Robert Reich, once Clinton the First’s Secretary of Labor and now a professor of Public Policy at the University of California at Berkeley, has emerged as one of the clearest pre-Piketty voices on income inequality and how it is affecting America. He asks why, in the face of incontrovertible evidence of their coming demise, our middle class remains complacent.
So why is there no revolution brewing?
Reich’s reasons– a working class paralyzed with fear it will lose the jobs and wages it already has, debt-laden students who are no longer a major force for social change, and an American public so cynical about government that many no longer think reform is possible– are valid. His idea that somehow some kind of reform is still possible is less so. Let’s look into this.
The Reality of Wealth
The gap between most Americans and those who sit atop our economy continues to grow. For two decades after 1960, real incomes of the top five percent and the remaining 95 percent increased at almost the same rate, about four percent a year. But incomes diverged between 1980 and 2007, with those at the bottom seeing annual increases only half of that of those at the top.
This is not some aberration. Instead, lower savings and hyper-available credit (remember fraudulent Countrywide mortgages and usurous re-fi’s?) put the middle and bottom portions of our society on an unsustainable financial path that increased spending until it triggered the Great Recession of 2008. Meanwhile, America’s the top earners’ wealth grew even as those responsible for the collapse were never punished and the companies involved received federal bail-out money (the money came from taxes paid in part by those destroyed in the Recession.) In the U.S., the wealthiest one percent captured 95 percent of post-financial crisis growth since 2009, while the bottom ninety percent became poorer. The recession represented the largest redistribution of wealth in a century.
How did the most wealthy achieve this? The reality of possession.
The Reality of Possession
A rising tide lifts all yachts, as historian Morris Berman observed. Less than half of Americans do not own any stock at all. The wealthiest of Americans own over 80 percent of all stock, and 40 percent of America’s land.
Short answer: The rich just get richer. They have no interest in reform or change. Things are working just fine for them. It is the reality of the system.
The Reality of the System
Walmart associates make minimum wage. Most associates are nowhere near full-time, so their take home pay is well below the poverty threshold.
In return for paying below-poverty wages, Walmart makes over $18,000 per employee, including $13,000 in pre-tax profits, after paying salaries, plus taxpayer subsidies of $5,815 per worker in the form of food stamps paid by the government to keep the workers nearer the poverty line than below it, and tax breaks given to “create jobs.”
The top four members of the Walmart family made a combined $28.9 billion from their investments last year. Less than a third of that would have given every U.S. Walmart worker a $3.00 raise, enough to end the public subsidy, though the four Walmart scions would have to make due with only $20 billion a year. But why bother to change when the reality of politics is so much in the company’s favor?
Essentially the interests of the 99 percent are in direct conflict with those of the one percent. The only hope lies in the reality of politics.
The Reality of Politics
Over large swaths of the earth, there are no elections. In some of the wealthiest countries in the Middle East and Asia, there is not even the pretext of anyone choosing a government. Most governments are controlled by family ascension, not unlike the scene in the Middle Ages. In many other places, elections are simply public stage plays, with the actual winners decided by corruption and manipulation. Under such circumstances, it is not surprising that power and wealth work together.
Such is the case now in the United States. According to Professor Lawrence Lessing, that with the concentration of wealth, 132 people in the U.S. essentially control elections. They do so by donating, just that handful of people, over 60 percent of the SuperPac money. Those 132 people represent 0.000042 percent of the total number of voters; most other contributions to candidates are small, many below $200. How much is your vote worth?
It is not a coincidence that in 2016 the presidential race will likely again be a Clinton versus a Bush.
By reducing the ostensible choices to two, and by making the choice a false one as both candidates will differ little in their practices toward wealth and corporate profits, a very few super rich (indeed, a tiny subset of even the vaunted one percent) control the government. It is impossible under such circumstances for the government to create laws again the interests of the wealthy; after all, they work for them. The reality of change is that there is no reason to change.
The Reality of Change
The world has seen this before, for the West, during the Middle Ages, when feudalism was the dominant social and political state. A very, very few owned most everything of value. The 99 percent majority– serfs then, associates now– worked for whatever the feudal lords allowed them to have. In our more modern version of society, even the skilled artisan class that helped lift us out of the dark times may not exist as those activities (programming, services to the rich, medicine) are largely outsourced to places on earth were the pay even for skilled work is low.
Spayed, we’ll all accept it. Noisy but ineffective dissent will exist as a kind of entertainment, a diversion. The few real leaders among us will fall quickly under an almost-complete surveillance state coupled with militarized police. There thus, with apologies to Reich and Piketty, may be no means to foment a revolution, nor real reform. It remains possible, if not likely, that our nation will find itself in a new birth of feudalism, progress and growth a mere historical blip.
Still don’t believe me? Remember, at the fall of Rome and the beginning of the Middle Ages only two thousand people owned all the land between the Rhine and Euphrates rivers. In 2014, 85 people own half of the world’s wealth.
Copyright © 2017. All rights reserved. The views expressed here are solely those of the author(s) in their private capacity. Follow me on Twitter!
Unlike that guy who cornered you at the party, I’ll admit I haven’t read all ten million pages (it’s actually 700 pages) of economist Thomas Piketty’s new bestseller, Capital in the Twenty-First Century. I’ve read a bunch of it, and skimmed more it, and so here are the takeaways for people who are also reading my book about America, our society and our economy, Ghosts of Tom Joad
What Piketty says:
— There has been a significant increase in income inequality in America. Our inequality rate is higher than it ever has been in our own history, is growing, and is higher than in countries in Western Europe and Canada.
— The inequality is driven by two complementary forces. By owning more and more of everything (capital) rich people have a mechanism to keep getting richer, because the rate of return on investment is a higher percentage than the rate of economic growth. This is expressed in Piketty’s now-famous equation R > G. The author claims top of layer of wealth distribution is rising at 6-7 percent a year, more than three times faster than the size of the economy.
— [NOTE: In the United States, the top one percent own 35 percent of all capital, and the top 10 percent of wealth holders own roughly 70 percent. The bottom 50 percent have roughly 5 percent. Note also that until slavery was ended in the United States, human beings were also considered capital.]
— At the same time, wages for middle and lower income people are sinking, driven by factors largely in control of the wealthy, such as technology employed to eliminate human jobs, unions being crushed and decline in the inflation-adjusted minimum wage more and more Americans now depend on for their survival.
— All of this is exacerbated by America’s lower tax rate on capital gains (how the rich make their money) versus wages (how the 99 percent make their money.) This all becomes a kind of snowball effect.
— Because rich people pass on their wealth to their relatives, the children of rich people are born rich and unless they get really into hookers and blow, will inevitably get richer. They almost can’t help it. The gap between the 1 percent and the 99 percent must grow. This will create a society reminiscent of the pre-Enlightenment past.
— About the only way to change this is either via world-wide cataclysmic events such as wars, or by alterations in tax policy, specifically a progressive tax that really charges rich people more than poor people. Piketty does not seem to address the issue that many rich people profit mightily from wars, but either way, these cataclysmic events are transitory. It is not clear how Piketty sees a more fair tax system coming into play, but he seems very optimistic it will happen.
— Social reforms, such as increased education opportunities and low-cost health care, are incapable without tax changes of significantly affecting income equality.
— All of this is based on A LOT of data. Much of it is historical data, so the overall arguments are not some politically-vulnerable factoid-based stuff.
— A good Piketty quote: “The entrepreneur inevitably tends to become a rentier, more and more dominant over those who own nothing but their labor… Once constituted, capital reproduces itself faster than output increases. The past devours the future.”
Copyright © 2017. All rights reserved. The views expressed here are solely those of the author(s) in their private capacity. Follow me on Twitter!
We are living in so-called first world societies where economic disparity is trending toward developing world levels. Some numbers you can argue about individually if you like (and how does your head feel buried in the sand?), but the aggregate situation is beyond debate:
— The one percent holds 35.6 percent of all private wealth, more than the bottom 95 percent combined.
— The 400 wealthiest individuals globally have more wealth than the bottom 150 million Americans.
— Between 1983 and 2009, over 40 percent of all wealth gains flowed to the one percent and 82 percent of wealth gains went to the top five percent. The bottom 60 percent lost wealth over this same period.
— A significant amount of the redistribution of wealth, redistributed upward, took place following the 2008 market collapses in the United States as bailouts, shorts, repossession of home and land, and new laws helped the top end of the economy at cost to the bottom. More and more of government is controlled directly by corporations.
— The world’s one percent own $42.7 trillion dollars, more than the bottom three billion residents of earth.
— A rising tide lifts all yachts, as historian Morris Berman observed. Less than half of Americans do not own any stock at all. The wealthiest of Americans own over 80 percent of all stock, and 40 percent of America’s land.
It’s Getting Worse
Now add to that grim tally new information that shows the problem of gross income and wealth inequality is getting worse.
A report from McKinsey finds that in developed economies such as the United States two-thirds of all households experienced “flat or falling” incomes over the past decade, from 2005-2014. In the U.S., the portion was even worse: 81 percent.
“While the recession and slow recovery after the 2008 global financial crisis were a significant contributor to this lack of income advancement, other long-run factors played a role — and will continue to do so,” McKinsey notes. “They include demographic trends of aging and shrinking household sizes as well as labor-market shifts such as the falling wage share of GDP.”
Capital Beats Labor Every Time
As predicted by economists from Karl Marx to Thomas Piketty, this is the natural progression of capital (making money by owning things) over labor (making money by working.) It represents the same basic economic world of the Middle Ages, land-owning kings and serfs who have no option but to work the fields.
It is statistically likely that you won’t live a better life than your parents did. The economic world of your parents and grandparents was an aberration, a one time exception that was called the American Dream. And even that was largely limited the white people.
Do enjoy that gig economy youngsters, and hope Uber doesn’t put you out of an income by flooding the market with more drivers.
Copyright © 2017. All rights reserved. The views expressed here are solely those of the author(s) in their private capacity. Follow me on Twitter!
Nobody has a lot of hope left, so we got Trump.
I’ve taken to doing this thing Kurt Vonnegut used to do, semi-randomly calling people I haven’t spoken to for awhile. No emails, a phone call, the numbers I can track down online. The phone rings on their end and announces I am demanding to talk with them. It’s selfish. I want to know what’s going on in America. I ask them that.
The way things work, these people have dispersed themselves all over America. Most of the people I speak with are in their 50s, nobody younger than about 35. They are representative only of “people I still sort of know.” The whole thing is about as scientific as the smell off a pile of dog crap.
I’ve found nobody with a lot of hope left. They seemed to have used it up.
I haven’t run across anyone who voted for Trump who said “Well, that’s that, time to sit back and watch things get fixed.” A lot of these people voted for Obama, at least in 2008, and not because he was going to be America’s First Black President but because they really believed in his promise of Hope. The Bush years had worn out. We stayed scared enough, but then no post-9/11 attack came, the wars dragged on, and most of the stuff that was supposed to make us feel safe just ended up somewhere between inconvenient and bullying.
People have no sense of being in control of their lives. They know they have a lot less money than they used to, they don’t see their kids doing better, but they see on TV that some few seem to have most of everything. They can figure if they have less and someone else has more where that more came from.
“Hope” means different things but it one way or another meant change for the better and that didn’t happen. Depending on who you were and where you lived, things stayed about the same or they got worse. The news said another 20,000 jobs were created but they still worked at Target. The news said solar and coding and Internet of Things and self-driving cars and they still made $7.25 an hour when their grandfathers made $23.50 with benefits. In 2017 they could not afford health insurance, stuck between not having enough money to buy it and not having too little enough to get subsidized. And they know health insurance and healthcare are not the same thing, as in high deductibles and Bronze plans that never seemed to cover things, or cover them fully. They know that, and deeply resent anyone who tells them it’s not really that way and they are better off.
You can’t tell a person soaked in water they aren’t wet.
Having been fooled, prepped for years, they looked at the 2016 election and saw a choice between a guy who was so cynical about providing hope he didn’t even bother to offer anything beyond a vague exhortation to be great on a cap, and a women who didn’t even bother with that, just a selfish demand for affirmation, “I’m With Her!” going through the motions enroute to what she thought was hers already.
They knew Trump was a bully, a cheat, someone mean, and did not need to be told. They resented being seen by Clinton as too dumb to get that on their own and needing a lecture. Same now for the endless late night mockery and Washington gossip by “sources” that passes for news. Nobody cares about Nordstrom’s or who the spokesperson is when they’re hungry, and they resent the people who do not get that.
Economist Thomas Piketty found the share of U.S. national wealth claimed by the bottom 50% of the country dropped to 12% from 20% in 1978, along with a drop in income for the poorest half of America. That level of change will not go unreacted to.
It wasn’t that most of them hated Blacks and gays and the people of so-called identity politics, it was just that they did not care all that much about them either way. People in smaller places all know about Mr. Saunders the “confirmed bachelor” and while he couldn’t hold hands with his “roommate” around town, really, otherwise, who cares, I’m down to canned tuna and cereal the last week of the month when my food aid money runs out waiting for the first of the next month. Sorry equal rights for everyone isn’t in place, but let’s fix some other things first. We’ve all taken a beating.
You don’t have to like it, but that’s what a lot of people think. And unlike a fair number of other voting blocs who need to be made to show up on election day, these people turn out. They don’t need buses, they drive themselves.
So to hell with it they said, I’ll vote for the guy, being fooled knowing I’m being fooled. It doesn’t matter if Trump pisses off the Prime Minister of wherever. My kid will fight that war, like he fought the last war, because he can’t find another job and joins the Army, and Cory Booker’s nephew or niece won’t and if they does somehow join the service they’ll be a pilot or work intel or some other clean hands job and won’t be up on the line. Can my other kid go to college? Maybe, but she’ll eat debt for 20 years for a throwaway degree that isn’t worth much. We want our daughters empowered because we know that offers them a good life, but we first want them fed and employed.
We were promised that. Didn’t happen.
None of those people are going to have their minds changed by pussy hat marches or Lady Gaga at the Superbowl which just brings an eye roll from the men and women at the bar, and they don’t appreciate being called racists, nazis and fascists by millennials who have never really met one and fling those words around to enrage each other into shaking their heads at each other. They are unaffected by protests not against some policy, but against the idea that the candidate they voted for won.
Meanwhile, if someone who is a real nazi or fascist offers the people at the bar even a touch of hope they’ll put up with some of the rest even though they don’t care for it personally. Most people really don’t want to live like it’s the 1950s Deep South again, but they’ll take a cleaned up version of 1969’s economy.
See, “resistance” is part of the long-failed stay negative Democratic policy, the same one that lost the 2016 election. Find something to be for, Dems, or you’ll lose in 2018 again.
So if you want to really throw up a wall between America as we want it to be and the America you’re afraid it will become, shut the hell up and create some jobs. Just do that, dump some money out of the pot and build some bridges and highways. Start. People who wear black shoes and white socks don’t really care whether you fund the National Endowment for the Arts as long as you also fund a new water plant for every Flint, and there is or will be one in every state. That’s a big gulp of what stopped real fascism from catching hold in 1930s America.
But right now people out there are heading toward accepting an awful lot of hateful things because they want to believe someone will help them.
Every year we wait makes it harder and less likely we’ll get out from under this blue dusk. The party or candidate that can really do this — create some jobs, give people back their pride, allow them to take care of their families, throw out a little hope — will win every election they want to run in.
We’re not headed into authoritarianism per se. We’re headed into giving up. That’s the demon that’ll destroy us. There’s the weight of emptiness out there and something’s gonna fill it up.
I know I can’t keep “we,” “you “and “they” separate in the essay above and after spending a lot of time trying to fix that I realized it was meant to be that way.
How ya’ doing? I mean money-wise. Too much? Maybe not enough?
So let’s listen to economist Paul Krugman explain why we are so screwed. Not we will be screwed, or maybe things will go that way, or we will in the future. Nope, it already happened, though most of us haven’t yet figured it out.
Krugman, and the economist he discusses, Thomas Piketty, paid attention in math class, and the other classes, too. That’s why they understand this stuff and I’m still trying to suss out why no matter how many hours I stay on the job and how much I save, it is never enough.
In case you’re reading this on your 15 minute break at Target, I’ll try to summarize.
The American Dream (Patrimonial Capitalism)
The myth of the American Dream is the dominating factor in keeping people mostly complacent in the United States. You know it — work hard, and your life will improve. Well, maybe not your life, but your kids’, or at least your grandkids’. If that doesn’t work, it is the fault of the Irish immigrants, or the darn Chinese, or those welfare freeloaders. Ask Donald Trump how it all works.
The thing that makes the myth so powerful is that the tiny percent that is true sounds better than the 99 percent which is a lie. As long as near-constant growth could be assured, enough pieces would fall to the the lower and middle classes to make the Dream seem real. It helped that a kindly media would promote the heck out of every exception, whether it was the shoeshine boy in the late 19th century who went to college, or the plucky guys who invented some new tech in their garage and became billionaires. See, you can do it too, just like if we run hard enough, everyone can be in the Olympics. It’s just a matter of wanting it, believing in yourself, having passion and grit, right?
The Undeniable Reality of the Now
The bulk of the industrial jobs are gone and never coming back; ask Detroit, or the people in Youngstown and Weirton. People have been talked out of most union jobs, convinced somehow that organizing was not in their own interest, and now they find themselves accepting whatever minimum of a wage they can get. Food stamps and other need-based programs are finding more and more middle class users, as suburban people who once donated to charities are now lining up out front of them. Health care paid for by our own taxes is seen as a give away to lazy people. This is the stuff Bernie Sanders talked about.
Like with gravity, the universe doesn’t care if you “believe” it or not; it is just true, independent of what you “think.” That you have been taught this all is something you can choose to believe or not is the weight that holds us all down.
Drilling Down Into Our Miserable Lives
In case you have a few more minutes on your break, or if you’ve been laid off since starting this article, here are some more things happening out there whether you believe in them or not. You can read more about all of this in Thomas Piketty’s book, Capital in the Twentieth Century.
— Our income inequality rate is higher than it ever has been in our own history, is growing, and is higher than in countries in Western Europe and Canada.
— The inequality is driven by two complementary forces. By owning more and more of everything (capital) rich people have a mechanism to keep getting richer, because the rate of return on investment is a higher percentage than the rate of economic growth. This is expressed in Piketty’s now-famous equation R > G. The author claims wealth is growing at six-to-seven percent a year, more than three times faster than the size of the economy.
— Wages are largely stagnant, or sinking, driven by factors in control of the wealthy, such as automation that eliminates human jobs and the not-adjusted-for-inflation minimum wage more and more Americans now depend on for their survival.
— All of this is exacerbated by America’s lower tax rate on capital gains (how the rich make their money) versus wages (how the 99 percent make their money.)
— Because rich people pass on their wealth to their relatives, the children of rich people are born rich and unless they get really into fast women and cocaine, will inevitably get richer. They can’t help it. The gap between the one percent and the 99 percent must grow.
— Social reforms, such as increased education opportunities and low-cost health care, are incapable without tax changes significantly affecting income equality. The only people who can change society are those who profit from it not changing. That’s the big reveal on why we are in so much trouble.
FUN FACT: Until slavery was ended in the United States, human beings were also considered capital, just like owning stocks and bonds today.
Demagogues come and go, and are certainly nothing new in politics in general (Hitler) and American politics in the specific (nearly every Republican candidate.)
But Trump is special, a man of his times, as if evolution created him in match with his environment.
Trump is a top-level predator, not smart enough to understand but somehow evolved enough to know: the myth of the American Dream is falling apart, and the angry low and middle class people who are experiencing the collapse are unable to understand what is happening to them, essentially that they got played in one of the grandest long cons in the history of grifting. Trump senses this, and tells them it is not their fault. Blame the immigrants, blame the Muslims and, even though the Dream dumped even harder on them, why not, blame the Blacks. It’s not you, folks. The deck is stacked, says Trump.
Trump is of course right — the deck is stacked. But not in the way he says it is.
The American Dream
The myth of the American Dream has been the dominating factor in keeping most people mostly complacent in the United States for 150 years, and allowing most of us to blame a minority of us for shortcomings. You know it — work hard, and your life will improve. Well, maybe not your life, but your kids’, or at least your grandkids’. If that doesn’t happen, you probably didn’t work hard enough, try again next generation and it’ll most likely stick. And if that doesn’t work, it was the fault of the Irish immigrants, or the damn Chinese, or those welfare freeloaders.
The thing that made the myth so powerful was that 10 percent of the truth that proves the 90 percent lie. As long as near-constant growth could be assured, enough pieces would fall to the the lower and middle classes to keep the Dream alive in their minds. It helped that a kindly media would promote the hell out of every exception, whether it was the shoeshine boy in the late 19th century who went to college, or the plucky guys who invented some new tech in their garage and became billionaires.
Things did slip up from time to time, culminating in the Great Depression in the United States. The old economy, the heavy metal machinery and industrial one, had maxed out and financial scamming by the one percent of the day hit the tipping point. But some social programs to tamp down any real sense of rebellion and a timely world war reset the Dream. And better yet, the outcome of that war, with the U.S. emerging as the only superpower and the only intact economy, virtually in control of all the world’s natural resources, the newly-created monetary and trade system and, for a few years, as the sole possessor of the Bomb, created a new cycle of growth never before seen in human history.
Growth Via Consumerism
The new growth, based on all of the factors above, was fueled by consumerism, not big iron; the Dream would be succored by the recycling of the lower and middle classes’ own wages, upward of course. Earn more, spend more, need more, buy more. That sucking sound heard between 1950 until around 1975 was money moving upward, leaving a little trail of bread crumbly growth in its wake, just enough, but not too much.
But a straight line is a straight line, and that movement of money had an end point, now fast approaching, where in 2015 one percent of Americans own some 43 percent of the wealth and through that, nearly all of the power. The cycle is accelerating, because, as proven by Thomas Piketty, wealth in capital form grows faster than wages. The race to one percent owning 99.9999999 percent is on.
Now under certain circumstances such a situation would have people at the barricades armed with pitchforks. But myths die hard, and especially when the basic American Dream myth is backed by the additional proviso that if you are falling behind it is a) because you are not working hard enough or b) somebody is messing with your piece of the pie.
No politician plans to tell lower and middle class people they aren’t working hard enough, though such prescriptions are nearly required to be spouted at folks already poor. Instead, it is that second part, blaming someone else, that has always been the tool smart pols use to cage votes.
What is New
No nothing new, right? Wrong.
What is new is not the message Trump is promoting, but the America in which he is promoting it. It has become impossible for the lower and middle classes to not see that they are slipping behind. The industrial jobs are gone. People have been talked out of most union jobs, convinced somehow that organizing was not in their own interest. Food stamps and other need-based programs are finding more and more middle class audiences, as suburban people who once donated to charities are now lining up out front of them. The snowball is accelerating, downhill.
And so there is Trump, a man of his times, telling people who still want to believe that it is OK to believe. Trump made it, so can they. America is f*cked up, just look around, but it is not your fault, voters. And it is certainly not Trump’s, squarely in the one percent, fault. Nope, it is someone else’s fault, and to people desperate to Believe, that is very, very powerful medicine.
Watch out for this guy, Trump. He has tapped into something deep and fearful and motivating.
Unless you are very, very rich, you are getting poorer. Federal Reserve chief Janet Yellen warned that the gap between the rich and poor in the United States is widening and has reached a near 100-year high.
The One Percent of the One Percent
Not sure? Between 1979 and 2007, income grew by 275 percent for the top one percent of households, compared to only 18 percent for the bottom twenty percent of us. Back in 1980, 0.01 percent of the population owned three percent of national wealth. Today that top 0.01 percent, only about 32,000 people, owns 11 percent of national wealth. That’s a staggering increase from an already high base. It suggests even the one percent no longer are that big of a deal in the economy. We need now to pay attention to the one percent of the one percent.
“By some estimates, income and wealth inequality are near their highest levels in the past hundred years,” Yellen said, noting the gap has grown steadily over recent decades, despite a brief pause during the 2008 crisis when pretty much everyone got whacked.
About the 2008 Recession
“But widening inequality resumed in the recovery, as the stock market rebounded,” Yellen said, noting that “wage growth and the healing of the labor market have been slow, and the increase in home prices has not fully restored the housing wealth lost by the large majority of households for which it is their primary asset.”
If you read that carefully, it means that the rich, who earn their money in significant part via capital, owning stock and things like multiple pieces of real estate, have done just fine recently.
The rest of us, who work for wages as our primary income, are still in trouble. If your home, assuming you still own it post-2008 (and that’s a huge assumption. Some five million homes were lost to foreclosure between 2008 and 2013. 8.2 million more foreclosure starts took place in that same time period. Another three million homes in the next three or four years will face foreclosure), is not in a high-growth area, then the value of the one piece of capital you do have, then it does you little good.
None of this is new or shocking. Economist Thomas Piketty in Capital in the Twenty-First Century laid out the very simple math: R > G. R is capital and G is wage growth, and the value of capital, stuff the rich own, always, always grows faster than wages. Thus the rich get richer and the poor stay poor.
The Fed chief also warned of the burden of student loan debt, which quadrupled between 2004 and 2014. In a bit of an understatement, she added “I think it is appropriate to ask whether this trend is compatible with values rooted in our nation’s history, among them the high value Americans have traditionally placed on equality of opportunity.”
Americans owe over $1.2 trillion in college loans. Many students will work as essentially indebted servants for many years to pay them off. Or maybe their parents will. Or both. Yellen said that the trend in recent years in the United States has seen “stagnant or falling living standards for many families.”
The One Percent of the One Percent of the One Percent
Yellen offered no remedies for decreasing the rich-poor gap, because why should she. She works for the wealthy.
With the concentration of wealth, 132 people in the U.S. essentially control elections. They do so by donating, just that handful of people, over 60 percent of the SuperPac money. Those 132 people represent 0.000042 percent of the total number of voters; most other contributions to candidates are small, many below $200. How much is your vote worth?
Yellen went on to say two “cornerstones of opportunity” are resources available to children and access to higher education, and added that ownership of a family business and inherited wealth can also be important sources of economic opportunity.
Let’s look at that. Poor people have no resources available to their children. Rich people can pass on robust inheritances. Result: kids of the rich get richer. Wouldn’t life be easier if you knew you’d be a billionaire once daddy kicked it? And as for that access to higher education, please refer back to Yellen’s earlier statement about student loan debt. Escalating tuition costs that have contributed to a dramatic increase in student loan debt — the outstanding balance quadrupled from $260 billion in 2004 to $1.2 trillion this year. Of course the rich pay cash for college, so this debt is disproportionately, and increasingly, affecting poorer families and may put college and graduate degrees out of reach.
Global, But Worse in the U.S.
Globally, the gap between the haves and have-nots has reached levels not seen since the 1820s, the OECD said earlier this month, in a report that looked at trends in health, education, inequality, the environment and personal security.
The mathematical measure of wealth-inequality is called “Gini,” and the higher it is, the more extreme a nation’s wealth-inequality. The Gini for the U.S. is 85; Canada, 72; and Bangladesh, 64. Nations more unequal than the U.S. include Kazakhstan at 86 and the Ukraine at 90. The African continent tips in at just under 85.
Odd company for the self-proclaimed most powerful nation on earth.
Last year eight Americans — the four Waltons of Walmart fame, the two Koch brothers, Bill Gates, and Warren Buffett — made more money than 3.6 million American minimum-wage workers combined. The median pay for CEOs at America’s large corporations rose to $10 million per year, while a typical chief executive now makes about 257 times the average worker’s salary, up sharply from 181 times in 2009. Overall, 1% of Americans own more than a third of the country’s wealth.
As the United States slips from its status as the globe’s number one economic power, small numbers of Americans continue to amass staggering amounts of wealth, while simultaneously inequality trends toward historic levels. At what appears to be a critical juncture in our history and the history of inequality in this country, here are nine questions we need to ask about who we are and what will become of us. Let’s start with a French economist who has emerged as an important voice on what’s happening in America today.
1) What does Thomas Piketty have to do with the 99%?
French economist Thomas Piketty’s surprise best-seller, Capital in the Twenty-First Century, is an unlikely beach read, though it’s selling like one. A careful parsing of massive amounts of data distilled into “only” 700 pages, it outlines the economic basis for the 1%-99% divide in the United States. (Conservative critics, of course, disagree.)
Just in case you aren’t yet rock-bottom certain about the reality of that divide, here are some stats: the top 1% of Americans hold 35% of the nation’s net worth; the bottom 80%, only 11% percent. The United States has such an unequal distribution of wealth that, in global rankings, it falls among the planet’s kleptocracies, not the developed nations that were once its peers. The mathematical measure of wealth-inequality is called “Gini,” and the higher it is, the more extreme a nation’s wealth-inequality. The Gini for the U.S. is 85; for Germany, 77; Canada, 72; and Bangladesh, 64. Nations more unequal than the U.S. include Kazakhstan at 86 and the Ukraine at 90. The African continent tips in at just under 85. Odd company for the self-proclaimed “indispensable nation.”
Piketty shows that such inequality is driven by two complementary forces. By owning more of everything (capital), rich people have a mechanism for getting ever richer than the rest of us, because the rate of return on investment is higher than the rate of economic growth. In other words, money made from investments grows faster than money made from wages. Piketty claims the wealth of the wealthiest Americans is rising at 6%-7% a year, more than three times as fast as the economy the rest of us live in.
At the same time, wages for middle and lower income Americans are sinking, driven by factors also largely under the control of the wealthy. These include the application of new technology to eliminate human jobs, the crushing of unions, and a decline in the inflation-adjusted minimum wage that more and more Americans depend on for survival.
The short version: A rising tide lifts all yachts.
2) So why don’t the unemployed/underemployed simply find better jobs?
Another way of phrasing this question is: Why don’t we just blame the poor for their plight? Mention unemployment or underemployment and someone will inevitably invoke the old “pull yourself up by your bootstraps” line. If workers don’t like retail or minimum-wage jobs, or if they can’t find good paying jobs in their area, why don’t they just move? Quit retail or quit Pittsburgh (Detroit, Cleveland, St. Louis) and…
Move to where to do what? Our country lost one-third of all decent factory jobs — almost six million of them — between 2000 and 2009, and wherever “there” is supposed to be, piles of people are already in line. In addition, many who lost their jobs don’t have the means to move or a friend with a couch to sleep on when they get to Colorado. Some have lived for generations in the places where the jobs have disappeared. As for the jobs that are left, what do they pay? One out of four working Americans earn less than $10 per hour. At 25%, the U.S. has the highest percentage of low-wage workers in the developed world. (Canada and Great Britain have 20%, Japan under 15%, and France 11%.)
One in six men, 10.4 million Americans aged 25 to 64, the prime working years, don’t have jobs at all, a portion of the male population that has almost tripled in the past four decades. They are neither all lazy nor all unskilled, and at present they await news of the uncharted places in the U.S. where those 10 million unfilled jobs are hidden.
Moving “there” to find better work isn’t an option.
3) But aren’t there small-scale versions of economic “rebirths” occurring all over America?
Travel through some of the old Rust Belt towns of this country and you’ll quickly notice that “economic rebirth” seems to mean repurposing buildings that once housed factories and shipping depots as bars and boutiques. Abandoned warehouses are now trendy restaurants; a former radiator factory is an artisanal coffee shop. In other words, in a place where a manufacturing plant once employed hundreds of skilled workers at union wages, a handful of part-timers are now serving tapas at minimum wage plus tips.
In Maryland, an ice cream plant that once employed 400 people with benefits and salaries pegged at around $40,000 a year closed its doors in 2012. Under a “rebirth” program, a smaller ice cream packer reopened the place with only 16 jobs at low wages and without benefits. The new operation had 1,600 applicants for those 16 jobs. The area around the ice cream plant once produced airplanes, pipe organs, and leather car seats. No more. There were roughly 14,000 factory jobs in the area in 2000; today, there are 8,000.
In Louisville, Kentucky, more than 5,500 people applied for what turned out to be just 50 factory jobs in 2013, some of them temporary, paying $15.78 per hour at Ford Motor Company’s Fern Valley Road plant. State unemployment officials sifted through the thousands of applications and forwarded them to Ford staff, who narrowed the field by lottery (which in itself says something about the skill levels of the jobs offered.) The wage offered to new employees is about half what union workers receive.
In January 2014, Ford announced it would hire another 350 people, to be pulled from an existing pool of 10,000 applicants. State officials in Kentucky approved $290 million in financial incentives, using taxpayer money, to bring those jobs to Louisville. The impact of those jobs is shockingly minimal; unemployment in the area is 8.2 percent, much higher than the U.S. national average. There are some 52,763 people in the Louisville metro area unable to find work, not including those working part-time jobs or who have given up trying to find work at all.
Also in in Louisville, Kentucky, General Electric’s Appliance Park, once employed 23,000 union workers at its peak in 1973. By 2011, the sputtering plant held onto only about 1,800 workers. What was left of the union there agreed to a two-tier wage scale, and today 70% of the jobs are on the lower tier — at $13.50 an hour, almost $8 less than what the starting wage used to be. A full-time worker makes about $28,000 a year before taxes and deductions. The poverty line for a family of four in Kentucky is $23,000. Food stamp benefits are available to people who earn up to 130% of the poverty line, so a full-timer in Kentucky with a family still qualifies. Even if a worker moved to Kentucky and lucked out by landing a job at the plant, standing on your tiptoes with your lips just above sea level is not much of a step up.
People once called Millinocket, Maine the Magic City. The Great Northern Paper mill, which conjured this town out of the backwoods and sustained it for a century, employed 5,000 people and sustained a way of life. At least until it closed for good in 2008, turning the community into a ghost town. 2014 saw a rebirth of sorts, as new owners repurposed the mill into a wood pellet factory. But only 55 jobs were created. The town hopes to attract tourists now, but they have not come.
Only a generation ago, Bethlehem, Pennsylvania had a steel mill that employed 31,500 people. They were not alone; in the final quarter of what was to be the American Century, some 1.5 million steelworkers lost their jobs. Including all benefits, an average union steelworker made $26.12 per hour then, the equivalent of $40.66 today. It was enough to create one of the most powerful economies on earth, supported by a robust middle class driving demand for housing, cars, everything.
It is common in such circumstances to blame greedy workers, and decry how their fate was tied to selfishness and out-of-control unions. But that would be wrong, or at least only part of the story. The ratio of CEO salary-to-average-worker-salary in 1980 was 42:1, climbing to 120:1 in 2000 and stands at 204:1 today. So indeed among the complex factors that changed America’s economic landscape, greed and selfishness did indeed play a part. It is just incorrect to blame it on the workers themselves.
Low paying jobs are not a rebirth.
4) Can’t people just get off their couches and get back to work?
There are 3.8 million Americans who have been out of work for 27 weeks or more. These are the country’s long-term unemployed, as defined by the Department of Labor. Statistically, the longer you are unemployed, the less likely it is that you’ll ever find work again. Between 2008 and 2012, only 11% of those unemployed 15 months or more found a full-time job, and research shows that those who do find a job are less likely to retain it. Think of it as a snowball effect: more unemployment creates more unemployable people.
And how hard is it to land even a minimum-wage job? This year, the Ivy League college admissions acceptance rate was 8.9%. Last year, when Walmart opened its first store in Washington, D.C., there were more than 23,000 applications for 600 jobs, which resulted in an acceptance rate of 2.6%, making the big box store about twice as selective as Harvard and five times as choosy as Cornell.
Telling unemployed people to get off their couches (or out of the cars they live in or the shelters where they sleep) and get a job makes as much sense as telling them to go study at Harvard.
5) Why can’t former factory workers retrain into new jobs?
Janesville, Wisconsin, had the oldest General Motors car factory in America, one that candidate Obama visited in 2007 and insisted would be there for another 100 years. Two days before Christmas that year and just before Obama’s inauguration, the plant closed forever, throwing 5,000 people out of work. This devastated the town, because you either worked in the plant or in a business that depended on people working in the plant. The new president and Congress quickly paid for a two-million-dollar Janesville retraining program, using state community colleges the way the government once used trade schools built to teach new immigrants the skills needed by that Janesville factory a century ago.
This time around, however, those who finished their retraining programs simply became trained unemployables rather than untrained ones. It turned out that having a certificate in “heating and ventilation” did not automatically lead to a job in the field. There were already plenty of people out there with such certificates, never mind actual college degrees. And those who did find work in some field saw their take-home pay drop by 36%. This, it seems, is increasingly typical in twenty-first-century America (though retraining programs have been little studied in recent years).
Manufacturing is dead and the future lies in a high-tech, information-based economy, some say. So why can’t former factory workers be trained to do that? Maybe some percentage could, but the U.S. graduated 1,606,000 students with bachelor’s degrees in 2014, many of whom already have such skills.
Bottom Line: Jobs create the need for training. Training does not create jobs.
6) Shouldn’t we cut public assistance and force people into the job market?
At some point in any discussion of jobs, someone will drop the nuclear option: cut federal and state benefits and do away with most public assistance. That’ll motivate people to find jobs — or starve. Unemployment money and food stamps (now called the Supplemental Nutrition Assistance Program, or SNAP) encourage people to be lazy. Why should tax dollars be used to give food to people who won’t work for it? “If you’re able-bodied, you should be willing to work,” former House Majority Leader Eric Cantor said discussing food stamp cuts.
The problem with such statements is 73% of those enrolled in the country’s major public benefits programs are, in fact, from working families — just in jobs whose paychecks don’t cover life’s basic necessities. McDonald’s workers alone receive $1.2 billion in federal assistance per year.
Why do so many of the employed need food stamps? It’s not complicated. Workers in the minimum-wage economy often need them simply to survive. All in all, 47 million people get SNAP nationwide because without it they would go hungry.
In Ohio, where I did some of the research for my book Ghosts of Tom Joad, the state pays out benefits on the first of each month. Pay Day, Food Day, Mother’s Day, people call it. SNAP is distributed in the form of an Electronic Bank Transfer card, or EBT, which, recipients will tell you, stands for “Eat Better Tonight.” EBT-friendly stores open early and stay open late on the first of the month because most people are pretty hungry come the Day.
A single person with nothing to her name in the lower 48 states would qualify for no more than $189 a month in SNAP. If she works, her net monthly income is multiplied by .3, and the result is subtracted from the maximum allotment. Less than fifty bucks a week for food isn’t exactly luxury fare. Sure, she can skip a meal if she needs to, and she likely does. However, she may have kids; almost two-thirds of SNAP children live in single-parent households. Twenty percent or more of the child population in 37 states lived in “food insecure households” in 2011, with New Mexico (30.6%) and the District of Columbia (30%) topping the list. And it’s not just kids. Households with disabled people account for 16% of SNAP benefits, while 9% go to households with senior citizens.
Almost 22% of American children under age 18 lived in poverty in 2012; for those under age five, it’s more than 25%. Almost 1 in 10 live in extreme poverty.
Our system is trending toward asking kids (and the disabled, and the elderly) to go to hell if they’re hungry. Many are already there.
7) Why are Walmart and other businesses opposed to SNAP cuts?
Public benefits are now a huge part of the profits of certain major corporations. In a filing with the Securities and Exchange Commission, Walmart was oddly blunt about what SNAP cuts could do to its bottom line:
“Our business operations are subject to numerous risks, factors, and uncertainties, domestically and internationally, which are outside our control. These factors include… changes in the amount of payments made under the Supplemental Nutrition Assistance Plan and other public assistance plans, [and] changes in the eligibility requirements of public assistance plans.”
How much profit do such businesses make from public assistance? Short answer: big bucks. In one year, nine Walmart Supercenters in Massachusetts received more than $33 million in SNAP dollars — more than four times the SNAP money spent at farmers’ markets nationwide. In two years, Walmart received about half of the one billion dollars in SNAP expenditures in Oklahoma. Overall, 18% of all food benefits money is spent at Walmart.
Pepsi, Coke, and the grocery chain Kroger lobbied for food stamps, an indication of how much they rely on the money. The CEO of Kraft admitted that the mac n’ cheese maker opposed food stamp cuts because users were “a big part of our audience.” One-sixth of Kraft’s revenues come from food stamp purchases. Yum Brands, the operator of KFC, Taco Bell, and Pizza Hut, tried to convince lawmakers in several states to allow its restaurants to accept food stamps. Products eligible for SNAP purchases are supposed to be limited to “healthy foods.” Yet lobbying by the soda industry keeps sugary drinks on the approved list, while companies like Coke and Pepsi pull in four billion dollars a year in revenues from SNAP money.
There is another side to big retail and fast food’s support for food stamps.
There is much talk about the minimum wage. What was once a way for teenagers and college kids to earn a little pocket money has devolved into the take-home pay for a vast swath of America. Defenders of a low minimum wage insist that most of us benefit from workers being paid very little; lower wages mean lower costs for Walmart and others, and so lower prices for us.
Makes sense, except that it is not true.
The difference between what Walmart pays the majority of its employees and what those employees need is made up by taxpayers in the form of food stamps and other assistance. Walmart is America’s largest private employer, so we’ll use them here for most of the examples, but this applies across the board.
Choose your statistic to understand the problem: about 25% of all employed people in the U.S. receive some form of public assistance; in the fast food industry, it is 53%. About 1 out of every 3 retail workers gets public assistance. In sum, American taxpayers subsidize the minimum wage with $7 billion in public assistance.
Let’s break it into a smaller piece: After analyzing data released by Wisconsin’s Medicaid program, the House Committee on Education and the Workforce estimates that a single 300-person WalMart in Wisconsin costs taxpayers $5,815 per Walmart associate in public assistance paid.
What about higher prices? The quick answer should be obvious by now. Whatever you think you are saving at the cash register in Walmart due to those lower wages, you as a taxpayer are paying anyway in taxes to feed the woman ringing you up. If store paid a living wage, step one would a lessening in demand for public assistance. Ka-ching, lower taxes!
But let’s follow the money. Walmart consistently pays the lowest wages they possibly can, and claims that keeps prices down. Walmart is not alone in this practice; the average family’s income is lower today than at any point in the last ten years, income inequality more extreme than at any point since before the Great Depression. The U.S. now has the highest proportion of low-wage workers in the developed world. The fall in wages parallels another trend line: in January of 2013, the Bureau of Labor Statistics reported that union membership had reached a 97 year low in America.
Poverty is big business.
8 ) Should we raise the minimum wage?
One important reason to raise the minimum wage to a living one is that people who can afford to feed themselves will not need food stamps paid for by taxpayers. Companies who profit off their workers’ labor will be forced to pay a fair price for it, and not get by on taxpayer-subsidized low wages. Just as important, people who can afford to feed themselves earn not just money, but self-respect. The connection between working and taking care of yourself and your family has increasingly gone missing in America, creating a society that no longer believes in itself. Rock bottom is a poor foundation for building anything human.
But won’t higher wages cause higher prices? The way taxpayers functionally subsidize companies paying low-wages to workers — essentially ponying up the difference between what McDonald’s and its ilk pay and what those workers need to live via SNAP and other benefits — is a hidden cost squirreled away in plain sight. You’re already paying higher prices via higher taxes; you just may not know it.
Even if taxes go down, won’t companies pass on their costs? Maybe, but they are unlikely to be significant. For example, if McDonald’s doubled the salaries of its employees to a semi-livable $14.50 an hour, not only would most of them go off public benefits, but so would the company — and yet a Big Mac would cost just 68 cents more. In general, only about 20% of the money you pay for a Big Mac goes to labor costs. At Walmart, increasing wages to $12 per hour would cost the company only about one percent of its annual sales.
Despite labor costs not being the most significant factor in the way low-wage businesses set their prices, one of the more common objections to raising the minimum wage is that companies, facing higher labor costs, will cut back on jobs. Don’t believe it.
The Los Angeles Economic Round Table concluded that raising the hourly minimum to $15 in that city would generate an additional $9.2 billion in annual sales and create more than 50,000 jobs. A Paychex/IHS survey, which looks at employment in small businesses, found that the state with the highest percentage of annual job growth was Washington, which also has the highest statewide minimum wage in the nation. The area with the highest percentage of annual job growth was San Francisco, the city with the highest minimum wage in the nation. Higher wages do not automatically lead to fewer jobs. Many large grocery chains, including Safeway and Kroger, are unionized and pay well-above-minimum wage. They compete as equals against their non-union rivals, despite the higher wages.
Will employers leave a state if it raises its minimum wage independent of a nationwide hike? Unlikely. Most minimum-wage employers are service businesses that are tied to where their customers are. People are not likely to drive across state lines for a burger. A report on businesses on the Washington-Idaho border at a time when Washington’s minimum wage was nearly three bucks higher than Idaho’s found that the ones in Washington were flourishing.
While some businesses could indeed decide to close or cut back if the minimum wage rose, the net macro gains would be significant. Even a small hike to $10.10 an hour would put some $24 billion a year into workers’ hands to spend and lift 900,000 Americans above the poverty line. Consumer spending drives 70% of our economy. More money in the hands of consumers would likely increase the demand for goods and services, creating jobs.
In many ways, the debate over raising the minimum age mirrors what was said about unions in the 1970s. Many at the time, especially pro-business economists and politicians as they do today, claimed the high wages fought for by unions hurt American competitiveness and cost jobs. How could a business survive paying $25 an hour? If wages were cut, and profits went up as costs fell, more jobs would be created. So how’d that work out? The demise of unions did certainly help raise corporate profits, but it clearly did not create jobs, at least not jobs at a living wage. Quite the opposite. Want more minimum wage jobs, maybe? Keep the wage dirt poor low.
9) Profit Before People
Where could the money to pay workers a living wage come from, except of course by raising prices?
The top one percent of income earners garnered 93 percent of income gains in the recent recovery. In the third quarter of 2012, corporate profits reached $1.75 trillion, their greatest share of GDP in history. During that same quarter, workers’ wages fell to their lowest share of GDP on record. The top six members of the Walton family (owners of Walmart) own as much wealth as 48 million other Americans combined. Meanwhile, among 35 economically advanced nations, the U.S. has the second highest rate of child poverty, 23%, just slightly better than Romania.
Yes, raise the minimum wage. Double it or more. We can’t afford not to.
10) Okay, after the minimum wage is raised, what else can we do?
To end such an article, it’s traditional to suggest reforms, changes, solutions. It is, in fact, especially American to assume that every problem has a “solution.” So my instant suggestion: raise the minimum wage. Tomorrow. In a big way. And maybe appoint Thomas Piketty to the board of directors of Walmart.
But while higher wages are good, they are likely only to soften the blows still to come. What if the hyper-rich like being ever more hyper-rich and, with so many new ways to influence and control our political system and the economy, never plan to give up any of their advantages? What if they don’t want to share, not even a little more, not when it comes to the minimum wage or anything else?
The striking trend lines of social and economic disparity that have developed over the last 50 years are clearly no accident; nor have disemboweled unions, a deindustrialized America, wages heading for the basement (with profits still on the rise), and the widest gap between rich and poor since the slavery era been the work of the invisible hand. It seems far more likely that a remarkably small but powerful crew wanted it that way, knowing that a nation of fast food workers isn’t heading for the barricades any time soon. Think of it all as a kind of “Game of Thrones” played out over many years. A super-wealthy few have succeeded in defeating all of their rivals — unions, regulators, the media, honest politicians, environmentalists — and now are free to do as they wish.
What most likely lies ahead is not a series of satisfying American-style solutions to the economic problems of the 99%, but a boiling frog’s journey into a form of twenty-first-century feudalism in which a wealthy and powerful few live well off the labors of a vast mass of the working poor. Once upon a time, the original 99% percent, the serfs, worked for whatever their feudal lords allowed them to have. Now, Walmart “associates” do the same. Then, a few artisans lived slightly better, an economic step or two up the feudal ladder. Now, a technocratic class of programmers, teachers, and engineers with shrinking possibilities for upward mobility function similarly amid the declining middle class. Absent a change in America beyond my ability to imagine, that’s likely to be my future — and yours.
If I had a crayon I’d draw you a picture, but I think you don’t really need that at this point. None of this is accidental, some sort of invisible hand at work.
The inflation-adjusted net worth for the typical household was $87,992 in 2003. Ten years later, it was only $56,335, or a 36 percent decline. For the top 5 percent of Americans, household net worth increased 14 percent over the same 10 years.
Companies will continue to demand Federal, state and local governments keep the minimum wage as low as possible. The same corporate entities will then continue to have those low wages subsidized by the taxpayers. Companies will continue to spew out propaganda to convince those same taxpayers that people on public assistance are lazy cheats, and that low wages mean low prices. Capping wages at 2009 levels assures that any broad rise in societal prosperity will not reach low-wage workers, and there is no broad upward path for retail workers and fry cooks. It’s not about education, either: the percentage of low-wage workers with at least some college education has spiked 71 percent since 1979, to now encompass over 43% of all low-wage workers. Meanwhile more and more money will be hoovered up by an ever-concentrated group of the super wealthy, squeezing their workers tighter and tighter. Hey, how many miles can you drive on a gallon of blood?
In today’s America, even working full-time, at most jobs you can’t earn enough to live with government assistance. More and more of everything is owned by fewer and fewer people. If you look that stuff up in a reference book, it is called feudalism. It is our future, and, of course, thank you for shopping at Walmart!
But not in this case: despite falling revenues, and despite only reluctantly paying minimum wage to its workers, Walmart increased the pay for its top executives. The people who do the labor get little. The people who make the decisions that can cause falling revenues get more (and more and…) Could it be any clearer what is going on? A flatulence of money.
This is what Thomas Piketty’s theories look like in practice.
Some Background from a Real Economist
Economist Thomas Piketty’s new bestseller, Capital in the Twenty-First Century makes clear there has been a significant increase in income inequality in America. Our inequality rate is higher than it ever has been in our own history, is growing, and is higher than in countries in Western Europe and Canada.
In the United States, the top one percent own 35 percent of all capital, and the top ten percent of wealth holders own roughly 70 percent. The bottom 50 percent have roughly five percent. Note also that until slavery was ended in the United States, human beings were also considered capital.
The inequality is driven by two complementary forces.
By owning more and more of every thing (capital), rich people have a mechanism to keep getting richer, because the rate of return on investment is a higher percentage than the rate of economic growth. This is expressed in Piketty’s now-famous equation R > G. The author claims the top of layer of wealth distribution is rising at 6-7 percent a year, more than three times faster than the size of the economy.
At the same time, wages for middle and lower income people are sinking, driven by factors largely in control of the wealthy, such as technology employed to eliminate human jobs, unions being crushed and decline in the inflation-adjusted minimum wage more and more Americans now depend on for their survival.
Back to Walmart
A key question for detectives trying to figure out who may have committed a crime is to ask cui bono, “Who benefits?” Who stands to profit from a murder, from a crime? That’s often your perp.
In Walmart’s case, it is not its stockholders who profited. Indeed, this has not been a money year for Walmart shareholders. Despite an overall good twelve months for the stock market in general, Walmart stock bumbled due to lower sales growth.
No joy for Walmart’s customers, or its own employees. Walmart cited cuts in federal food stamps as one reason for its weak sales increase. Since they are paid only minimum wage (and Walmart fights vigorously against any increases) and only are given 39 hours a week or less so as not to qualify for full-time benefits, a fair number of Walmart’s own workers receive food stamps.
Good news though for Walmart’s top executives. The company employed some accounting tricks to “adjust” on paper actual revenues to make them appear higher than in reality. On the strength of that “adjusted” performance, William Simon, CEO of Walmart’s United States unit, received total compensation of $13 million last year. Of that, $1.5 million was a “performance bonus,” paid out actually for declining revenues. In fact, six of Walmart’s top executives received a total of $8.42 million in cash incentive payments for 2014 even as revenues fell and the company closed stores. The former employees of those stores, needless to say, did not receive any performance pay bonuses as they fell deeper into poverty.
Walmart’s executives receiving these bonuses are the equivalent of a sports team getting paid extra because they lost. And we know that only happens when a game is rigged, right? How much more clarity into how the New Economy works do you need? More? Well, just wait for Walmart’s next earnings report and you see who is shaving points for their own benefit.
For anyone in Los Angeles and elsewhere, I’ll be joining host Jon Wiener today, April 30, at 3pm PST on KPFK 90.7 to talk about Ghosts of Tom Joad: A Story of the #99Percent, the minimum wage and economic inequality in the U.S.
The U.S. is now an astonishingly unequal society, with wealth piling up at the top so fast that it will be impossible to reverse.
If you’re familiar with French economist Thomas Piketty’s best-selling 700-page book on the long-term trends in inequality, Capital in the Twenty-First Century
you know about the intellectual and econometric causes and effects of what is happening to our society. Tune in today and learn about what that same society now looks like from the ground level.
If you’re not in LA this afternoon, you can also listen in via the web:
Archived. My portion begins at 26:30.