While Wall Street celebrates yet another stock market record—surpassing 20,000 on the Dow Jones industrial average—most Americans have little reason to cheer. That’s because they own very little stock and therefore aren’t sharing in the gains.
The only possible response is, “That’s your damn stock market, not ours,” analogous to the response about Brexit and the expected decline in GDP by a woman in Newcastle.
It’s true, even after recent declines, about half (48.8 percent) of U.S. households hold stocks in publicly traded companies directly or indirectly (according to the most recent Survey of Current Finances [pdf]).
But, according to Ed Wolff (pdf), the bottom 90 percent of U.S. households own only 18.6 percent of all corporate stock. The rest (81.4 percent) is in the hands of the top 10 percent.
So, while the stock market has experienced quite a turnaround from mid-February of last year (when a barrage of selling sent the Dow Jones Industrial Average to its lowest close since April 2014), especially since Donald Trump’s November victory (including more than 100 points just yesterday), most Americans continue to be left out in the cold.
Clearly, a much better alternative for American workers would be to follow Shannon Rieger’s advice and look toward a radically different model: enterprises that are owned and managed by their employees. That would give them a much better chance of sharing in the wealth they create.
They would also then be able to finally say to mainstream economists and politicians, “That’s our GDP and stock market, not yours.”
The U.S. economic pie couldn’t be carved up much more unequally. The top 10 percent manages to capture about 47 percent of total pre-tax income, while the bottom 90 gets the rest. The top 1 percent alone walks away with 20 percent of national income.
And, of course, the distribution of wealth is even more unequal: the bottom 90 percent owns only 28 percent of total household wealth, while those in the top 1 percent own more than 37 percent.
As Justin Fox explains, the mainstream view—among both liberals and conservatives—is that, in the face of growing inequality, the main goal of economic policy is to increase the size of the pie.
We’ve just been through a long era during which discussion of economic policy was largely about growing the pie from which all of us partake. Yes, Democrats have been a bit more interested than Republicans in redistributing the pie through taxes and government spending. But economic advice givers in both parties had since the 1970s been focused mainly on what they think will stimulate growth.
That was certainly the thrust of the economic plan proposed by Hillary Clinton—grow the pie and hope that everyone would be satisfied with their obscenely unequal pieces.
The new Trump administration, for all of its chaos and lunacy (which is keeping many of us up at night, and making it difficult to focus on anything else during the day), appears to be inspired by a radically different approach.
Here’s Michael Anton (under a pseudonym), a former George W. Bush speechwriter who is now a national-security aide in the Donald Trump White House, writing last year in support of Trump’s stances to tighten immigration and renegotiate international trade agreements:
Who cares if productivity numbers tick down, or if our already somnambulant GDP sinks a bit further into its pillow? Nearly all the gains of the last 20 years have accrued to the junta anyway. It would, at this point, be better for the nation to divide up more equitably a slightly smaller pie than to add one extra slice—only to ensure that it and eight of the other nine go first to the government and its rentiers, and the rest to the same four industries and 200 families.
The globalists gutted the American working class and created a middle class in Asia. The issue now is about Americans looking to not get f—ed over. . .That’s what the Democrats missed. They were talking to these people with companies with a $9 billion market cap employing nine people. It’s not reality. They lost sight of what the world is about.
Now, I understand, many in the current White House team (from Secretary of State Rex Tillerson to Treasury Secretary designate Steve Mnuchin) are members of the very same junta and the kinds of globalists excoriated by Anton and Bannon. The battles among them have barely begun.
My point is only that Trump won the presidential election—and will proceed to formulate economic policy—at least in part on the basis of a critique of the status quo. Simply growing the economic pie was an insufficient response to the discontent generated by the grotesque inequalities that have emerged in the United States during the past three decades and that reemerged during the recovery from the crash of 2007-08.
It’s true, there’s nothing in Trump’s economic plan that will actually reverse those inequalities. The likelihood, in fact, is that the United States will end up with a smaller pie and an even more unequal distribution of the pieces.
But there is a rational kernel to the critique of the mainstream idea that all needs to be done is to raise productivity and increase economic growth and the problems associated with inequality will somehow disappear.
We also need to recognize that, with Trump, that rational kernel is standing on its head. It is up to us to turn it right side up again.
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.
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.
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.
The American Dream has all but collapsed under the weight of growing inequality. It’s becoming increasingly difficult for the American working-class to sustain a decent standard of living, and their children are increasingly unlikely to be better off than they are.
But those who hang on to the American Dream—or at least the selling of that dream to others—believe that sending young people to the nation’s colleges and universities is the solution.
The problem, of course, is that even as enrollment in higher education has grown so has income inequality—and, with it, access to college remains profoundly unequal. The United States is therefore moving further and further away from being able to fulfill the American Dream.
According to a new study by Raj Chetty and the rest of the Equality of Opportunity Project team, while the number of children from low-income families attending college rose rapidly over the 2000s—both in absolute numbers and as a share of total college enrollment—the share of students from bottom-quintile families at four-year colleges and selective schools did not change significantly over the 2000s. Even at the Ivy-Plus colleges, which enacted substantial tuition reductions and other outreach policies during this period, the fraction of students from lower quintiles of the parent income distribution did not increase significantly.* They enroll more students from families in the top 1 percent of the income distribution (14.5 percent) than the bottom half of the income distribution (13.5 percent). And only 3.8 percent of students come from the bottom 20 percent of the income distribution.**
Even at the institutions of higher education with the highest mobility rates (with a high fraction of its students who come from the bottom quintile of the income distribution and end up in the top quintile)—for instance, SUNY-Stony Brook and Glendale Community College—the fraction of students from low-income families fell sharply over the 2000s. As a result, the average student from a low-income family now attends a college with lower success rates than in 2000. In short, the colleges that may have offered many low-income students pathways to success are becoming less accessible to them.
As it turns out, the degree of income segregation across colleges is comparable to income segregation across census tracts in the average American city.
Contrary to the common perception that children interact with a more socioeconomically diverse group of peers when they reach college, colleges in America are just as segregated as the neighborhoods in which children grow up.
Now, it is true: the United States still has a large number of great working-class colleges. For example,
At City College, in Manhattan, 76 percent of students who enrolled in the late 1990s and came from families in the bottom fifth of the income distribution have ended up in the top three-fifths of the distribution. These students entered college poor. They left on their way to the middle class and often the upper middle class.
the City University of New York system propelled almost six times as many low-income students into the middle class and beyond as all eight Ivy League campuses, plus Duke, M.I.T., Stanford and Chicago, combined.
The problem is, the share of low-income students at at many public colleges has fallen over the last 15 years as state funding has plummeted. Working-class students, who remain shut out of the nation’s elite colleges and universities, are finding it increasingly hard to attend and complete their degrees at public institutions.
What we’re left with then is a system of higher education that, outside the elite schools, is not flush with cash and, as a result, is leaving “our young and beautiful students” with less and less access to a high-quality college or university education.
That’s why, continuing to promise the American Dream to the children of the working-class is the real American carnage.
*Ivy-Plus colleges include the eight Ivy League colleges (Brown, Columbia, Cornell, Dartmouth, Harvard, the University of Pennsylvania, Princeton, and Yale), the University of Chicago, Stanford University, the Massachusetts Institute of Technology, and Duke.
**At the University of Notre Dame, where I teach, 15.4 percent of students (for the 1991 cohort, approximately the class of 2013) had parents in the top 1 percent, while only 10 percent came from families in the bottom three quintiles.
Oxfam’s headline-grabbing numbers are bad enough: “Eight men are as rich as half the world.” But the international organization has presented an even more serious and severe indictment of current economic arrangements—which can’t be glossed over by merely encouraging those at the top to pay more taxes.
In the background paper, “An Economy for the 99 Percent” (a follow-up to last year’s “An Economy for the 1%“), Oxfam researchers both document the existence of grotesque levels of economic inequality in the world today and analyze the main causes of that inequality.
Regular readers of this blog will recognize the numbers indicating the obscene levels of contemporary inequality:
But it’s the analysis behind those numbers that, in my view, deserves even more attention.
Oxfam starts where they should, with the key institution within global capitalism: corporations.
Businesses are the lifeblood of a market economy, and when they work to the benefit of everyone they are vital to building fair and prosperous societies. But when corporations increasingly work for the rich, the benefits of economic growth are denied to those who need them most. In pursuit of delivering high returns to those at the top, corporations are driven to squeeze their workers and producers ever harder – and to avoid paying taxes which would benefit everyone, and the poorest people in particular.
Corporations are where much of the world’s surplus (at least the surplus that is created within the bounds of capitalism) is both appropriated and distributed. In recent years, corporate profits have been rising because they’ve been able to squeeze their own workers, by forcing more of them to work not for themselves but for corporate giants and, when they do, paying them a smaller and smaller share of the value that is created. And corporations have managed to get even more of the surplus by squeezing small producers, who are forced to have the freedom to sell their goods and services to those corporations, and by using “their huge power and influence to ensure that regulations and national and international policies are shaped in ways that enable continued profitability.” Then, once they’ve managed to get more surplus, corporations have been able to keep more of it, by “paying as little tax as possible.” Finally, corporations have been “paying out an ever-greater share of these profits to the people who own them,” such that the small group of already-wealthy shareholders have been able to receive a large share of the surplus.
What we have then is a Second Gilded Age, “in which a glittering surface masks social problems and corruption.” And, of course, “once a fortune is accumulated or acquired it develops a momentum of its own.”
The huge fortunes we see at the very top of the wealth and income spectrum are clear evidence of the inequality crisis and are hindering the fight to end extreme poverty. But the super-rich are not just benign recipients of the increasing concentration of wealth. They are actively perpetuating it.
One way this happens is through their investments. As some of the biggest shareholders (particularly in private equity and hedge funds), the wealthiest members of society are huge beneficiaries of the shareholder worship that is warping the behaviour of corporations.
The end result is exactly what one would expect: “Eight men now own the same amount of wealth as the poorest half of the world.”