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America’s Rich Just Scored A Triple Jackpot

Tuesday, October 22nd, 2019

At racetracks all across America, lucky bettors every so often rake in small fortunes when the horses they pick to finish one, two, three — a trifecta — just happen to finish in that order. Last spring at the Kentucky Derby, for instance, a $1 trifecta bet returned a tidy little $11,475.30.

But America’s awesomely affluent don’t have to place any bets to rake in windfalls. They’re essentially hitting jackpots on a daily basis, as a “trifecta” of timely just-released research reminds us.

The first of these three newly released blasts came in late September from the Census Bureau. The gap between America’s haves and have-nots, the new Census data show, has grown “to its highest level in more than 50 years of tracking income inequality.”

The first week in October then brought the second blast, an Institute for Policy Studies analysis on the latest trends in corporate executive pay. In 2018, the IPS report details, 50 major U.S. corporations paid their CEOs over 1,000 times the compensation that went to their most typical workers.

The third blast comes from two of the world’s top inequality scholars. In 2018, economists Emmanuel Saez and Gabriel Zucman inform us, America’s 400 richest households paid taxes at a lower rate than any other income cohort in the nation, the first time that’s happened since the modern federal income tax went into effect in 1913.

The combined federal, state, and local tax rate on the nation’s richest 400 households, Saez and Zucman have calculated, last year fell 2.5 percentage points to 23 percent. In other words, the nation’s richest 400 households paid less than a quarter of their income in taxes.

Households in the nation’s poorest 50 percent, by contrast, paid 24.2 percent of their incomes in combined 2018 federal, state, and local taxes.

These disturbing new numbers appear Saez and Zucman’s new book, The Triumph of Injustice. The book traces how tax rates on the richest of America’s rich have nosedived since the middle of the 20th century. In 1950, the two economists point out, our top 400 households had a combined tax bill that averaged 70 percent of their incomes. A generation later, in 1980, that combined rate took 47 percent — about half — of top-400-household incomes. That rate has since fallen to last year’s 23 percent.

The bottom line: America’s richest used to pay over three times more of their income in total taxes than they do now. The predictable result? America’s richest have become phenomenally richer than they used to be.

The business magazine Forbes began publishing its annual list of the nation’s 400 richest in 1982. The shipping magnate Daniel Ludwig topped that first annual Forbes list. His total fortune: just $2 billion.

Forbes earlier this month released the 2019 ranking of the top 400. The fortune now needed to enter the ranks of America’s 400 richest: $2.1 billion.

Admittedly, we’re not taking inflation into account with this comparison. So let’s do that. Adjusting for inflation, Ludwig — the richest single individual in the inaugural Forbes list — had a 1982 fortune worth $5.3 billion. A stash that size today would rank him just 125th.

In that initial 1982 Forbes 400, America’s richest averaged $230.8 million in net worth each. In today’s dollars, that would come to nearly $633 million. The 2019 top 400 average: $7.4 billion, 32 times the top-400 average net worth in 1982.

Wages for the typical American worker, meanwhile, have been “increasing” on average by less than a half percent a year over the last four decades.

“It’s the economy, stupid,” Bill Clinton’s top campaign guru quipped during the 1992 presidential campaign.

No, it’s the inequality, stupid, the vast gap between the rich and everyone else that’s poisoning nearly every aspect of modern American life, from our crumbling infrastructure to our endangered environment. Hitting an occasional trifecta at the racetrack won’t close that gap. Taxing the rich — and confronting their corporate power — will.

This blog was originally published at OurFuture.org on October 22, 2019. Reprinted with permission.

About the Author: A veteran labor journalist, Sam Pizzigati has written widely on economic inequality, in articles, books, and online, for both popular and scholarly readers. Sam Pizzigati co-edits Inequality.org. Follow him at @Too_Much_Online.

Income inequality went up again in 2018, and the Republican tax law may have made it worse

Friday, September 27th, 2019

U.S. income inequality continued to grow in 2018, according to new Census Bureau figures. That’s a continuation of a decades-long trend—and a problem several of the Democratic presidential candidates have plans to combat.

The biggest rises in inequality came in Alabama, Arkansas, California, Kansas, Nebraska, New Hampshire, New Mexico, Texas, and Virginia, making increasing inequality a nationwide phenomenon hitting red states, blue states, and swing states across regions of the country. But it’s not something that’s just happening in a vacuum. It’s a product of policy and of choices that giant corporations, unfettered by government, are making to transfer wealth upward. Candidates like Sens. Elizabeth Warren and Bernie Sanders have offered plans from a wealth tax to a $15 minimum wage to strengthening unions to combat the continuing trend. Republicans, meanwhile, are looking for ways to make it worse.

“In 2018 the unemployment rate was already low, and the labor market was getting tight, resulting in higher wages. This can explain the increase in the median household income,” University of Florida economist Hector Sandoval told the Associated Press. “However, the increase in the Gini index shows that the distribution became more unequal. That is, top income earners got even larger increases in their income, and one of the reasons for that might well be the tax cut.”

We’d need more data to know for sure, but we can be sure that it’s an outcome Republicans wouldn’t object to—except selectively during campaign season.

This article was originally published at Daily Kos on September 26, 2019. Reprinted with permission.

About the Author: Laura Clawson is a Daily Kos contributor editor since December 2006. Full-time staff since 2011, currently assistant managing editor.. Laura at Daily Kos

More Evidence on Why Inequality Matters

Monday, May 23rd, 2016

William SpriggsThe evidence has mounted, and is clearly accepted, that extreme income inequality has grown in the United States over the past 40 years—and by extreme income inequality, I mean a huge imbalance in income growth favoring the top 1% of the population. This is extreme because it is large enough and sufficiently imbalanced growth that it must force a rethinking of economic policies.

Too much of the debate has been taken up on wage disparities between high-tech workers and low-wage service workers, between those who program the robots and those displaced by them. All those debates are limited to understanding the stagnant income growth within those in the bottom 90% of the income distribution. In net terms, those workers have gained nothing.

Unfortunately, however, that framework continues to dominate the global consensus debating solutions to the rising inequality, whether it is from the International Monetary Fund or the Organization for Economic Cooperation and Development, pillars of the so-called troika of policy centers that define neoliberal consensus on best practices for national policy. And, the concerns about inequality echo through the World Bank and the World Economic Forum.

Recent research is pointing to a new direction of understanding why inequality hurts growth. It is based on micro-economic evidence of firm-level success and points to why policies aimed at reversing income inequality are in the interests of businesses at the firm level. By exploiting new big data, economists are modelling a different challenge that inequality creates.

Last year, Simon Gilchrist and Egon Zakrajšek looked at differences in pricing behavior of firms during the recovery from the 2008 recession and uncovered that firms live and die based on their customer base. Growth of the firm is reliant on growth of their customer base. Firms that face stagnant customer base growth and loss of customer base then live or die on the availability of credit and their liquidity. Those firms are fragile. A downturn like 2008 means they face the strongest headwinds, their customer base freezes or shrinks as their incomes fall and their lack of credit from the financial collapse can easily mean they fail, or struggle to hold on by raising prices to their remaining customers.

The macro-economic implications are clear. If the bottom 90% of the income distribution rises by only 0.7%, then there will be a lot of firms facing no growth in their customer base. Another new study this week confirms that. Xavier Jaravel shows that those with low incomes consistently buy the same products year to year. This follows basic economic rationality. Consumers with the same income, assuming fixed tastes and preferences, should be observed buying the same things over time. Having revealed their preferences for goods, if their incomes don’t change, their preferences should also be stable over time. In business terms, they do not present themselves as new customers. So, firms do not chase them. These same consumers, therefore, do not realize any gains from “competitive” markets, fighting through prices to win dominance over new products. Instead, the firms that serve the poor are the firms Gilchrest and Zakrejšek point out must survive on raising prices to hold onto their total revenue during tough times.

The rich, Jaravel found, on the other hand, face great competition for them among firms chasing expanding customer bases. In short, the rich are not poor people with more money. They do have different tastes; as economic theory suggests, rising incomes change people’s tastes and preferences. Economists, in fact, label some goods as inferior goods because as incomes rise, demand for them falls; the rich buy foie gras, not baloney, craft beers, not Bud Light. When firms chase those customers, they compete, and the benefit is falling prices for those goods.

So, there are two distortions that hurt growth when income grows so unequally. First, if income grows equally, then the 127 million American consumer units (households and families that buy things) all become potential new customers. Firms would then chase them, and the competitive dynamics of the market would create new opportunities to grow or create businesses. But, when only 1% have rising incomes, that is a growth of 1.2 million potential new customers. That is a vastly smaller set of opportunities for firms to grow.

Second, it is a limited set of tastes and preferences to go after; it is a market that lacks the scale for creating large numbers of jobs and production efficiencies that come from a mass market of 127 million new customers. This hurts productivity growth, as more jobs are created and aimed at smaller scale production.

So, rather than ask individual firms, “What would a $15-an-hour wage mean in paying their workers?” firms should be asked, “What would a 100-fold increase in their customer base mean?” Most firms are more concerned about the latter, without an understanding of ways to make that happen. But, if the economy is to grow, be dynamic and benefit workers and companies both, companies need to think about what policies make growth more equal.

This blog originally appeared in aflcio.org on May 20, 2016.  Reprinted with permission.

William E. Spriggs is the Chief Economist for AFL-CIO. His is also a Professor at Howard University. Follow Spriggs on Twitter: @WSpriggs.

 

NEWS FLASH: Labor Membership Boosts Incomes, Families And Economy

Monday, September 14th, 2015

Dave JohnsonStudy after study, report after report, and of course common sense and our own eyes are telling us that unions help people and the economy do better. It’s obvious. But the billionaires and big corporations want to keep pay and benefits low, and pay politicians to keep it that way.

Which Democratic presidential candidates will come out in favor of strong labor rights and the laws and regulations that protect and encourage this?

A new report presented by the Center for American Progress co-authored with economists Richard Freeman and Eunice Han is only the latest look at how labor unions enable working people to do better. The report, “Bargaining for the American Dream: What Unions do for Mobility,” looks at “economic mobility” and “intergenerational mobility” and finds that mobility is better where unions are strong.

Big words, but what does this mean for real people? The study found that areas with higher union membership demonstrate more mobility for low-income children:

? Low-income children rise higher in the income rankings when they grow up in areas with high union membership.
? An increase in union density is associated with an increase in the income of an area’s children – as much as or more than high school dropout rates.
? Children of non-college-educated fathers earn more if their father was in a labor union.

Previous studies had looked at how other factors affected mobility: single motherhood rates, income inequality, high school dropout rates, social capital and segregation. But they had not looked at union membership. This study did look at this and found that the effect of union membership is close to the effect of inequality; only single motherhood has more of an effect.

At an event about the report, former Treasury Secretary Larry Summers (starting about 12:35 in the video) was rather pro-labor. He congratulated the authors for the study, but warned not to necessarily interpret the results as causal. He said the data used could also show that it’s the policies of the old Confederate states that cause lower mobility. Those states “are set up to produce a lot of immobility.” Are unions a cause or a symptom of that? The data show that holding all other factors constant, being in a union does appear to mean your children and grandchildren will do better.

Summers said private sector unionism by its nature goes hand-in-hand with private sector monopoly power and monopoly profits. Unions make sure that workers share in it. But government policies have assisted in making union organizing difficult, thereby decreasing membership.

The report suggested ways that unions might promote increased mobility. Union jobs pay more, which can lead to better outcomes for the kids in union families. Union jobs are often more stable, leading to a stable living environment for children to grow up in. Union jobs tend to come with family health insurance.

These gains show up in children who are not from union families but come from more densely unionized regions. This could be because unions push up wages generally, not just union members, and fight for programs that benefit everyone, especially low-income people.

What Can We Do?

While studies, reports, common sense and our eyes show us that people and our economy do better when workers are able to organize to fight the power of organized wealth, organized wealth is winning. Public policy increasingly supports wealth over working people. Unions are in decline, public investment is in decline, income inequality is rising. Even in times of political domination by Democrats, such as the early years of the Obama administration, little is done to reverse these policies and help working people.

In this presidential campaign Republicans are overwhelmingly speaking out for the interests of the billionaire class that funds them. For example, “Jeb!” Bush has introduced a plan to dramatically cut taxes for the rich. The Republican frontrunner is an actual billionaire.

On the Democratic side, frontrunner Hillary Clinton largely avoids championing specific policy proposals, and in spite of populist language is suspected of supporting the wealth/corporate-owning class. Opponent Bernie Sanders initiated his campaign in an attempt to “move Clinton to the left,” to get her to endorse specific policies that could address the problems of increasing inequality and the decline in pro-worker, pro-labor policies that worsen inequality. Interestingly, he is rising in the polls and even overtaking Clinton in some states as a result of his message.

Will the Democratic Party at large see this and rally for stronger labor laws as part of their plan to fight inequality and raise wages? If Bernie Sanders gets the votes to win the nomination and become the candidate, will the party apparatus fall in line? Or will they continue to provide only lip service – and lose elections?

This blog originally appeared in Ourfuture.org on September 11, 2015. Reprinted with permission.

About the Author: Dave Johnson has more than 20 years of technology industry experience. His earlier career included technical positions, including video game design at Atari and Imagic. He was a pioneer in design and development of productivity and educational applications of personal computers. More recently he helped co-found a company developing desktop systems to validate carbon trading in the US.

Inequality, Power, and Ideology: An Update

Tuesday, January 6th, 2015

bannerlogo[1]The article “Inequality, Power, and Ideology” was written in early 2009, as the U.S. economy was in the midst of the Great Recession. I argued that the severity of the recession was brought about by a nexus involving three factors:

  • A growing concentration of political and social power in the hands of the wealthy;
  • The ascendance of a perverse leave-it-to-the-market ideology which was an instrument of that power; and
  • Rising economic inequality, which both resulted from and enhanced that power.

Now, in late 2014, there is reason to hope that the perverse ideology, market fundamentalism, has been somewhat weakened. However, income inequality and the concentration power in the hands of the wealthy seem to be firmly in place. Perhaps the most shocking fact about income inequality is the following: Between 2009 and 2012, as the economy grew slowly out of the recession, 116% of the income increase went to the highest income 10% of the population. Yes, that’s right, the income of the top 10% increased more than the income increase for the whole society, which means of course that the income of the rest of society, 90%, declined in this period. This decline shows up in the drop of the inflation-adjusted median household income, down 4.4% between 2009 and 2012, part of a larger picture of a 8.9% decline between just before the recession, 2007, and 2013. (We don’t yet have the figure for 2014 as of this writing.) So, yes, income distribution continues to get more unequal, after the Great Recession as before the Great Recession.

As to the concentration of power, legal developments (the Supreme Court’s decisions in the Citizens United and McCutcheon cases, in particular) have allowed virtually unlimited and often hidden expenditures in elections by wealthy individuals and corporations—as if their expenditures had not already been too large. And recent elections have underscored the importance of these outlays. Then there is the continuing power of financial institutions. While the 2010 Dodd-Frank bill provided some sections that might have curtailed that power, pressure from the financial sector has delayed or weakened the implementation of many of those sections. Indeed, regulators have recently allowed banks to move precisely in the opposite direction from some Dodd-Frank provisions—e.g., allowing mortgages to be issued with low levels of down payment.

The perverse ideology that has justified inequality and buttressed the power of the rich, however, has suffered some setbacks since 2009. This ideology of market fundamentalism has relied on generating the belief that economic inequality is not a problem: that’s just the way markets work, rewarding skills and hard work. And, besides, it isn’t inequality that is important, it’s people’s absolute level of income that matters. At least that’s how the argument went. The Occupy movement that emerged onto the scene in September of 2011, however, was the spark that ignited a growing challenge to this nonsense. The Occupy slogan of “We are the 99%” resonated with a wide spectrum of society. Although the Occupy movement itself has faded, the concern for economic inequality has grown, and, from that, there has developed a widening rejection of the idea that whatever happens through markets is OK.

Nonetheless, government action continues to be severely constrained by the power of the economic elite, which has continued to exploit the zombie-like ideas about the efficacy of markets. No significant steps have been taken that might reverse the trend of rising inequality. Indeed, government policies have both slowed the recovery from the Great Recession and contributed to the rising inequality. By failing to sufficiently use fiscal policy to stimulate the economy, the government was failing to create jobs, and job creation would have at least dampened the rising inequality trend. Without a sufficient fiscal stimulus, the Federal Reserve attempted to stimulate the economy by lowering interest rates. Yet, monetary policy in a severe recession is a weak remedy, and, what’s more, works through providing benefits to financial and other firms. Those benefits are supposed to trickle down to “ordinary people.” Also, from the bailout of the banks in 2008 to the continuing monetary policies of the Fed in late 2014, the government’s approach to aid the financial system has largely ignored any debt relief for the families enmeshed in the housing crisis.

Although the recession came to a formal end by June 2009, when GDP started to grow again, economic conditions have continued to be very poor.

With slow economic growth, unemployment remained high, falling below 8% only in late 2012 and below 6% only in September of 2014; in both 2006 and 2007, the years leading up to the Great Recession, the unemployment rate had been below 5% in every month until December 2007, which was when the Recession was beginning. Moreover, many people simply gave up looking for work, dropped out of the labor force, and were not even counted among the unemployed.

The labor-force participation rate—the percentage of the population 16 years older who are either employed or looking for work—has fallen below 63%, after running above 66% in all years since 1989.

Add to this the high levels of long-term unemployed and people working part-time who would like full-time jobs, and it is clear that the U.S. economy is not generating sufficient jobs and remains weak more than five years after the Great Recession formally ended.

Several factors contribute to an explanation of the weak recovery from the Great Recession. When economic downturns are brought about by financial crises, they tend to be more lasting because the machinery of the credit system and the confidence of lenders have been so severely damaged. Programs to relieve the dreadful damage done to millions of homeowners have been minimal, leaving families in dire straits and leaving the housing market in the doldrums; and people with high debt are reluctant to spend, further restraining economic expansion. Also, while the Great Recession developed in the United States, it spread to much of the rest of the world. Conditions in Europe, especially, have hampered full recovery in the United States.

In late 2014, on the surface, the likelihood of positive change is not auspicious. With the underlying nexus of power-ideology-inequality still in largely in place, economic life is threatened by a new crisis. Moreover, the success of the Republicans in the November 2014 elections would seem to squash possibilities for positive change. Yet, as pointed out above, the ideology of market fundamentalism, which has been both a foundation for that success and a basis for the poor economic conditions that confront the great majority of the populace, is increasingly being rejected. This ideological shift, if it can be maintained, offers a basis for positive developments. The sorts of changes advocated in this article, changes that would improve people’s lives and alter the underlying causes of the economic crisis, continue to be necessary. They also continue to be possible.

This Article originally appeared in dollarsandsense.org in the November 2014 issue. Reprinted with permission.

About the author: Arthur MacEwan is professor emeritus of economics at UMass-Boston and a Dollars & Sense Associate.

Wealth Inequality And Middle-Class Decline Is Worse That We Think

Monday, October 20th, 2014

Isaih J. PooleWe know how bad income inequality has gotten in the past few years in America, thanks largely to the work of economist Emmanuel Saez and his colleagues at University of California at Berkeley’s Center for Equitable Growth. But Saez’s latest paper finds that the share of the nation’s wealth going to the bottom 90 percent of Americans has declined to where it was in the 1940s, erasing decades of hard-won gains due to pro-worker, pro-middle-class economic policies.

Meanwhile, the top 0.1 percent of Americans – the 160,000 families with net assets in excess of $20 million in 2012 – now hold 22 percent of the nation’s wealth, up from 7 percent in 1978. That monopolization of a large share of national wealth by an elite few hasn’t been seen since the late 1920s.

The bottom 90 percent, by contrast, saw their wealth share fall from 35 percent in the mid-1980s to about 23 percent in 2012, the paper said. It was about 20 percent in the 1920s, it said.

The paper, “Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data,” focuses not just on wages and income but on the accumulation of overall wealth, including the value of real estate, stocks and certain other assets. It explicitly refutes the view that while nearly all of the gains in national income since the 2008 recession have gone to the top 1 percent, that hasn’t translated into a substantial increase in the concentration of overall wealth at the top. To the contrary, the paper said, “we find that wealth inequality has considerably increased at the top over the last three decades.”

“Wealth concentration has increased particularly strongly during the Great Recession of 2008-2009 and in its aftermath,” the paper said. Largely because of the decline in housing prices, the share of wealth held by the bottom 90 percent fell more than 10 percent from the middle of 2007 to mid-2008. Afterward, real wealth continued declining at a rate of 0.6 percent a year on average through 2012, while it increased at a rate of almost 6 percent a year for the top 1 percent and almost 8 percent a year for the top 0.1 percent.

The bottom line: “Wealth is getting more concentrated in the United States,” and is in fact “ten times more concentrated than income today.”

How did this happen? “The share of wealth owned by the middle class has followed an inverted-U shape evolution,” the paper said. Middle-class households reached the apex of the upside-down “U” in the mid-1980s, driven by the accumulation of housing wealth and, more significantly, pensions. Since then, housing values for the bottom 90 percent as a share of total household wealth has fallen by as much as two-thirds, and most workers have IRAs or 401(k) defined contribution plans instead of pensions. And these households have significantly higher debt than they did in the 1980s.

What can we do about it? The paper points out that it was New Deal policies of the 1930s that began reversing the effects of Gilded Age inequality in the 1930s, particularly “very progressive income and estate taxation” that made it difficult for the wealthy to accumulate large fortunes and pass them to their heirs. “The historical experience of the United States and other rich countries suggests that progressive taxation can powerfully affect income and wealth concentration,” the paper said.

Other steps that can help include “access to quality and affordable education, health benefit cost controls, minimum wage policies, or, more generally, policies shifting bargaining power away from shareholders and management toward workers.” Finally, the paper suggests policies that “nudge” workers toward sound investment and savings vehicles and offer alternatives to short-term debt at high interest rates.

The fact that a group of people equal to the population of Salem, Oregon controls as much of the nation’s wealth as 90 percent of the rest of the country speaks to the fundamental unfairness of our economy. It is a level of imbalance that is as unsustainable today as it was before the crashes of 1929 and 2008. It also stands as a dire warning that we cannot afford to elect more politicians whose policies of giving more relief to the wealthy and more pain to the working class would only make wealth inequality and, and economic inequity, even worse.

This blog originally appeared in Ourfuture.org on October 20, 2014. Reprinted with permission. http://ourfuture.org/20141020/wealth-inequality-and-middle-class-decline-is-worse-that-we-think.

About the Author: Isaiah J. Poole has been the editor of OurFuture.org since 2007. Previously he worked for 25 years in mainstream media, most recently at Congressional Quarterly, where he covered congressional leadership and tracked major bills through Congress. Most of his journalism experience has been in Washington as both a reporter and an editor on topics ranging from presidential politics to pop culture. His work has put him at the front lines of ideological battles between progressives and conservatives. He also served as a founding member of the Washington Association of Black Journalists and the National Lesbian and Gay Journalists Association.

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