Inequality & Oligarchy

Beyond the Laffer Curve — the case for confiscatory taxation
Updated by Matthew Yglesias on April 18, 2014, 2:30 p.m. ET @mattyglesias


Arthur Laffer Gage Skidmore/Flickr
The Laffer Curve — the idea that tax cuts can sometimes increase tax revenue — is one of the most influential and widely debated ideas in the past two generations of American politics. Beloved by the right and despised by the left, one thing that both sides have tended to agree on is that knowing what side of the curve we're on should be a key driver of tax policy.

But in an era of surging inequality, it's time to revisit that assumption. Maybe at least some taxes should be really high. Maybe even really really high. So high as to useless for revenue-raising purposes — but powerful for achieving other ends.

We already accept this principle for tobacco taxes. If all we wanted to do was raise revenue, we might want to slightly cut cigarette taxes. And since cigarettes are about the most-taxed thing in America, we certainly would want to cut out all our other anti-smoking initiatives. But we don't do that because we care about public health. We tax tobacco not to make money but to discourage smoking.


The same is true of widely discussed proposals to tax carbon dioxide and other greenhouse gas emissions. The goal here wouldn't be to maximize tax revenue, it would be to reduce pollution. The revenue would be a pleasant side effect.

If we take seriously the idea that endlessly growing inequality can have a cancerous effect on our democracy, we should consider it for top incomes as well.

Taxing the boss
With the growing concentration of wealth an increasing subject of public concern, it's time to reconsider whether the application of Laffer-style reasoning to very prosperous individuals is appropriate.

Imposing a marginal tax rate of 90 percent on inheritances worth over $10 million, for example, would probably raise very little revenue. Rather than pay $90 to Uncle Sam for the chance to send $10 more to their kids, rich people would give the money to a tax-exempt charitable institution instead. That wouldn't help balance the budget — in fact, it would hurt those efforts — but it would help break the doom loop of oligarachy whereby concentrated wealth breeds political power breeds greater concentration of wealth.


Even more intriguing would be to apply the same principle of taxation-as-deterrence to very high levels of income.

About twenty years ago, Congress and the Clinton administration took a step that they thought would curb what they thought was excessive CEO pay. They said that salaries of over $1 million wouldn't be deductible from the employer's corporate taxes. Since that time, CEO pay has gone further up. Now the typical S&P 500 CEO earns 311 times more than his median employee. The reason isn't that tax deterrence doesn't work, it's that the authors of the law left a loophole big enough to drive $10 million through — you can deduct whatever payment you want as long as you jigger your compensation scheme to label it "performance based."

Imagine a world in which we not only closed that loophole, but imposed a 90 percent marginal tax rate on salaries above $10 million. This seems unlikely to raise substantial amounts of revenue. If you really really really really desperately wanted to give your CEO a raise, you would have that option. But for every extra $1 you give him, you'd have turn over $9 to the government. Why not use that same $10 to give raises to three or four people lower down the food chain who pay lower taxes?

Of course, the CEO might threaten to quit if he can't get his raise. But what are his realistic options? Every company in the country would be faced with the same dilemma — why waste the salary budget on paying confiscatory tax rates rather than on hiring and retaining front-line workers? That might turn around the deplorable stagnation in earnings that typical households have faced over the past several decades:


It's conceivable that America's executives would respond to their newly reduced wages by retiring en masse. But it seems unlikely that objective need to accumulate more wealth is what's stopping today's captains of industry from choosing early retirement.

Beyond CEOs
Of course not every highly paid person in the United States is an executive at a large company. Some of them manage hedge funds. Some are partners at law firms. A few are "superstars" in the arts or sports. Maybe in these fields we really would see a reduction of effort, or at least a relaxation of the intensity with which the performers pursue money.

But would that be so bad? Imagine the very best hedge fund managers and law firm partners became inclined to quit the field a bit sooner and devote their time to hobbies. What would we lose, as a society? Fancy lawyers overwhelmingly compete against each other in a zero-sum game.

Much of finance has the exact same dynamic. If the average "quality" of the trader on Wall Street declined slightly, nothing of consequence would happen.

As for superstars, would it be so bad if celebrity actors became slightly more inclined to accept low-paying passion projects rather than income-maximizing commercial ones? At the same time, some would presumably just move to Switzerland or the Cayman Islands to avoid taxes. That would be a real hit to local economies, but hardly a disaster.

The false tax dichotomy
Policy discussions of inequality in the United States are too often plagued by a somewhat artificial imperative to distinguish between efforts to "redistribute" income through taxes and transfers and efforts at "predistribution" that would alter the market structure of compensation.

This distinction is crucially important when considering the fate of the poor — many of whom lack full-time jobs — since there is a large and obvious difference between cutting someone a larger welfare check and arranging for her to get a well-paid job.

But when the question is the rich, the distinction largely breaks down. That's because the tax code structures even the "pre tax" incomes of very high earning people. Very high taxation of inheritances would mean fewer big inheritances, not more tax revenue. Very high taxation of labor income would mean fewer huge compensation packages, not more revenue. Precisely as Laffer pointed out decades ago, imposing a 90 percent tax rate on something is not really a way to tax it at all — it's a way to make sure it doesn't happen.

If you believe systematically lower CEO compensation packages would mean a mass withdrawal of talent from the business world and a collapse of American industry, then those smaller pay packages could be an economic disaster. But the more plausible theory is that systematically lower CEO compensation packages would mean systematically higher compensation spending elsewhere in the corporate structure. Either more frontline workers or better-paid ones. The new tax code would redistribute value inside the corporate structure without anyone actually paying the new sky-high taxes.

The Doom Loop of Oligarchy

Tim Graham/Getty Images
In the year's scariest economics book, Thomas Piketty argues that capitalism, left unchecked, subverts democracy by always and everywhere concentrating wealth at the tippy-top. That creates a class with so much economic power that they begin wielding tremendous political power, too. And then they use that political power to further increase their wealth, and then they use that wealth to further increase their political power, and so on.

You might call this the Doom Loop of Oligarchy: wealth buys power, which buys more wealth. You can see it playing out over the last two weeks in American politics.

1) Let's begin with the economics. A new study by economists Emmanuel Saez and Gabriel Zucman shows that the richest one percent of US households have almost doubled their share of the nation's wealth since the 1960s. One percent of the country owns more than 40 percent of the wealth — and that share is rising.

2) In contrast, the bottom 90 percent of the country owns less than 30 percent of the nation's wealth.

3) If you look closely, the rise of the one percent is actually the rise of the 0.1 percent. In the 1960s, this group owned about 10 percent of the nation's wealth. By 2012, they owned more than 20 percent.

4) It's well known that as the rich have gotten richer, the top income tax rate has gone down. In 1960, the top marginal tax rate was 91 percent. It's now 39.6 percent.


5) Similarly, as the wealthy have gotten wealthier, the estate tax — which taxes inheritances — has been declawed. In 1960, the tax began at estates of $60,000, and the top rate, which hit estates above $10,000,000, was 77 percent. Today the estate tax doesn't even begin until the estate is worth $5,340,000 — and after that, the top tax rate is just 40 percent.


6) On Thursday, the House passed Paul Ryan's 2015 budget. In order to get near balance, the budget contains $5.1 trillion in spending cuts — roughly two-thirds of which come from programs for poor Americans. Those cuts need to be so deep because Ryan has pledged not to raise even a dollar in taxes.

7) As a very simple rule, rich people pay more in taxes and poor people benefit more from services. So if you pledge to balance the budget without raising taxes, you're going to end up making the rich richer and the poor poorer. But Ryan goes further than that: he actually cuts taxes on the rich.

8) Ryan specifically promises to take the highest marginal income tax rate down from its current 39.6 percent to 25 percent. He also says he'll pay for it. But he doesn't say how he'll pay for it.

9) It's a safe bet that policies like, say, the estate tax — which taxes large inheritances — would disappear under Ryan-led tax reform. His 2010 budget roadmap, which included more details than his more recent budgets, eliminated the estate tax — which Ryan, like many Republicans, calls "the death tax" — entirely.

10) Mitt Romney proposed a similar plan and offered a similar lack of detail about how to pay for it. When the Tax Policy Center ran the numbers it quickly came clear why Republican politicians are so loathe to get specific: even under ridiculous favorable assumptions, they found the plan cut taxes on the rich and raised them on the middle class.

11) So the Ryan budget, as close as the details allows us to tell, cuts spending on programs that benefit poor people in order to cut taxes on rich people. It is easier for heirs to build great wealth if their inheritance isn't heavily taxes and it's harder for the poor to build wealth if they're kicked off Medicaid and need to spend that money on health insurance. So the wealthy will get wealthier and the poor will get poorer.

12) Less than a week before the Ryan budget passed the House, the conservative majority on the Supreme Court made the wealthy even more powerful in American politics. Prior to the McCutcheon v. FEC decision, no matter how rich you were, you could only donate $48,600 to political candidates in any one election cycle. Now there's no cap on total donations (though you can only give $2,400 to any individual candidate).

13) This comes just a couple of years after Citizens United and related decisions made it easy for rich Americans to spend unlimited sums on SuperPACs and other independent political organizations.

14) Wealthy people will be even better poised to influence the 2014 and 2016 elections than they were to influence the 2010 and 2012 elections. Now, wealthy people are not a single voting bloc, but most wealthy people would like to continue being wealthy. And so you see bipartisan movement towards policies that protect their wealth, most recently with the Democratic legislature in Maryland voting to eliminate the state's estate tax.

5) Over time, a political system that gives the wealthy more power is a political system that is going to do more to protect the interests of the wealthy. It's the Doom Loop of Oligarchy, and we're seeing it daily.

Obama White House Sponsors Young and Rich Narcissistic 1% Fucktards That Will Ruin the World
Published April 20, 2014 | By bmaz
Proving it is never too late to shine your lame duck ass for a new generation of 1% oligarchs, Barack Obama laid open the real constituency of national politicians. And proved certain any inference that such was only the constituency and province of the GOP, Koch Brothers et. al is false.

If this is not stupid and ugly to the common Democratic fanchild, it is hard to imagine what is, or could be. From the New York Times hagiography:

On a crisp morning in late March, an elite group of 100 young philanthropists and heirs to billionaire family fortunes filed into a cozy auditorium at the White House.

Their name tags read like a catalog of the country’s wealthiest and most influential clans: Rockefeller, Pritzker, Marriott. They were there for a discreet, invitation-only summit hosted by the Obama administration to find common ground between the public sector and the so-called next-generation philanthropists, many of whom stand to inherit billions in private wealth.

“Moon shots!” one administration official said, kicking off the day on an inspirational note to embrace the White House as a partner and catalyst for putting their personal idealism into practice.

“Moon shots!”

I guess the Obama White House couldn’t fathom a better phrase for coming in their pants over big money.

If there is a more sick comment on the perverted state of US national politics, it is hard to imagine what it would be.

We are ruled by a bunch of oligarchs, and political handmaidens that kiss the oligarch’s asses and hew their beck and call. If the fact the great once and forever symbol of the common citizen “hope and change”, Barack Obama, is such a distant leader, constantly beholden to not only the future of the moneyed class, but the current too, then there is no reality for the American public.

The well-heeled group seemed receptive. “I think it’s fantastic,” said Patrick Gage, a 19-year-old heir to the multibillion-dollar Carlson hotel and hospitality fortune. “I’ve never seen anything like this before.” Mr. Gage, physically boyish with naturally swooping Bieber bangs, wore a conservative pinstripe suit and a white oxford shirt. His family’s Carlson company, which owns Radisson hotels, Country Inns and Suites, T.G.I. Friday’s and other brands, is an industry leader in enforcing measures to combat trafficking and involuntary prostitution.

Oh my. And holy crap.

The New York Times penned a factual report of this sick instance. Will the New York Times, Washington Post, Wall Street Journal, or any of the other august opinion pages of national press, deign themselves honest enough to write opinion and/or editorial pieces recognizing this political cancer for what it really is?

If you did not view the video, and listen to the lyrics in the video above, do so. Because that is exactly the class of “super citizens” your elected leaders are beholden to. The handful of billionaires count for far more than the actual billions of people on this earth.

Want proof? Look no further than the “liberal”, “socialist”, “Democratic” Obama White House, who just demonstrated the problem in Technicolor.

And, before you chafe, of course it would be even worse with Republicans in charge. But the question is no longer just which party is in control of the levers of power (though it DOES matter for SCOTUS), but where the values of the country really are.

It is almost impossible to fathom the country’s values are with the pimple faced, Bieber banged, teenager scions of billionaires the Obama White House so calmly and cooly glad-hands.​

Why are the lowly Milwaukee Bucks worth $550 million? Soaring inequality
Updated by Matthew Yglesias on April 17, 2014, 3:00 p.m. ET @mattyglesias


Two guys named Marc Lasry and Wes Edens purchased the Milwaukee Bucks NBA franchise on Thursday, April 17 for $550 million. You may thing this is of picayune interest to professional basketball fans or Wisconsin residents, but it's actually an incredibly telling episode about the nature of inequality in the United States.

To understand why, you have to start with who the Bucks are. They are, this year, one of the worst teams in the NBA. And it's been a long time since they've been good. It's a small market that, unlike Salt Lake City or Portland, the NBA doesn't have all to itself. The Bucks need to compete with a pro baseball team in Milwaukee and with a pro football team in Green Bay for the allegiance of Wisconsin sports fans and corporate sponsors. In other words, this $550 million sale price probably reflects a floor on the possible value of an NBA team. The other 29 are all even more valuable than this.

Why are the teams so valuable? Two reasons, both deeply related to the growth of economic inequality in the United States.

One is labor relations. At the expiration of the last collective bargaining agreement, the NBA's owners got together and locked the players out in order to force large givebacks from the unions. Now player salaries are capped at 50 percent of league revenue. The players, of course, are the entire draw. The whole basis of the business. But they get just half the pie to divide up amongst themselves. At the end of the day, NBA players are still quite prosperous. But this kind of structural weakness of labor has been a key driver of inequality, and the NBA shows that it's extended all the way up the pipeline to the richest and most-skilled classes of workers.

The flipside is that inequality is itself a cause of surging team valuations. The NBA and other North American pro sports leagues are structured as cartels where the supply of teams is fixed. So the richer the rich become, the more they bid up the price of scarce commodities like beachfront mansions and pro sports franchises.

Lasry and Edens even work as perfect exemplars of contemporary inequality in the United States — they got rich in the hedge fund game, as have so many of today's richest people.

But the really interesting thing about the sale of the Bucks is that it challenges a piece of longstanding conventional wisdom among economists. Traditionally, economists have believed that investment income should be taxed at a lower rate than labor income or even not taxed at all. An alternative way of putting it is that the economics profession generally believes that consumption should be taxed rather than income. This is because you want to create incentives for people to defer consumption, save, and invest in building up the country's stock of capital goods. Yet something Thomas Piketty points out in his celebrated new book on wealth inequality around the world is that at the high end the distinction between wealth and consumption tends to break down.

For a normal middle class person, the difference between spending $5,000 on a vacation and putting $5,000 into the stock market to save for retirement is obvious. But while buying a professional basketball team is technically a business investment, it's also the case that owning a pro sports team is pretty fun.

It's no coincidence, for example, that NBA teams are invariably purchased not just by rich guys but by rich basketball fans. Similarly, baseball fans own MLB teams and football fans own NFL teams. It's a business investment, in other words, but it's also a form of consumption.

And while owning a sports team is a bit of a special case, it's generally true that this is an important difference between being an average investor in a company and being an owner or CEO (or both simultaneously, like Facebook's Mark Zuckerberg or Google's Larry Page and Sergei Brin) who actually controls the company. When you're the guy in charge, you don't collect a share of the economic value of your enterprise. You collect a share of the psychological value of being able to shape the enterprise. You ride on the company jet, you help design the corporate campus, you acquire startups you admire, you set the dress code, you punish friends and reward enemies.

In other words, while it's easy to write down an economic model that features a sharp distinction between investment and consumption it's very difficult in practice to know where high-end consumption ends and high-end investment begins. If you want to tax the consumption of the very rich, you need — in practice — to be taxing their wealth.

Study: tax hikes could grow the economy
Updated by Matthew Yglesias on April 20, 2014, 10:00 a.m. ET @mattyglesias


Maybe you guys should be doing something more worthwhile John Moore/Getty Images
At the core of Washington's economic-policy debate is a premise shared by both Democrats and Republicans: raising taxes on the rich will hurt the economy by discouraging super-talented, super-productive rich people from working as hard.

But in a recent paper "Taxation and the Allocation of Talent," Benjamin Lockwood, Charles Nathanson, and Glen Weyl challenge that assumption. Higher tax rates, they argue, could push talented individuals to eschew lucrative-but-socially-useless jobs in favor of more broadly beneficial careers in teaching and research.

The idea: low taxes lead people to waste their lives on money-making
When choosing a career, people — and especially talented people — have the opportunity to trade off financial and non-financial rewards. A high school English teacher can probably take longer vacations than a partner at a corporate law firms, but the lawyer gets paid more and can take fancier vacations. A research scientist may attract more praise from the community than the designer of high-frequency trading algorithms, but the trader can buy a gorgeous loft in Manhattan. Raising taxes on the rich reduces the relative size of those financial rewards.

The career choices talented people make matter not just for themselves, but for the rest of society. Jobs differ in the extent to which success helps others. Major scientific breakthroughs help a scientist advance her career but are also broadly beneficial to society. A great teacher may impact a smaller circle of people, but is still helping many people beside herself. By contrast, lawyers and traders seem to largely compete with each other in zero-sum games. If high taxes push talented people into careers where their work helps others that could raise the growth rate and increase human welfare completely apart from revenues.

The evidence for
Like many economics papers, the work primarily consists of exploring a variety of mathematical models. The empirical data used is largely second-hand (the authors use a study of Harvard graduates career choices as well as IRS data about the occupations of the top 0.1 percent of the income distribution, and they cite a wide array of preexisting literature about the benefits of different professions) and not necessarily intended to produce precise results.

The authors show that under a variety of plausible assumptions the socially optimal top marginal income tax rate is very high — in the 70 to 90 percent range — largely because high tax rates would deter talent entry into finance and encourage talent entry into research/academia and teaching. The authors also find that this sort of high tax regime is a distinctly second-best policy alternative and that the vast majority of the benefits could be captured with fewer unintended consequences through hypothetical more targeted policy measures aimed at specific occupations.

Reasons for doubt:
The authors methods do not attribute any positive externalities to occupations in the arts and entertainment. To the extent that one believes "starving artists" are making contributions to society not captured by their monetary incomes, the true optimal tax rates will be even higher.

Conversely, the theory that skill in pursuit of financial careers adds little social value, though widely believed, has hardly been proven in an airtight manner. Even if some trading occupations are largely zero-sum, the financial sector arguably contributes broadly to the effective management of private firms (through the reality or threat of takeover) and to the commercialization of innovation (through the venture capital sector). Furthermore, it is at least not obviously correct to believe that the people who make excellent hedge fund managers would also be excellent elementary school teachers were they to choose another occupation.

Ultimately the paper is an extremely provocative theoretical contribution that suggests a potentially fruitful line of empirical inquiry. Given that the case for higher taxes tends to rest on equality, this research offers an interesting additional consideration. But ultimately the result hinges heavily on the estimation of hard-to-estimate parameters, so much so that the authors have created a handy web app into which you can insert your own favored values.
I had a neutral opinion of Reich before, but I now see that he is either uninformed or unintelligent.
Point three was valid, but the answer to that is to shrink the government, not to devalue the dollar.
Hang on. How would what he proposes devalue the dollar?

Also, how would you shrink the government?

Lastly, nice to see you back.
People will still be paid the same relative amount, the purchasing power will remain unchanged at best (at worst, the poor suffer even more, thanks Dems!).
A fiat change will mean that the same value will now have a larger nominal figure attached to it, thus a dollar is worth less at least domestically.

If the government were to limit itself to constitutional programs, we would shrink back to the governmental spending of like 150 years ago when they knew that the government that governed best governed least. I also recommend the budget chapter in PJ O'Rourke's "Parliament of Whores" - if you would not shoot your grandmother for failing to pay her taxes for the government program, it is unworthy and should be scrapped. Because taxes are ultimately collected at the barrel of a gun.

Yeah, I gave up excessive internets for Lent. He is risen, alleluia.
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I shall praise to the bunny rabbit that holds the spirit of Jesus Christ for your return.
Very interesting thesis that taking the US off the gold standard opened the age of funny money financing benefiting the wiley wealthy.
With all that has been written in respect of Thomas Piketty’s new book, “Capital,” you would think that someone — Paul Krugman, say, or Jonathan Chait or David Brooks or Hendrik Hertzberg; we’re not worried about who it might be so much as someone among the liberal intelligentsia — would have remarked on an odd coincidence of timing. We’re speaking here of the timing of the rapid rise of the blasted inequality over which Professor Piketty is so upset. After all, this inequality has become the cause celebre of the season for President Obama and his entire political party. It’s the issue of the hour. Yet when it comes to the timing at which this phenomenon presented itself, nada. Omerta.

(Website of Thomas Picketty)">Click Image to Enlarge

Website of Thomas Picketty

HMMMM: What could have marked 1971 as the year the picture began to change in respect of inequality in America? It turns out that was the year America defaulted on its obligation under Bretton Woods to redeem in gold dollars held by foreign governments and the era of fiat money began.

Well, feature the chart that Professor Piketty publishes showing inequality in America. This appears in the book at figure 9.8; a similar version, shown alongside here, is offered on his Web site. It’s an illuminating chart. It shows the share of national income of the top decile of the population. It started the century at a bit above 40% and edged above 45% in the Roaring Twenties. It plunged during the Great Depression and edged down in World War II, and then steadied out, until we get to the 1970s. Something happened then that caused income inequality to start soaring. The top decile's share of income went from something like 33% in 1971 to above 47% by 2010.

Hmmm. What could account for that? Could it be the last broadcast of the “Lawrence Welk Show?” Or the blast off of the Apollo 14 mission to the Moon? Or could it have something to do with the mysterious D.B. Cooper, who bailed out of the plane he hijacked, never to be seen again? A timeline of 1971 offers so many possibilities. But, say, what about the possibility that it was in the middle of 1971, in August, that America closed the gold window at which it was supposed to redeem in specie dollars presented by foreign central banks. That was the default that ended the era of the Bretton Woods monetary system.

That’s the default that opened the age of fiat money. Or the era that President Nixon supposedly summed up in with Milton Friedman’s immortal words, “We’re all Keynesians now.” This is an age that has seen a sharp change in unemployment patterns. Before this date, unemployment was, by today’s standards, low. This was a pattern that held in Europe (these columns wrote about it in “George Soros’ Two Cents”) and in America (“Yellen’s Missing Jobs”). From 1947 to 1971, unemployment in America ran at the average rate of 4.7%; since 1971 the average unemployment rate has averaged 6.4%. Could this have been a factor in the soaring income inequality that also emerged in the age of fiat money?

This is the question the liberals don’t want to discuss, even acknowledge. They are never going to get it out of their heads that the gold standard is a barbarous relic. They have spent so much of their capital ridiculing the idea of honest money that they daren’t open up the question. It doesn’t take a Ph.D. from MIT or Princeton, however, to imagine that in an age of fiat money, the top decile would have an easier time making hay than would the denizens of the other nine deciles, who aren’t trained in the art of swaps and derivatives. We don’t belittle the skills of the top decile. We tend to view them the way we view great baseball players or violinists — heroic figures. Neither do we make a totem out of economic equality; in inequality, after all, are found incentives.

In terms of public policy, though, we favor honest money. It works out better for more people. And there is a moral dimension to the question of honest money. This was a matter that was understood — and keenly felt — by the Founders of America, who almost to a man (Benjamin Franklin, a printer of paper notes, was a holdout), cringed with humiliation at the thought of fiat paper money. They’d tried it in the revolution, and it had been the one embarrassment of the struggle. They eventually gave us a Constitution that they hoped would bar us from ever making the same mistake.
There is an irony here for Monsieur Piketty. It was France who gave us Jacques Rueff, the economist who had the clearest comprehension of the importance of sound money based on gold specie. He was, among other things, an adviser of Charles De Gaulle. It was De Gaulle who in 1965, called a thousand newspapermen together and spoke of the importance of gold as the central element of an international monetary system that would put large and small, rich and poor nations on the same plane. We ran the complete text of Professor Piketty’s book “Capital” through the Sun’s own “Electrically-operated Savvy Sifter” and were unable to find, even once, the name of Rueff.
I'm convinced there's no fixing the system before it collapses. It's just getting as much out of it as you can for now and padding yourself for impending doom.
It's International Workers' Day, here's the case for higher pay
Updated by Matthew Yglesias on May 1, 2014, 9:20 a.m. ET @mattyglesias


Athanasios Gioumpasis/Getty
Today is May 1, aka International Workers Day in most developed countries, though not a holiday here in the United States. The kind of tacky workers-versus-owners politics that goes into May Day celebrations certainly cuts against the grain of American political culture, where even our off-brand Labor Day in the autumn doesn't have much of an edge to it.

But in reality this kind of class politics has rarely been more relevant in the USA. Workers have been taking it on the chin for almost fifteen straight years now and it's hurting the overall economy. A raise would do us all some good.

Take a look at this:


That's the labor share of overall national income, and it's been on a pretty steady path of decline for about fifteen years now.

Of course on its own that doesn't tell you very much. Lots of extremely rich people receive labor income, and lots of middle class people are shareholders in companies. But an OECD report out this week clarified usefully that, yes, non-labor income is primarily the province of the very rich:


You see that for the top 0.1 percent and the top 0.01 percent, business income and capital income are really really important. Down in the bottom 99 percent, people are working for a living. So the decline in the labor share is bad for the vast majority of people.

Of course there's more to life than distribution. Maybe workers are getting a smaller slice of a rapidly growing pie? But of course that hasn't been the case:


Since 2000, our strongest growth year was 2004 when we achieved 3.8 percent GDP growth. The economy grew faster than that in 1997, 1998, 1999, and 2000 and only a tiny smidge smaller in 1996. It also grew faster than that in 1983, 1984, and 1985. It grew faster than that four different times in the 1970s and six different times in the 1960s.

The theory was that policies friendly to capital would increase business investment, and thus help spur broadly beneficial growth. But it hasn't exactly worked out that way. Profits have soared while investment has stayed much more restrained:


The result is a stalled economy. Money is collecting in the coffers of successful companies that don't want to spent it on expansion or being flushed out as dividends or share buybacks to people who own stock — mostly rich people who mostly don't have immediate economic needs they need to meet. On an individual basis, this makes sense. Executives want to try to maximize profits and shareholders want to try to maximize payouts to themselves. But collectively it's a disaster.

If average people had more money in their pockets, they would buy more iPads and dinners out with the family and new super-blenders and gym memberships and movie tickets and all the rest. That kind of enhanced consumer buying power would create the opportunity for more business investment to actually pay off, driving a cycle of higher investment and more growth. Today with profits sky-high and interest rates super-low, companies aren't constrained in their investment by financial considerations but by objective opportunities. If people don't have any money, there's no reason for companies to invest in making stuff to sell to them. A higher wage economy wouldn't be literally better for every single person but it would be broadly beneficial not just for wage-earners but for the overall business and growth climate.
I agree with the important caveat that higher wage needs to be real wages and not just nominal dollars.
Raising a paycheck to a certain figure nationwide is akin to decreeing that Rambo's scale will now show him weighing 145 pounds. The numbers will change, but the reality will not.

Also, those fuckin iPads are made in China and the dinners are cooked by illegal aliens and served by people making minimum wage at best. Raise interest rates and the nation attracts foreign investment and banks have incentive to loan to entrepreneurs (the real job creators).
Also, those fuckin iPads are made in China and the dinners are cooked by illegal aliens and served by people making minimum wage at best. Raise interest rates and the nation attracts foreign investment and banks have incentive to loan to entrepreneurs (the real job creators).
This makes little sense. The interest rate is just about 0. Which means it costs banks almost nothing to get money and they're STILL not making loans. Why would they start making more loans if it cost them more money to do so? They have no incentive to make loans because its risk, and there is little to no risk in getting money from the fed and stuffing it in the treasury market for a 3 month money making loan.

Also, not exactly sure what the slightly racist, and definitely classist first sentence has to do with the rest of it.
The economic impact of an Apple Genius at the mall pales in comparison to the armies of factory workers assembling iPads over in China. This helps America how? Adam Smith new that wealth is created only in manufacturing.

Shouldn't commercial banks be making money by, you know, lending money instead of gambling? Glass-Steagall made banks honest and useful instead of parasitic derelicts.
If average people had more money in their pockets, they would buy more
lottery tickets, cell phone data plans, and American Idol votes. Poors are poor because of how they spend, not what they earn.
Have I cited Ellen Ruppel-Shell's Cheap: The High Cost of Discount Culture here?
In the same way that the underclass buys crummy used cars on their last legs and pays high interest rates and zero maintenance and repeats every year or two since major repairs are past their budget, whereas a person of means buys a new car and pays it off and maintains it and ultimately amortizes and pays less while getting more... the working class has contributed to their own demise by their consumption of cheap, disposable consumer products.
Guess who makes more, the skilled craftsman making quality products or the assembly line zombie stamping out ephemeral tchotchkes?
Now they've dug themselves in a hole where they really have no choice but to buy dollar store junk on a near-weakly basis. Items of acceptable items (think Allen Edmonds shoes) are considered luxury items.
Buy at Walmart and there will be jobs as a Walmart greeter. Buy boutique level, or at least decent quality products and you support boutique or decent lifestyles.

Personally, besides protectionist tariffs (the American way before income taxes), I'd like sumptuary laws forcing people to buy real shoes and decent clothing. And hats. Word it right and give the running start to domestic suppliers. Also, where is the push for financial education? The underclass repeats the mistakes of their parent(s) because they know no better (the same as obesity becomes familial for non-genetic reasons). Force the government schools to stop worrying about bullying and get kids to get a hold on the basics of budgeting and personal finances. But it seems that the oligarchs enjoy having pools of debt-ridden lemmings mis-spending eternally.
You keep posting this shit Harvey and I'm going to shut down this account.

What's the problem with that post? I happen to agree to a large extent. Poverty is more complex than victimization. Often times its by their own hands.

Like this, a truly superb dive into the epidemic of sports millionaires going bankrupt. And yes, most of these clowns grew up poor:

It's not the sentiment. It's Harvey making Harvey posts under another account. You at least have to make a minor effort people.
The economic impact of an Apple Genius at the mall pales in comparison to the armies of factory workers assembling iPads over in China. This helps America how? Adam Smith new that wealth is created only in manufacturing.

Shouldn't commercial banks be making money by, you know, lending money instead of gambling? Glass-Steagall made banks honest and useful instead of parasitic derelicts.
Ok, to the first point, obviously, but I'm not exactly sure what that had to do with my earlier comment. And, yes, China's army of slave labor is obviously tilting the scales. As well as the marketplace.

As to the second, again, obviously. Also, again, I don't know what that had to do with your previous comment about the interest rate keeping them from making loans. Pro-Glass-Stegall all the way.
This is one you should be able to appreciate Russell Street Russell Street since it comes at the crux from both sides:

Changed Life of the Poor: Better Off, but Far Behind

WASHINGTON — Is a family with a car in the driveway, a flat-screen television and a computer with an Internet connection poor?

Americans — even many of the poorest — enjoy a level of material abundance unthinkable just a generation or two ago. That indisputable economic fact has become a subject of bitter political debate this year, half a century after President Lyndon B. Johnson declared a war on poverty.

Starkly different views on poverty and inequality rose to the fore again on Wednesday as Democrats in the Senate were unable to muster the supermajority of 60 votes needed to overcome a Republican filibuster of a proposal to raise the incomes of the working poor by lifting the national minimum wage to $10.10 an hour.

House Republicans, led by Representative Paul D. Ryan of Wisconsin, have convened a series of hearings on poverty, including one on Wednesday, in some cases arguing that hundreds of billions of dollars of government spending a year may have made poverty easier or more comfortable but has done little to significantly limit its reach.


Continue reading the main story
Costs for Americans ...

... have soared for education, child care and health care ...

College tuition and fees

+40 pct. pts.

Change in prices relative to a 23% increase in prices for all items, 2005-2014


Child care/nursery school

Health care

Vehicle maintenance/repair

Food and beverages


... and have plummeted for televisions, toys and phones, relative to other prices.

Personal care



New and used vehicles

Cellphone service




Phones and accessories

Reflect prices unsubsidized

by service providers


Personal computers

and equipment



Source: Bureau of Labor Statistics
Note: Based on the Consumer Price Index for All Urban Customers. Data is collected from retail stores and adjusted by specialists to reflect changes in quantity offered in a product or an increase in quality. Much of the drop in prices for electronics reflects an increase in quality over the past 10 years.
Indeed, despite improved living standards, the poor have fallen further behind the middle class and the affluent in both income and consumption. The same global economic trends that have helped drive down the price of most goods also have limited the well-paying industrial jobs once available to a huge swath of working Americans. And the cost of many services crucial to escaping poverty — including education, health care and child care — has soared.

“Without a doubt, the poor are far better off than they were at the dawn of the War on Poverty,” said James Ziliak, director of the University of Kentucky’s Center for Poverty Research. “But they have also drifted further away.”

Democrats have generally argued that addressing this disjunction requires providing more support for the poor, raising the minimum wage, extending unemployment insurance benefits and making health care more affordable by expanding the reach of Medicaid and subsidizing private insurance for those who lack employer coverage.

Republicans, by contrast, have proposed reducing government regulations and overhauling existing programs to encourage more work, arguing that would allow Washington to decrease spending on the poor.

“The question isn’t whether the federal government should help; the question is how,” Mr. Ryan said at the hearing on Wednesday. “How do we make sure that every single taxpayer dollar we spend to reduce poverty is actually working?”

For many working poor families, the most apt description of their finances and lifestyle might be fragile. Even with a steady paycheck, keeping the bills paid becomes a high-wire act and saving an impossibility.

Tammie Hagen-Noey, a 49-year-old living in Richmond, Va., tapped at an iPhone as she sat on the porch of the group home where she lives — its proprietor is a friend of her daughter’s. She earns $7.25 an hour at a local McDonald’s, and makes a little extra money on the side from planting small plots of land for neighbors who want to garden.

Ms. Hagen-Noey is trying to rebuild her finances, which have been decimated by divorce, government liens and addiction. At the top of her list of priorities is finding better-paid work. She produced a paycheck that showed her earnings so far this year: $2,938.51.

“It’s impossible,” she said. “Every cent of that goes towards what I need.” A few months ago, she sold her car for $500 to make rent.

Two broad trends account for much of the change in poor families’ consumption over the past generation: federal programs and falling prices.

Since the 1960s, both Republican and Democratic administrations have expanded programs like food stamps and the earned-income tax credit. In 1967, government programs reduced one major poverty rate by about 1 percentage point. In 2012, they reduced the rate by nearly 13 percentage points.

As a result, the differences in what poor and middle-class families consume on a day-to-day basis are much smaller than the differences in what they earn.

“There’s just a whole lot more assistance per low-income person than there ever has been,” said Robert Rector, a senior research fellow at the conservative Heritage Foundation. “That is propping up the living standards to a considerable degree,” he said, citing a number of statistics on housing, nutrition and other categories.

Decades of economic growth, however, have been less successful in raising the incomes from work of many poor families, prompting a strong conservative critique this year that hundreds of billions of dollars in antipoverty programs have failed to make the poor less dependent on government.

“That’s the crux of the problem,” Mr. Rector added. “What sort of progress is that?”

But another form of progress has led to what some economists call the “Walmart effect”: falling prices for a huge array of manufactured goods.

Since the 1980s, for instance, the real price of a midrange color television has plummeted about tenfold, and televisions today are crisper, bigger, lighter and often Internet-connected. Similarly, the effective price of clothing, bicycles, small appliances, processed foods — virtually anything produced in a factory — has followed a downward trajectory. The result is that Americans can buy much more stuff at bargain prices.

Many crucial services, though, remain out of reach for poor families. The costs of a college education and health care have soared. Ms. Hagen-Noey, for instance, does not treat her hepatitis and other medical problems, as she does not qualify for Medicaid and cannot pay for her own insurance or care.

Child care also remains only a small sliver of the consumption of poor families because it is simply too expensive. In many cases, it depresses the earnings of women who have no choice but to give up hours working to stay at home.

“The average annual cost for infant care in the U.S. is $6,000 or $7,000 a year,” said Professor Ziliak of the University of Kentucky. “When you look at the average income of many single mothers, that is going to end up being a quarter of it. That’s huge. That is just out of reach for many folks.”

Tiffany Beroid, a 29-year-old mother who works at a Walmart in Laurel, Md., said she works part time, rather than full time, because she and her husband could not otherwise afford child care. Their incomes already suffered when her doctors told her to stay off her feet during the late stages of her pregnancy, and she said Walmart would not accommodate her with a desk job.

“Child care was costing probably $350 a week,” said Ms. Beroid, who makes $10.70 an hour. “I would love to be in full-time work, if I could make enough to cover child care payments.”

And many poor families barely make it from paycheck to paycheck. For evidence, economists point to the fact that children living in families with food stamps eat more calories at the beginning of the month than the end of it.

Economists pointed out that many low-income families struggled to use even the assets they had: keeping gas in the car, paying for cable and keeping the electricity on. Many families rely on expensive credit. And even if those families sold their assets, often it would only provide them with a small buffer, too.

Anthony Goytia, who works the night shift at a Walmart in Southern California, is reliant on payday loans to pay his bills.

“Some of our bills come in at the middle of the month,” said Mr. Goytia, a father of four who makes about $16,000 a year. “Then we’ve got to pay our rent by the first, and when we don’t have the money, we have to take out a payday loan.”

Bobby Bingham, 38, of Kansas City, Mo., works three part-time jobs seven days a week to make ends meet, but struggles to cover basic living expenses: his apartment, his car, his car insurance, gas and utilities. He is also heavily in debt, owing $30,000 in student loans and about $12,000 in credit-card debt with an annual interest rate of 17 percent.

“It’s hard on my psyche,” he said. “There’s no break. There’s no time to breathe. I always have to think about the next step just to survive. It’s not like I can look forward and plan, because I’m just trying to think about tomorrow.”

In the end, many mainstream economists argue, the lives of the poor must be looked at in light of the nation’s overall wealth and economic advancement.

“If you handpick services and goods where there has been dramatic technological progress, then the fact that poor people can consume these items in 2014 and even rich people couldn’t consume them in 1954 is hardly a meaningful distinction,” said Gary Burtless, an economist at the Brookings Institution. “That’s not telling you who is rich and who is poor, not in the way that Adam Smith and most everyone else since him thinks about poverty.”
[URL=''] said:
[/URL]Costs for Americans ... have soared for education, child care and health care ...Vehicle maintenance/repair...Food and beverages...Housing
aka stuff not bought from China, but dollars kept in the USA.

[URL='' said:
][/URL]... and have plummeted for televisions, toys and phones, relative to other prices.
Personal care
Phones and accessories
Personal computers
and equipment
aka imports, money sent overseas.

The young are among those that have realized that spending money on foreign goods does little to improve the ljob market for themselves or those around them. The cruel part is that the savings of making things overseas is not that steep.

I will concede that high labor wages is a major cause of innovation, as there is little need to be efficient and resourceful when you can pay people almost nothing to toil endlessly. For the iPad, the grunt work of soldering and assembly is done in China but the neato sub-assemblies and components are largely from Japan. Cheap labor makes resistors, expensive labor makes video screens.

Think of any consumer product, then think of the ones of that type that come with new neato fatures and innovation. Barring "designed in California" Apple, one will generally see that a high wage nation thought it up and initally made it, and only later did it filter down to being stamped out by the drudgery labor nations.

"I do not prize the word cheap. It is not a word of inspiration. It is the badge of poverty, the signal of distress. Cheap merchandise means cheap men and cheap men mean a cheap country."
-William McKinley

One could also make the point about the closed and opaque systems of the industries of healthcare, realty, education etc. and argue that stronger labor unions (but not old GM strong) would be beneficial. God knows the bargain store employees could use it, as those poor buggers are slaving away for almost nothing.
Another one that just can't be chalked up to Chinese slave labor:

Trucking used to be a ticket to the middle class. Now it’s just another low-wage job.
  • by Also On Wonkblog, Why Housing Reform Could Make Your Mortgage More Expensive
  • April 28, 2014
  • 8 min read
  • original

Edisson Villacis on an early morning run. Villacis is a unionist to the core. (Lydia DePillis/The Washington Post)

ELIZABETH, N.J. -- It’s a few minutes into a run carrying a load of scrap copper from the Port of New Jersey to a waste transfer station outside Philadelphia, and Miguel Tigre reaches over the dash of his maroon-and-yellow cab to grab a folder stuffed with the receipts squeezing him dry. He reels off calculations: He gets paid $400. It’s about 150 miles round-trip, and his truck gets 5.2 miles per gallon, so that's $180 in fuel. Tolls are $20. Taxes take about a quarter off the top -- but then there's insurance for the truck, and any repairs, which came to $22,000 last year.

All told, that amounts to $32,000 in take-home pay per year, which is barely enough to cover rent and food for him and his wife, who doesn’t work. Then there’s child support and car insurance. Tigre, a stocky 56-year-old with the paunch that comes from sitting for 12 hours a day, says he can’t afford health insurance -- he’s diabetic, and pays $100 a pop out of pocket for regular doctor’s visits, plus $300 a month for insulin. And retirement? Tigre laughs, harshly.

“The way things are going, I’m going to die before that,” he says.

It’s the skewed economics of Tigre’s trade that prompted port truckers to go on strike in Los Angeles on Monday as part of a union-backed campaign to regain some of the pay, benefits and respect they say they’ve lost after three decades of decline.

Owning his own rig was supposed to be a crack at something better. Tigre came to America from Ecuador 30 years ago, started driving for one of the hundreds of small trucking companies that serve the port and, by 1993, had saved enough to buy a truck. It seemed like a fair trade: As an owner-operator working on contract, he gave up some stability in exchange for the freedom of working whenever he wanted.

But then, the bargain broke down. Prices started rising, and Tigre's pay rate didn’t keep up. Diesel used to be 87 cents a gallon; now it’s $3.99. Tolls on some roads are now more than $100 for truckers. There are anti-terrorism identity cards and stricter emissions requirements, and any traffic infraction could send his insurance through the roof.

That’s a great deal for the trucking companies. Unlike employees, owner-operators aren’t entitled to benefits like workers compensation, Social Security contributions, unemployment insurance or the same level of protection by safety and health regulation. And it’s not just the trucking industry: Contractors have emerged all over the economy, from cheerleaders to construction workers. Personnel not covered by unemployment insurance made up 23.5 percent of the workforce in 2010, up from 19 percent in 2001. Companies often try to classify their workers as independent, even if they’re not, to avoid taxes and weaken unions.

But the pendulum has swung perhaps farthest, and fastest, in the ports. Since Congress deregulated the industry in the 1980s -- when a unionized truck driver made today’s equivalent of $44.83 an hour -- about two-thirds of the nation’s 75,000-odd port truck drivers have become independent operators. And now, “independence” has become shorthand for earning less: Owner-operators make an average of $28,000 a year. That’s $7,000 less than employee drivers, who are paid by the hour and typically receive more comprehensive benefits.


Trucking pays much less than it used to. (Bureau of Labor Statistics)

For Tigre, the history of the trucking industry is written in red ink. The long hours tanked his marriage. He stopped being able to make mortgage payments on top of truck payments, and he lost his house. He declared bankruptcy. Now, he owes $30,000 to the IRS, and another $10,000 to credit card companies. As he speeds along the New Jersey Turnpike, those circumstances well up like a confession.

"I wish I could say I don't owe it, but I'd be a liar,” says Tigre, eyes full of guilt. “I can go to my bank and say how much money I have, and I'm broke. But I don't cry, I got to keep doing what I'm doing."

Tigre may soon have to sell his truck to raise money. With a million miles on it, it would barely fetch enough to cover the credit card bills. Then, with no assets and ruined credit, he’d have to find a trucking company to work for. But the signs all around the port are for owner-operators, not simple employees; trucking companies don’t want to pour money into equipment, either.

Tigre’s is an extreme case, but that experience -- losing control of a relationship where one hand now holds all the cards -- is more the norm than the exception.



The view from the cab. (Port Driver Facebook page)

If the last 30 years have been a gradual downward slide for port truck drivers, in the last six months, the bottom has fallen out from under them.

At around 6 p.m. one recent spring evening, at a corner gas station on the hard, dusty moonscape in between terminals at the Port of New Jersey, Joey Centeno and his boss stand with the guts of a freight truck open to the air, waiting for a part to get the rig back on the road. The delay is just one more thing keeping Centeno from his family, after a shift that had started before dawn. But it is nothing compared to the day before.

"Nine hours. Nine hours!" exclaims Joey, eyes wide with disbelief. That was the amount of time he'd spent waiting to drop off one container, in a line of trucks he couldn't escape. "And guess who made money. Not me and him! F--- am I doing, I'm sitting here!"

At most of the port’s five terminals, there are about a dozen lines next to each other, which stretch out across a vast tarmac and almost spill out onto the turnpike in the mornings. To pass the time, Centeno jumps rope, or reads books on anger management and the rise of Hitler. He says he's already on Depakote to deal with the rising rage; his forearm is tattooed with the phrase "Sometimes it takes more strength to make peace than to fight."

"This is Hell on earth," he says. "But I do it because I can't sing or dance."

The long lines aren’t just terrible for drivers. They’re also a mortal danger for the rest of the jobs the port supports, as importers are already starting to send their goods through other ports -- even if it means putting the goods on a train right back up to New York. So, why have the delays gotten so bad lately?

Well, it depends on who you ask. Truck drivers blame the unionized longshoremen for slowing down their work in protest, since their jobs are so secure. The longshoremen blame the Waterfront Commission, which has delayed approving hundreds of workers whom the terminal operators say they need to run the port. And everybody blames New Jersey Gov. Chris Christie, for a scandal over the winter that has distracted the Port Authority from actually fixing the problem.

But the Teamsters, who represented nearly all port truck drivers before deregulation destroyed their membership, have another theory: The dysfunction is being involuntarily subsidized by a workforce that isn’t paid for its time.

“One of the reasons the ports are so inefficient is that there's no cost to delaying these employees,” says Fred Potter, who runs the Teamsters’ ports division. “When they sit out for two, three, four hours, and it doesn't cost the shipper, what's their incentive to do anything?”

The Teamsters argue that many of these “independent contractors” shouldn’t qualify as such at all for the purposes of the Internal Revenue Service. Because most trucking companies don’t allow their drivers to work for other companies at the same time, and largely dictate how the job is done, state courts and labor departments have found scores of cases in recent years where drivers were misclassified as contractors when they really should qualify as employees.

“The conditions that these guys work under is like sharecropping,” says Potter. “The trucking company tells them what crops they can plant, what fertilizer they can use, makes them pay for all their equipment, and then tells them, you're independent.”

To start moving the pendulum back in the other direction, the Teamsters have been pushing state legislation that would create a presumption that drivers are employees unless trucking companies prove otherwise. Still, the measure has run into fierce resistance -- not just from the trucking industry and the governor’s office, but also from some of the drivers themselves.


Miguel Tigre and his truck, which he might have to sell to pay the bills. (Lydia DePillis/The Washington Post)


Edisson Villacis, a 42-year-old Ecuadorian driver who wears a Che Guevara-style backwards beret and one earring, is a unionist to the core. He used to work for the Teamsters under Gilberto Soto, the legendary Teamsters organizer who was mysteriously killed in 2005 while running an intercontinental campaign against the shipping company Maersk. Villacis left the union after that, and when the Teamsters ramped up their campaign against worker misclassification, he felt the need to defend his independence.

“For some reason, I like this,” he says affectionately, looking around at the cozy cab of his sky-blue truck, kitted out with a little television, microwave, a neatly-made bed and a picture of his daughter. “What’s not to like?”

Working with the New Jersey Motor Truck Association, Villacis has become the leader of the opposition to the Teamsters’ misclassification bill, which was reintroduced after Christie vetoed it last summer. He gets the message out through talking to people -- he’s known at the port as “Principe” -- and through his stewardship of a popular Facebook page that’s become a water cooler for chatter among drivers increasingly stuck on their smartphones for hours on end.

“This is my choice. Nobody's forcing me to do this job. Nobody's putting a gun to my head,” says Villacis. He worries that companies that are forced to treat their drivers like employees -- with all the attendant costs -- wouldn’t be able to compete. “If they continue with this situation of forcing the drivers, they're not just going to destroy the industry, they're going to destroy a good way of living for a whole lot of people.” (The Teamsters argue their bill wouldn't force truly independent drivers to change their lifestyles, but the union also maintains that almost nobody fits that description of independent.)

Villacis isn't just talking about the drivers. He also means all of the informal, Latino-owned businesses in the immigrant communities that serve them. Driving through a Colombian neighborhood of Elizabeth, N.J., Villacis points to big rigs parked behind homes parked in side yards, as if they were pots of gold. They’re often serviced by one- or two-person auto shops and fueling stations; he pays to park his truck in a lot behind a church that needs the income. If everyone were absorbed within company walls, he thinks that diffusion of revenue would dry up.

Still, he admits, the many costs for which independent drivers are responsible mean they could take home nothing one week, if gas spikes or the lines get too long. "We are achieving the middle class, the edge,” he says, poking at the dangling line of his radio cord, as if it were the boundary between making it and not. “But we are on the poor side, because of the variables."

In other hard-to-unionize sectors, employees are figuring out alternative models of organizing -- such as the fast-food worker strikes for a higher minimum wage, OUR Walmart’s campaigns for better working conditions and the New York Taxi Workers Alliance’s fund to supplement drivers’ health insurance.

There's potential for that in trucking, too. Edisson would like to see more comprehensive training for owner-operators, for example, to help them manage their money as well as navigate the ins and outs of the port. Better enforcement of truth-in-leasing laws would go a long way, as well. And, long term, he dreams of creating a driver-owned corporation that would trade equity for trucks, pay by the hour and share in the profits.

At the moment, though, nobody seems interested in helping realize that future. Not the longshoremen, not the Democrats, not the trucking companies and not even the Teamsters, who are supposed to be their one champion in an otherwise unfriendly world.

"We are surrounded by enemies, and we are an army of rebels,” Villacis says. “But we have no weapons." He looks at his phone, mounted on the dash, where messages from frustrated truckers have kept piling up.
Have I cited Ellen Ruppel-Shell's Cheap: The High Cost of Discount Culture here?
In the same way that the underclass buys crummy used cars on their last legs and pays high interest rates and zero maintenance and repeats every year or two since major repairs are past their budget, whereas a person of means buys a new car and pays it off and maintains it and ultimately amortizes and pays less while getting more... the working class has contributed to their own demise by their consumption of cheap, disposable consumer products.
Guess who makes more, the skilled craftsman making quality products or the assembly line zombie stamping out ephemeral tchotchkes?
Now they've dug themselves in a hole where they really have no choice but to buy dollar store junk on a near-weakly basis. Items of acceptable items (think Allen Edmonds shoes) are considered luxury items.
Buy at Walmart and there will be jobs as a Walmart greeter. Buy boutique level, or at least decent quality products and you support boutique or decent lifestyles.

Personally, besides protectionist tariffs (the American way before income taxes), I'd like sumptuary laws forcing people to buy real shoes and decent clothing. And hats. Word it right and give the running start to domestic suppliers. Also, where is the push for financial education? The underclass repeats the mistakes of their parent(s) because they know no better (the same as obesity becomes familial for non-genetic reasons). Force the government schools to stop worrying about bullying and get kids to get a hold on the basics of budgeting and personal finances. But it seems that the oligarchs enjoy having pools of debt-ridden lemmings mis-spending eternally.

Good points, here. I think that the schools have their hands full these days just trying to enforce basic standards of decency and citizenship, before we can discuss higher topics like money. I also think a lot of these children who come from disadvantaged backgrounds find it easier and safer to buy in to the narrative of class warfare and scrape along rather than to rise above and possibly lose their family and friends.

At the same time I also find it troublesome that we've allowed the equity-holders to demand certain rates of return / growth on their investments at the expense of the proletariat. I mean, the population cannot continue to expand indefinitely, so why are we so hell-bent on XX% of growth? You realize that the earth is pretty much a zero-sum game, right?
Is not the feudal system the natural order of things? The middle class is a recent contrivance born of organized labor and governmental intervention, isn't it?
Interesting. The US is doing all it can to reduce the middle class. And of course, the middle class is going along with it.
I can't cite it, but the populace is wising up to the fact that they are poor and not middle class. There's a radio host here that makes the point that America has no ancestral royalty or true slaves, so of course everyone is middle class. I heard some lefties rather correctly mocking the Joe the Plumber mentality of many Republicans and telling them to wise up to the fact that they are not in line to be rich, but are in fact stiffed, poor, oppressed peoples.
I find the old money, third generation, people are more concerned about the loss of the middle class. The "new" money are self absorbed, want lower taxes, no employee benefits and all mention "entitlements."
Yes, the old guard generally has some sense of duty and civic responsibility whereas the nouveaus are more crass and arrogant.
Of course I still like this old quip.
Nobody talks more of free enterprise and competition and of the best man winning than the man who inherited his father's store or farm.
C. Wright Mills

Oh yeah, I probably sound like a broken record when I bemoan the Matthew effect of money (business) and power (government) solidifying each other's position in direct opposition to the desires of free competition, small government, and all that good stuff.
Is not the feudal system the natural order of things? The middle class is a recent contrivance born of organized labor and governmental intervention, isn't it?

I had to think on this a while, and I won't say that it's the natural order of things, but it might be how things generally turn out when an imbalance of power is left unchecked.

I come in contact (at work) with some very wealthy people. I find the old money, third generation, people are more concerned about the loss of the middle class. The "new" money are self absorbed, want lower taxes, no employee benefits and all mention "entitlements." One told me last week he has a three year wait for a Gulfstream VI because Americans "are too fucking lazy to work because they want the government to take care of them." I've seen three years of his tax returns, and he has paid 0 (ZERO) federal tax.

you didn't happen to stab Mr, Gulfstream VI, perchance? Though this quote does illustrate how the rich exploit their leverage to improve their positions a the expense of others. How does he get away with paying zero taxes, though (from a CPA perspective)?
I had to think on this a while, and I won't say that it's the natural order of things, but it might be how things generally turn out when an imbalance of power is left unchecked.
If I were brighter, I'd be able to make a coherent analogy to the instability of two-party systems or something about polarization. Maybe it will come to me after some coffee.
Now That’s Rich
  • by Paul Krugman
  • May 8, 2014
  • 3 min read
Institutional Investor’s latest “rich list” in its Alpha magazine, its survey of the 25 highest-paid hedge fund managers, is out — and it turns out that these guys make a lot of money. Surprise!

Yet before we dismiss the report as nothing new, let’s think about what it means that these 25 men (yes, they’re all men) made a combined $21 billion in 2013. In particular, let’s think about how their good fortune refutes several popular myths about income inequality in America.

First, modern inequality isn’t about graduates. It’s about oligarchs. Apologists for soaring inequality almost always try to disguise the gigantic incomes of the truly rich by hiding them in a crowd of the merely affluent. Instead of talking about the 1 percent or the 0.1 percent, they talk about the rising incomes of college graduates, or maybe the top 5 percent. The goal of this misdirection is to soften the picture, to make it seem as if we’re talking about ordinary white-collar professionals who get ahead through education and hard work.

But many Americans are well-educated and work hard. For example, schoolteachers. Yet they don’t get the big bucks. Last year, those 25 hedge fund managers made more than twice as much as all the kindergarten teachers in America combined. And, no, it wasn’t always thus: The vast gulf that now exists between the upper-middle-class and the truly rich didn’t emerge until the Reagan years.

Second, ignore the rhetoric about “job creators” and all that. Conservatives want you to believe that the big rewards in modern America go to innovators and entrepreneurs, people who build businesses and push technology forward. But that’s not what those hedge fund managers do for a living; they’re in the business of financial speculation, which John Maynard Keynes characterized as “anticipating what average opinion expects the average opinion to be.” Or since they make much of their income from fees, they’re actually in the business of convincing other people that they can anticipate average opinion about average opinion.

Once upon a time, you might have been able to argue with a straight face that all this wheeling and dealing was productive, that the financial elite was actually providing services to society commensurate with its rewards. But, at this point, the evidence suggests that hedge funds are a bad deal for everyone except their managers; they don’t deliver high enough returns to justify those huge fees, and they’re a major source of economic instability.

More broadly, we’re still living in the shadow of a crisis brought on by a runaway financial industry. Total catastrophe was avoided by bailing out banks at taxpayer expense, but we’re still nowhere close to making up for job losses in the millions and economic losses in the trillions. Given that history, do you really want to claim that America’s top earners — who are mainly either financial managers or executives at big corporations — are economic heroes?

Finally, a close look at the rich list supports the thesis made famous by Thomas Piketty in his book “Capital in the Twenty-First Century” — namely, that we’re on our way toward a society dominated by wealth, much of it inherited, rather than work.

At first sight, this may not be obvious. The members of the rich list are, after all, self-made men. But, by and large, they did their self-making a long time ago. As Bloomberg View’s Matt Levine points out, these days a lot of top money managers’ income comes not from investing other people’s money but from returns on their own accumulated wealth — that is, the reason they make so much is the fact that they’re already very rich.

And this is, if you think about, an inevitable development. Over time, extreme inequality in income leads to extreme inequality of wealth; indeed, the wealth share of America’s top 0.1 percent is back at Gilded Age levels. This, in turn, means that high incomes increasingly come from investment income, not salaries. And it’s only a matter of time before inheritance becomes the biggest source of great wealth.

But why does all of this matter? Basically, it’s about taxes.

America has a long tradition of imposing high taxes on big incomes and large fortunes, designed to limit the concentration of economic power as well as raising revenue. These days, however, suggestions that we revive that tradition face angry claims that taxing the rich is destructive and immoral — destructive because it discourages job creators from doing their thing, immoral because people have a right to keep what they earn.

But such claims rest crucially on myths about who the rich really are and how they make their money. Next time you hear someone declaiming about how cruel it is to persecute the rich, think about the hedge fund guys, and ask yourself if it would really be a terrible thing if they paid more in taxes.
Krugman is generally right, although whenever someone totes out the old underpaid schoolteacher tripe, they lose me. But then I'm from the land of hideously overpaid teachers.
There are three segments of investors in Wall Street. There are the already rich, getting richer. The broker, living off the crumbs, and the average idiots funding the whole scam.

The inherited wealth thing is true. Steep probate taxes (called death taxes by nutty Joe Plumber types and called the Paris Hilton tax by snarky lefties) are a hallmark of American policy. The founding fathers hated aristocracy and were big on working for a living, which meant agriculture or shopkeeping and not financial shenanigans, Jefferson spoke of the the Earth belonging to the living generation, and even Teddy Roosevelt spoke negatively of scions of unearned wealth.
I used to argue profusely with a coworker (who was under some impression that he'd be getting some sizable inheritance from a hated father-in-law) about this. Parents have their entire lives to pass on privilege, both intangible and actual assets. That which they hoard for their own use should mostly go back to a jubilee. This idea that daddies are working long and hard their whole lives and holding off till they drop dead to pass stuff on is bunk. Furthermore, the young will take risks, innovate, grow businesses and do real booming stuff. The elderly will just keep hoarding their funds and have it safely reinforcing the blue chips. Incentivizing them to pass on riches pre-mortem is in everybody's best interest.
How to Shrink Inequality
Some inequality of income and wealth is inevitable, if not necessary. If an economy is to function well, people need incentives to work hard and innovate.

The pertinent question is not whether income and wealth inequality is good or bad. It is at what point do these inequalities become so great as to pose a serious threat to our economy, our ideal of equal opportunity and our democracy.

We are near or have already reached that tipping point. As French economist Thomas Piketty shows beyond doubt in his “Capital in the Twenty-First Century,” we are heading back to levels of inequality not seen since the Gilded Age of the late 19th century. The dysfunctions of our economy and politics are not self-correcting when it comes to inequality.

But a return to the Gilded Age is not inevitable. It is incumbent on us to dedicate ourselves to reversing this diabolical trend. But in order to reform the system, we need a political movement for shared prosperity.

Herewith a short summary of what has happened, how it threatens the foundations of our society, why it has happened, and what we must do to reverse it.

What has Happened

The data on widening inequality are remarkably and disturbingly clear. The Congressional Budget Office has found that between 1979 and 2007, the onset of the Great Recession, the gap in income—after federal taxes and transfer payments—more than tripled between the top 1 percent of the population and everyone else. The after-tax, after-transfer income of the top 1 percent increased by 275 percent, while it increased less than 40 percent for the middle three quintiles of the population and only 18 percent for the bottom quintile.

The gap has continued to widen in the recovery. According to the Census Bureau, median family and median household incomes have been falling, adjusted for inflation; while according to the data gathered by my colleague Emmanuel Saez, the income of the wealthiest 1 percent has soared by 31 percent. In fact, Saez has calculated that 95 percent of all economic gains since the recovery began have gone to the top 1 percent.

Wealth has become even more concentrated than income. An April 2013 Pew Research Center report found that from 2009 to 2011, “the mean net worth of households in the upper 7 percent of wealth distribution rose by an estimated 28 percent, while the mean net worth of households in the lower 93 percent dropped by 4 percent.”

Why It Threatens Our Society

This trend is now threatening the three foundation stones of our society: our economy, our ideal of equal opportunity and our democracy.

The economy. In the United States, consumer spending accounts for approximately 70 percent of economic activity. If consumers don’t have adequate purchasing power, businesses have no incentive to expand or hire additional workers. Because the rich spend a smaller proportion of their incomes than the middle class and the poor, it stands to reason that as a larger and larger share of the nation’s total income goes to the top, consumer demand is dampened. If the middle class is forced to borrow in order to maintain its standard of living, that dampening may come suddenly—when debt bubbles burst.

Consider that the two peak years of inequality over the past century—when the top 1 percent garnered more than 23 percent of total income—were 1928 and 2007. Each of these periods was preceded by substantial increases in borrowing, which ended notoriously in the Great Crash of 1929 and the near-meltdown of 2008.

The anemic recovery we are now experiencing is directly related to the decline in median household incomes after 2009, coupled with the inability or unwillingness of consumers to take on additional debt and of banks to finance that debt—wisely, given the damage wrought by the bursting debt bubble. We cannot have a growing economy without a growing and buoyant middle class. We cannot have a growing middle class if almost all of the economic gains go to the top 1 percent.

Equal opportunity. Widening inequality also challenges the nation’s core ideal of equal opportunity, because it hampers upward mobility. High inequality correlates with low upward mobility. Studies are not conclusive because the speed of upward mobility is difficult to measure.

But even under the unrealistic assumption that its velocity is no different today than it was thirty years ago—that someone born into a poor or lower-middle-class family today can move upward at the same rate as three decades ago—widening inequality still hampers upward mobility. That’s simply because the ladder is far longer now. The distance between its bottom and top rungs, and between every rung along the way, is far greater. Anyone ascending it at the same speed as before will necessarily make less progress upward.

In addition, when the middle class is in decline and median household incomes are dropping, there are fewer possibilities for upward mobility. A stressed middle class is also less willing to share the ladder of opportunity with those below it. For this reason, the issue of widening inequality cannot be separated from the problems of poverty and diminishing opportunities for those near the bottom. They are one and the same.

Democracy. The connection between widening inequality and the undermining of democracy has long been understood. As former Supreme Court Justice Louis Brandeis is famously alleged to have said in the early years of the last century, an era when robber barons dumped sacks of money on legislators’ desks, “We may have a democracy, or we may have great wealth concentrated in the hands of a few, but we cannot have both.”

As income and wealth flow upward, political power follows. Money flowing to political campaigns, lobbyists, think tanks, “expert” witnesses and media campaigns buys disproportionate influence. With all that money, no legislative bulwark can be high enough or strong enough to protect the democratic process.

The threat to our democracy also comes from the polarization that accompanies high levels of inequality. Partisanship—measured by some political scientists as the distance between median Republican and Democratic roll-call votes on key economic issues—almost directly tracks with the level of inequality. It reached high levels in the first decades of the twentieth century when inequality soared, and has reached similar levels in recent years.

When large numbers of Americans are working harder than ever but getting nowhere, and see most of the economic gains going to a small group at the top, they suspect the game is rigged. Some of these people can be persuaded that the culprit is big government; others, that the blame falls on the wealthy and big corporations. The result is fierce partisanship, fueled by anti-establishment populism on both the right and the left of the political spectrum.

Why It Has Happened

Between the end of World War II and the early 1970s, the median wage grew in tandem with productivity. Both roughly doubled in those years, adjusted for inflation. But after the 1970s, productivity continued to rise at roughly the same pace as before, while wages began to flatten. In part, this was due to the twin forces of globalization and labor-replacing technologies that began to hit the American workforce like strong winds—accelerating into massive storms in the 1980s and ’90s, and hurricanes since then.

Containers, satellite communication technologies, and cargo ships and planes radically reduced the cost of producing goods anywhere around the globe, thereby eliminating many manufacturing jobs or putting downward pressure on other wages. Automation, followed by computers, software, robotics, computer-controlled machine tools and widespread digitization, further eroded jobs and wages. These forces simultaneously undermined organized labor. Unionized companies faced increasing competitive pressures to outsource, automate or move to nonunion states.

These forces didn’t erode all incomes, however. In fact, they added to the value of complex work done by those who were well educated, well connected and fortunate enough to have chosen the right professions. Those lucky few who were perceived to be the most valuable saw their pay skyrocket.

But that’s only part of the story. Instead of responding to these gale-force winds with policies designed to upgrade the skills of Americans, modernize our infrastructure, strengthen our safety net and adapt the workforce—and pay for much of this with higher taxes on the wealthy—we did the reverse. We began disinvesting in education, job training and infrastructure. We began shredding our safety net. We made it harder for many Americans to join unions. (The decline in unionization directly correlates with the decline of the portion of income going to the middle class.) And we reduced taxes on the wealthy.

We also deregulated. Financial deregulation in particular made finance the most lucrative industry in America, as it had been in the 1920s. Here again, the parallels between the 1920s and recent years are striking, reflecting the same pattern of inequality.

Other advanced economies have faced the same gale-force winds but have not suffered the same inequalities as we have because they have helped their workforces adapt to the new economic realities—leaving the United States the most unequal of all advanced nations by far.

What We Must Do

There is no single solution for reversing widening inequality. Thomas Piketty’s monumental book “Capital in the Twenty-First Century” paints a troubling picture of societies dominated by a comparative few, whose cumulative wealth and unearned income overshadow the majority who rely on jobs and earned income. But our future is not set in stone, and Piketty’s description of past and current trends need not determine our path in the future. Here are ten initiatives that could reverse the trends described above:

1) Make work pay. The fastest-growing categories of work are retail, restaurant (including fast food), hospital (especially orderlies and staff), hotel, childcare and eldercare. But these jobs tend to pay very little. A first step toward making work pay is to raise the federal minimum wage to $15 an hour, pegging it to inflation; abolish the tipped minimum wage; and expand the Earned Income Tax Credit. No American who works full time should be in poverty.

2) Unionize low-wage workers. The rise and fall of the American middle class correlates almost exactly with the rise and fall of private-sector unions, because unions gave the middle class the bargaining power it needed to secure a fair share of the gains from economic growth. We need to reinvigorate unions, beginning with low-wage service occupations that are sheltered from global competition and from labor-replacing technologies. Lower-wage Americans deserve more bargaining power.

3) Invest in education. This investment should extend from early childhood through world-class primary and secondary schools, affordable public higher education, good technical education and lifelong learning. Education should not be thought of as a private investment; it is a public good that helps both individuals and the economy. Yet for too many Americans, high-quality education is unaffordable and unattainable. Every American should have an equal opportunity to make the most of herself or himself. High-quality education should be freely available to all, starting at the age of 3 and extending through four years of university or technical education.

4) Invest in infrastructure. Many working Americans—especially those on the lower rungs of the income ladder—are hobbled by an obsolete infrastructure that generates long commutes to work, excessively high home and rental prices, inadequate Internet access, insufficient power and water sources, and unnecessary environmental degradation. Every American should have access to an infrastructure suitable to the richest nation in the world.

5) Pay for these investments with higher taxes on the wealthy. Between the end of World War II and 1981 (when the wealthiest were getting paid a far lower share of total national income), the highest marginal federal income tax rate never fell below 70 percent, and the effective rate (including tax deductions and credits) hovered around 50 percent. But with Ronald Reagan’s tax cut of 1981, followed by George W. Bush’s tax cuts of 2001 and 2003, the taxes on top incomes were slashed, and tax loopholes favoring the wealthy were widened. The implicit promise—sometimes made explicit—was that the benefits from such cuts would trickle down to the broad middle class and even to the poor. As I’ve shown, however, nothing trickled down. At a time in American history when the after-tax incomes of the wealthy continue to soar, while median household incomes are falling, and when we must invest far more in education and infrastructure, it seems appropriate to raise the top marginal tax rate and close tax loopholes that disproportionately favor the wealthy.

6) Make the payroll tax progressive. Payroll taxes account for 40 percent of government revenues, yet they are not nearly as progressive as income taxes. One way to make the payroll tax more progressive would be to exempt the first $15,000 of wages and make up the difference by removing the cap on the portion of income subject to Social Security payroll taxes.

7) Raise the estate tax and eliminate the “stepped-up basis” for determining capital gains at death. As Piketty warns, the United States, like other rich nations, could be moving toward an oligarchy of inherited wealth and away from a meritocracy based on labor income. The most direct way to reduce the dominance of inherited wealth is to raise the estate tax by triggering it at $1 million of wealth per person rather than its current $5.34 million (and thereafter peg those levels to inflation). We should also eliminate the “stepped-up basis” rule that lets heirs avoid capital gains taxes on the appreciation of assets that occurred before the death of their benefactors.

8) Constrain Wall Street. The financial sector has added to the burdens of the middle class and the poor through excesses that were the proximate cause of an economic crisis in 2008, similar to the crisis of 1929. Even though capital requirements have been tightened and oversight strengthened, the biggest banks are still too big to fail, jail or curtail—and therefore capable of generating another crisis. The Glass-Steagall Act, which separated commercial- and investment-banking functions, should be resurrected in full, and the size of the nation’s biggest banks should be capped.

9) Give all Americans a share in future economic gains. The richest 10 percent of Americans own roughly 80 percent of the value of the nation’s capital stock; the richest 1 percent own about 35 percent. As the returns to capital continue to outpace the returns to labor, this allocation of ownership further aggravates inequality. Ownership should be broadened through a plan that would give every newborn American an “opportunity share” worth, say, $5,000 in a diversified index of stocks and bonds—which, compounded over time, would be worth considerably more. The share could be cashed in gradually starting at the age of 18.

10) Get big money out of politics. Last, but certainly not least, we must limit the political influence of the great accumulations of wealth that are threatening our democracy and drowning out the voices of average Americans. The Supreme Court’s 2010 Citizens United decision must be reversed—either by the Court itself, or by constitutional amendment. In the meantime, we must move toward the public financing of elections—for example, with the federal government giving presidential candidates, as well as House and Senate candidates in general elections, $2 for every $1 raised from small donors.

Building a Movement

It’s doubtful that these and other measures designed to reverse widening inequality will be enacted anytime soon. Having served in Washington, I know how difficult it is to get anything done unless the broad public understands what’s at stake and actively pushes for reform.

That’s why we need a movement for shared prosperity—a movement on a scale similar to the Progressive movement at the turn of the last century, which fueled the first progressive income tax and antitrust laws; the suffrage movement, which won women the vote; the labor movement, which helped animate the New Deal and fueled the great prosperity of the first three decades after World War II; the civil rights movement, which achieved the landmark Civil Rights and Voting Rights acts; and the environmental movement, which spawned the National Environmental Policy Act and other critical legislation.

Time and again, when the situation demands it, America has saved capitalism from its own excesses. We put ideology aside and do what’s necessary. No other nation is as fundamentally pragmatic. We will reverse the trend toward widening inequality eventually. We have no choice. But we must organize and mobilize in order that it be done.
1) Make work pay.
2) Unionize low-wage workers.
3) Invest in education.
4) Invest in infrastructure.
5) Pay for these investments with higher taxes on the wealthy.
6) Make the payroll tax progressive.
7) Raise the estate tax and eliminate the “stepped-up basis” for determining capital gains at death.
8) Constrain Wall Street.
9) Give all Americans a share in future economic gains.
10) Get big money out of politics.

oh Robert, you so crazy.
1)no. in a good economy, people will be paid what they are worth. don't fuck with market forces.
2)hell yes.
3)no. let business train employees on their own dime
6)of course
7)sounds democratic
8)fuck yeah
9)no no no no. invest in the crookery that nobody trusts and is fucking it all up. i don't think so
10)good luck with that
Yeah, I'm not so big on getting everybody in on the stock market. Aren't we overly dependent already?
Unions are a big part of what created/maintained the middle class. As long as they don't bite the hand that feeds them, unions are needed to check the greed of the corporate overlords.

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