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Janet Yellin is not the only one with a new analysis of the growing chasm between the ultra-rich and everyone else  If you can handle some dense economics (or like me willing to skip past the fancy equations), take a look at a new paper by Emmanuel Saez and Gabriel Zucman on “Wealth Inequality in the United States since 1913.”

It seems that reliable data on wealth is not easy to come by.  So Saez and Zucman had to do some fancy calculation to figure out who owns how much and how the proportions have changed over time.   They find

wealth inequality has considerably increased at the top over the last three decades.  By our estimates almost all of the increase is due to the rise of the share of wealth owned by the 0.1% richest families, from 7% in 1978 to 22% in 2012.

That’s a level of inequality comparable to the early 1900s, before the Progressive Era.

Occupy movement, if you’re still out there, take notice. 

“Wealth concentration has followed a U-shaped evolution over the last 100 years,” they write  “It was high in the beginning of the twentieth century, fell from 1929 to 1978, and has continuously increased since then.”

(You can see the U-shaped curve and other charts at:  http://gabriel-zucman.eu/files/SaezZucman2014Slides.pdf.)

The top 0.1% is just 160,000 families whose wealth rose at 5.3% per year from 1986 to 2012. In the same period the bottom 90% saw its wealth stagnate. 

The key factors driving the wealth gap, Saez and Zucman conclude, is a surge in labor income among those at the tippy top and a decline in savings for those in the middle class.  That leads the authors to a set of recommendations.

First and perhaps most obvious, they recommend progressive income taxes and estate taxes.  

“Yet tax policy is not the only channel,” they say.

Other policies can directly support middle class incomes—such as access to quality and affordable education, health benefits, cost controls, minimum wage policies, or more generally policies shifting bargaining power away from shareholders and management toward workers.  [emphasis added]

It’s good to see a solution that deals with the cause of the problem.  Janet Yellin take notice.

 

Diagnosis unmatched by prescription

Janet Yellin, who chairs the Board of Governors of the Federal Reserve System, delivered an unusual and important speech two days ago about the growing gap between the richest Americans and everyone else.   

Speaking at a conference at the Federal Reserve Bank of Boston, Yellin  offered “Perspectives on Inequality and Opportunity from the Survey of Consumer Finances.”  She said,

It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority. 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.

It’s fair to assume that was a rhetorical question and the answer is, no, the widening gap between the ultra-rich and the rest of the population is a threat to democracy and the economic futures of most people.

While the trend of wage stagnation for working Americans goes back to the 1970s, Yellin focused on the most recent period of economic history, 1989 to 2013.  This is useful because it includes the recent economic meltdown as well as the so-called “recovery.”  

Yellin illustrated her talk with an obligatory set of graphs (she’s an economist after all), including this one depicting changes in net worth (i.e. wealth) for the wealthiest 5% of Americans, the next 45%, and the bottom half of the population.   

As the chart makes obvious, the wealthiest 5% of Americans saw their share of the nation’s wealth climb from about 55% to about 65%, while the next 45% saw its share go from from 45% to 35% and the share held by bottom 50% approaching zero percent.   

It’s good to know the nation’s top economist is alarmed. 

The second half of Yellin’s speech concerned what she called “four building blocks of opportunity,” access to early education, access to higher education, ownership of private businesses, and inheritance.  The first three could be useful ways for individuals and families to do better in a time of widening inequality, but do not affect tax policy, deindustrialization, political and business attacks on organized labor, and the growth of the finance sector’s share of the economy, i.e. the factors driving the equality gap to historic highs. 

For a more incisive analysis of what went wrong, I recommend the latest issue of Dollars and Sense, especially an article by Gerald Friedman on “What Happened to Wages?”  He writes,

From the dawn of American industrialization in the 19th century until the 1970s, wages rose with labor productivity, allowing working people to share in the gains produced by capitalist society.  Since then, the United States has entered a new era, in which stagnant wages have allowed capitalists to capture a growing share of the fruits of rising productivity.

I recommend examining Friedman’s charts alongside Yellin’s.  And try to follow Yellin’s fourth piece of advice:  inherit a fortune.  

A Visitor in the Garden

October 19, 2014

When Phil McLaughlin and Greg Smith held the office of Attorney General for the State of New Hampshire, each of them supported the death penalty.  No more.

PA100094 

                          Phil McLaughlin

McLaughlin says it’s not primarily a moral issue for him.  He says what changed his mind was the reaction of juries in two cases tried simultaneously in 2008.  In one, John Brooks, a white millionaire businessman, was found guilty of capital murder of Jack Reid but spared the death penalty because jurors found in him something redeeming.

Twenty-eight days later another jury “decided to kill the black kid from Dorchester,” Michael Addison, who was found guilty of the murder of Michael Briggs and sentenced to be put to death by the State on behalf of its citizens.  “I will not be part of that,” McLaughlin said.

That sounds like a moral argument to me, but I have no need to argue the point.

Greg Smith, who was not able to be present, also sent a statement citing racial bias in the way the death penalty is applied as a reason for his change of heart.

For their role as advocates for death penalty repeal, the two former AGs were honored Friday with the NH Coalition to Abolish the Death Penalty’s annual Governor Badger Award, named for an 18th century governor who pushed for an end to capital punishment.  The Badger awards, and others given to outstanding volunteers, were presented at the Coalition’s annual dinner in Concord.   

Lincoln Caplan, a lecturer at Yale Law School who used to pen editorials on the death penalty for the New York Times, also spoke at the Coalition event Friday. PA100075 

                                  Lincoln Caplan

Caplan began by describing how the legal process was “subverted” decades ago to bolster the constitutionality of capital punishment through the acceptance of dubious scholarship by the US Supreme Court.  

Since then, legal and legislative support for executions has gradually faded.  Since 2007 New York, New Jersey, Maryland, Connecticut, New Mexico, and Illinois  have repealed their death penalty statutes.  It’s “a striking retreat” from the death penalty, Caplan says, if not an outright moratorium.  A federal court ruling earlier this year in California, which declared that state’s death penalty to be unconstitutional, could prove to be another important step toward abolition, he suggested.

“In the end this is a moral issue,” Caplan said.  It always has been.  What is different now, he said, is “there is so much evidence about what a waste this is.”

New Hampshire’s legislature approved a repeal bill in 2000 only to have it vetoed.  This year the NH House approved repeal by a two to one margin, but the measure died in the State Senate, which deadlocked 12 to 12.  

Barbara Keshen, the Coalition’s chairperson, said repeal supporters have their attention on the upcoming election, in which all 400 House and 24 Senate seats are up for grabs.  

War, What is it Good For?

“War is good business for those in the business of war,” write William Hartung and Stephen Miles in a recent Huffington Post article.  Noting estimates of $12 million a day in outright waste, fraud, and abuse during the recent (or ongoing?) wars in Iraq and Afghanistan, they suggest the new (renewed?) war in Iraq and Syria will be a “prime opportunity for outright corruption and malfeasance.”

What’s more, more war means higher profits for arms manufacturers like Raytheon, which makes “Tomahawk” cruise missiles.  “The stock prices of the Pentagon’s top contractors have hit all-time highs since the recent wars in Iraq and Syria started two months ago,” Hartung and Miles report.

This is not some kind of coincidence.  It’s Governing Under the Influence. #GUI

Take the example of Stephen Hadley, former National Security Advisor to President George W. Bush.  He chairs the board of the US Institute of Peace (this is a true fact!).  

Hadley sits on Raytheon’s Board of Directors and chairs its public affairs committee.  For his service he was paid $253,482 last year.stephen hadley

Hadley also writes pro-war op-eds for the Washington Post, reports littlesis.org, and has backed Israel’s aggression in Gaza, where Raytheon profits from sales to the Israeli military.  

Hadley’s connection to Raytheon is not disclosed in his bio at the Institute of Peace, nor was it revealed in various columns and interviews cited by Littlesis.org.

Littlesis.org calls this a “conflict of interest” for Hadley.  It sounds to me that his interest is pretty straightforward.  

(Disclosure:  the author of this piece is a salaried employee of an anti-war organization.)

But will the debate over the influence of mega-corporations continue to animate political debate?

This article was first published in New Hampshire Business Review.

Passage last month of a bill to keep the federal government running also extended the life of the Export-Import Bank, a controversial federal agency, until June 2015. The measure may also extend the life of an inside-the-GOP debate over “corporate cronyism” and mega-corporations that succeed in business due more to their political connections than their entrepreneurial prowess. Such debate is welcome.

In case you haven’t paid attention to discussions going on among conservative members of Congress and in the conference rooms at conservative think-tanks, right-wingers have taken to denouncing the cozy ties between big government and big business. The Ex-Im Bank, which provides loan guarantees to U.S. corporations peddling their goods and services in other countries, may provide the political context, but the principles reach far into other sectors of the economy and federal policy.

Speaking about the Export Import Bank and the “conservative reform agenda” in April at the Heritage Foundation, Senator Mike Lee of Utah, a possible Republican

2014 04 12 mike lee @ freedom summit

Senator Mike Lee at the “Freedom Summit” in Manchester

presidential candidate, denounced “America’s crisis of crony capitalism, corporate welfare and political privilege: In which government twists public policy to unfairly benefit favored special interests at the expense of everyone else.”

This is the stuff of fire-breathing populism, not what we expect to hear at Heritage.

But Senator Lee continued: “The more power government amasses, the more privileges are bestowed on the government’s friends, the more businesses invest in influence instead of innovation, the more advantages accrue to the biggest special interests with the most to spend on politics and the most to lose from fair competition.”

Sen. Marco Rubio, another conservative Republican considering a run for president, has made similar statements. “Big companies may not like big government, but they can afford to deal with it,” he said at a GOP fundraiser in New Hampshire.

The senators remind us of President Eisenhower warning the American people to “guard against the unwarranted influence, whether sought or unsought, by the military-industrial-complex.”

Take Boeing, the aerospace company that ranks second among Pentagon contractors and has also attracted the ire of Ex-Im Bank critics.

According to the Center for Responsive Politics, Boeing’s hangar houses 85 lobbyists. Its annual tab for lobbying runs to about $15 million a year, and more than $9 million already in 2014.

That amount may be understated. Political scientists believe actual lobbying expenses are three times the amount disclosed on official forms

There’s more to cronyism than money spent on lobbyists. There’s the issue of the “revolving door,” people who go from elected office and jobs on Capitol Hill or the Pentagon to more lucrative careers at lobbying firms. Boeing’s lobbyists include four former members of Congress plus a firm founded by former House Speaker Richard Gephardt. In Eisenhower’s terms, Boeing’s influence is definitely “sought.”

Big companies also grease the wheels through campaign contributions, especially to incumbent members of Congress in leadership roles.

CQ Roll Call reported last month that “four of the top five candidates for the chairmanships of the House Armed Services and Intelligence panels have raised considerably more money this election cycle than they did at a similar point in 2012. The same four have also raised much more money from the defense industry than before – in some cases, more than doubling their takes.”

Rep. Mac Thornberry, R-Texas, is a contender for the chairmanship of the House Armed Services Committee. According to CQ Roll Call, Thornberry has more than doubled his take from defense firms compared to the previous election cycle. Number five on Thornberry’s campaign committee donor list is Boeing.

The federal government and the Export-Import Bank have avoided shutdown for the time being. But the notion that mega-corporations have too much influence over federal policy has found new champions and should outlast the Ex-Im debate. Perhaps even the Democrats will join in.

Governing Under the Influence, #GUI

“America Out of Whack”

Writing in the New York Times, Thomas Edsall assembles an impressive array of facts that illuminate the realities of wealth inequality in America.  

Citing Federal Reserve figures, Edsall reports that household net worth, corporate profits, and the value of real estate have been going up at an impressive pace.  If you think that sounds like evidence of recovery you’d be mistaken, at least if you equate “recovery” with economic conditions that are improving for most workers.   

“The September Federal Reserve Bulletin graphically demonstrates how wealth gains since 1989 have gone to the top 3 percent of the income distribution,” he writes.  “The next 7 percent has stayed even, while the bottom 90 percent has experienced a steady decline in its share.”

It’s not just wealthy individuals getting wealthier; it’s also the corporations they own and run.    Citing statistics from Goldman Sachs, Edsall says corporate profits rose five times faster than wages last year.  And he quotes an article from Business Insider that stated,

“America’s companies and company owners — the small group of Americans who own and control America’s corporations — are hogging a record percentage of the country’s wealth for themselves.”

Edsall asks, “Why don’t we have redistributive mechanisms in place to deploy the trillions of dollars in new wealth our economy has created to shore up the standard of living of low- and moderate-income workers, to restore financial stability to Medicare and Social Security, to improve educational resources and to institute broader and more reliable forms of social insurance?”

It’s the right question. 

For answers he turns to a bunch of economists, who provide data about tax rates, labor force participation, the declining growth of well-paying jobs, globalization, and the reduction of labor’s share of profit relative to capital in a time of rising productivity.  

My answer is a bit more straightforward:  America’s companies and company owners — the small group of Americans who own and control America’s corporations — are hogging the political system.  This is nothing new, but in the legal environment created by recent Supreme Court decisions (Citizens United and McCutcheon in particular) it is becoming easier for corporate interests to wage class war and win.  Simply put, the people who make the laws and set the policies have their receptors tuned to the frequency where the corporations are broadcasting. 

Edsall notes survey data that reveal corporations are not so popular in the USA and other so-called “advanced countries.”   He asks if the legitimacy of free market capitalism in America is facing fundamental challenges.

My gut response is to say “I hope so.”  But the dynamics described by all those economists are not the workings of “the invisible hand.”  The market is operating under a set of rules established by those who already have more than their fair share of power, wealth, and privilege.  The legitimacy of our corporate-directed political system must be challenged as well.

#GUI

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