wars.” But those events were forgotten amidst more short-run memories, including their joining to put down workers’ actions, including the widespread attacks after the 1926 general strike led by the Trades Union Congress in England and the anti-union “American Plan” during the 1920s on the other side of the Atlantic.

The more or less inevitable result in both countries was growing inequality, as large corporations and a tiny group of wealthy individuals at the top managed to capture a larger and larger share of national income—thus creating a financial bubble that eventually crashed, in 1929 just as in 2007-08.

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The memory of the 1929 crash certainly didn’t prevent the most recent one, nor did it create a recovery that has benefited the majority of the population. In fact, it seems the only lesson learned was how it might be possible, in recent years, for those at the top to recovery more quickly than they managed to do after the First Great Depression what they had lost.

It’s that rush to return to business as usual, characterized by obscene levels of inequality, and not the lack of memory of the 1930s, that has created the conditions for the growth and strengthening of populist, right-wing movements in the United States and Europe.

 

*As is my custom, the syllabus is publicly available on the course web site. Readers might find the large collection of additional materials—music, charts, videos, and so on—of interest. They can be found by following the News link.

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Now that President Trump has begun carrying out his campaign pledges to undo America’s trade ties, formally withdrawing the United States from the Trans-Pacific Partnership and announcing he will start to renegotiate the North American Free Trade Agreement, it’s time to analyze what this means.

As it turns out, I’d already started to do this before the election, with a series of posts (e.g., here, here, here, and here) on Trump and the mounting criticism of the trade agreements the United States had signed (such as NAFTA) or was in the process of negotiating (the TPP).

It’s clear Trump’s decisions—which he claims are a “Great thing for the American worker”—challenge the view of economic and political elites, as well as those of mainstream economists (such as Brad DeLong), in the United States and around the world that everyone benefits from free trade.*

But, we now know, there has also been a growing counter-narrative, that not everyone has gained from growing international trade and trade agreements, which have generated  unequal benefits and costs. What’s interesting about this alternative story, at least when it comes to NAFTA, is that critics on each side argue the other side is the one that has benefited: U.S. critics that Mexico has gained, and just the opposite in Mexico, that the United States has captured the lion’s share of the benefits from NAFTA.

Here’s the problem: workers on both sides of the border have lost out, and their losses are mostly not due to NAFTA.

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We know, for example, that the wage share of national income in the United States has in fact declined after NAFTA was implemented (in January 1994)—from 45.1 percent of gross domestic income to 42.9 percent. But we also have to recognize workers have been losing out since at least 1970, when the wage share stood at 51.5 percent.

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Much the same has been happening in Mexico, where (according to the research of Norma Samaniego Breach [pdf]), the wage share (the dark green line in the chart above) has been falling since 1978—and continued to fall after NAFTA was put into place. And, as Alice Krozera, Juan Carlos Moreno Brid, and Juan Cristóbal Rubio Badan have shown, economic and political elites in Mexico, much like their U.S. counterparts, have mostly ignored the problem of inequality and resisted efforts to raise the minimum wage and workers’ share of national income.

The fact is, while NAFTA did propel a large increase in trade between Mexico and the United States, it “did not cause the huge job losses feared by the critics or the large economic gains predicted by supporters” (according to a 2015 study commissioned by the Congressional Research Service [pdf]).

The bottom line is, eliminating or renegotiating NAFTA—including in the manner Trump is proposing—is not going to help the working-classes in either Mexico or the United States. It is merely a diversion from the real changes that need to be made, to which the political and economic elites as well as mainstream economists in both countries stand opposed.

 

*The only real debate within mainstream economics is between neoclassical economists who argue free trade generates the most efficient outcomes, within and between countries (regardless of whether countries run trade surpluses or deficits), and their critics (such as Jared Bernstein) who argue that trade deficits lead to a loss of jobs (e.g., in U.S. manufacturing), and thus require interventions of the sort Trump is proposing to change the pattern of international trade.

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There are two sides to the recent China Shock literature created by David Autor and David Dorn and surveyed by Noah Smith.

On one hand, Autor and Dorn (with a variety of coauthors) have challenged the free-trade nostrums of mainstream economists and economic elites—that everyone benefits from free international trade. Using China as an example, they show that increased trade hurt American workers, increased political polarization, and decreased U.S. corporate innovation.

The case for free international trade now lies in tatters, which of course played an important role in the Brexit vote as well as in the U.S. presidential campaign.

On the other hand, invoking the China Shock has tended to reinforce economic nationalism—treating China as an unitary entity, a country has shaken up world trade patterns, and disregarding the conditions and consequences of increased trade with other countries, including the United States.

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Why has there been an increasing U.S. trade deficit with China in recent decades? As James Chan explained, in response to an August 2016 article in the Wall Street Journal,

Our so-called China problem isn’t really with the Chinese but rather our own multinational companies.

As I see it, U.S. corporations have made a variety of decisions—to subcontract the production of parts and components with enterprises in China (which are then used in products that are later imported into the United States), to purchase goods produced in China to sell in the United States (which then show up in U.S. stores), to outsource their own production of goods (to sell in China and to export to the United States), and so on. The consequences of those corporate decisions (and not just with respect to China) include disrupting jobs and communities in the United States (through outsourcing and import competition) and decreasing innovation (since existing technologies can be used both to produce goods in China and sell in the expanding Chinese consumer market), thereby increasing political polarization in the United States.

The flip side of the story is the accumulation of capital in China. Until the development of the conditions for the development of capitalism existed in China, none of those corporate decisions were possible—not by U.S. corporations nor by multinational enterprises from other countries, all of whom were eager to take advantage of the growth of capitalism in China. Which of course they then contributed to, thus spurring the widening and deepening of capital accumulation within China.

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It should come as no surprise, then, that there’s been an upsurge of strike activity by workers in the fast-growing centers of manufacturing and construction within China—especially in the provinces of Guandong, Shandong, Henan, Sichuan, and Hebei.

According to Hudson Lockett, China this year

saw a total of 1,456 strikes and protests as of end-June, up 19 per cent from the first half of 2015

The problem with the China Shock literature, which has served to challenge the celebration of free-trade by mainstream economists and economic elites in the West, is that it hides from view both the decisions by U.S. corporations that have increased the U.S. trade deficit with China (with the attendant negative consequences “at home”) and the activity by Chinese workers to contest the conditions under which they have been forced to have the freedom to labor (which we can expect to continue for years to come).

It’s our responsibility to keep those decisions and events in view. Otherwise, we risk the economic and political equivalent of the China Syndrome.

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650 December 9, 2016