PLUTOCRATIC ECONOMICS HAS FAILED WORKERS

Forty years of right-wing, plutocratic economics (see this previous post for background) has produced stagnant worker compensation, decimating the middle class and leaving growing numbers of low-wage workers struggling to survive. The plutocratic economics of wealthy, elite members of society has intentionally and dramatically weakened public policies that provide support for workers and an economic safety net (including the minimum wage, unemployment benefits, and the right to join a union).

After adjusting for inflation, workers’ compensation has barely increased since 1980, in large part because:

The minimum wage’s value has been eroded by inflation and
Workers’ negotiating power with their employers has been decimated by concerted attacks on unionization and by the growing size and economic power of employers.

Currently, we are in the longest period since the establishment of the minimum wage, 12 years, without an increase in it. The $7.25 per hour federal minimum wage (about $15,000 per year for a full-time worker) has lost 17% of its purchasing power (or more than $3,000) over those 12 years. Since its peak value in February 1968 at about $22,000 per year for full-time work (adjusted for inflation), the federal minimum wage has lost 31%, or almost one-third, of its purchasing power ($6,800). [1]

As a result, minimum wage workers at Wal Mart, fast food outlets, and elsewhere do not earn enough to survive without public benefits such as food stamps, housing subsidies, subsidized health insurance, and the Earned Income Tax Credit. These public benefits for workers mean that the government and we as taxpayers are subsidizing large, very profitable companies when they pay their workers too little to live on. This is one example of government welfare for companies.

The proponents of plutocratic economics claim that raising the minimum wage will reduce the number of jobs and, therefore, hurt workers, but this ignores the obvious benefits for workers. A high estimate is that 1.3 million jobs might be lost – half of them for teenagers and many of those for adults being part-time jobs. On the other hand, wages would increase for over 27 million workers (roughly one out of every six workers). With an increase to $15 per hour (up from the current $7.25), workers would receive an overall increase in income of $44 billion. This would lift 1.3 million Americans out of poverty and significantly increase consumer spending in local economies. On the downside, companies would raise prices by an estimated 0.3% and business owners would lose $14 billion of profits (a small amount [0.07%] in a $21 trillion economy).

A study of the actual experiences in states and cities that have recently raised their minimum wages found no reductions in the number of jobs or hours at work. It did find that workers’ incomes increased and that poverty declined. [2]

Unionization is important because it allows workers to band together and increase their negotiating power when bargaining with employers for pay and benefits. The rate of unionization in the United States today is 10.5% overall (down from over 25% in the 1950s) and only 6.4% of private-sector workers are unionized. In the early 1950s, unions included over 40% of workers in manufacturing, over 60% in mining, and over 80% in the construction, transportation, communications, and utilities sectors. The attacks on unions have been very successful, to say the least, in reducing unionization and workers’ negotiating strength. By way of comparison, the rates of unionization in Scandinavia range from 81% in Iceland to 71% in Sweden to 52% in Norway. Under pressure from global trade, these rates have come down in recent years; for most of the postwar period the rate in Sweden was in the mid-80s, for example.

The disparity in unionization rates between the U.S. and the Scandinavian countries has produced a dramatic difference in economic inequality. The best measure of economic inequality is a nation’s Gini Coefficient, where a higher number indicates greater economic inequality. The scale is from zero to one with zero indicating complete economic equality (everyone has the same income) and one indicating that all of a nation’s income goes to just one person. In Denmark and Sweden, the Gini Coefficient is 0.25; in Finland and Norway, it’s 0.27; and in Iceland, it’s 0.28. However, in the United States, it’s 0.47. [3]

Employers’ power over workers has grown, not only due to reduced unionization, but also due to the growing economic power in the marketplace of fewer, larger employers. Overall, workers’ compensation has grown less than their increases in productivity since 1979 (productivity has grown 69.3% while compensation has grown only 11.6%). Previously, compensation tracked productivity growth quite closely (from 1948 to 1979 productivity grew 108.1% while compensation grew 93.2%). [4] In other words, workers are not receiving increases in pay despite increases in the value of their output per hour of work.

Instead of paying workers more for their increased output, companies have increased profits and, therefore, returns to shareholders, owners, and executives – in other words, they have increased income and wealth for plutocrats. As a result, income and wealth inequality have increased dramatically. Just three white men ‒ Jeff Bezos of Amazon, investor Warren Buffett, and Microsoft’s Bill Gates ‒ now own more wealth (a combined total of $248 billion) than the least wealthy half of all Americans (160 million people with combined wealth of $245 billion). The wealthiest 1% of Americans own 40% of all wealth. This is the highest level in at least 50 years and is higher than in any other country with an advanced economy. (Germany is closest with 25% of wealth in the hands of the top 1%). The 400 wealthiest Americans own an astonishing $2.9 trillion. [5]

Government policies set the rules for our economic markets and balance the power and interests of various parties. For 40 years, plutocratic economic policies have put returns to owners (i.e., wealthy investors including executives) ahead of the interests of workers. The result of these policies has been a dramatic growth in income and wealth inequality; the U.S. has the most unequal income distribution of any well-off democracy. [6] Economic security and the standard of living for many in the middle class has fallen dramatically, while many low-income workers are struggling just to make ends meet.

Future posts will review the politics of plutocratic economics and how it has damaged our democracy. They will also identify progressive policies that are needed to reverse its harmful effects.

[1] Economic Policy Institute, 7/15/19, “Minimum wage,” (https://www.epi.org/research/minimum-wage/)

[2] Dayen, D., 7/9/19, “Conservatives grasp at straws after CBO minimum wage analysis shows clear benefits,” The American Prospect (https://prospect.org/article/conservatives-grasp-straws-after-cbo-minimum-wage-analysis-shows-clear-benefits)

[3] Meyerson, H. 7/2/19, “How centrists misread Scandinavia when attacking Bernie and Elizabeth,” The American Prospect Today (https://prospect.org/article/how-centrists-misread-scandinavia-when-attacking-bernie-and-elizabeth)

[4] Economic Policy Institute, 8/27/19, “How well is the American economy working for working people?” (https://www.epi.org/files/pdf/174081.pdf)

[5] Anapol, A., 12/6/17, “Study: Wealthiest 1 percent owns 40 percent of country’s wealth,” The Hill (https://thehill.com/news-by-subject/finance-economy/363536-study-wealthiest-1-percent-own-40-percent-of-countrys-wealth)

[6] Tyler, G., 1/10/19, “The codetermination difference,” The American Prospect (https://prospect.org/article/codetermination-difference)

SUPPLY-SIDE, TRICKLE-DOWN TAX CUT THEORY HAS FAILED

Plutocratic economics (see this previous post for background), and specifically so-called supply-side or trickle-down economics, claims that cutting taxes, particularly on the wealthy and businesses, will stimulate economic growth so much that 1) government tax revenue will actually increase, 2) the number of jobs will grow, and 3) workers’ pay will increase.

There have been at least six significant federal tax cuts between 1978 to 2019 and, in every case, federal government revenue did NOT increase as promised. These tax cuts, under Presidents Carter, Reagan, G. W. Bush, and Trump, each produced some short-term economic stimulus, but federal revenue declined and the budget deficit increased. Furthermore, these tax cuts have been neither fair (economic inequality has increased) nor efficient (some of the country’s most profitable corporations and wealthiest individuals pay little or no taxes). [1]

Some states have also cut taxes based on supply-side economic theory, most notably Kansas in 2012. Like the federal cases, the results have not been what was promised. Kansas’s Republican Governor Brownback and the state’s overwhelmingly Republican legislature eliminated state income taxes for more than 100,000 businesses and greatly reduced taxes on wealthy individuals. Invoking supply-side, trickle-down economic theory, Brownback predicted the tax cuts would more than pay for themselves, i.e., that state tax revenue would grow. Instead, revenues fell so precipitously that shortages in funding for schools required that the school year had to be considerably shortened to save money, public construction projects ground to a halt, and the health coverage of the state’s Medicaid program had to be greatly reduced. The state’s economy ceased producing jobs and Kansas’s economy performed more poorly than its neighboring states on virtually every economic indicator. (See this previous post for more details.)

In 2016, Kansas voters – including Republicans who objected to seeing their children’s educations shortchanged – revolted. Republican primary voters, joined by Democrats, ousted legislators who had refused to repeal the tax cuts, and in 2017, the new legislature overrode Brownback’s veto of a bill repealing the cuts. In 2018, voters elected Democrat Laura Kelly as their new governor, and today, with adequate funding restored, Kansas has resumed its support for education, infrastructure spending, and the other basic governmental functions. As a result, in 2019, Kansas leapt from 35^th (in 2018) to 19^th on CNBC’s list of the top states for business. [2]

Nonetheless, in 2017, supply-side, trickle-down economic theory was invoked by President Trump and the Republicans in Congress in justifying their $150 billion a year tax cut primarily for corporations and wealthy individuals. The results of these tax cuts have been, predictably, NOT what was promised. Rather than stimulating higher economic growth, growth and job creation have been slow.

The federal budget deficit has grown substantially and workers’ compensation remains stagnant. Huge rewards have gone to large corporations and their executives, so economic inequality has grown sharply. The corporations are using the windfall to buy back their own stock at record rates. This enriches executives and other large stockholders. Corporations have not been increasing workers’ compensation, nor hiring additional workers, nor investing in innovation. (For more detail see this previous post.)

Furthermore, the Trump administration and Republicans in Congress, citing the growing budget deficit, argue that cuts need to be made in economic safety net programs including food assistance for the poor, health care for the poor and seniors (i.e., Medicaid and Medicare), and Social Security.

Future posts will summarize the harm plutocratic economics has done to workers and our democracy. They will also discuss the politics of neoliberalism and identify progressive policies that can reverse the harmful effects of plutocratic economics.

[1] Kuttner, R., 6/25/19, “Neoliberalism: Political success, economic failure,” The American Prospect (https://prospect.org/article/neoliberalism-political-success-economic-failure)

[2] Meyerson, H., 7/23/19, “Going up in economic ratings? Then lose trickle-down,” The American Prospect Today (https://prospect.org/blog/on-tap/going-economic-ratings-then-lose-trickle-down)

DEREGULATION HAS FAILED

The failure of 40 years of right-wing, wealthy elites’ plutocratic economics (see my previous post for background) is evident from multiple perspectives. The outcomes for workers and the middle class, along with those for the economy as a whole, have been resoundingly negative.

Proponents of plutocratic economics’ “free” markets and deregulation promised that:

Markets would be more efficient without government regulation,
Businesses would regulate themselves for the good of all, and
Social goals could be more effectively achieved by using market forces. [1]

In concert with their economic and political theories, plutocratic economics’ proponents (aka neoliberals) pushed to eliminate government regulation, stop anti-trust enforcement (which had limited the size and marketplace power of companies), reduce progressive taxation, and dramatically weaken support for workers and the economic safety net (including the minimum wage, unemployment benefits, unions, and public assistance for the poor).

Deregulation of businesses has failed more often than not, perhaps most notably in the financial industry. There, deregulation led to a series of financial scandals and collapses since the 1970s including the Savings and Loan crisis, the Enron scandal and collapse, the bursting of the Dot-com bubble, and, of course, the 2008 financial industry collapse and Great Recession. Today, we are left with a handful of bigger than ever, too big to fail, financial corporations that still have taxpayer insurance and present a significant risk to our economy.

Electricity deregulation has, contrary to the promises, raised costs for consumers, failed to stimulate green power generation, failed to modernize and strengthen the power transmission grid, and failed to provide meaningful choice to consumers.

Airline deregulation has produced bankruptcies at every major U.S. airline, resulting in cuts in workers’ compensation and in many cases costing workers their pensions. In the airline industry and elsewhere, the federal government and taxpayers, through the Pension Benefit Guaranty Corporation, have frequently had to step in to pay pension benefits to workers of corporations that declared bankruptcy. Although airline ticket prices declined somewhat after deregulation, customers face a bewildering fare system, shrinking seats and legroom, declining food service and other benefits, increasing add-on costs for luggage and even seats, fewer non-stop flights, and exorbitant penalties when plans and tickets must be changed. Studies have found that fares declined more in the 20 years before deregulation than in the 20 years afterwards, in part because more fuel-efficient planes have been the primary source of cost-savings for the airlines. [2]

Deregulation of the fossil fuel industry has led to huge oil spills into our water and onto our land, as well as accidents that have caused huge fires with the loss of lives and toxic smoke at refineries and oil platforms at sea.

Rather than the increased competition and better deals for consumers that the neoliberals promised, anti-competitive market concentration has grown – and continues to do so – with consumers and workers ending up worse off. The number of mergers has increased from 2,308 in 1985 to 15,361 in 2017. [3] In industry after industry, without anti-trust enforcement to prevent it, monopolies or near monopolies have emerged. Large companies frequently buy up innovative competitors or crush them in the marketplace. In some cases, rather than using their innovations, competitors are simply eliminated after being bought.

For example, in the technology sector, the giants, Google, Amazon, and Facebook, use their market power, control of Internet platforms, and superior access to consumer data and other resources to out-compete or steal the markets of potential rivals. [4] They use theoretically illegal predatory pricing – the selling of goods and services at below cost – and their ability to sustain financial losses in the short-term to drive competitors out of business. [5] The financial services and airline industries are also highly concentrated, along with the beer, health insurance, and medical devices industries, to highlight a few. The telecommunications, telephone / smart phone, and entertainment industries have all experienced substantial concentration with little consumer-benefiting competition.

Market concentration makes it hard for new businesses to enter the market and for small businesses to compete because suppliers and customers are tied to the dominant firms in the market. Dominant firms increase profits not by increasing efficiency, but by minimizing employees’ compensation; reducing investment in research, development, and productivity improvement; and driving down costs by using their marketplace power to squeeze suppliers. [6]

Plutocratic economics has resulted in anti-competitive consolidation, resulting in many industries with a few large, dominant companies. This does not stimulate economic growth as without competition, companies control prices, hire fewer workers, produce less, and pocket more in profits for executives and owners. [7] Huge rewards have gone to large companies, their executives, and big shareholders. As a result, economic inequality has grown sharply, workers’ wages have stagnated, the middle class has been decimated, and the number of low wage workers struggling to survive has grown substantially.

Market concentration is not good for the economy, for workers, nor for consumers. It reduces healthy competition, decreasing the incentives for innovation and investment to keep up with competitors. It depresses wages and worker mobility because there are fewer employers to choose from. As a result, economic security has disappeared for many workers and much of the middle class. Furthermore, market concentration and marketplace power have reduced entrepreneurship and the number of start-ups. [8]

Concentrated economic power in the marketplace also leads to concentrated political power for large companies and their wealthy executives and shareholders. The result is a self-reinforcing feedback loop where political power produces policies that further expand and entrench marketplace power and economic inequality.

Subsequent posts will summarize other failures of neoliberalism and plutocratic economics.

[1] Kuttner, R., 6/25/19, “Neoliberalism: Political success, economic failure,” The American Prospect (https://prospect.org/article/neoliberalism-political-success-economic-failure)

[2] Kuttner, R., 6/25/19, see above

[3] Abdela, A., & Steinbaum, M., Sept. 2018, “The United States has a market concentration problem,” The Roosevelt Institute (https://www.ftc.gov/system/files/documents/public_comments/2018/09/ftc-2018-0074-d-0042-155544.pdf)

[4] Kuttner, R., 6/25/19, see above

[5] Sussman, S., July/August 2019, “Superpredators,” Washington Monthly (https://washingtonmonthly.com/magazine/july-august-2019/superpredators/)

[6] Abdela, A., & Steinbaum, M., Sept. 2018, see above

[7] Shambaugh, J., Nunn, R., Breitwieser, A., & Liu, P., 6/13/18, “The state of competition and dynamism: Facts about concentration, start-ups, and related policies,” Brookings (https://www.brookings.edu/research/the-state-of-competition-and-dynamism-facts-about-concentration-start-ups-and-related-policies/)

[8] Shambaugh, J., Nunn, R., Breitwieser, A., & Liu, P., 6/13/18, see above