While OpEdge is on a two-week hiatus, we are running some of the more evergreen columns from past years. This blog entry originally appeared on April 16, 2011.
More from the speech I gave two nights ago at the monthly meeting of the Pittsburgh Area Jewish Committee (PAJC):
To belabor what is probably obvious, shrinking the percentage of the workforce covered by unions shifts money up the economic ladder because the non-unionized workers make less for the same or comparable jobs, leaving the difference for executives, owners and shareholders. It’s not a coincidence that the period in which the United States had the most equal distribution of wealth was the same age in which the economy was the strongest and that unions were also the strongest: after World War II through most of the 70s. Unions turn low wage jobs into middle class jobs—they always have and they always will.
Here are some other trends that have helped to concentrate more of our income and wealth in relatively fewer hands:
- Tax policy: We can describe our tax policy since Ronald Reagan took office as “Reverse Robin Hood.” In Reagan’s first year, Congress cut income taxes to historically low levels, that are nevertheless still higher than today. A year later, Congress raised taxes, but the new increases fell heavy on the middle class and the poor. And for more than 30 years, that’s the way it’s gone: tax cuts that primarily benefit the wealthy alternating with tax increases that primarily take more form the middle class. The Bush II cuts that have recently been extended have the highest incomes paying the lowest rates and the lowest percentage of total government revenues in the history of the modernized West. But even as we have lowered taxes, we have borrowed more money, creating safe havens and investment opportunities in which the rich can stash the money they have saved in taxes.
- The movement to privatize what have been traditional government services such as running prisons and educating our youth: Whether for schools, prisons, or cooking and delivering meals to soldiers, when a private company does it, it intends to make profit for its key executives and shareholders. As many studies have shown, low level government workers, many of whom are unionized, typically make more money than their peers in the private sector, most of whom aren’t unionized, whereas private sector presidents, officers and senior management make far more than department heads and other civil service executives. Some government contracting makes sense, for example, to manufacture tents for soldiers or provide a special social service to an “at-risk” population; these functions have historically been outsourced. But the new outsourcing of the recent past has usually not worked well for our citizens. Virtually all studies on charter school performance demonstrate that charter schools almost always fail to improve student performance and often worsen it. It is also well documented that the privatization of our prisons over the past 25 years has been a festering scandal of prisoner abuse and fraud. When the government loans money to students for college and career training, the terms have been significantly better than when the private sector was allowed to do so between the early 90’s and this year. And let me ask you this—did you prefer how our wars went when we used relatively few contractors as in World War I and II, or now that we’re making massive use of military contractors in Iraq and Afghanistan? Again, keep in mind that when the government gives a contract out instead of doing it with its own workforce, it is taking money from lower paid employees, who tend to be middle class, and giving it to executives and investors, who tend to be wealthy.
- Shrinking of social welfare programs: We don’t have to spend much time here. It’s clear that a social welfare program, whether it’s food stamps, healthcare for poor children or support of state universities, represents a transfer payment down the economic ladder. When we used to provide more money for these programs, we had a more equitable distribution of wealth than we do now.
- The attack on social security: The first step in the 30-year attack on Social Security came when the administration of Ronald Reagan changed the government accounting system and rolled the Social Security Trust Fund into the general budget and then claimed that the Trust Fund was near bankruptcy when all it needed to remain strong was to get back the money that it had lent the federal government. Since then, almost every “fix” that has been made to the system has taken benefits away, for example, by raising the age or retirement, or to collect more Social Security revenues by increasing the percentage of what people pay. In the same time, the cap on wages to be assessed Social Security taxes has crept up very little when inflation is considered. Because of the graying of the baby boom generation, we do face a minor shortfall in the Trust Fund in about 30 or so years, not a grave one, but our elected officials seem to avoid the obvious solution—to take the cap off the income which is assessed the Social Security tax.
- For example, President Obama’s National Commission on Fiscal Responsibility & Reform proposes eventually raising the retirement age to 69 and raising the cap on income assessed by the Social Security tax only to $170,000. The lawyers, accountants and writers in this room could work well into our 70’s or 80’s, but the age of 69 seems pretty old for retirement from most jobs: think of janitors, warehouse workers, retail clerks, factory workers, truck drivers, and most hospital staff. Why couldn’t the National Commission have knocked a few years off that proposed retirement number and taken the cap off the income to be taxed for Social Security?
- Its treatment of Social Security is one of just many ways that President Obama’s National Commission wants to accelerate the movement of income and wealth up the ladder. Although not asked to mess with the tax system, the Commission gave a detailed recommendation for changing it. Paul Krugman is just one of many economists who, upon analyzing the series of tax increases and decreases proposed by the commission, recognized that if the commission’s plan passed, the wealthy would be paying even fewer taxes. Meanwhile, the National Commission proposed draconian cuts to social welfare and education programs, again taking money from the poor and middle class who benefit from these programs and giving it to the wealthy, who will get the benefit of the proposed tax breaks.
- Right-wingers, primarily Republicans, are on the move in many states to take more away from the working and middle classes. Republicans in Missouri, Michigan, Arkansas and Florida have all taken steps to cut the time that the unemployed can receive unemployment benefits. And nationally, the right-wing has begun a legislative assault on Medicare and Medicaid’s funding and fundamental structure.
Now that I have shown you how this massive net transfer of money—almost a heist, as it were—occurred, I want to close with two questions: why should we care and what can we do about it?
Why should we care? I think most of us are fairly well off, and statistically speaking many of us would qualify as wealthy. Many of us are among the ones who have done quite well over the past three decades.
But we should all care because one of the hard lessons of economic history is that nations in which equality of wealth increases over time always thrive economically whereas those in which the equality of wealth decreases tend to decline. I first read of this idea from Fernand Braudel, usually considered the great historian of the 20th century after Toynbee, who brilliantly analyzes Spain’s decline during the 16th century because of the growing unequal distribution of wealth fueled by the growth of predatory tax policies that had the poor and middle classes paying more and the wealthy paying less. A positive historical example is Western Europe after the Black Plague, an age of rapid economic growth and the highest average wage compared to total wealth in western history. Closer to home, we can compare our nation’s condition from the end of World War II to the late 70’s to what it has become since, save for the Clinton boom, which also saw a temporary reversal of the trend towards greater wealth inequality. If we don’t reverse the trend, the economy and quality of life in the United States will decline quickly and permanently.
I want to pose and then give my answer to one other question: What to do to reverse the three decade trend of greater wealth inequality in the United States? The following are some actions that I would submit we should demand from our elected officials and those who want our vote and support in primaries:
- Raise taxes on the wealthiest five percent of incomes and use the funds to provide simple wealth-shifting programs such as lowering the cost of tuition at public universities or increasing food stamp payouts.
- Remove the $106,800 cap on individual and employer payments to the Social Security Trust Fund (known sometimes as SSI or payroll taxes), so that everyone pays on all income but keep the cap on maximum benefits, which would secure the Social Security system well into the future.
- Raise the minimum wage.
- Foster unions by lowering barriers to unionization, ending “right to work” laws and requiring that charter school teachers join unions in areas in which the public school teachers are unionized.
- End government outsourcing for ongoing non-manufacturing, non-research government functions such as operating prisons and public parking and providing military services. Government pays lower paid workers more and higher paid workers less than the private sector does, so when the government does it, there is a more equitable distribution of wealth.
All of these actions will raise wages and redistribute wealth down the economic ladder. The experience of Western Europe suggests that these moves would not threaten our competitiveness in global markets.
We won’t be able to fix in one election, or even in one decade the grave harm which three decades of taking from the middle class and poor and giving to the wealthy has inflicted on our society. But if we don’t get started now we will continue along the same sorry path that in 50 short years turned Spain from the most powerful nation in the world into Europe’s backwater for four long and hard centuries.