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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.

 

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Author Hedrick Smith Tours New Hampshire with Answers and Proposals

That wages for typical U.S. workers have been stagnant since the mid-1970s is not breaking news to anyone who has paid attention, nor is the rise of wealth and income inequality that makes us the most unequal country in the so-called “developed world.” 

Forbes reported last month, “Five years after the financial crisis sent the fortunes of many in the U.S. and around the world tumbling, the wealthiest as a group have finally gained back all that they lost. The 400 wealthiest Americans are worth just over $2 trillion, roughly equivalent to the GDP of Russia.”  Such reports have gained more attention since the Occupy movement drove the concept of the “1%” into the national consciousness. 

Lawrence Mishel of the Economic Policy Institute says “A key to understanding this growth of income inequality—and the disappointing increases in workers’ wages and compensation and middle-class incomes—is understanding the divergence of pay and productivity.”  [see chart]  Growth of real hourly compensation for production/nonsupervisory workers and productivity, 1948–2011

But what was it that detached productivity from wages in the 1970s?  What started a trend that has continued pretty much unabated through all the booms and busts of the past five decades?  That’s the major theme of Who Stole the American Dream?, a new book by Hedrick Smith, the Pulitzer Prize-winning journalist who toured New Hampshire last week.  With a pace that might have made observers wonder if he’s running for president (he’s not), Smith spoke at three college campuses, one high school, 2013 10 24 NH AFL CIO 001 the NH AFL-CIO, the office of the NH Democratic Party, and community groups in Exeter and Amherst.  He also appeared on NHPR’s “The Exchange,” recorded an interview with Manchester Community TV, and joined me for an interview on WNHN-FM.

Smith told an audience that packed the Peterborough Unitarian Universalist Church that he set out to write a book on “the American dream at risk.”  That was until he did his research and concluded that the concentration of wealth and power in the hands of a wealthy elite was more extreme than he had realized. 

Smith attributes the beginning of the “bosses’ revolt” to an obscure memo written by Lewis Powell in 1971.  At the time the future Supreme Court Justice was a well-connected corporate lawyer, worried that the “the American economic system is under broad attack.” 

“Powell’s intention was to spark a full-scale political rebellion by America’s corporate leaders … to change the political and policy mainstream in Washington and to put the nation on a new track, a track more favorable to business,”  Smith writes in the opening chapter. 

“The over-riding first need is for businessmen to recognize that the ultimate issue may be survival – survival of what we call the free enterprise system, and all that this means for the strength and prosperity of America and the freedom of our people,”  Powell warned the US Chamber of Commerce, the body that commissioned his paper.  His prescription gave particular attention to the mood on college campuses and the need for business to take charge of the intellectual environment, but above all called for business leaders to “be far more aggressive than in the past.”

Business responded.  “After having kept government at arm’s length, the business community massively expanded its physical presence in the nation’s capital,” Smith writes.  “In a few short years, more than 2000 companies set up Washington offices.  The number leapt from 175 in 1971 to 2445 a decade later.”  Leaders of the biggest corporations formed The Business Roundtable, the heaviest of the heavyweight business lobbies.  New think tanks, notably Heritage and Cato, sprang to life, and the American Enterprise Institute ballooned in size and influence.  The National Federation of Independent Businesses, the most powerful advocate for small business groups, grew from 300 members in 1970 to 600,000 in 1979. 

“By the late 1970s,” writes Smith, “business interests had mustered such a hugeconcord 10-23-13 008 force that they outnumbered Congress 130 to 1.  They had 130 lobbyists and advocates for each of the 535 members of Congress.”

Big business flexed its muscles big time during the 1977-78 Congressional session.  The business lobby took on Ralph Nader’s consumer movement and defeated the proposal to create a consumer safety agency.  They went head to head with organized labor and defeated plans for labor law reform.  They pushed for de-regulation of transportation, a new bankruptcy law that kept corporate leaders at the reigns of companies they had driven into debt, laid the groundwork for the decline of the defined benefit pension plan, and most important, won cuts in corporate and capital gains taxes.  The new tax law “gave the economic benefits of tax law primarily to the economic elites that were now exercising increased economic power,” says Smith. 

One aspect of this development is especially worth noting:  the revolt of the bosses began in part as a reaction to moves by President Richard Nixon, who Powell thought was overly sensitive to public pressure.  And the first big wins for the new business lobby came when Jimmy Carter was president and Democrats controlled both houses of Congress.  Ronald Reagan carried the Powell prescription forward, but it was already gaining bi-partisan momentum when Reagan gained the White House. 

Hedrick Smith’s strongest chapters are in the sections called “Dismantling the Dream,” “Unequal Democracy,” and “Middle Class Squeeze.”  With a blend of stories from downwardly mobile middle class workers and solid descriptions of the specific policies promoted by the business lobby, Smith provides ample details to explain why the bosses are winning. 

For example, he describes how Dirk Van Dongen, President of the National Association of Wholesaler Distributors, led the backroom lobbying that enabled George W. Bush and Karl Rove to push through another round of massive tax cuts benefitting the rich.  Despite public opposition, Van Dongen and his Gang of Six – the US Chamber of Commerce, Business Roundtable, National Association of concord 10-23-13 015 Manufacturers, National Federation of Independent Business, National Restaurant Association, and Van Dongen’s Association of Wholesalers – organized thousands of CEOs, district by district, to lobby for the tax cut.  “With a full court press by the Gang of Six reinforcing the White House push, the Bush tax bill, offering $1.35 trillion in tax cuts over a decade, passed the House by 240 – 154 in May 2001.”  The bill then cleared the Senate 58 – 33. 

“When economists did the numbers,” Smith writes, “they found that 52.5 percent of the Bush tax cuts went to the richest 5 percent of U.S. households.”  When joined with the off-budget trillions for the wars in Iraq and Afghanistan, the tax cuts are the major contributor to the federal deficit that has right-wingers calling for cuts in Social Security and Medicare.  

Who Stole the American Dream also gives great descriptions of the shift from defined benefit pensions to largely self-funded 401-k plans, and the resulting insecure retirement faced by the baby boom generation.  In addition, the book has a good chapter on the housing bubble and sub-prime banking crisis that touched off the 2007 financial meltdown.  It details Wal-Mart’s decision to outsource production to China and the ripples this has sent through the US job market.  Smith also describes the outsourcing of knowledge-sector jobs to China and India.  Given that these are the jobs we were told would replace blue collar manufacturing, the implications are stark. 

That NAFTA is not mentioned at all and the World Trade Organization is mentioned only as a body that might help the U.S. improve its trade relations with China leads me to wonder what Smith thinks of the approach to global commerce brought to us by the same corporate lobbyists.  Likewise, I wonder how he sizes up the impact of Paul Volcker’s tight money policies during the Carter years.   Attention to the link between race and poverty would have provided valuable depth to Smith’s analysis.  But those quibbles aside, Hedrick Smith has answered his own question; we can read who stole the American dream and how they did it.

Smith confessed at a couple of talks that as a journalist he was somewhat reluctant to offer a prescription for middle class resurgence.  “Changing America’s direction will not be easy,” he writes at the beginning of his concluding section.  “It will happen only if there is a populist, grassroots surge demanding it, like the mass movements of the 1960s and 1970s.”  That’s hard to argue with.

Instead of a bold plan to reverse the agenda foisted on the country by Lewis Powell, Dirk Van Dongen, and their legions of corporate lobbyists, Smith offers a conventional set of proposals to rebuild the infrastructure, rebuild American manufacturing, cut military spending, and protect the safety net.  Those are all admirable objectives, but Smith then states that progress is being held back by “partisan extremists,” as if the Left somehow shares responsibility with the Right for the rise of plutocracy. 

Instead of a resurgent Left, Smith calls for a resurgent “center.” Step 9 in his ten-2013 10 24 NH AFL CIO 005 point plan is “to regenerate the centrist core of American politics both by rejecting extremist candidates in both parties and by opening up our political process in every state to give more influence to moderate and independent voters.” 

This left me confused.  Smith understands and states clearly that “Democrats have been dragged toward the right by the gravitational pull of the Republican Right.”  That means the “center,” a function of political geometry, has moved right as well.  That’s the wrong place to look for inspiration and answers.  Throngs chanting, “What do we want?  Moderation!  When do we want it?  Now!” won’t worry Dirk Van Dongen and his Gang of Six. 

Writing recently in The Nation, Gar Alperovitz starts an article on “Renovating the American Dream”

Everyone knows the United States faces enormous challenges: unemployment, poverty, global warming, environmental decay—to say nothing of whole cities that have essentially been thrown away. We know the economic system is dominated by powerful corporate institutions. And we know the political system is dominated by those same institutions. Elections occur and major fiscal debates ensue, but most of the problems are only marginally affected (and often in ways that increase the burdens).

The issue is not simply that our situation is worrisome. It is that the nation’s most pressing problems are built into the structure of the system. They are not unique to the current economic slump or the result of partisan bickering, something passing in the night that will go away when we elect forward-looking leaders and pressure them to move in a different direction.

For Alperovitz, whose latest book is What Then Must We Do?, the answers come from building democratic economic institutions, such as worker-owned enterprises, state-owned banks, and a state-by-state transition to a single-payer health insurance system.   When combined with active resistance to plutocracy, that route is promising.

Alongside his plea for a resurgent “center,” Hedrick Smith also calls for a mass uprising against the plutocrats,

“an army of volunteers prepared to battle for the common cause of reclaiming the American Dream.  Occupy Wall Street and its spin-offs in more than fifteen cities around the country began that process, focusing more of the national dialogue on the hyper-concentration of wealth and power in America – the costly divide of gross inequality between the top 1 percent and the other 99 percent.  But for significant long-term impact, either Occupy will need to mature or some new movement will need to emerge with broader participation, better organization, more clearly articulated goals, and specific policy targets.”

Bring it on!

 

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Democracy is a 24-Hour Enterprise, Manchester Occupiers Explain in Court

The spirit of the Occupy movement reappeared this morning in Hillsborough County Superior Court, where three activists arrested on criminal trespass charges October 19, 2011 took their case before a jury.

That day, the fifth in which occupiers were encamped in Manchester parks to show their displeasure with the imbalance of power in American economic and political life, Manchester police made it clear the city would no longer allow them to violate the curfew which bans public presence in city parks between the hours of 11 pm and 7 am.  As Captain Robert Cunha explained then, and repeated in court today, the occupiers would be warned to vacate the park at 11 pm.  If they did not leave, they would be issued a citation for violating the curfew.  If they still refused to leave, they would be arrested for trespassing.  hillsboro sup court 3-21-13 012 crop

Today’s defendants – Matthew Richards, Beth Grunewald, and Elizabeth Edwards – were among those arrested for trespassing.  Today they had their day in court.  Or rather, their first day in Superior Court.

The three had already been tried in District Court, where they were found guilty.  Unlike most of the others tried that day, the three were eligible to appeal for a jury trial because their arrest on misdemeanor charges meant they could potentially be subject to time in jail.   With the able leadership of Barbara Keshen of the NH Civil Liberties Union, they tried to tell the jury their actions were warranted by the extreme problems facing the country and constitutionally protected.

I was in the courtroom as a witness for the defense.  Unfortunately, that meant I was “sequestered” for the first part of the trial.  No this was not like the current “sequester” of funds by the US Congress.  I did not have to give up a percentage of my income.  It meant I sat out in the hall gabbing with Will Hopkins and Matt Lawrence until we were called as witnesses after lunch.  And that meant I missed the opening arguments by the prosecutor and the defense.

As I understand the case, the prosecution wants to convince the jury that the occupiers knew  their presence in the park after 11 pm was illegal, and that they had ample alternative means to express their political views, for example by being in the park between 7 am and 11 pm.  The defense argued that the rights to speak, assemble, and petition the government for redress of grievances under the NH Constitution is a higher order legal principle than the city’s curfew ordinance.  

As an Occupy participant who observed the police actions which ended the Veterans Park occupation 17 months ago, I was there to help the jury understand the background of the Occupy movement, the principles of active nonviolence, and the role that civil disobedience can play in challenging unjust laws.  Unfortunately, thehillsboro sup court 3-21-13 008 crop judge sustained objections to many of the questions Barbara asked me.  Will  and Matt, both of whom left the park with citations, were similarly constrained.

But the defendants, who were all called as witnesses, were given greater latitude and delivered eloquent explanations to an attentive, mostly female jury.  

Matt Richards was first.  The 21-year-old Manchester native was allowed to describe the Occupy General Assemblies, at which participants practiced horizontal democracy, “where everyone can speak their mind.” 

“I shouldn’t have to leave when I’m protesting in a public park,” he said.  “My right to speech and assembly has more weight than a curfew.” 

Matt said he fled morally obligated to remain in the park, despite the curfew and the police order to leave.  He would not want his actions to imply that protests should take place “only when it is convenient to those in power.” 

Occupy is about endurance.  It is about not giving up when injustice is higher then the clouds and you can barely afford a step ladder.

Matt teared up as he recalled meeting a homeless mother of three in one of the parks.  She was carrying a sign that said, “I’m homeless.  Do I have a voice?”  Matt explained he, too, knows what it feels like to be treated as a trespasser in his own city.  But he said he also knows miracles can happen when people reclaim their voices and speak out for justice.

“Occupy is about endurance,” he told the jury.  “It is about not giving up when injustice is higher then the clouds and you can barely afford a step ladder.”

“The amount of money someone has should not influence how much power they have,” Beth Grunewald said.  The 26-year-old Merrimack native said the occupiers showed by example how to create a consensus democracy that is fair to everyone and takes care of those who need help. 

Refuting the prosecutor’s implications that the occupiers could have made their point without violating the city’s curfew, she said, “Democracy is not a 7 am to 11 pm job.”   By building community, sharing meals, and figuring out how to live together, the occupiers were demonstrating that “another world is possible.” 

Harkening back to civil rights activists arrested and brutalized for being in spaces the law told them they had no right to occupy, she said, “if it takes me staying in a park 24 hours a day, I will stay there.”

The final speaker was Elizabeth Edwards, a 24-year-old Manchester resident who said she joined the Occupy movement because she didn’t like some of the messages coming out of Occupy Wall Street and she wanted to keep an eye on what was developing here.  But she soon found out, she said, that she could be part of a community and engage in dialogue, even with people who might have some different ideas.  “Occupy was about proving that we can create this peaceful camaraderie now,” she said.

Her intent is to create solutions to social problems based entirely on voluntary consent, without government or coercion.  “We could do it with each other right here,” Elizabeth told the jury. 

The demonstrations in Veterans and Victory Parks in Manchester was part of a national movement based on occupation of public space to show the “long haul” nature of what is required to bring about change, she told the jury in response to aggressive questioning from the prosecutor.  “Nothing else is working,” she said.  

Elizabeth also made it clear it was her intent to put the issue before a jury, not a judge or panel of judges.  Her argument:  “In a public park I absolutely have the right of freedom of speech and assembly.”

“Sometimes,” she said, “you have to back down because the system is so much bigger than you are.”  But sometimes, she concluded, you have to stand up and do what’s right even if you don’t know what the consequences will be.

The trial continues in the morning, presumably with closing arguments and jury deliberation.  

POST-TRIAL NOTE:  The jury deliberated for only an hour before finding the defendants guilty.  The were apparently unwilling to see the case as a legitimate conflict between the constitution and the municipal curfew ordinance.  Elizabeth, Beth, and Matt were sentenced to community service.  The  convictions of the larger group for  violating the curfew will be appealed to the NH Supreme Court.  One of the questions:  what is the meaning of the word “inviolable” in Article 22 of the NH Bill of Rights? 

 

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How the Pie is Sliced

When Paul Ryan appears in Dover NH tomorrow morning (11 am at the McConnell Center), someone should tell him about a new report from the Congressional Research Service, a non-partisan arm of the Library of Congress, on the impact of tax cuts.

In a report released Friday, September 14, Thomas L. Hungerford analyzed the changes in the top tax rates in relationship to GDP growth. 

Throughout the late-1940s and 1950s, the top marginal tax rate was typically above 90%; today it is 35%. Additionally, the top capital gains tax rate was 25% in the 1950s and 1960s, 35% in the 1970s; today it is 15%. The real GDP growth rate averaged 4.2% and real per capita GDP increased annually by 2.4% in the 1950s. In the 2000s, the average real GDP growth rate was 1.7% and real per capita GDP increased annually by less than 1%.

Before you tax-and-spenders out there conclude that high taxes produce faster growth, read on:

There is not conclusive evidence, however, to substantiate a clear relationship between the 65-year steady reduction in the top tax rates and economic growth. Analysis of such data suggests the reduction in the top tax rates have had little association with saving, investment, or productivity growth.

So do changes in the tax rates of people at the top of the income ladder make any difference whatsoever?  Well, yes.  Hungerford concludes:

The top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution….    The evidence does not suggest necessarily a relationship between tax policy with regard to the top tax rates and the size of the economic pie, but there may be a relationship to how the economic pie is sliced.

On this anniversary of the beginning of the Occupy Wall Street protests, this report provides more evidence that the government is working well for the 1%.  So if you get a chance to chat with Paul Ryan tomorrow, ask him if he’s had a chance to read the new CRS study and if it changes his views.

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