THE RADICALS ON THE SUPREME COURT STRIKE AGAIN

Note: If you find my posts too long or too dense to read on occasion, please just read the bolded portions. They present the key points I’m making and the most important information I’m sharing.

The current “conservative” majority on the Supreme Court is actually a group of ideologically-driven, radical, judicial activists who have no intention of honoring precedents, despite their promises during confirmation hearings to do so. Although some of their radical precedent-breaking decisions get covered by the mainstream media, such as the recent voting rights case and the upcoming decision on pregnancy termination, many of them do not.

A recent Supreme Court case, known as Cedar Point Nursery vs. Hassid, involves the ability of union organizers to visit farms to talk to farm workers (as allowed under a 1975 California regulation). It’s a very significant decision that got very little attention in the mainstream media. A 1975 California regulation has required corporate farmers like Cedar Point (a 300-acre strawberry farm) to allow union organizers on its property to talk to workers for up to three one-hour periods on up to 120 days out of a year (one hour each before work, at lunch time, and after work to avoid interrupting work). Cedar Point sued claiming this was a government seizure of their property without compensation and was a violation of the Fifth Amendment (which states that “No person shall be … deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use without just compensation.”). Cedar Point claimed that this was a “taking” of its property because it is deprived of the “right to exclude” trespassers from its property, which, it claimed, is fundamental to true property ownership rights.

A lower court had ruled against Cedar Point, but it appealed to the Supreme Court. The Supreme Court ruled 6 to 3 in favor of Cedar Point, finding that the regulation was a “taking” of private property and therefore Cedar Point was entitled to compensation. The six radical “conservative” justices were the majority.

This ruling overturns important elements of a 1978 Supreme Court precedent. That ruling established a framework for evaluating whether a governmental restriction on personal property rises to the level of a “taking”. The framework’s criteria include the economic impact of the law or regulation and the extent of its interference with a business. The requirements of the California regulation specifically minimized these impacts and had been in place and operating since 1975.

This ruling has potentially far-reaching implications. For example, a property owner’s “right to exclude” is the argument segregationists used to defend their exclusion of Blacks from places of business and other private venues. By giving new life to this argument (which the Supreme Court rejected in 1964), Roberts and his six-justice majority are opening the door to a whole range of lawsuits against anti-discrimination laws. Sooner or later the argument will probably be made that preventing a business, a private club, or an employer from excluding men or women, pregnant women, people of color (POC), or LGBTQ+ people is a “taking” of property rights. Also, it may well be argued that fair housing laws are a “taking” because they limit landlords’ “right to exclude” people, such as POC, LGBTQ+ people, families with children, or renters with a low-income governmental housing subsidy. [1]

Furthermore, worker safety inspectors from the Occupational Safety and Health Administration (OSHA), food safety inspectors from the Department of Agriculture, and pollution inspectors from the Environmental Protection Agency could be banned from companies’ property unless the companies are compensated. Although some language in the decision written by Chief Justice Roberts would appear to allow these inspections without compensation, challenges to them are likely. The possibility of challenging endangered species laws that require landowners to protect a species’ habitat has already been raised and a challenge to anti-pollution regulations would seem to be possible as well under the Supreme Court’s redefinition of what constitutes a “taking”.

In the Cedar Point decision, the six radical “conservative” justices on the Supreme Court have again shown their willingness to toss aside well-established precedents and to prioritize the rights of property owners over the civil rights of individuals. This decision may well lead to a variety of challenges from property owners – including landowners, landlords, employers, and businesses – to laws and regulations that protect civil rights, the safety of workers and consumers, and the environment, including initiatives to counter global warming and climate change.

[1]      Mystal, E., 6/24/21, “Yesterday’s union-busting Supreme Court decision was a segregationist throwback,” The Nation (https://www.thenation.com/article/society/cedar-point-court/)

THE GAMES OLIGARCHS PLAY

Note: If you find my posts too long or too dense to read on occasion, please just read the bolded portions. They present the key points I’m making and the most important information I’m sharing.

In three previous posts, I’ve summarized the three major systemic changes identified by Robert Reich in his latest book, The System. These systemic changes have occurred since 1980 and have shifted power, both economic and political, to a small group of very wealthy Americans. As a result, our democracy operates in many ways like an oligarchy. (Oligarchy “refers to a government of and by a few exceedingly rich people or families who … have power … . Oligarchs may try to hide their power … . But no one should be fooled. Oligarchs wield power for their own benefit.” pages 13-14) [1]

Reich’s three systemic changes have shifted power:

  • From a broad set of corporate stakeholders to shareholders (see this previous post for details),
  • From workers and their unions to large employers (see this previous post for details), and
  • From manufacturing and a broad set of stakeholders in our economy to the financial sector and Wall Street (see this previous post for details).

A dramatic result of these shifts in power has been rapidly growing inequality in income and wealth. A cause and symptom of this inequality is that a small number of wealthy people dominate as the sources of funding for the campaigns of elected officials. These are the oligarchs. In the 2016 election cycle, the wealthiest 25,000 people in America (0.01% of the population) made a record-breaking 40% of all campaign contributions – up from 15% in 1980. Over the period from 2009 through 2020, twelve very wealthy individuals and their spouses gave a total of $3.4 billion to federal candidates and political groups. This is over 7% of the total money raised. The 100 highest giving zip codes hold less than 1% of the U.S. population, but were responsible for 20% of the $45 billion that federal candidates and political groups raised from 2009 through 2020. The increasing amount and share of campaign money coming from oligarchs was accelerated by a series of U.S. Supreme Court decisions, including the 2010 Citizens United decision. [2]

This high level of campaign spending gives these oligarchs access to our elected officials that you and I don’t have. When one of them calls or requests a meeting, that call is answered or that meeting is scheduled. Because their voices are heard and elected officials want the money to keep flowing to them, these oligarchs generally get the policies they want and that benefit them.

Throughout the book, Reich uses Jamie Dimon, the CEO of JPMorgan, as an example or case study of how the oligarchs operate; how they have abandoned public responsibility and advance their self-interest. Dimon appears to believe that corporations do have social responsibilities and not just responsibility to maximize returns for shareholders (as pure shareholder capitalism asserts). Dimon touts JPMorgan’s financing of $2 billion in affordable housing annually, its lending in low- and moderate-income neighborhoods and to small businesses, its 5-year $350 million job training program, and its $500 million AdvancingCities initiative to help financially-strapped large cities.

Although JPMorgan’s social responsibility efforts are notable, they are small relative to the size of the problems they are tackling and small in comparison to JPMorgan’s yearly profits of $30 billion. Moreover, they are contradicted by other actions of JPMorgan and Dimon. Dimon has not supported raising the minimum wage or paying all JPMorgan workers a livable wage, which would do a lot to help many of the people targeted by JPMorgan’s philanthropy, despite his 2018 compensation package worth $31 million and his wealth of around $1.5 billion. In addition, JPMorgan paid $55 million in 2017 to settle charges that it discriminated against minority mortgage borrowers.

Furthermore, Dimon personally lobbied hard for the 2017 tax cut that reduced the corporate tax rate from 35% to 21% and increased JPMorgan’s profits by billions of dollars annually. The tax cut increased the federal deficit by $190 billion annually; a figure that has to be covered, sooner or later, by cuts in federal government programs or increased taxes on others.

JPMorgan, with Dimon in charge, paid $13 billion to settle claims that it defrauded borrowers and investors in the mortgage scandal that led to the 2008 economic collapse. In 2019, it required forced arbitration for credit card disputes, preventing aggrieved customers from suing in court or through a class action lawsuit.

Although Dimon publicly opposed President Trump pulling the U.S. out of the Paris Climate Agreement, JPMorgan is the biggest bank investor in fossil fuels, to the tune of $196 billion between 2016 and 2018. A 2019 report by an environmental coalition named Dimon the “world’s worst banker of climate change.” JPMorgan is also the largest U.S. bank providing financial services to the gun industry and loans to gun buyers.

So, a few hundred million dollars a year of philanthropy is a good investment in public relations for a wealthy Wall Street bank that has had numerous ethical lapses and that was a significant contributor to the economic collapse in 2008, resulting in millions of people losing their jobs, homes, and savings, while it got hundreds of millions of dollars in bailouts.

However, Dimon and JPMorgan are just one example. In 2019, the Business Roundtable, in an effort to counter unfavorable publicity about corporations being solely focused on benefiting shareholders, issued a highly publicized corporate responsibility statement signed by CEOs of 181 major U.S. corporations (including Dimon) stating they believed in “a fundamental commitment to all our stakeholders.” The statement included a commitment to treat employees fairly, support communities, and embrace sustainable practices. [3]

However, actions speak louder than words. Just weeks after the statement appeared, Whole Foods, a subsidiary of Amazon, announced it would cut health benefits for its part-time workers, despite multi-billionaire Jeff Bezos, CEO of Amazon, having signed the corporate responsibility statement. During the pandemic, billionaires did very well and big corporations did well (45 of the 50 biggest were profitable). Despite this, 27 of the 50 big corporations laid off workers, totaling more than 100,000 workers. For example, Walmart, whose CEO was a corporate responsibility statement signer, distributed $10 billion to shareholders while laying off over 1,200 workers. [4]

If the CEOs (i.e., oligarchs) signing the corporate responsibility statement were serious about their commitment to all stakeholders, they would support federal legislation to make those commitments laws (i.e., legally binding). Or, at least, they’d pay a fair share of taxes to the federal government so it could support workers, communities, and a sustainable economy. However, in 2020, 55 of the largest U.S. corporations paid no federal income tax on $40 billion in profits. Moreover, they received more than $3 billion in federal tax rebates, giving them an effective tax rate of negative 9%; a bit different than the stated tax rate of 21%. Twenty-six of them have paid no federal income tax since the 2017 tax cut (and received $5 billion in rebates) while generating $77 billion of profits.

In actuality, the corporate responsibility statement appears to be part of a PR campaign by oligarchs that, along with corporate philanthropy, is designed to slow or stop proposed legislation and regulations that would require oligarchs and their corporations to:

  • Share their power and wealth by treating workers and communities more fairly, and
  • Engage in sustainable business practices.

Reich quotes the theologian Reinhold Niebuhr as noting that “ The powerful are more inclined to be generous than to grant social justice.”

These are the games that oligarchs play to try to hide their power and to try to fool the rest of us into believing that they care about fairness and social responsibility.

[1]      Reich, R.B., 2020, The System: Who rigged it, how we fix it. NY, NY: Alfred A. Knopf.

[2]      Beckel, M., retrieved 4/21/21, “Outsized influence,” Issue One (https://www.issueone.org/wp-content/uploads/2021/04/Issue-One-Outsized-Influence-Report-final.pdf)

[3]      Business Roundtable, 8/19/19, “Statement on the Purpose of a Corporation,” https://system.businessroundtable.org/app/uploads/sites/5/2021/02/BRT-Statement-on-the-Purpose-of-a-Corporation-Feburary-2021-compressed.pdf

[4]      MacMillan, D., Whoriskey, P., & O’Connell, J., 12/16/20, “America’s biggest companies are flourishing during the pandemic and putting thousands of people out of work,” The Washington Post

OLIGARCHY OR DEMOCRACY: THE FINANCIAL INDUSTRY RULES OUR ECONOMY

Note: If you find my posts too long or too dense to read on occasion, please just read the bolded portions. They present the key points I’m making and the most important information I’m sharing.

Robert Reich’s latest book, The System, presents his analysis of how our democracy is more like an oligarchy these days, how it got that way, and how to fix it. Oligarchy “refers to a government of and by a few exceedingly rich people or families who … have power … . Oligarchs may try to hide their power … . But no one should be fooled. Oligarchs wield power for their own benefit.” (pages 13-14) [1]

Reich identifies three major systemic changes that have occurred since 1980 that have shifted power, both economic and political, to a small group of very wealthy Americans. They are:

  • The shift of big corporations from stakeholder to shareholder capitalism (see this previous post for a summary of this shift),
  • The shift in bargaining power from unions to large employers and corporations (see this previous post for a summary of this shift), and
  • The shift in power in our economy and politics to the financial sector and Wall Street (see below).

The dramatic increase in power and influence of the financial sector and Wall Street began in the 1980s. It included two components:

  • The increased size and marketplace power of large financial corporations, and
  • The increased influence of these large financial corporations in our economy and politics.

The increased size and marketplace power of financial corporations, starting with banks, began in 1980 as the federal government began deregulating banking. After the financial crash of 1929, which was a significant contributor to the Great Depression, laws were enacted to prevent banks from crashing the financial system and the economy again. Laws and regulations banned banks from operating in more than one state and prohibited mergers of banks. A law named the Glass-Steagall Act separated consumer and commercial banking (i.e., taking deposits and making loans) from investment banking (i.e., making investments that were speculative with significant risks of losses).

In 1980, the ban on interstate banking and bank mergers was repealed and banks quickly began merging. This, of course, meant that there were fewer banks and bigger banks, and eventually we got the too-big-to-fail banks of 2008. As the banks and financial corporations increased in size and wealth, they also gained political power through campaign spending, lobbying, and the revolving door. The repeal of the Glass-Steagall Act under President Clinton in 1999 alone was the subject of $300 million of lobbying by the big financial corporations. Clinton’s Treasury Secretary from 1995 – 1999, by the way, was Robert Rubin, a former senior executive at Wall St. powerhouse Goldman Sachs, who returned to Wall St. at Citicorp in 1999.

Starting in the mid-1980s, federal regulators began easing the restrictions separating consumer and commercial banking (where customers’ deposits were insured by the federal government) from investment banking. The favorable policies and deregulation the financial sector was able to get led to the Savings and Loan crash of the late 1980s that cost taxpayers billions. The bursting of the dot.com stock market bubble and the collapse of various hedge funds were just bumps on the road to the huge financial collapse of 2008 which caused the Great Recession and cost homeowners trillions of dollars and taxpayers trillions more to rescue the too-big-to-fail financial institutions.

Between 1980 and 2008, $6.6 trillion in wealth was captured by the big financial corporations, sucked out of consumers and others, as the U.S. economy shifted from a focus on making things (i.e., manufacturing) to creating new, speculative financial instruments and from product entrepreneurship to financial entrepreneurship and vulture capitalism.

The big financial corporations’ control of our economy and politics was so profound that they, with an assist from their banker friends at the Federal Reserve, could tell President Clinton that he had to balance the federal budget and could not spend money on programs to benefit the American people as he had promised during his campaign. Today, the financial sector represents over 8% of our economy, while in the 1950s it was just 2.5% of the economy.

The big financial corporations made money funding corporate raiders and vulture capitalists. They made money aiding and abetting multi-national corporations as they moved jobs and facilities overseas, undermining U.S. workers. They made money providing debt to consumers on credit cards, student loans, and mortgages, while often not so secretly hoping that borrowers would fall behind on payments so they could collect big fees and escalated interest rates. Along the way, the financial corporations got bankruptcy laws written so that consumers could not escape mortgage or student debt in bankruptcy and had limited ability to reduce credit card debt. (Meanwhile, corporations can eliminate all debt and break contracts, including union contracts and retiree benefit contracts, when they file for bankruptcy and can be back on their feet in literally no time.)

The big financial corporations fueled the dramatic rise in home values – the average home cost $64,600 in 1980 and $246,500 in 2006 – by handing out more and more mortgages on more and more risk terms. They knew that the default rate on these riskier mortgages would be higher and, in some cases, very high because they made some of these loans using fraudulent lending practices. Nonetheless, they continued to sell securities backed by these mortgages as low risk investments.

In 2008, when homeowners started to default on their risky and sometimes fraudulent loans, the whole financial system built around these mortgages and securities based on them collapsed. This caused a collapse in home prices, causing many more homeowners to default on their mortgages. Millions of homeowners lost their homes and, as a result in many cases, lost all their savings – to the tune of trillions of dollars.

The federal government and we, the taxpayers, bailed out the too-big-to-fail financial institutions to the tune of trillions of dollars. For example, the financial giant Citigroup (parent of Citicorp and Citibank) received $45 billion in cash and a guarantee against any loss in value for an additional $300 billion of speculative investments.

The shift of wealth to the big financial corporations and their executives and traders (i.e., their high stakes gamblers using speculative financial instruments) has exacerbated economic inequality in America. For example, the typical bonus paid on Wall Street in 2020 was $184,000 and the total bonus pool was $31.7 billion for the roughly 170,000 people receiving bonuses. [2]

Huge and wealthy companies, as well as their extremely wealthy executives and shareholders, are a threat to workers, our economy, and our democracy. Policies that were put in place as part of the New Deal in the 1930s maintained a balance in our economy, including a reasonable level of economic inequality, and protected our democracy from oligarchy. Since 1980, these policies have been changed, economic and political power has shifted, and we are suffering for it. We need to reinstitute policies similar to those of the New Deal to preserve our democratic principles of equal opportunity and promotion of the general welfare.

The bottom line of Reich’s book is that, as Supreme Court Justice Louis Brandeis (1916-1939) said, “We must make our choice. We may have democracy, or we may have wealth concentrated in the hands of a few, but we can’t have both.” Similarly, H.D. Lloyd, in his 1894 book, Wealth against Commonwealth, wrote, “Liberty produces wealth, and wealth destroys liberty.”

I urge you to read Reich’s book and/or check out his writing and videos at https://robertreich.org/ and/or https://www.inequalitymedia.org/. His analysis of the current economic and political landscape is always insightful and clear, and often entertaining as well.

[1]      Reich, R.B., 2020, The System: Who rigged it, how we fix it. NY, NY: Alfred A. Knopf.

[2]      Surane, J., 3/26/21, “Wall Street bonuses rose 10% in 2020, N.Y. Comptroller says,” Bloomberg News (https://www.bloomberg.com/news/articles/2021-03-26/wall-street-bonuses-rose-10-last-year-n-y-comptroller-says)

OLIGARCHY OR DEMOCRACY: CORPORATIONS VS. WORKERS

Note: If you find my posts too long or too dense to read on occasion, please just read the bolded portions. They present the key points I’m making and the most important information I’m sharing.

Robert Reich’s latest book, The System, presents his analysis of how our democracy is more like an oligarchy these days, how it got that way, and how to fix it. Oligarchy “refers to a government of and by a few exceedingly rich people or families who … have power … . Oligarchs may try to hide their power … . But no one should be fooled. Oligarchs wield power for their own benefit.” (page 13-14) [1]

Reich identifies three major systemic changes that have occurred since 1980 that have shifted power, both economic and political, to a small group of very wealthy Americans. They are:

  • The shift of big corporations from stakeholder to shareholder capitalism (see my previous post for a summary of this change),
  • The shift in bargaining power from unions to large employers and corporations (see below), and
  • The shift in power in our economy and politics to the financial sector and Wall Street.

The shift in power from workers and their unions to large employers and corporations began in the 1980s. It included three components:

  • The increased size and marketplace power of corporations,
  • The increased influence of large corporations and employers in policy making, and
  • The weakening of the power of workers and their unions.

The increased size, marketplace power, and political influence of corporations has occurred in large part because the federal government has, starting in the 1980s under President Reagan, basically abandoned enforcement of anti-trust laws limiting mergers and acquisitions. As a result, two-thirds of the business sectors of our economy have become more concentrated since the 1980s. This means that ever larger corporations have gained monopolistic power, allowing them to raise prices or reduce customer service or quality without losing business to the competition, because there is little or no competition in many local markets.

The resultant large companies have the resources to engage in extensive political activity including lobbying, making sizable campaign donations and expenditures, and moving employees through the revolving door to positions in government (and often back again). This has provided them with substantial political power and influence.

Because payroll costs are typically 70% of a business’s costs, reducing personnel costs is the quickest way to increase profits and share prices, the goals of shareholder capitalism. The increased size and reduced number of employers inherently suppress worker pay by leaving workers fewer choices of whom to work for in many locales. This means there is less competition among employers in hiring workers, and therefore less need to increase pay or benefits to attract workers.

On the policy front, a central focus of large companies’ political influence has been on undermining and weakening enforcement of laws supporting unionized workers. In addition, relaxed laws governing international trade have allowed employers to shift jobs overseas to cheaper labor markets. Finally, a bankruptcy filing, a technique frequently used by vulture capitalists (i.e., private equity investors and corporate raiders), allows employers to void union contracts, as well as benefits for retirees. Simply the threat of bankruptcy has become enough to get unions and workers to agree to cuts in pay and benefits. All of these factors mean that large employers have gained the ability to undermine and eliminate unionized workers, as well as to block the formation of new unions.

As a result, unionization of private sector U.S. workers has dropped precipitously from 35% in the 1950s to 6% today. Reduced unionization leaves employees with less power to bargain for good pay and benefits. It also means employers are able to effectively require workers to agree to disadvantageous employment conditions such as signing agreements prohibiting them from working for a competitor (i.e., non-compete agreements) and agreeing to engage in arbitration rather than going to court with a lawsuit when mistreatment or other grievances occur. Moreover, the economy-wide boost to pay and benefits due to employers having to compete against unionized jobs to attract workers, has effectively disappeared as unionization has dropped to today’s very low levels.

In addition, large employers have gotten states to enact so-called “right-to-work” laws. These laws allow workers at a unionized workplace to refuse to pay union dues, even though they benefit from the union’s negotiation of pay, benefits, working conditions, and grievance procedures. This undermines the financial resources and bargaining power of unions.

The increased size and reduced number of businesses has increased corporate profits and economic inequality. It has also stifled innovation as large companies block access to customers for newer companies and buy up smaller companies that are seen as threats to their monopolistic dominance. The rate of new business formation today is half of what it was in 1980.

The economic result is that today a greater share of businesses’ income goes to profits and a smaller share to workers’ compensation than at any time since World War II.

The societal result is that workers are economically insecure, frustrated, and angry. Therefore, they are susceptible to demagogues like Donald Trump selling racism, xenophobia, and oligarchic authoritarianism as the solution to their insecurity and anger.

The declining value of the minimum wage since 1968 is indicative of the decline of workers’ power and compensation. Increasing the federal minimum wage to $15 an hour in 2025, as is currently being proposed in Congress, would be a step in the right direction but would still not give workers the full value of their increases in productivity. Using 1968 as the reference point, today’s current federal minimum wage of $7.25 would be roughly:

  • $11.00 if it had kept up with inflation. (In other words, the minimum wage today has roughly 1/3 less purchasing power than it had in 1968.)
  • $22.00 if it had kept up with the increases in workers’ productivity, i.e., the increases in the value of the output of today’s workers over those in 1968. Instead, this increased value is going to profits and shareholders. [2]

I will summarize Reich’s book’s description of the shift in power in our economy and politics to the financial sector and Wall Street, the last of his three big systemic changes, in a subsequent post.

In the meantime, I urge you to read Reich’s book or check out his writing and videos at https://robertreich.org/ and/or https://www.inequalitymedia.org/. His analysis of the current economic and political landscape is always insightful and clear, and often entertaining as well.

[1]      Reich, R.B., 2020, The System: Who rigged it, how we fix it. NY, NY: Alfred A. Knopf.

[2]      Lee, T.M., 2/25/21, “Our deeply broken labor market needs a higher minimum wage,” Economic Policy Institute (https://www.epi.org/publication/our-deeply-broken-labor-market-needs-a-higher-minimum-wage-epi-testimony-for-the-senate-budget-committee/)

BIDEN’S OPPORTUNITY TO IMPROVE ECONOMIC SECURITY WITH PROGRESSIVE POLICIES

Looking ahead to 2021, many challenges face the country and President-elect Biden. Most of them have negatively affected the economic well-being of many Americans,  including the pandemic, the lack of racial justice, and the economic recession. All of them and others (e.g., climate change) can and should be addressed in a way that will improve the economic security of working and middle-class Americans. This would also go a long way toward restoring their faith in government and their belief that government can and is working for their benefit and not just for the benefit of big businesses and the wealthy.

Since the 1990s, the Democratic Party has joined the Republican Party in aligning itself with large corporations and the wealthy elites that run and own them through deregulation, trade deals, and tax policies that work to their benefit. As a result, the middle class has been decimated and blue collar, often unionized, workers have lost their economic security; 90% of Americans have lost ground economically over the last 30 years. Income and wealth inequality have spiraled to levels unseen since the 1920s and the economy of the 1950s and 1960s that lifted all boats has disappeared. [1]

Abandoned by the Democratic Party, which traditionally had stood up for them, white, blue collar workers and their families have been convinced to support demagogues, including Trump, who promote divisive, anti-immigrant, racist, reactionary, and undemocratic policies.

To address mainstream Americans’ loss of economic security, Biden must implement  progressive policies that will enhance their economic well-being. The public strongly supports such policies as poll after poll shows. For example, polls find that: [2]

  • 68% believe our tax system should require the wealthy to pay more,
  • 75% support paying higher income taxes to support health care, education, welfare, and infrastructure, and
  • 92% say they would rather live in a country with a low level of income inequality than one with high inequality.

There also was plenty of evidence of support for progressive policies and candidates in the 2020 election results. (See my previous post on this topic for some details.)

A key factor contributing to economic insecurity and inequality, and one Americans clearly understand, is that large corporations and their executives and lobbyists have undue influence on U.S. policies. By margins of more than two-to-one they don’t want President Biden appointing corporate executives or lobbyists to positions in his administration. Roughly 75% of poll respondents say that an administration official overseeing or regulating an industry they have a connection to is a “big problem” and about 90% say it is at least “a little bit of a problem.” The public knows that the so-called “revolving door” between positions in large corporations and ones in government lead to policies that benefit the corporations and their wealthy executives and investors. Sixty-seven percent of respondents, including 60% of Republicans, say that this revolving door is “corrupt and dangerous.” [3]

In government, personnel is policy. In other words, the personnel in key positions in the Biden administration will strongly influence who benefits from policies and their implementation – the working and middle-class or the upper class and big businesses. Therefore, it is important that Biden select people for his administration who are committed to working for the good of the people and not for the economic elites, many of whom are big campaign donors.

President Biden has two main avenues for creating needed policy changes: executive actions and legislation. These two are complementary and should both be used. Getting progressive legislation passed by Congress will be difficult even if Senate control is nominally with the Democrats (i.e., with a 50-50 split among Senators if Democrats win the two Georgia runoffs). But Senator Warren and others have shown that bipartisan legislation is possible even in the current contentious and polarized environment in Congress. Her successes include making hearing aids more affordable, enhancing consumer protection in various financial transactions, strengthening oversight and regulation of the financial industry, expanding access to affordable housing, and reining in abuses in housing financing. (I will write a post about this in the near future.)

There are also literally hundreds of executive actions that a Biden administration could take that are well within its existing authority. As many as 277 such actions have been enumerated by the writers at the American Prospect magazine and the document produced by the Biden-Sanders unity taskforce at the end of the Democratic primary last summer. They include steps to make our tax system fairer, to strengthen the safety net (including unemployment benefits and housing and food assistance), to expand access to health care and lower drug prices, to increase pay and benefits for employees of federal contractors, and to make it easier for workers to bargain collectively for better pay, benefits, and working conditions. (I will write a post about possible executive actions in the near future.)

I encourage you to contact your U.S. Senators and Representative to express your support for issues you would like to see them address in 2021, including policies such as the examples above that would improve the economic security of mainstream Americans. You can find contact information for your US Representative at  http://www.house.gov/representatives/find/ and for your US Senators at http://www.senate.gov/general/contact_information/senators_cfm.cfm.

You can get information and sign-up for updates from the Biden-Harris transition at https://buildbackbetter.gov/.

[1]      Lemann, N., 10/19/20, “Losing ground: the crisis of the two-party system,” The Nation (https://www.thenation.com/article/politics/let-them-eat-tweets-the-system-never-trump/)

[2]      Hightower, J., Nov. 2020, “Timeless truths for trying times,” The Hightower Lowdown (https://hightowerlowdown.org/article/timeless-truths-for-trying-times/)

[3]      Demand Progress, Dec., 2020, “Americans want a progressive Biden administration,” (https://s3.amazonaws.com/demandprogress/reports/Americans_Want_A_Corporate-Free_Biden_Administration.pdf)

FACEBOOK’S DISSEMINATION OF DISINFORMATION ACCELERATES

 Facebook’s (FB) spreading of disinformation is accelerating, despite any claims to the contrary. Its CEO, Mark Zuckerberg, repeatedly says that he does not want FB to be an arbiter of free speech, but it is the arbiter of what information or speech FB users see.

Zuckerberg also asserts that the best way to fight offensive bad speech is with good speech. [1] However, this is a false equivalency as good speech that tries to counter bad speech has to mention the bad speech which furthers its presence in our public discourse. This has been shown by research to further embed the bad or false speech in people’s minds. For example, reporting on Trump’s tweets and stating they are false or misleading, still puts Trump’s tweets in front of the viewing or reading audience.

Facebook’s current stated standard is that posts that are not calling for harm or violence, however offensive, should be protected as free speech. Its new policy announced in October will finally ban posts that deny or distort the Holocaust. This is a very small and belated step forward against some of the worst and most obviously harmful disinformation that FB has spread. Almost a quarter of Americans between ages 18 and 39 say they believe the Holocaust either didn’t happen or was exaggerated. It may be difficult to link this directly to FB or to harm or violence but it’s hard to believe there is no linkage. [2]

Facebook allows toxic speech and dangerous misinformation to spread largely unchecked on its monopolistic platform. Engagement with FB posts (i.e., liking, sharing, or commenting on them) that are from sources that routinely publish misleading or false content tripled from 2016 to 2020, exceeding the rate of increase for outlets that uphold traditional journalistic standards.

This affects and infects our public discourse and knowledge base, undermining the health of our democracy. However, stopping it runs counter to Facebook’s economic interests because increased activity, regardless of its content, is what increases FB’s revenue. [3]

Over the summer and early fall of 2020, the Digital New Deal (DND) project examined engagement with posts on FB and analyzed the reliability of the posts’ sources. It partnered with NewsGuard, a non-partisan service that rates news and information sources for their accuracy. (See note on its methodology at the end of this post.) The DND project focused on 721 deceptive information sources and compared them with a selected group of non-deceptive sources. It categorized the sources into three types:

  1. False Content Producers: repeatedly publish verifiably false content (396 sources)
  2. Manipulators: fail to gather and present information responsibly (325 sources)
  3. Trustworthy Outlets (46 selected sources for comparison)

Engagement with posts from type 1 and 2 sources (referred to as deceptive sources) has grown 242% since 2016. Engagement with posts from Manipulators (type 2 sources) represents 84% of all deceptive source engagement and has grown from 390 million engagement actions in the 3rd quarter of 2016 to 1,520 million in the 3rd quarter of 2020 (almost fourfold). The deceptive sources with the most engagement on FB, including the top five in each of types 1 and 2, promote right-wing or “conservative” politics.

These deceptive sources, masquerading as news outlets, are spreading false information, manipulative messaging, and concocted conspiracies that degrade democratic discourse. This harms the health of our democracy because it undermines informed participation by citizens and voters. [4]

The top ten deceptive sources are all of the Manipulator type and account for 62% of FB engagement interactions with deceptive sources, while the other 711 deceptive sites are responsible for 38% of these interactions. Fox was the most frequent source in the Manipulator category. It is rated more positively by NewsGuard than many other deceptive sources because it sometimes does correct errors, avoids deceptive headlines, labels advertising, and discloses its ownership and financing. Other examples of Manipulators are the Daily Wire, Breitbart, and The Blaze.

My next post will provide even more damning evidence that FB’s goal is not to bring people together, to provide accurate information, or to fight sensationalism, misinformation, and polarization as Zuckerberg has said, but rather to maximize user engagement and profits, and perhaps to promote right-wing politics and curry favor with those in power in Washington, D.C. The post will highlight FB’s 2018 changes to its News Feed algorithm that determines what information or disinformation is presented to FB users. It will also present some ways to address FB’s monopolistic power and its dissemination of false and harmful content.

Note on the methodology for rating information sources used in the DND study summarized above: NewsGuard rates online news outlets based on nine criteria of responsible journalism including:

  • Does not repeatedly publish false content (22 points)
  • Gathers and presents information responsibly (18 points)
  • Regularly corrects or clarifies errors (12.5 points)
  • Handles the difference between news and opinion responsibly (12.5 points)
  • Avoids deceptive headlines (10 points)
  • Website discloses ownership and financing (7.5 points)
  • Clearly labels advertising (7.5 points)
  • Reveals who is in charge, including any possible conflicts of interest (5 points)
  • The site provides the names of content creators, along with either contact or biographical information (5 points)

Outlets receive points for passing a given criteria or they receive zero for failing. A total score of less than 60 merits a Red rating, meaning the site fails to adhere to basic journalistic standards.

[1]      The Associated Press, 10/12/20, “Facebook bans Holocaust denial, distortion posts”

[2]      Frenkel, S., 10/13/20, “Facebook bans Holocaust denial content,” The Boston Globe from The New York Times

[3]      Alba, D., 10/13/20, “False info thriving on social media,” The Boston Globe from The New York Times

[4]      Kornbluh, K., Goldstein, A., & Weiner, E., 10/12/20, “New study by Digital New Deal finds engagement with deceptive outlets higher on Facebook today than run-up to 2016 election,” Digital New Deal, German Marshall Fund of the United States (https://www.gmfus.org/blog/2020/10/12/new-study-digital-new-deal-finds-engagement-deceptive-outlets-higher-facebook-today)

OUR FEDERAL COURTS HAVE BEEN PACKED WITH RIGHT-WING JUDGES

Republicans are rushing confirmation of a Supreme Court nominee just before the election, which is emblematic of their packing of the federal courts at all levels with right-wing judges. [1] (See my previous post for more details.) Rushing through the confirmation of Judge Barrett threatens to complete the delegitimization of the Supreme Court – and to some extent the whole federal judiciary – by making it clear that the federal court system is not an  impartial arbiter of the law, but a fully politicized institution.

Over 200 federal judges have been confirmed since Trump took office (including over 100 that were carried over from the Obama administration due to Republican blocking of confirmations) and basically all of them are proponents of the extreme right-wing legal philosophy of the Federalist Society. [2] Right-wing Republicans have used a Federalist Society endorsement as a litmus test for nominees while ignoring input from the American Bar Association, which always used to provide an independent analysis of the qualifications of nominees. [3]

This packing of the federal courts with right-wing jurists, which is the result of McConnell and the Republicans breaking the norms of our democratic processes, will benefit Republicans and their wealthy, corporatist backers for a generation or longer because their right-wing judicial philosophy favors corporations and the wealthy over workers, consumers, and the middle and lower classes.

These right-wing, Federalist Society-endorsed judges typically claim to support “originalism,” a legal philosophy that claims the original intent and meaning of the Constitution, written in 1787, should determine judicial decisions. “Originalists” claim that government cannot constitutionally do anything that is not explicitly provided for in the Constitution. This legal philosophy has been very effective in driving right-wing legal politics, although the appropriateness of applying the meaning of the words of the Constitution to today’s technology strains credulity; its writers couldn’t have dreamed of our current medical and health care capabilities, our transportation and communications systems, our financial instruments and guns, or our huge, multi-national corporations.

An alternative legal interpretation of the Constitution, as a living document that requires interpretation in the context of current times, was prevalent from the late 1930s into the 1980s. In the late 1930s, during the recovery from the Depression, judges interpreted the law and the Constitution to allow American democracy to live up to its principles. Right-wing politicians and legal theorists labeled this “judicial activism” or “legislating from the bench.”

The “originalist” legal philosophy was developed by right-wing scholars in the 1970s and 1980s in reaction to laws and judicial support for economic and civil rights. The New Deal worked to level the economic playing field, to regulate business, to provide voice and a balance of power for workers through unions, and to provide a social safety net. After World War II, these efforts continued with more of a focus on leveling the social playing field and treating all people as equals before law, by ending segregation and discrimination, protecting the rights of prisoners and those accused of breaking the law, and providing access to contraception and abortion. The judicial-established principle of one person, one vote and the Voting Rights Act worked to level the political playing field. Judicial decisions supporting economic and civil rights, many of them made by the Supreme Court under Republican Chief Justices Earl Warren and Warren Burger between 1953 and 1986, were, at the time, largely viewed as non-partisan. They reflected a belief that the Bill of Rights applies to state laws and governments, as well as at the federal level. [4] This dramatically expanded civil rights and overturned the “states’ rights” doctrine that had allowed states to, among other things, engage in discrimination, particularly against Black Americans.

“Originalist” judges have ignored and will continue to ignore precedents and are reversing 80 years of legislation and legal decisions on individual and civil rights, as the hearings on the latest Supreme Court nominees and recent Supreme Court decisions have made clear. While the attention of these hearings has been focused on social and religious issues, from abortion to affirmative action and discrimination to LGBTQ rights, the often-overlooked issues about our economy and capitalism, such as the balance of power between employers and workers, the ability to earn a living wage, and the availability of an economic safety net, are critically important as well.

Under “originalist” legal theory, the federal government has little power and much of what it currently does should be left to state governments. Under “originalism,” the federal government does not have the power to regulate corporations or the wealthy, including restricting their use of their money in our elections, as the spending of money is viewed as exercising free speech. Decisions by the federal judiciary at all levels make it clear that “originalist” theory favors private interests over public interests, corporations and employers over consumers and workers, law enforcement over defendants’ rights, and gun rights over voting rights. Such decisions deprive employees and other vulnerable populations of their civil rights. [5] [6]

Moreover, the “originalist” judges assert that the rights of the Bill of Rights, such as freedom of speech, are rights that belong to corporations as well as to natural human beings. I find it hard to believe that this was the intent of the writers of the Constitution and the Bill of Rights. They clearly were focused on the rights of individual human beings. Furthermore, corporations, in anything approaching their current form, were unknown in those times.

Americans for Prosperity and other pro-business groups, many of them backed by billionaire, fossil-fuel businessman Charles Koch (and his deceased brother), have spent tens of millions of dollars on campaigns to pressure Senators to back controversial, right-wing judicial nominations, often using “dark money” (whose donors are hidden from the public).

The weak federal government response to the coronavirus pandemic is emblematic of “originalist” thinking. Some in the Trump administration simply didn’t believe it was the role of the federal government or within the legitimate powers of the federal government to respond, and, therefore, the response should be left to the states and the private sector.

President Trump and the Republicans in the Senate have packed the federal court system from top to bottom with hundreds of right-wing, Federalist Society-endorsed, “originalist” judges who are on the fringe of what was previously considered appropriate for a federal judge. If our Founding Fathers had intended an “originalist” interpretation of the Constitution, I have to believe they would have realized frequent amendments would be required and they would have made it much easier to amend it. I believe that “originalism” is a rationalization for public relations purposes developed by wealthy corporations and individuals as a way to “justify” laws and court decisions that work to their benefit. This is just like their claim of non-existent voter fraud as the public relations rationale for voter suppression tactics.

Our federal court system is currently unbalanced and biased in favor of corporations and the wealthy. Right-wing judges will skew court decisions and harm the well-being of everyday Americans for the next 20 to 30 years unless Democrats are elected and actively work to rebalance the federal courts toward mainstream legal philosophy and historical precedent. This will not be easy given how skewed the system currently is.

Dramatic steps will need to be taken, including expanding the number of judges in the federal court system, possibly including the number of justices on the Supreme Court, given that removing judges is basically impossible. This is the only way to return to laws and government programs that protect and support a fair and just society with civil, political, and economic rights for all, women able to make decisions about their reproductive health, workers able to support their families and have safe working conditions, consumers able to use products and services safely, and a safety net that protects people when they hit hard times.

[1]      Richardson, H. C., 10/11/20, “Letters from an American blog post,” (https://heathercoxrichardson.substack.com/p/october-11-2020)

[2]      The Federalist Society for Law and Public Policy Studies, most frequently called the Federalist Society, is an organization of conservatives and libertarians that advocates for a textualist and originalist interpretation of the United States Constitution. (https://en.wikipedia.org/wiki/Federalist_Society)

[3]      Heer, J., 10/14/20, “Barrett’s evasions show why expanding the Court is necessary,” The Nation (https://www.thenation.com/article/politics/barrett-confirmation-court-packing/)

[4]      Richardson, H. C., 10/23/20, “Letters from an American blog post,” (https://heathercoxrichardson.substack.com/p/october-23-2020)

[5]      Richardson, H. C., 10/14/20, “Letters from an American blog post,” (https://heathercoxrichardson.substack.com/p/october-14-2020)

[6]      Dayen, D., 10/13/20, “Judge Barrett’s record: Siding with businesses over workers,” The American Prospect (https://prospect.org/justice/judge-barretts-record-siding-with-businesses-over-workers/)

TRUMP’S WAR ON WORKERS

Despite Trump’s rhetoric, his 2016 campaign promises, and an occasional symbolic gesture, his administration has shown a total lack of empathy or concern for the plight of American workers. He has:

  • Undermined workers’ health and safety, as well as job security,
  • Repeatedly supported employers and business interests rather than workers,
  • Depressed workers’ pay and benefits, and
  • Failed to support workers’ rights, including their ability to bargain collectively with employers through unions.

During the coronavirus pandemic, the Trump administration has consistently sided with employers and against protecting workers from the very contagious virus. It has refused to promulgate mandatory standards and safety measures to protect workers. The most notable example has been in the meat packing industry, where the Trump administration has ordered workers back to work using emergency powers meant to ensure the supply of “scarce and critical material essential to the national defense.” Local public health officials are prohibited from closing plants and workers have to obey employers’ orders to return to work or be fired and lose their eligibility for unemployment benefits. [1]

Over 200 workers in the meatpacking industry have died and tens of thousands have been infected. Nonetheless, the Trump administration’s Occupational Safety and Health Administration (OSHA) has not issued any regulations to protect these workers. Its fines for violations have been a slap-on-the-wrist few thousand dollars, despite thousands of complaints from workers about unsafe working conditions. The neglect of workers’ health and safety has undoubtedly cost many thousands of lives. [2]

Trump has consistently appointed pro-corporate, pro-employer, anti-worker officials to his cabinet and government agencies, as well as to judgeships. His Secretary of Labor, Eugene Scalia (son of the right-wing Supreme Court Justice), and all but one of his appointees to the National Labor Relations Board have spent their careers fighting for corporate employers and against workers’ rights and protections, despite the fact that they are now, supposedly, enforcing workers’ rights and protections.

On the other hand, Trump has failed to appoint anyone to head OSHA and has reduced its number of inspectors to a 50-year low. It would take these inspectors 165 years to visit every U.S. workplace once, despite an annual toll of 14 workers killed and 5 million injured on the job (not including the impact of COVID-19). [3]

Trump’s Department of Labor (DOL) has relaxed rules on overtime pay, resulting in millions of workers being denied overtime when they work over 40 hours in a week. The DOL and the Trump-appointed National Labor Relations Board (NLRB) have let McDonalds and other corporations that use a franchisee business model escape responsibility for franchisees who engage in wage theft (e.g., by failing to pay overtime, minimum wage, or for all hours at work) and other illegal practices.

The Trump administration and Republicans in Congress have worked relentlessly to weaken and repeal the Affordable Care Act (aka Obama Care), which has increased costs and denied health insurance to millions of workers, including many of those who have lost jobs during the pandemic. On the other hand, the Trump administration and Republicans in Congress have done nothing about increasing the minimum wage (which has been unchanged for a decade) or the Earned Income Tax Credit, which augments the income of low wage workers. They also have done nothing to increase the availability of paid sick time or to provide paid leave for new parents. [4]

The Trump administration has acted favorable on all ten items on an employer-friendly, anti-worker wish list from the U.S. Chamber of Commerce, the lobbying organization of large corporations. All of these items involved undermining workers’ rights and unions, such as allowing employers more opportunities to interfere in union organizing efforts. The Trump NLRB has stripped Uber drivers and other similar workers of their rights under labor laws and has also proposed a ban on union organizing by tens of thousands of graduate students who work as teaching and research assistants. [5]

Trump’s 2017 tax cut legislation gave billions of dollars in tax cuts to wealthy individuals and corporations, while neglecting workers. It also increased incentives for multi-national corporations to move jobs overseas.

The Trump administration’s mismanagement of the coronavirus pandemic has hurt the economy, increasing the number of jobs lost and the length of unemployment. The administration and Republicans in Congress have limited the amount and duration of unemployment benefits for those out of work. They provided limited pandemic relief for workers in general and have let it run out, refusing to extend it, even though the end of the pandemic is nowhere in sight, unemployment remains high, and millions of households are struggling to make ends meet.

The litany of the Trump administration’s anti-worker actions is long. Here are a few more examples:

  • Repealed the fiduciary rule that required investment advisors to act in workers’ best interests in handling their retirement savings. Instead, the advisors can select investments that pay them higher fees.
  • Relaxed or rescinded safety rules in numerous industries, such as more than a dozen rules protecting mine workers from such things as explosive coal dust and mining chemicals. However, the effort to relax safety inspections in coal mines was blocked by a federal court.
  • Made it easier to award federal contracts to companies with multiple violations of laws on fair wages, sexual harassment, racial discrimination, and workers’ rights to form a union.
  • Relaxed rules on toxic chemicals that harm farmworkers and children.
  • Relaxed requirements on reporting of workplace injuries and ended requirements for large corporations to report payroll data by race and gender, which allowed analysis of possible pay discrimination.
  • Rolled back regulations on usurious practices of payday lenders who prey on financially struggling workers.
  • Supported, both through legal arguments and court appointments, a prohibition on class action lawsuits by workers against employers (instead requiring them to submit grievances to arbitration) and a prohibition on requiring public sector workers to pay union fees or dues for the benefits they receive from union actions on their behalf.
  • Is pushing hard for blanket corporate / employer immunity from lawsuits if workers or customers get sick or die from COVID-19, regardless of any failure by the business to implement appropriate or required protection measures.

I hope America’s workers and voters are paying attention and not letting themselves be fooled by Trump’s rhetoric. Even a quick look at the actions and personnel of the Trump administration make it clear that it supports corporations and employers to the explicit detriment of workers.

[1]      Hightower, J., July 2020, “Something is rotten at Big Meat, Inc.,” The Hightower Lowdown (https://hightowerlowdown.org/article/something-is-rotten-at-big-meat-inc/)

[2]      Lee, T.M., 9/25/20, “Trump’s war on workers,” The American Prospect (https://prospect.org/labor/trump-war-on-workers/)

[3]      Hightower, J., Aug. 2020, “Behind his daily spectacle, Trump is pounding workers and their rights,” The Hightower Lowdown (https://hightowerlowdown.org/article/behind-his-daily-spectacle-trump-is-pounding-workers-and-their-rights/)

[4]      Greenhouse, S., 8/30/19, “The worker’s friend? Here’s how Trump has waged his war on workers,” The American Prospect (https://prospect.org/power/worker-s-friend-trump-waged-war-workers/)

[5]      McNicholas, C., Rhinehart, L., & Poydock, M., 9/16/1/20, “50 reasons the Trump administration is bad for workers,” Economic Policy Institute (https://www.epi.org/publication/50-reasons/)

THE U.S. IS AT A HISTORICALLY SIGNIFICANT FORK IN THE ROAD

Bob Kuttner has written another one of his eloquent, incredibly insightful and provocative articles. This one analyzes the historically significant fork in the road the U.S. is facing, puts this inflection point in historical and political perspective, and offers his views on where we should go and what it will take to get there. [1] He doesn’t mince words and is not afraid to speak truth to political and economic power. I will summarize the article here, but I encourage you to read the whole article at the link in the footnote as I cannot do it justice. The article is relatively short, under 2,000 words; it’s only two pages in The American Prospect magazine.

(Note: Kuttner is the most knowledgeable, thoughtful, eloquent, and insightful progressive policy analyst I know of. The breadth of his knowledge across policy topics and history leaves me in awe. He is the co-founder and co-editor of The American Prospect magazine, which is my go-to source for progressive policy analysis and proposals. He is a professor at Brandeis University’s Heller School, where I got my Ph.D. in Social Policy with a focus on early childhood policies and programs.)

Kuttner starts the article with this statement: “We will soon know whether America will surmount its worst catastrophe since the Civil War. We have every reason to worry.” He goes on to note that “We Americans grow up learning our history as a chronicle of near disasters that narrowly come out right.” He cites the following examples of other historical inflection points where the U.S. surmounted significant challenges and put itself on a positive path for the future:

  • The Revolutionary War
  • The writing of the Constitution in 1787
  • The Civil War and the ending of slavery
  • The Great Depression
  • World War II

He states that “Now, we are at another inflection point where history could go disastrously wrong. … Things have already occurred that were inconceivable to most Americans.” He cites examples of the inconceivable that include:

  • The undermining of the U.S. Postal Service (at least in part to rig the election),
  • The failure to combat Russian interference in our elections,
  • The President stating he might not abide by the election’s results, and
  • The Attorney General failing to stand up for the rule of law.

Kuttner excoriates Republicans in Congress, governors’ offices, and state legislatures who have violated the fundamental principles of the historical Republican Party and our democracy to benefit their wealthy benefactors and maintain their political power.

He states that “America’s corporate and financial elite, given a corrupt, incompetent dictator who serves their economic interests, will choose the dictator over a democracy that might trim their billions. This is full-on fascism — the alliance of the business class with a tyrant who confuses the masses with appeals to jingoism and racism, while the plutocrats steal working people blind.”

His analysis concludes that “Trump is the logical extreme of a long downward spiral. … Trump merely makes flagrant what was tacit.” He states that in addition to Republican presidents, Presidents Clinton and Obama allowed a continuation of the 40-year slide where “money relentlessly crowded out citizenship, while economic concentration and political concentration [of power] fed on each other.” The concentration of economic power has occurred due to the emergence of huge corporations with monopolistic power in numerous industries due to the lack of enforcement of anti-trust laws. This economic concentration has led to great wealth in the hands of a small number of investors and corporate executives. They have used that wealth to gain great political power, which has led to policies that benefit them and their businesses. This self-reinforcing cycle has been a spiral leading to great inequality in income, wealth, personal well-being, and opportunity.

Kuttner states that reversing this long, downward spiral will be difficult and will require repairing damage to essential institutions in government, society, and the economy. These include facilitating voting rather suppressing it, using anti-trust laws to break up monopolistic corporations, reversing growing economic inequality, and supporting workers through higher wages, job security, and the right to bargain collectively with employers. Public agencies that have been hollowed out need to be rebuilt, including the Centers for Disease Control and Prevention, the Environmental Protection Agency, the Occupational Safety and Health Administration, and more.

He notes that there are two serious obstacles to accomplishing this revival even if Democrats win the White House and control of the U.S. Senate. First, the Republicans in Congress and President Trump (but also Republican presidents before him) have packed the federal court system at all levels with right-wing judges. Kuttner states that “Reclaiming democracy will require reclaiming an honest judiciary. … Republicans have been so relentless in their blockage of Obama appointees and their ramming through of far-right judges that the very legitimacy of the judicial system is in question.”  Kuttner makes a case for adding judges and expanding the federal courts at all levels as the only way to achieve balance and avoid judicial blockages of needed policy changes.

The second serious obstacle to revival of the American promise is the immense influence of corporate power brokers and the many corporate-leaning Democrats for whom current economic policies are the conventional wisdom. Kuttner believes that absent massive grassroots pressure the likelihood is that a Biden administration will not seriously challenge economic power and concentration, particularly in the financial and high-tech industries. The concentration of market and political leverage in huge corporations and in their executives and large investors has led to dramatic economic inequality, job insecurity, and hardship for American workers.

Kuttner proposes that the trillions of dollars the Federal Reserve has pumped into large corporations to bail them out in the current financial crisis should instead be focused on rebuilding infrastructure, addressing climate change, and ending racism, including paying reparations.

Kuttner closes by stating that if the U.S. returns to the path laid out by its core principles through the results of the November elections and subsequent actions that “it will be the narrowest of great escapes ever.”


[1]      Kuttner, R., 9/17/20, “The terror of the unforeseen,” The American Prospect (https://prospect.org/politics/the-terror-of-the-unforeseen/)

THE REST OF THE POST OFFICE STORY Part 2

The scandalous behavior of Louis DeJoy, the Trump administration’s new Postmaster General for the U.S. Postal Service (USPS), has gotten quite a bit of attention in the mainstream media, but there’s more to the story than they have been reporting. This post and my previous post present at least some of the rest of the story. (My previous post described DeJoy’s Friday night massacre of personnel and the role of Treasury Secretary Mnuchin, who obtained sweeping operational control over the USPS and unprecedented access to its information through negotiation of a $10 billion line of credit for the USPS from the Treasury. [1] [2] )

Despite the current characterization of the USPS has operating at a loss, the postal service wasn’t viewed as a profit-making business by our country’s founders or throughout most of its history. Moreover, Congress has put requirements and restrictions on it that mean it can’t be run like a business.

The USPS is a public good that supports our democracy, a civil society, and other economic activity, as roads and schools do; it shouldn’t be run like a business to make a profit. We don’t expect the military or the National Park Service to generate a profit, so why should we expect the USPS to generate a profit? Our country’s founders thought of the postal service as critical to ensuring that citizens of the new democracy were well informed and therefore believed it should, among other things, subsidize delivery of newspapers. According to the Postal Policy Act of 1958, the USPS provides an essential public service that promotes “social, cultural, intellectual, and commercial intercourse among the people of the United States”. The Act also states that the USPS is “clearly not a business enterprise conducted for profit.” [3]

However, in 1970, as the era of deregulation and privatization began under President Nixon, the Postal Reorganization Act made the USPS an independent federal agency (instead of a Cabinet agency like the Departments of Education or Defense) and required it to cover its costs. Nonetheless, the law limited the USPS’s ability to increase prices for its services, expected it to deliver mail to every household and business in America six days a week, and required it to keep postal rates the same across the whole country despite substantial differences in the costs of delivering mail in different areas. [4]

Since then, Republicans have been trying to privatize the USPS because it represents a large revenue stream, $71 billion a year, that they would like to see go to their friends and campaign contributors in the private sector. One strategy for doing this has been to undermine the USPS and make it look bad, to make it look like it’s poorly run, and to make it look like it’s operating at a deficit, in order to build an argument that privatizing it would make sense.

In 2006, in what many observers felt was an effort to make the USPS look financially unstable and therefore ripe for privatization, the Postal Accountability and Enforcement Act (PAEA) was passed. It required the USPS to pre-fund retiree health benefits far into the future, which no other federal agency or private business is required to do. Specifically, it required the USPS to pay $5 billion to $6 billion a year into a retiree health benefit fund from 2007 to 2017. This has made the USPS appear to be running a deficit, when, without these payments, the USPS would have reported operating surpluses from 2013 through 2018. [5]

The current slowing of mail service is just another tactic in the effort to make the USPS look bad. The resultant inability to deliver ballots or medicines in a timely fashion, not only makes it look bad, but also undermines its revenue because mailers and shippers are shifting their business to competing, private service providers. For example, the slowdown is forcing the Veterans’ Administration to use private shipping services to get medicines to patients in a timely fashion and Amazon is building up its in-house delivery capacity and its fleet of vehicles.

The USPS is prohibited by law from branching out into new business lines that could boost its revenue and its services to the public. Offering basic banking services is one example, for which there is historical precedent. From 1911 to 1967, the USPS offered savings accounts. In 1967, the Postal Savings System was terminated at the behest of private bankers who did not want its competition. Today, money orders are the only financial service offered by the USPS. [6]

Postal banking is now receiving renewed attention because there are sizable poor urban and rural areas where bank branches are scarce. In addition, private banks have a track record of charging high interest rates and fees to low-income account holders, as well as failing to provide equitable treatment in access to credit and other financial services. As a result, 9 million U.S. households are effectively excluded from banking services and are described as “unbanked”.

The payday lending business has emerged to fill this gap and has grown into a $90 billion business. However, its usurious interest rates and fees, and its business model of locking customers into a cycle of debt that it’s often difficult to escape from, have led to a search for more consumer-friendly alternatives. In 2014, the USPS’s Inspector General noted that the USPS could make profitable loans at a much lower costs to consumers than what payday lenders were and are providing.

In the presidential primaries, a number of the Democratic candidates proposed allowing the USPS to offer basic banking services and Senator Biden, the Democratic nominee for President, supports this policy proposal. It would make basic banking services more accessible and affordable, particularly for low-income households.

In the face of this revived interest in postal banking, which would help the finances of the USPS and benefit the public, Postmaster General DeJoy and Treasury Secretary Mnuchin have reportedly engaged in discussions with megabank JPMorgan Chase (JPMC) about putting its ATMs in post offices and giving JPMC the exclusive right to solicit banking business from postal customers. This is clearly a backdoor effort to eliminate the possibility of postal banking – competition private sector bankers and payday lenders vehemently oppose. (So much for the private sector’s belief in a free market and competition!) Moreover, this doesn’t address the issue of unbanked people because if they don’t have a bank account, they can’t use the ATM. JPMC has a particularly troubling track record in this regard as it has historically failed to provide branch services in low-income, minority, or immigrant neighborhoods. [7]

A postal banking system would provide free usage of Treasury Direct Express cards and other government payment services. This would have streamlined and simplified the distribution of the pandemic emergency relief funds to low-income households who badly needed the $1,200 but didn’t have bank accounts to which the money could be electronically transmitted. Furthermore, the privacy of users’ information would be much better protected by the USPS, which could only collect limited user information and is barred from sharing it. A private bank, on the other hand, will collect as much information as it possibly can and will use it, share it, and sell it for commercial, profit-making purposes.

Mnuchin and DeJoy are engaged in sabotage of the USPS, plain and simple. They want to discredit it as a public agency, undermine its union workers, and shift its revenue to private companies (namely their friends and campaign contributors).

My next post will review policy changes that would strengthen the USPS and better serve the public.

[1]      Dayen, D., 8/18/20, “Treasury’s role in postal sabotage,” The American Prospect (https://prospect.org/blogs/tap/treasurys-role-in-the-postal-sabotage)

[2]      Queally, J., 8/8/20, “ ‘Friday night massacre’ at US Postal Service as Postmaster General – a major Trump donor – ousts top officials,” Common Dreams (https://www.commondreams.org/news/2020/08/07/friday-night-massacre-us-postal-service-postmaster-general-major-trump-donor-ousts)

[3]      Editorial, 8/21/20, “The US postal service lost $0,” The Boston Globe

[4]      Morrissey, M., 8/11/20, “Trump’s war on the Postal Service helps corporate rivals at the expense of working families,” Economic Policy Institute (https://www.epi.org/blog/trumps-war-on-the-postal-service-helps-corporate-rivals-at-the-expense-of-working-families)

[5]      McCarthy, B., 4/15/20, “Widespread Facebook post blames 2006 law for US Postal Service’s financial woes,” PolitiFact, The Poynter Institute (https://www.politifact.com/factchecks/2020/apr/15/afl-cio/widespread-facebook-post-blames-2006-law-us-postal)

[6]      Shaw, C. W., 7/21/20, “Postal banking is making a comeback. Here’s how to ensure it becomes a reality.” The Washington Post (https://www.washingtonpost.com/outlook/2020/07/21/postal-banking-is-making-comeback-heres-how-ensure-it-becomes-reality/)

[7]      Carrillo, R., 8/30/20, “Postal banking: Brought to you by JPMorgan Chase?” Inequality.org (https://inequality.org/research/postal-banking-jpmorgan/)

EXAMPLES OF CONTINUAL CORRUPT CORPORATE BEHAVIOR

Here are three recent examples of corrupt corporate behavior. They show the breadth of the corruption – the leveraging of undeserved power and wealth – from corrupting government policy making to exacerbating economic inequality to corruptly maximizing profits.

U.S. Representative Richie Neal (Democrat of Massachusetts) received $54,000 in a two-month period from lobbyists for corporations with a financial stake in his actions that blocked meaningful control of health care costs. In December 2019, a bipartisan, House and Senate compromise on controlling health care costs was all set to pass as part of a larger appropriations bill. Among other things, the Lower Health Care Costs Act would have eliminated exorbitant surprise medical bills for out-of-network services by limiting their cost to that of equivalent in-network services. It also would have required pharmaceutical firms to disclose information related to increases in drug prices. [1]

Three days after the Lower Health Care Costs Act was finalized and on track to become law, Neal, Chairman of the powerful Ways and Means Committee, undermined it and got it dropped from the larger appropriations bill that was destined to pass into law. He did this by announcing that he and his Republican counterpart would draft a counterproposal, although no details were presented.

On February 7, 2020, less than two months later, Neal released his alternative bill. Key provisions of the Lower Health Care Costs Act had been eliminated or weakened. For example, rather than eliminating surprise medical bills, it included a weak substitute: voluntary negotiations and arbitration. The previous requirement for disclosures relevant to drug price increases was eliminated. In the two-month window from Neal’s blocking of the original bill to the release of his own much weaker bill, he collected $54,000 in donations from 12 lobbyists who worked for clients opposed to the original Lower Health Care Costs Act. These 12 donations represented two-thirds of his campaign contributions in the first quarter of 2020.

If this isn’t corruption, I don’t know what is. It appalls me that this is a legal and accepted campaign fundraising pattern. Clearly, we need to strengthen our campaign finance laws.

On a different front, a report from the Economic Policy Institute [2] found that in 2019 average pay was $21 million for Chief Executive Officers (CEOs) at the 350 largest corporations in the U.S. This is up 14% from the year before and 1,167% since 1978, while a typical worker’s pay has grown by only 14% since 1978. In other words, each $1.00 of a worker’s pay grew to $1.14 over those 40 years while each $1.00 of a CEO’s pay grew to $12.67. The ratio of CEO pay to the average worker’s pay is now 320 to 1, having grown dramatically from 61 to 1 in 1989 and 21 to 1 in 1965.

Skyrocketing CEO pay is a significant contributor to economic inequality, which continues to rise to unprecedented levels. The economy would not be harmed in the slightest if CEOs were paid less and/or taxed more.

There are many policy changes that would address excessive CEO pay if policy makers had the will to enact them, including:

  • The income tax rate on high incomes could be increased to previous levels (which in the 1970s were roughly double current rates),
  • Corporate tax rates could be increase for firms with high CEO-to-worker pay ratios, and
  • A vote by shareholders could be required annually to approve CEO pay.

And then there’s the pharmaceutical industry that continually engages in corrupt corporate behavior, which displays its greed, market power, and lack of concern for stakeholders other than shareholders and executives. Two recent examples are summarized below.

First, Teva Pharmaceuticals is being sued by the federal government for illegally funneling $300 million through two charitable foundations to support the price and sales of its multiple-sclerosis drug, Copaxone. The Justice Departments suit claims the company used the foundations to insulate some patients from big price increases in order to prop up the excessive price of Copaxone for others. From 2007 to 2015, Copaxone’s price more than quadrupled from roughly $17,000 per year to over $73,000. [3]

In addition, in January 2020, Teva had paid a $54 million settlement for bribing doctors with fraudulent “speaking fees” to prescribe Copaxone and other drugs it makes.

Second, Gilead Sciences announced recently that it will charge patients with private insurance $3,120 for the five-day course of treatment with the experimental COVID-19 drug remdesivir. Some government programs may get a lower price and other developed countries will pay about 75% of the U.S. price. Reaction to the price has been mixed with some advocates and members of Congress saying Gilead is taking advantage of Americans during a pandemic. Taxpayers have invested about $100 million in the drug and some feel it should be public owned and not in private hands as a result. The U.S. Department of Health and Human Services (DHHS) recently purchased 500,000 treatment courses, three months’ worth of Gilead’s production, for an estimated $1.5 billion. DHHS will distribute the drug to hospitals around the country. [4]

Clearly, the U.S. needs stronger regulation of pharmaceutical firms, including disclosures relevant to drug pricing (like those in the Lower Health Care Cost Act). We also need to allow and empower Medicare and Medicaid to negotiate drug prices paid to pharmaceutical corporations, as the U.S. Veterans’ Administration, private insurers, and other countries do.

[1]      Shaw, D., 5/5/20, “Neal took big bucks from lobbyists while killing a surprise medical bill fix,” Sludge (https://readsludge.com/2020/05/05/neal-took-big-bucks-from-lobbyists-while-killing-a-surprise-medical-bills-fix/)

[2]      Mishel, L., & Kandra, J., 8/18/20, “CEO compensation surged 14% in 2019 to $21.3 million,” Economic Policy Institute (https://www.epi.org/publication/ceo-compensation-surged-14-in-2019-to-21-3-million-ceos-now-earn-320-times-as-much-as-a-typical-worker/)

[3]      Bloomberg News, 8/19/20, “Talking points: Pharmaceuticals,” The Boston Globe

[4]      Lupkin, S., 6/29/20, ”Remdesivir priced at more than $3,100 for a course of treatment,” National Public Radio (https://www.npr.org/sections/health-shots/2020/06/29/884648842/remdesivir-priced-at-more-than-3-100-for-a-course-of-treatment)

WE CAN’T AFFORD OUR RIGGED TAX SYSTEM

Our unfair tax system is one piece of our rigged economic system. To put our tax system in some perspective, the Internal Revenue Service (IRS) collects nearly 95% of all the federal government’s revenue; it collected $3.5 trillion in taxes in 2018.

My previous post on how our overall economic system is rigged, noted that the CARES Act, the $2.2 trillion coronavirus pandemic response, tilted our tax system further in favor of the wealthy by providing $135 billion in tax cuts for the richest 1% of Americans. This is money that could have been used to provide aid to workers who lost their jobs or to buy personal protective equipment for front-line workers or other needs related to the effects of the pandemic. Ironically, Republicans are now complaining about the cost of the pandemic relief efforts!

Another example of the rigging of our tax system in favor of wealthy individuals and corporations is the substantial tax cuts for corporations and wealthy individuals that were at the center of the 2017 Tax Cuts and Jobs Act (TCJA). The Act failed to deliver any significant benefits to workers and the middle class, despite politicians’ promises. (See this post for more detail.)

However, the tax cuts of the TCJA weren’t enough for the big multi-national corporations, so they lobbied, quite successfully, to rig the tax system even further to their benefit by getting additional tax reductions in the rules and regulations that were written to implement the TCJA. (See this post for more detail.)

A year after the TCJA passed, a study of the largest corporations in the U.S. found that of 379 large, profitable corporations:

  • 91 (almost a quarter of them) paid no federal income tax including Amazon, Chevron, Halliburton, and IBM.
  • Another 56 of them (15%) paid less than 5% of profits in taxes.
  • The average effective federal income tax rate for these 379 large, profitable corporations was 11.3%, barely half of the reduced tax rate of 21% in the TCJA (down from 35%), and the lowest rate in the history of this analysis, which was first done in 1984. [1]

So, not only are wealthy individuals and corporations successful in getting politicians to cut the taxes they owe, but many of them then do everything they can to avoid paying even the reduced (I’m tempted to say, minimal) taxes they owe under our rigged tax system.

Some of them simply don’t pay the taxes they owe. According to a recent report from the Congressional Budget Office (CBO) [2] unpaid taxes averaged $381 billion per year (roughly 14% of federal taxes owed) from 2011 to 2013. The richest 1% of taxpayers are responsible for 70% ($267 billion) of this total. [3]

The amount of unpaid taxes is growing because the IRS’s budget has been cut by 20% since 2010 (after adjusting for inflation), reducing its capacity to crack down on tax avoidance. Audits of the tax returns of the highest income taxpayers have declined by 63% from 2010 to 2018 and now occur at the same rate as for the poorest taxpayers. This has happened because the IRS no longer has the capacity to engage in audits of the complex tax returns of the rich. The number of IRS personnel who handle these complex cases fell by about 40% between 2010 and 2018. [4] Enforcement action against high-income individuals who do not file a tax return has been reduced to simply mailing a notice to them.

The CBO report estimated that for every dollar added to the IRS budget for tax law enforcement, about three dollars in unpaid taxes would be collected. In addition to reduced auditing of wealthy individuals, the frequency of audits of the largest corporations (those with over $20 billion in assets) also dropped from 2010 to 2018; it dropped by roughly 50%.

In his reaction to the CBO report, Senator Sanders stated that “the primary beneficiaries of IRS funding cuts are wealthy tax cheats and large corporations.” [5] In response to an earlier study of audit rates, Senator Wyden stated that “We have two tax systems in this country, and nothing illustrates that better than the IRS ignoring wealthy tax cheats while penalizing low-income workers over small mistakes.” [6]

Our tax system is rigged from top to bottom – from reduced tax rates for wealthy individuals and corporations, to tax loopholes and subsidies for them, to tax dodging by them, to weak enforcement of tax laws to stop their tax avoidance. Hundreds of billions of dollars (actually probably well over a trillion dollars) of tax revenue from wealthy individuals and businesses are lost every year because of unfairly low tax rates, special interest tax breaks, and tax dodging.

When politicians say we can’t afford to support education or unemployment benefits or food assistance or whatever, don’t believe them. What we can’t afford is rich individuals and corporations who don’t pay their fair share in taxes due to our rigged tax system.

[1]      Gardner, M., Roque, L., & Wamhoff, S., Dec. 2019, “Corporate tax avoidance in the first year under the Trump tax law,” Institute on Taxation & Economic Policy (https://itep.org/corporate-tax-avoidance-in-the-first-year-of-the-trump-tax-law/)

[2]      Congressional Budget Office, July 2020, “Trends in the Internal Revenue Service’s funding and enforcement,” (https://www.cbo.gov/system/files/2020-07/56422-CBO-IRS-enforcement.pdf)

[3]      Johnson, J., 7/9/20, “‘An absolute outrage’: Sanders rips ‘wealthy tax cheats’ as CBO estimates $381 billion in annual unpaid taxes,” Common Dreams (https://www.commondreams.org/news/2020/07/09/absolute-outrage-sanders-rips-wealthy-tax-cheats-cbo-estimates-381-billion-annual)

[4]      Congressional Budget Office, July 2020, see above

[5]      Johnson, J., 7/9/20, see above

[6]      Kiel, P., 5/30/19, “It’s getting worse: The IRS now audits poor Americans at about the same rate as the top 1%,” ProPublica (https://www.propublica.org/article/irs-now-audits-poor-americans-at-about-the-same-rate-as-the-top-1-percent)

THE CONSUMER FINANCIAL PROTECTION BUREAU IS NEEDED TO PROTECT US FROM PREDATORY LENDING

The 2008 financial crash was triggered by predatory mortgage loans. As a result, the Consumer Financial Protection Bureau (CFPB) was created to protect consumers from dangerous financial products. There’s a Consumer Product Safety Commission to protect us from dangerous physical products, but prior to the creation of the CFPB, there wasn’t an agency dedicated to protecting consumers from dangerous financial products, such as predatory mortgages and other predatory loans.

Predatory loans are loans where the lender isn’t concerned about the borrower’s ability to repay the loan. In many cases, the lender is just as happy – and may benefit financially – if the borrower defaults on the loan. Predatory lenders usually target people who are desperate for cash or dying to purchase a home, a car, or a consumer product they can’t afford. The loans typically charge very high interest rates, as well as high fees for obtaining the loan and big penalties for failing to meet the terms of the loan, such as being late on a loan payment.

Unethical, deceptive, and/or blatantly fraudulent practices are almost inevitably part of predatory lending. These practices include lying to consumers about the interest rate, fees and other charges, or future payments. Borrowers are often convinced to accept unfair terms through deceptive, coercive, or unscrupulous statements and actions. A predatory lender may add costs for insurance or other services that the borrower doesn’t need or benefit from by presenting them deceptively or as a requirement for the loan.

Predatory lenders routinely target the poor, minorities, the elderly, people with low levels of education, those who don’t understand English well, and people who don’t understand loans or finances well.

Predatory lending is what free market capitalism looks like without regulation. It occurs across the financial industry when good regulation and enforcement aren’t in place, from student loans to car loans and from mortgage loans to payday loans.

Predatory lending is the bread and butter of much of the financial industry as it is a source of big profits. Therefore, the financial industry has fought hard against the CFPB and its efforts to regulate lending since the day the CFPB was conceived.

As a specific example, the predatory lending industry fought a CFPB rule known as the payday lending rule. Promulgated under the Obama administration, it required lenders to assess customers’ ability to repay their loans. This was unwelcome, to say the least, in an industry that makes huge sums of money by charging high fees when customers miss a loan payment (as the lender often expected they would) and then rolling the loan over into a new loan so they can repeat this process over and over. [1]

The predatory lending industry bought access to and influence in the Trump administration by making millions of dollars of contributions to Trump’s campaign and engaging in heavy lobbying. Trump replaced the Obama-appointed Director of the CFPB with a person who is much friendlier to the financial industry.

In addition to an industry-friendly Director, Trump further undermined the work of the CFPB by appointing Christopher Mufarrige as an “attorney-advisor” to the Director. Mufarrige had been the owner of a car dealership that used the “Buy Here Pay Here” model of selling used cars, which provides on-the-spot loans to buyers with poor credit ratings. The loans carry high interest rates and Mufarrige was quick to repossess the car if there was a default, i.e., a late payment. Then, he would sell the same car again and do the same deal all over again.

Mufarrige’s business was covered by the CFPB’s payday lending rule that required a lender to assess each borrower’s ability to repay. Mufarrige had stated that this rule was flawed and unnecessary. Nationwide, Buy Here Pay Here model car dealers were making $80 billion in loans annually and an investigation by the New Jersey Attorney General found that roughly one-quarter of their customers default on their loans.

Mufarrige and other political appointees at the CFPB used false statistics and manipulated evidence to claim there was no value to the requirement to assess a borrower’s ability to repay. This allowed the CFPB to justify proposing watered-down regulation of the payday lending industry that does not require it to assess customers’ ability to repay their loans.

Another example of the need for CFPB regulation of predatory financiers is Progressive Leasing, LLC, (a subsidiary of Aaron’s Inc.), which has as its mission “to provide convenient access to simple and affordable purchase options for credit challenged consumers.” It offers rent-to-own programs through major retailers at over 30,000 stores (including Best Buy, Lowe’s, Big Lots, and Kay Jewelers). In effect, its programs are predatory loans to consumers who can’t afford to pay for their purchases up-front.

Progressive Leasing, LLC, has just settled with the Federal Trade Commission (FTC) for the second time in three months over complaints that it uses deceptive practices. It leads customers to believe they are not being charged extra for financing their purchase. In reality, many customers end up paying more than double the sticker price of the item they purchased. In its training materials, Progressive Leasing instructs retail sales staff to say there isn’t an interest rate associated with the rent-to-own program because it is not a loan. They don’t inform customers of the fees and other charges that are part of the program. [2]

In April, Progressive Leasing paid $175 million to settle claims that it misled consumers after having paid another $175 million in February to settle claims about its disclosure practices. Despite tens of thousands of customer complaints, Progressive Leasing had continued to use the same practices. One FTC Commissioner said the most recent penalty did not go far enough, noting that customers had paid Progressive Leasing more than $1 billion in undisclosed fees and charges.

The Consumer Financial Protection Bureau is badly needed to protect consumers from the greed and unethical behavior of unrestrained lenders. Capitalism without regulation will prey on all of us when we are most in need of financial assistance. The financial industry has shown time and again that without good regulation and enforcement it will ruin people’s lives and our nation’s economy.

I urge you to contact your U.S. Representative and your Senators and ask them to support and protect the integrity of the Consumer Financial Protection Bureau. Encourage them to advocate for strong regulation and enforcement of responsible behavior in the financial industry.

You can find contact information for your US Representative at  http://www.house.gov/representatives/find/ and for your US Senators at http://www.senate.gov/general/contact_information/senators_cfm.cfm.

[1]      Dayen, D., 5/4/20, “CFPB appointee who helped water down payday lending rule operated a high-cost auto lender,” The American Prospect (https://prospect.org/power/cfpb-appointee-helped-water-down-payday-lending-rule/)

[2]      Bhattarai, A., 4/21/20, “Leasing company agrees to pay $175m,” The Boston Globe from the Washington Post

THE TRUMP ADMINISTRATION’S SWAMP OF CORRUPTION Part 2

President Trump campaigned on a promise to drain the Washington, D.C., swamp of special interests and insider dealing. This is one promise he clearly hasn’t kept – and probably never meant. I provided some background on this and an overview of the personal corruption of Trump and his family in my previous post.

The level of corruption – of special interests running our government for their own benefit and of outright self-enrichment by individuals in the Trump administration – is stunning. The American Prospect magazine has begun mapping the Trump Swamp of conflicts of interest and unethical behavior agency by agency. [1] They have created an interactive map of Washington where you can click on an agency’s headquarters building and get highlights of the swamp of corruption at each agency.

Here are some examples of Trump appointees who have on-going conflicts of interest, have oversight of industries they used to work in (and may well work in again), and/or have committed serious ethical violations: [2]

  • Steve Mnuchin, Secretary of the Treasury, a former Goldman Sachs (GS) partner. His specialty at GS was mortgage securities, which were at the heart of the 2008 economic collapse. He capitalized on the collapse by buying a failing bank and foreclosing on 36,000 homeowners, many of whom were elderly and who had been targeted with high-risk reverse mortgages, supposedly intended to keep them in their homes. Furthermore, he simultaneously collected federal subsidies that were meant to keep people in their homes. At the Treasury, he has weakened regulation of banks and reduced scrutiny of financial activities, which benefits his colleagues still in the financial industry (and to which he will likely return). Under Mnuchin, the Treasury has provided favorable tax rulings for wealthy individuals and businesses, again rewarding his former colleagues. It also put forth tax regulations that were almost identical to those proposed by a group of large corporations. It tweaked the rules for Opportunity Zone tax credits so they would be more available to real estate magnates including Jared Kushner (Trump’s son-in-law), Chris Christie (former Governor of New Jersey), Richard LeFrak (longtime Trump associate in NYC), Anthony Scaramucci (former White House aide), and Michael Milken (longtime Mnuchin friend and convicted junk bond dealer).
  • Elaine Chao, Secretary of the Department of Transportation (DOT), heiress to a shipping company fortune. While her DOT regulates international shipping, her family runs a huge international shipping business that has ship building done by Chinese government-linked entities, while also getting hundreds of million dollars of loans from them. Numerous actions by Chao and DOT have benefited the family business, including cutting subsidies for competing shippers, public appearances with her father, and a joint trip with him to China to meet with government officials. Until June 2019, she also owned an investment in a manufacturer of road construction materials, an industry very much affected by DOT policies. She sold this investment only when the holding was publicly reported. Kentucky (which her husband, Sen. Mitch McConnell, represents) has seen its transportation projects receive favorable treatment. Kentucky has received at least $78 million in DOT grants, including for a project rejected twice before. A former aide to Sen. McConnell, now a top aide to Chao, provides special attention for Kentucky projects.
  • Wilbur Ross, Secretary of Commerce, a former private equity manager. His firm paid a $2.3 million fine in 2016 for unethically siphoning $120 million from former associates. Companies his firm controlled found ways to escape obligations to provide workers pensions and health benefits. After he became Secretary, and with his department regulating shipping, he retained ownership in a shipping company with ties to Russian oligarchs and members of Russian President Putin’s family. As Secretary, he personally negotiated a deal to ship liquified natural gas (LNG) to China while his shipping company owned the world’s largest fleet of LNG tankers. Ross has conferred on official business with leaders of government-controlled funds in Qatar, Japan, and Singapore who had invested in his private equity firm. He had official meetings with the CEOs of Chevron and Boeing, while his wife held investments in those corporations of $400,000 and $2 million, respectively.
  • Betsy DeVos, Secretary of the Department of Education (DOE), rich, major campaign contributor with no expertise in education other than advocacy for charter schools. For numerous top jobs at DOE, she has hired former employees of private, for-profit college companies that had paid fines or signed legal settlements for deceptive advertising. The DOE has maintained the flow of federal funds (via student loans) to for-profit schools with questionable track records, while insisting that students defrauded by private colleges continue to make loan payments. The DOE also effectively stopped the public-service loan forgiveness program, requiring tens of thousands of teachers, nurses, police officers, and others to continue to pay off their student loans. She has done nothing to help ease the $1.5 trillion student debt crisis, despite promises by President Trump to do so.
  • David Bernhardt, Secretary of the Department of the Interior, former partner in a Denver law and lobbying firm that represented mining, oil, and gas companies. He disclosed 20 separate conflicts of interest, but nonetheless acted at least 25 times to benefit former clients of his law firm. His former law firm has quadrupled its revenue since he became Secretary.
  • Andrew Wheeler, head of the Environmental Protection Agency, a former lawyer and lobbyist for the coal industry.
  • Alex Azar, Secretary of Health and Human Services, a former executive of the giant drug corporation, Eli Lilly, where dramatic increases in drug prices were a common practice.

The list goes on and on and includes many staffers in these and other agencies. Overall, as-of October 2019, less than three years into Trump’s term, there are 281 former lobbyists working in the Trump administration, four times as many as the Obama administration hired in six years.

This is not how a democracy is supposed to operate, let alone our democracy, which is supposed to be the exceptional shining light on the hill. This is how a plutocracy operates – where government is of, by, and for the wealthy.

I urge you to contact your U.S. Representative and Senators to ask them to investigate the conflicts of interest, the self-enrichment, and the ethics of the many members of the Trump administration identified in The American Prospect’s expose. Please ask your Senators to refuse to confirm any Trump appointee with conflicts of interest or histories of unethical behavior. Because of current vacancies and the high level of turnover, additional appointments of senior officials will continue to come before the Senate.

You can find contact information for your US Representative at  http://www.house.gov/representatives/find/ and for your US Senators at http://www.senate.gov/general/contact_information/senators_cfm.cfm.

[1]      Lardner, J., 4/9/20, “Mapping corruption: Donald Trump’s executive branch,” The American Prospect (https://prospect.org/power/mapping-corruption-donald-trump-executive-branch/)

[2]      Lardner, J., 4/9/20, see above

THE TRUMP ADMINISTRATION’S SWAMP OF CORRUPTION

President Trump campaigned on a promise to drain the Washington, D.C., swamp of special interests and insider dealing. This is one promise he clearly hasn’t kept – and probably never meant – although it was good rhetoric for the campaign because many of his potential supporters wanted to hear this. They were working and middle-class people who wanted to see the federal government turned upside down because they had lost their economic security to:

  • Trade deals that sent their jobs overseas,
  • Anti-union policies that made it impossible for them to strike or to organize, so their wages stagnated and their overall compensation (including benefits) declined,
  • Financial policies that let already wealthy executives and stockholders capture the benefits of increased productivity of workers,
  • A health care system that increased their costs while decreasing coverage,
  • A retirement system that either abandoned them or shifted investment risk onto their shoulders, and
  • A government that repeatedly bailed out the financial industry, reduced taxes on huge corporations, and allowed leveraged buyouts and bankruptcies that cut jobs and eliminated retirement benefits.

While these policies were benefiting wealthy corporations and individuals, blue collar and middle-class workers lost their jobs, had mortgages foreclosed on, and saw their credit card balances and their children’s student debt skyrocket. (See this previous post for more detail.)

The American Prospect magazine has begun mapping the Trump Swamp of conflicts of interest and unethical behavior agency by agency. [1] They have created an interactive map of Washington where you can click on an agency’s headquarters building and get highlights of the swamp of corruption at each agency.

The level of corruption – of special interests running our government for their own benefit and the outright self-enrichment by individuals in the Trump administration – is stunning. Much of this flies beneath the radar of all the bluster, lies, and shocking policy proposals the Trump administration throws out daily. It relies on misdirection delivered through words to distract attention from corrupt actions. Our mainstream media is just too focused on the theater of Trump and his minions, and too overwhelmed to report everything that’s being done. And the American public is too distracted – having had its attention diverted from the real action just as a magician does – and too overwhelmed to take it all in.

The personal self-dealing of President Trump is appalling even before one considers what’s going on in executive branch agencies. For example, foreign diplomats and domestic lobbyists are paying untold sums of money to stay in Trump hotels and at Trump resorts. This money is functionally a bribe, buying access, attention, often face-time, and sometimes outright rewards. The President has spent one out of every three days at one of his resorts, giving the resorts free advertising and revenue from the lodging and other expenses of his Secret Service detail and his retinue. The Secret Service, for example, in protecting the President as he golfs, has spent over $500,000 on golf carts alone.

Family members have benefited, too. Perhaps most notably, Ivanka Trump got rare and valuable trademarks from China the same day she dined with China’s leader. Trump’s spokesperson also touted Ivanka’s products in official TV interviews.

In another example of what’s functionally bribery, two large private prison corporations, GEO Group and CoreCivic, after hundreds of thousands of dollars of political spending, have received over $3 billion in payments for their services from Immigration and Customs Enforcement (ICE), a unit of the federal Department of Homeland Security. Together, they run 41 detention centers that house more than half of ICE detainees. They’re providing these services because the Trump administration has reversed the phaseout of the use of private prisons that was occurring under the Obama administration. The phaseout was happening because of a series of scandals at private prisons including deaths, high suicide rates, substandard medical care, and other malfeasance. (See previous posts here and here for more detail.)

This dramatic reversal of policy by the Trump administration didn’t happen by accident; it happened because of a concerted effort by the private prison corporations through campaign contributions and use of the revolving door. GEO-associated executives and entities gave at least $675,000 to Trump’s campaign and inauguration and other Republican campaigns. GEO hired two former aides to Sen. Sessions, the new Attorney General, as lobbyists. When AG Sessions formally reversed the Obama administration’s phaseout of the use of private prisons, GEO stock had already doubled in value and CoreCivic’s stock was up 140%. As a thank you, the private prison industry gave another $1 million to the Trump campaign. [2]

Payday lenders also functionally bribed the Trump administration to get a reprieve from Obama administration policies, which were working to protect borrowers from usurious fees and interest rates (sometimes over 100% a year when annualized). The payday lending industry donated over $2.2 million to Trump’s campaign and inauguration. The CEO of one large payday lending chain told his peers that the money would buy access to top administration officials and the chair of the Republican National Committee, who could get them an audience with the President.

The change in payday lending oversight policy was facilitated by Trump’s appointment of his top budget official, Mick Mulvaney, to head the Consumer Financial Protection Bureau (CFPB). The appointment process was probably illegal, but the White House Office of Legal Counsel said it was okay in a memo written by a lawyer who had been the lead attorney for a payday lender fighting CFPB regulations. The CFPB dropped that enforcement action after Mulvaney took over.

Trump’s personal corruption is mind boggling, but it is only the tip of the iceberg. The overarching economic philosophy and purpose of the Trump administration has been to handover government regulation and policy making to large corporations, while sending as much as possible of government spending and program operation to them as well in an unprecedented spurt of privatization. As a result, there are numerous issue areas where policies that are widely supported by the public and are clearly in the public interest go nowhere as the corrupt influence of wealthy corporations and individuals blocks them. Instead, policies are often enacted that benefit the self-interests of wealthy corporations and individuals.

Beyond bad policies – ones that are uninformed and dangerous to public health, safety, and well-being – the Trump administration has made no effort to stop its bureaucrats, from Cabinet members on down, from enriching themselves from their work as government employees.

I urge you to visit The American Prospect’s interactive map of Washington and to click on one or more agency’s headquarters building to review highlights of the swamp of corruption at that agency.

In my next post, I will highlight some of the corrupt individuals in the Trump administration and their corrupt actions. I’ll also ask you to contact your elected officials to ask them to crack down on this corruption.

[1]      Lardner, J., 4/9/20, “Mapping corruption: Donald Trump’s executive branch,” The American Prospect (https://prospect.org/power/mapping-corruption-donald-trump-executive-branch/)

[2]      Lardner, J., 4/9/20, see above

BIG BUSINESS HAS FAILED US IN THE PANDEMIC

Big businesses and their executives have failed us in the coronavirus pandemic, but nonetheless they are standing at the public trough getting more bailout money than anyone else. This sounds just like what happened in 2008.

Big corporations and their so smart executives didn’t see the business opportunity and respond to the pandemic when it appeared in late 2019 in China. They could and should have seen what was coming and increased the production of ventilators and personal protection equipment (PPE). This was a great opportunity for them to make a profit and garner good publicity but with their short-term, finance-focused mentality, they totally missed the opportunity.

Corporate executives have failed to push back on the Trump administration and the right-wing movement in their disdain for science and expertise. At times, they have promoted it, for example in climate change denial. In the case of the coronavirus, shortly before Trump made his dangerous call for the country to get back to normal by Easter, he had been on a conference call with financial executives who apparently told him that ending social distancing would be good for the financial markets.

Corporate executives – supposedly leaders – have failed to stand up for rational policies and preparedness. In doing so, they have aided and abetted the right-wing anti-government, anti-knowledge, anti-truth movement. By doing everything they can to avoid paying taxes, corporate executives have undermined government capacity to respond to public health crises, among other things.

Lessons that were learned during the Ebola outbreak in 2014 have been ignored and undermined by the Trump administration and its enablers in Congress. They have weakened our public health system and undermined our global health security, including eliminating the key position that coordinates U.S. global health efforts. [1] The Trump administration ignored the plans the Obama administration gave them, developed based on the Ebola outbreak, on how to respond to a public health crisis.

The right-wing movement reflexively opposes government policies and programs, both because it wants unbridled, unregulated opportunities to make profits at any cost to the public good, and because they don’t want to take the chance that any government action would appear to be valuable or successful. They don’t want voters to ever get the sense that government does important things that serve the public interest. [2]

Deregulation, particularly of the financial industry and financial standards, has undermined the financial stability of multiple corporations and industries. There are many financially unstable corporations in the U.S. that are likely to be in or on the brink of bankruptcy without government assistance in the face of the coronavirus pandemic. This is the result of big banks making high-risk loans, vulture capitalists’ leverage buyouts (with high-risk loans), and corporations using virtually all their profits and even borrowed money to buy back stock and pay dividends (which enriches executives and wealthy shareholders). The systematic weakening of the regulation of the big banks since the 2008 crash, including the undermining of the Dodd-Frank law’s financial safeguards put in place after that crash, have contributed significantly to this dangerous situation. [3]

For example, over the last decade the airline industry has spent 96% of the cash generated by profits to buy back its own shares of stock. Therefore, it failed to build a reserve against tough times and is now standing at the public trough asking for a bailout of $50 billion. Coincidentally, the six biggest U.S. airlines spent $47 billion over the last ten years buying their own stock, endangering the financial stability and future of the corporations. [4]

A corporation buying its own stock boosts the price of its shares, which enriches big stockholders and executives. In 2012, for example, the 500 highest paid executives at public U.S. corporations received, on average, $30 million each in compensation with 83% of it based on stock options and stock awards. Therefore, a boost in the price of the corporation’s stock enriches these executives substantially. [5]

Over five decades, corporate executives have outsourced their supply chains to foreign countries, notably China, while ignoring the risks and hidden costs of being dependent on global trade. They did so to increase profits by dramatically reducing labor costs. The coronavirus pandemic has brought the risks and hidden costs of globalization home to roost. Manufacturing operations in China and other countries have shut down due to the pandemic, which has also made the shipping of goods problematic. Foreign governments, especially authoritarian ones like China, are controlling exports, including of critically needed supplies to respond to the pandemic. As a result, corporations dependent on global operations to produce goods for export to and sale in the U.S., don’t have products to sell and consumers can’t get things they need, including critical health care supplies and drugs.

The risks of global supply chains shouldn’t have come as a surprise to smart corporate executives. In the 1930s, when dealing with the Great Depression, economist John Maynard Keynes argued for the globalization of ideas and arts, but the retention at home of the manufacturing of goods. [6]

The bottom line is that corporate executives exacerbated the coronavirus pandemic by:

  • Failing to respond to the emergence of the coronavirus in a timely and effective manner,
  • Failing to support preparedness for a public health crisis and a knowledge-based response when the coronavirus hit,
  • Supporting deregulation of finances that have made their own corporations and our economy more vulnerable to economic stress, and
  • Outsourcing global supply lines making their own corporations and all of us more vulnerable to disruptions in global trade.

[1]      Warren, E., retrieved from the Internet 4/5/20, “Preventing, containing, and treating infectious disease outbreaks at home and abroad,” https://elizabethwarren.com/plans/combating-infectious-disease-outbreaks

[2]      Krugman, P., 3/28/20, “COVID-19 brings out all the usual zombies,” The New York Times

[3]      Warren, E., retrieved from the Internet on 4/5/20, “My updated plan to address the coronavirus crisis,” https://elizabethwarren.com/plans/updated-plan-address-coronavirus

[4]      Van Doorn, P., 3/22/20, “Airlines and Boeing want a bailout – but look how much they’ve spent on stock buybacks,” MarketWatch (https://www.marketwatch.com/story/airlines-and-boeing-want-a-bailout-but-look-how-much-theyve-spent-on-stock-buybacks-2020-03-18)

[5]      Lazonick, W., Sept. 2014, “Profits without prosperity,” Harvard Business Review (https://hbr.org/2014/09/profits-without-prosperity)

[6]      Prestowitz, C., & Ferry, J., 3/30/20, “The end of the global supply chain,” The Boston Globe

BIG MONEY IS ALREADY PLAYING A BIG ROLE IN THE 2020 CAMPAIGN

Big money is already pouring into the 2020 election campaigns. The spending by wealthy individuals and corporations continues to grow. Federal candidates have already raised $2.2 billion (yes, Billion) with $1.6 billion of that belonging to the presidential candidates.

Here’s a quick summary of what the major presidential candidates and (supposedly) independent outside groups have spent so far (with 264 days to go!): [1]

  • Bloomberg: $464 million (self-funded, not accepting any contributions)
  • Steyer: $271 million
  • Trump: $218 million plus $35 million of outside money
  • Sanders: $133 million plus $  4 million of outside money
  • Warren: $  92 million plus $33 million of outside money
  • Buttigieg: $  81 million
  • Biden: $  68 million plus $  8 million of outside money
  • Klobuchar: $  34 million
  • Gabbard: $  14 million
  • Weld: $    2 million

Bloomberg is spending roughly $6 million a day of his own money on his presidential campaign. The bulk of his spending, roughly $400 million so far, has gone to advertising on TV, radio, and digital media. He is paying higher compensation to campaign staff than other campaigns in order, in numerous cases, to steal them away from other campaigns. [2] He is literally trying to buy the presidency with his personal fortune.

The 2010 Citizens United Supreme Court decision allowing unlimited spending in election campaigns by (supposedly) independent, outside groups and wealthy individuals continues to exacerbate the role of money in our elections. The securities and investment industry, for example, continues to increase its campaign spending and was the top industry donor to outside groups in each of the last four election cycles. Since 2012, the industry has spent more than $80 million in each two-year federal election cycle, over $320 million in total. Before the Citizens United decision, it never spent more than $18 million in an election cycle. [3]

Much of the campaign spending by corporations and their industry associations is done through Political Action Committees (PACs). Business PACs have already contributed $179 million to federal candidates and parties in the 2020 election cycle. Business PACs account for 73% of PAC contributions, dwarfing the spending by unions and issue-focused groups. Although the contributions themselves must be made by employees, shareholders, and their family members, the business can pay for all the PAC’s expenses and provide incentives to donors for giving to the PAC. The corporation’s direct spending on PAC expenses does not have to be disclosed. Business interests couple their dominant PAC spending with dominant spending on lobbying to give them great influence in policy making. They target specific candidates, often incumbents, who will be in influential policy making positions (e.g., on committees) relevant to their interests. [4]

PACs are supposedly independent of candidates’ campaigns, but they often share office space, staff, and other resources with candidates, House or Senate leaders, or the political parties. [5]

The amount of “dark money” in campaigns is growing, which means voters know less about who’s spending money to influence their votes. (“Dark money” is money that is laundered through non-profit entities that supposedly don’t have political spending as their main purpose and therefore do not have to disclose who their donors are.) In 2019, $65 million in “dark money” has flowed into PAC spending on 2020 election campaigns. In the 2018 election cycle, $176 million in “dark money” was given to PACs. The total for the 2020 election cycle is all but certain to be higher.

A recent report from the federal Government Accountability Office (GAO) found that campaign finance laws and enforcement capabilities have not kept up with the issues presented by “dark money,” unlimited spending, and on-line political spending. The Internal Revenue Service (IRS) doesn’t have clear standards on what constitutes political activity in non-profit entities or the extent to which non-profit entities can engage in political activity. Furthermore, it is not reviewing donor lists or sharing them with other federal law enforcement agencies for review. The Federal Election Commission (FEC) is non-functional due to partisan deadlock, the President’s failure to appoint Commissioners, and under-funding. As a result, for example, the flow of illegal foreign money into our elections through “dark money” channels is not being monitored and no enforcement is occurring. [6]

One often overlooked effect of our money-driven elections is that people of color and their interests are severely underrepresented by elected officials. Ninety percent of elected officials are white, while only 63% of the population is white. The great majority of campaign money at the federal and state levels comes from less than 1% of the population who make donations of over $1,000. The bulk of these donors come from the richest 1% of the population, which is over 90% white. Money is, of course, crucial to election campaigns, with the candidate with more money winning about 90% of the time. The record spending on campaigns, especially by wealthy individuals and corporations unleashed by the Citizens United decision, has exacerbated the political marginalization of people of color. Wealth and political power have been increasingly consolidated in the hands of a very small, very white portion of the population. The bottom line is that people of color are underrepresented among elected officials, among candidates for office, among donors to campaigns, and as having their interests reflected in policies that are enacted. [7]

Given the obscene amounts of money being spent on election campaigns, voters who wish to make good decisions on candidates must now spend more time and effort to wade through the barrage of self-serving ads, misinformation, and noise to ferret out good and truthful information about candidates. If our democracy is to work, this requires all of us to pay more attention and spend more time researching candidates before we make our voting decisions. Voters will need to be consciously skeptical, so they are less swayed by paid media and slick messaging.

Ultimately, we need to change our campaign finance laws to reduce the influence of money and make it easier for voters to discern candidates’ positions on issues. But until that happens, to be informed voters, we will have to wade through the barrage of political advertising and messaging to discern between quality from quantity and differentiate truth from half-truth or outright fiction.

[1]      OpenSecrets.org, retrieved 2/23/20, “2020 presidential race,” Center for Responsive Politics (https://www.opensecrets.org/2020-presidential-race)

[2]      Evers-Hillstrom, K., 2/20/20, “Michael Bloomberg is spending nearly $6 million per day on campaign,” OpenSecrets.org, Center for Responsive Politics (https://www.opensecrets.org/news/2020/02/bloomberg-spent-6-million-per-day/)

[3]      Monnay, T., 1/23/20, “Wall Street donor influence shows unprecedented growth 10 years after Citizens United,” OpenSecrets.org, Center for Responsive Politics (https://www.opensecrets.org/news/2020/01/wall-street-donor-influence-growth-10-years-citizens-united/

[4]      Evers-Hillstrom, K., 2/14/20, “Why corporate PACs have an advantage,” OpenSecrets.org, Center for Responsive Politics (https://www.opensecrets.org/news/2020/02/why-corporate-pacs-have-an-advantage/)

[5]      Massoglia, A., 2/7/20, “ ‘Dark money’ groups steering millions to super PACs in 2020 elections,” OpenSecrets.org, Center for Responsive Politics (https://www.opensecrets.org/news/2020/02/dark-money-steers-millions-to-super-pacs-2020/)

[6]      Massoglia, A., 2/7/20, see above

[7]      Lioz, A., 12/14/19, “Stacked deck: How racial bias in our big money political system undermines our democracy and our economy,” Demos (https://www.demos.org/sites/default/files/publications/StackedDeck2_1.pdf)

UNDER-TAXED CORPORATIONS AND WAYS TO MAKE THEIR TAXES FAIRER

A year’s worth of data on what corporations are actually paying in taxes under the 2017 Tax Cuts and Jobs Act (TCJA) is now available. The TCJA cut the stated federal corporate income tax rate to 21% from 35%, a 40% reduction. It created many new tax breaks and loopholes, while (supposedly) closing some existing ones. However, as a previous post highlighted, corporations have been lobbying vigorously, and in many cases successfully, to have the rules and regulations implementing the TCJA weaken or eliminate its closing of tax breaks and loopholes.

An in-depth review of the financial filings of the Fortune 500 largest corporations revealed that 379 of them were profitable in 2018 and found enough information to calculate an effective federal income tax rate for them. (Their effective tax rate is the portion of their profits they paid in federal income taxes.)

The average effective federal income tax rate for these 379 large, profitable corporations was 11.3%, which is barely half of the stated rate. Ninety-one (91) paid no federal income tax including Amazon, Chevron, Halliburton, and IBM. Another fifty-six (56) of them paid less than 5% of profits in taxes.

The 11.3% average rate is the lowest rate since this analysis was begun in 1984. [1]  The industries with the lowest effective federal income tax rates, all of which paid less than half of the stated rate, were:

  • Industrial machinery (which paid an average effective tax of a negative 0.6%, meaning that on average they got back money from the government)
  • Gas and electric utilities (-0.5%)
  • Motor vehicles and parts (1.5%)
  • Oil, gas, and pipelines (3.6%)
  • Chemicals (4.4%)
  • Transportation and also Engineering & construction (8.0%)
  • Miscellaneous services (8.3%)
  • Publishing and printing (9.8%)
  • Financial (10.2%)

Twenty-five very large corporations received the bulk of the tax breaks that led to these low effective tax rates. They received $37 billion in tax breaks, half of the $74 billion in tax breaks that all 379 corporations received. This is the result of their capacity to influence public policy through lobbying, campaign spending, and use of the revolving door. (Two previous posts here and here provide more details on corporate manipulation of public policies.)

Five of those very large corporations received more than $16 billion in tax breaks (22% of the total for all 379 corporations): Amazon, Bank of America, J.P. Morgan Chase, Verizon, and Wells Fargo.

Large corporations have succeeded in manipulating tax laws, including through the TCJA and its implementing rules and regulations, to unfairly reduce their taxes. This results in small businesses and individuals having to pay more taxes and to bear an unfair portion of the taxes needed to support government at the federal, state, and local levels. Furthermore, it means governments don’t have the resources they need to perform important functions that are in the public interest and desired by taxpayers.

Here are some examples of changes in tax laws that would lead to large corporations paying a fairer share of taxes: [2]

  • Remove tax incentives and loopholes that reward the shifting of profits and jobs to offshore entities. This includes effective implementation of provisions of the TCJA that were meant to address this problem but have been undermined by successful lobbying by multi-national corporations during the writing of implementation rules and regulations. (See this previous post for more details.)
  • Reinstate a corporate Alternative Minimum Tax to ensure that all profitable corporations pay a reasonable amount of income tax each year.
  • Repeal TCJA and previous tax law provisions that allow corporations to deduct expenses for equipment and other capital expenditures much more quickly than the equipment actually depreciates in value. This is an accounting “trick” that reduces profits and, therefore, income taxes.
  • Stop the fictitious creation of large expenses for granting stock options to executives. This is another accounting “trick” that reduces profits and, therefore, income taxes.
  • Require public disclosure of key corporate financial data, including profits and taxes paid, on a country-by-country basis as a routine part of corporate financial reporting. This transparency will allow policy makers and the public to understand whether corporations are paying a fair share of their income in taxes and to adjust policies accordingly.

I urge you to contact your U.S. Representative and Senators to ask them to fix corporate tax laws so that corporations, particularly large, multi-national corporations, are paying their fair share in taxes. Otherwise, you and I and the small businesses we patronize in our communities will continue to bear an unfair burden in funding the public services we need from our governments at all levels.

You can find contact information for your US Representative at  http://www.house.gov/representatives/find/ and for your US Senators at http://www.senate.gov/general/contact_information/senators_cfm.cfm.

[1]      Gardner, M., Roque, L., & Wamhoff, S., Dec. 2019, “Corporate tax avoidance in the first year under the Trump tax law,” Institute on Taxation & Economic Policy (https://itep.org/corporate-tax-avoidance-in-the-first-year-of-the-trump-tax-law/)

[2]      Gardner, M., Roque, L., & Wamhoff, S., Dec. 2019, see above

CORPORATE LOBBYING AND WHAT THEY GET FOR IT

In 2019, corporate spending on lobbying the federal government grew to a nine-year high of $3.47 billion (yes, Billion).

The health industry spent a record $594 million on lobbying in 2019 as it fought against various proposed reforms of our health care system. Roughly half of this money was spent in opposition to controls on drug prices. As a result, proposals from both the Trump administration and Congress have stalled. [1]

The health industry also lobbied heavily against bipartisan legislation to control surprise medical bills. These are typically bills for services delivered by out-of-network providers that aren’t covered by insurance when patients had no idea this was occurring. New players in this industry, private equity vulture capitalists who have bought emergency medical providers and physician staffing services, opposed this legislation with a $54 million ad campaign funded by “dark money,” i.e., money whose actual source was obscured. As a result of this ad campaign and all the lobbying, despite bipartisan support in Congress and support from the Trump administration, this legislation to limit the dollar amount of surprise medical bills has stalled.

Trade and tariff actions were the target of lots of corporate lobbying; 1,430 lobbyists reported lobbying on trade issues, a record high. The giant corporations with huge resources are lobbying for exemptions from tariffs, while smaller businesses, without the resources to engage in major lobbying campaigns, will probably suffer from the tariffs. One example of lobbying on trade issues is that the Semiconductor Industry Association succeed in getting the Trump administration to reverse its ban on the sale of computer chips to the Chinese corporation, Huawei. [2]

The communications and electronics industry spent a record $435 million on lobbying in 2019. Amazon, Apple, and Facebook all set new records for lobbying expenditures in response to concerns in Congress about their business practices and antitrust investigations in Congress and the Department of Justice.

Corporations are spending huge sums on lobbying because they know there will be a high return on their investment. Success in lowering taxes or tariffs, or in allowing higher prices and revenue, will result in higher profits generally well in excess of the amount spent lobbying.

One argument against allowing huge corporations to exist is that they have huge resources to pay for lobbying and to use to pursue legal actions that skew the balance of power in our society and overwhelm the voice of the people and the public interest.

[1]      Evers-Hillstrom, K., 1/24/20, “Lobbying spending in 2019 nears all-time high as health sector smashes records,” Common Dreams and the Center for Responsive Politics (https://www.commondreams.org/views/2020/01/25/lobbying-spending-2019-nears-all-time-high-health-sector-smashes-records)

[2]      Evers-Hillstrom, K., 1/24/20, see above

HOW CORPORATIONS MANIPULATE PUBLIC POLICY

Big corporations use a variety of techniques to manipulate public policies. The standard tactics that receive the most publicity are lobbying, campaign contributions and (supposedly) independent campaign spending, and the revolving door between jobs in corporations and related jobs in the public sector, including as regulators of the industry where the person formerly worked.

Less recognized and publicized techniques for affecting policy include funding think tanks and (supposedly) independent research and academic publications. Corporations also have funded (supposedly) grassroots organizations to advance their interests. Probably the most famous (or infamous) one is the National Rifle Association (NRA). Although it is a membership organization and is viewed and presented as a grassroots organization, it is heavily funded and supported by the manufacturers of guns and ammunition. It is what is called an “astroturf” organization, i.e., fake grass(roots).

Another tactic that is being adopted by the Big Tech corporations has more traditionally been associated with the military and the defense industry: putting jobs in the districts of key and powerful legislators. The military has for decades worked to have bases, other facilities, and contractors in every state and congressional district. The defense industry corporations have worked to spread their facilities and jobs widely across the country. This meant that when cuts to defense spending, such as closing of some bases, was discussed or when cutting funding for a specific weapon system was raised, it meant that congressional representatives considering voting to cut spending were painted as cutting jobs, often in their own districts. That’s a tough vote to make!

Recently, the four Big Tech corporations, Amazon, Apple, Facebook, and Google, all appear to have adopted this job placement strategy. In late 2017, Rep. Jerry Nadler of New York City became the ranking minority member of the House Judiciary Committee and became its chair when the Democrats won control of the House in the 2018 elections. The House Judiciary Committee is currently investigating the four Big Tech corporations for antitrust violations and anti-competitive behavior.

All four of the Big Tech corporations have announced they are opening offices and bringing jobs to the section of Manhattan which just happens to be in Judiciary Committee chair Jerry Nadler’s district. Amazon has recently signed a lease for space that will house over 1,500 employees. Not only does this put these jobs in Nadler’s district, but if the employees happen to live nearby, they will be voters in his district as well. (Remember that Amazon only months earlier had pulled out of a deal to locate its second headquarters in nearby Queens, despite having been promised (extorted?) $3 billion in public subsidies to locate a promised 25,000 jobs there.) [1]

Apple, Facebook, and Google have either opened new offices in New York City or announced plans to do so. All of them are on the west side of Manhattan in Nadler’s district. There is plenty of real estate elsewhere in the New York City area, so the fact that all four Big Tech firms happen to be locating in Nadler’s district is more than a little suspicious. (By the way, the runner-up for the position Nadler got on the Judiciary Committee was Rep. Zoe Lofgren, whose district includes a chunk of Silicon Valley.)

It is projected that by 2022 the four Big Tech corporations will have over 20,000 employees (and potentially voters) in nine different locations all on the west side of Manhattan in Nadler’s district.

The Judiciary Committee’s investigations, under Chairman Nadler, are the most significant antitrust investigations in decades and their outcomes could have significant effects on how the Big Tech corporations conduct their businesses and on their profits. Placing jobs in Nadler’s district, with the implicit or potential threat that those jobs might be at risk if Nadler and the Judiciary Committee take action that is viewed unfavorably by the Big Tech firms, is an escalation of these corporations’ on-going and persistent efforts to manipulate public policies in their favor. [2]

[1]      Dayen, D., 1/10/20, “Silicon Valley’s big apple gambit,” The American Prospect (https://prospect.org/power/silicon-valleys-big-apple-gambit/)

[2]      Dayen, D., 1/10/20, see above

LOBBYING BY MULTI-NATIONAL CORPORATIONS UNDERMINES TAX FAIRNESS & INCREASES THE DEFICIT

The actual effects of the Tax Cuts and Jobs Act (TCJA) (the December 2017 tax cut bill rushed through by Republicans in Congress and President Trump) are becoming clearer all the time. My previous post provided a summary of what it did, noted the promises that were made about its effects, and provided an overview of its actual effects.

One result has been that the promise to tax the profits of multinational corporations more fairly remains largely unachieved. This was supposed to be accomplished by increasing taxes on profits shifted to overseas entities and by incentivizing corporations to repatriate trillions of dollars of profits previously stashed overseas.

Because the 2017 Tax Cuts and Jobs Act was rushed through Congress in a process some experts have called chaotic, it was sloppily written and left lots of details to be filled in by the executive branch agencies writing the rules and regulations implementing the law. (Congressional Republicans and Trump wanted to be able to claim a major legislative victory for their first year in full control of the federal government and to reward their wealthy campaign donors in the run-up to the 2018 elections.) Corporations had lobbied heavily during the writing and passage of the TCJA and they continued to lobby for favorable treatment during the process of writing TCJA’s rules and regulations.

The sloppiness and lack of detail in the law meant that lobbying for favorable rules and regulations was a potential gold mine for the big multi-national corporations. Therefore, in early 2018, shortly after the TCJA was enacted, the Treasury Department, a key agency writing rules and regulations, was swamped by corporate lobbyists. Reportedly, senior Treasury officials were having so many meetings with lobbyists, up to 10 a week, that they had little time to do their jobs.

The TCJA was supposed to be a grand bargain between the federal government and the big multi-national corporations where a big cut in the tax rate (35% to 21%) would occur in exchange for a reduction in tax dodging through the shifting of profits to low-tax offshore locations. Two new taxes were included in the TCJA to fulfill the second half of this bargain: BEAT and GILTI. The Base Erosion and Anti-abuse Tax (BEAT) targeted foreign corporations with major U.S. operations that had been dodging U.S. taxes by shifting profits from their U.S. subsidiaries to their foreign parents. Some payments sent to foreign parents would now be subject to a new 10% tax. The Global Intangible Low-Taxed Income tax (GILTI) targeted U.S. corporations that shifted profits offshore. Some of these offshore profits would be subject to a new tax of up to 10.5%.

At the time of the passage of the TCJA, it was projected that these two new taxes would generate about $26 billion a year of revenue for the federal government. However, lobbying on the writing of rules and regulations has succeeded in significantly reducing the taxes that will be paid. [1] In the lobbying on BEAT and GILTI rules and regulations, the revolving door has been very evident. For example, the senior Treasury official who has been writing them had previously spent decades at a consulting firm and a law firm where he guided corporations in using the tax avoidance strategies BEAT and GILTI were supposed to stop. Lobbyists from the firms he used to work for were lobbying him for rules that were favorable for their corporate clients. One of them had been a top Treasury official in the G. W. Bush administration.

A small group of foreign banks lobbied heavily against BEAT. Treasury Secretary Mnuchin, a longtime bank executive before taking his job at the Treasury, supported the regulatory loophole the foreign banks were asking for. Furthermore, one of the banks’ lobbyists joined the Treasury Department in September 2019 to work in the office that was writing the TCJA rules!

In December 2019, the Treasury Department issued final versions of some of the BEAT regulations and the corporations, foreign banks, and their lobbyists got most of what they wanted. The loophole for the foreign banks alone is estimated to reduce BEAT revenues by $5 billion a year. Experts estimate that BEAT, given the rules and regulations promulgated after all the lobbying, will produce a small fraction for the $15 billion a year that it was projected to raise. [2]

The lobbying around GILTI’s rules and regulations was similarly intense. As background, many multi-national corporations, including Apple, Google, Facebook, Coca-Cola, and drug companies Pfizer and Merck, use elaborate legal, financial, and accounting strategies to make it appear that sizable chunks of their profits are earned by subsidiaries in low-tax offshore countries such as Ireland, the Cayman Islands, Bermuda, or Luxembourg. For example, the drug and technology corporations shift the rights to their patents and other intellectual property (such as trademarks, logos, and copyrights) to offshore subsidiaries. Then these subsidiaries charge their U.S. parent corporations very high licensing fees, which, on paper, shift profits to these offshore entities.

In June 2019, the Treasury Department announced rules and regulations that greatly reduced the profits subject to GILTI’s new taxes, reducing corporate taxes by tens of billions of dollars. This increases the federal deficit while allowing multi-national corporations to continue to shift hundreds of billions of profits to offshore tax havens.

Finally, the multi-national corporations have repatriated far less of the profits they had previously stashed overseas than the projected $4 trillion; only about $1 trillion has been repatriated and therefore subjected to U.S. taxes. Once again, this has substantially reduced the amount of new tax revenue the federal government received, increasing the deficit further beyond the promised level.

The overall result of all the corporate lobbying during the writing of TCJA’s rules and regulations has indeed been a gold mine for multi-national U.S. and foreign corporations. The Treasury’s rules and regulations mean that these multi-national corporations will pay little or nothing in new taxes on profits shifted offshore, saving them tens if not hundreds of billions of dollars. The Organisation for Economic Cooperation and Development reported that in 2018 the U.S. had the largest drop in tax revenue among its 36 member countries and had the largest federal budget deficit of any of the countries by a wide margin. [3]

The Treasury Department is likely to finish the last set of rules and regulations for the TCJA shortly. The multi-national corporations have continued their intense lobbying through the fall and some of the U.S.-based ones have even threatened to move their headquarters overseas if the rules and regulations don’t further cut the new taxes BEAT and GILTI were supposed to impose.

The result of the multi-national corporations’ lobbying has been rules and regulations for implementing the BEAT and GILTI taxes that:

  • Significantly reduce the revenue for the federal government from what was projected and, therefore, increase the federal budget deficit much more than what TCJA proponents promised;
  • Dramatically undermine the effort to increase tax fairness; and
  • Have made the supposedly even-handed grand bargain for the big corporate tax rate cut very one-sided.

[1]      Drucker, J., & Tankersley, J., 12/30/19, “How big companies won new tax breaks from the Trump Administration,” The New York Times

[2]      Drucker, J., & Tankersley, J., 12/30/19, see above

[3]      Drucker, J., & Tankersley, J., 12/30/19, see above

YEAR-END REFLECTIONS ON DEMOCRACY AND THE PROGRESSIVE MOVEMENT

For New Year’s Eve 2019, with a momentous election coming up in 2020, I’m reflecting on the state of progressivism (aka liberalism) and our democracy. One of my heroes in the world of liberal policy and political analysis is Bob Kuttner. The range and depth of his knowledge is truly incredible. His writing is clear and insightful even when covering very complex policy and political issues. A main outlet for his writing and thinking has been The American Prospect magazine, which he co-founded and has run for 30 years. When many print media outlets are disappearing, the Prospect is flourishing.

While the Democratic Party has strayed from its core beliefs and values to shift to the center and the right, especially on economic issues (to allow it to pursue contributions from corporate elites), The American Prospect magazine and Kuttner have stayed true to the progressive cause. They have consistently championed working people’s causes and exposed the abuses of the big, multinational corporations and financial industry. They have connected the dots among the structural corruption of unchecked capitalism, its inextricable link to the corruption of our politics and democracy, how these affect the everyday lives of regular people, and what’s need to reclaim our democracy and country for the people. [1] The Prospect’s most recent issue is an incredibly in-depth analysis of the Green New Deal and the need for urgent and radical, yet practical and doable, actions to address global climate change.

Bob Kuttner’s comments at the October gala celebrating the Prospect’s 30th anniversary, reflecting on the roles of “mainstream” and radical progressives or liberals, struck me as very relevant and insightful in the run-up to the 2020 elections. Here is an excerpt:

One of the things that fascinates me is the uneasy relationship and necessary symbiosis between liberals and radicals. Liberal democracy, at its core, is about the rule of law, democratic representation, the concept of loyal opposition, free inquiry, and due process. It’s polite. But sometimes, power relations become so out of kilter that radicalism has to violate well-mannered liberalism. The industrial union movement could not have succeeded without sit-down strikes that violated property rights. The civil rights movement required sit-ins, and marches, and other forms of civil disobedience. Lyndon Johnson, when he allied himself with Martin Luther King, understood that people had to break the law as it was then understood to redeem the Constitution. And of course the anti-war movement of the 1960s had to break a lot of china.

Just as liberals, however queasily, need radicals, it’s also the case that radicals need liberals. Because drastic change ultimately needs to be enshrined as law.” [2]

Since the 1980s, an important factor driving the shift to the right and the enhancement of the power of corporate America and the wealthy has been an imbalance in financial resources and in the way the wealthy are using them. As Kuttner notes above, liberals and the left tend to be polite, well-mannered, focused on consensus and bipartisanship, and to operate within the context of laws, institutions, and established norms and practices. The right and their wealthy funders have not been similarly constrained. They have readily adopted an extreme agenda, been willing to bend and break the truth and the facts, and have willingly, and at times apparently gleefully, ignored norms and traditions, broken the law, and trashed important institutions of our democracy. [3]

This closing reflection from Kuttner’s speech resonates strongly with me:

… the postwar system of managed capitalism, that my generation assumed was the new normal, was in fact an anomaly. …

It takes enduring continuous political struggle to keep enriching and expanding democracy, both for its own sake and to housebreak capitalism. That is a labor of Sisyphus. You roll the rock up the hill; and the rock tumbles back down the hill. But in Albert Camus’s celebrated essay, The Myth of Sisyphus, the last line is: ‘One must imagine Sisyphus happy. The work, and the joy, is in the struggle.’” [4]

Beginning in the 1980s, the Democratic Party, and we as citizens of a democracy, let too many rocks roll too far down the hill by undoing the oversight and regulation of capitalism and letting it and the wealth of corporate elites corrupt our politics and policies. The middle class and working people got buried in the landslide of rocks rolling downhill.

Many citizens learned from the election of 2016 that democracy is not a spectator sport; citizens need to be engaged and informed for democracy to work. Some in the Democratic Party recognized and others found their voices to say that too many rocks had rolled too far down the hill of economic inequality and of other injustices in our society. Hopefully, the 2020 elections will reflect that learning, which was evident to some extent in the 2018 national elections, as well as in elections at the state and local levels.

One of my New Year’s resolutions is to do whatever I can in 2020 to advance the movement that’s reclaiming our liberal democracy of, by, and for the people. I hope it’s one of your resolutions too.

[1]      Meyerson, H., 10/24/19, “Sisyphus is happy,” The American Prospect (https://prospect.org/blogs/tap/sisyphus-is-happy/)

[2]      Meyerson, H., 10/24/19, see above

[3]      Heer, J., 9/10/19, “In an age of policy boldness, think tanks have become timid,” The Nation (https://www.thenation.com/article/think-tanks-democratic-party/)

[4]      Meyerson, H., 10/24/19, see above

WHY OUR MAINSTREAM MEDIA HAVE FAILED IN THEIR COVERAGE OF CLIMATE CHANGE

For decades now, our mainstream media have failed in their coverage of climate change. Earlier this year, Bill Moyers and the Schumann Media Center, which supports independent journalism, announced the creation of the Covering Climate Now project, a partnership of The Nation magazine and the Columbia Journalism Review (CJR). They hope to increase the coverage of climate issues and help journalism live up to its responsibility to connect the dots and tell important stories so that the public can understand them and act on the information presented. As Bill Moyers, the iconic journalist, said in his amazing speech (30 minutes) kicking off the project (there’s a 2.5 minute excerpt on the CJR website if you scroll most of the way down), “Reporting the truth is always the basis of any moral authority we can claim as journalists.” [1]

The first president to mention global warming was President Johnson in a speech to Congress in 1963. However, attention to it in public policy got lost due to a host of other hot issues (no pun intended). The fossil fuel industry, however, was paying attention and undertook a disinformation campaign that continues to this day.

In October 1970, the Mobil Oil Company began paying The New York Times to publish regular Op-Eds, also called advertorials, written by Mobil’s press office. Mobil viewed them as part of a major political campaign to prevent action against fossil fuels due to global warming. By 1983, Mobil’s press office felt they had succeeded in shifting the Times’ editorial positions to those Mobil had been espousing. [2]

Today, it is increasingly common for the mainstream media to present non-advertising “news” content that has been prepared by or for large corporations. For example, The New York Times and The Washington Post have received hundreds of thousands of dollars from fossil fuel companies and organizations, such as ExxonMobil, Shell, Chevron, and the American Petroleum Institute, to create the industry’s advertorials, which they then publish. [3]

The mainstream TV media haven’t done any better: combined coverage of climate change by the three major networks and Fox was just 142 minutes in 2018, down 45% from 2017. That’s an average of only 41 seconds per week per outlet! Not only have the major TV networks basically ignored this story, but they have failed to counter the false and deliberately deceptive propaganda promoted by the fossil fuel industry. [4] For example, extreme-weather events are linked to climate change, but the mainstream media almost never mention the climate change connection. Local weather forecasters are doing more to report the links between weather and climate change than the national networks.

The fight over climate change featuring environmentalists and scientists versus the powerful fossil fuel industry and its political supporters sounds like a David vs. Goliath story to which the mainstream media would love to give lots of coverage. But that has not been the case to say the least. [5] For example, in our general election presidential debates, the moderators who are from the mainstream media have not asked a single question about climate change in 2016, 2012, 2008, or ever.

The mainstream media, both TV and print, have been brainwashed by the fossil fuel industry’s propaganda to view climate change as a political story rather than a science story. The fossil fuel industry has successfully spread confusion and doubt about the science using the same public relations strategies and even some of the same “scientists” as Big Tobacco did in its campaign to spread doubt about the dangers of smoking. For example, Frederick Seitz, a physicist by training, received $45 million from Big Tobacco to obscure the risks of smoking and then, with funding from the fossil fuel industry, became the prominent US denier of human-caused climate change. [6]

The fossil fuel industry has bought enough politicians’ support through campaign spending and lobbying to make climate change appear to be a political issue rather than a scientific one. [7] The Republican Party in particular has bought into using climate change as a campaign issue (or perhaps it has been bought by the fossil fuel industry). Therefore, the mainstream media cover climate change as an issue of politics and not science.

As a result, the media typically give equal coverage to the scientific consensus that human activity is a major contributor to global warming and the fossil fuel industry’s propaganda that global warming is exclusively due to natural fluctuations in global temperatures and therefore not related to fossil fuel use.

Responsibility for the failure to accurately report and act on climate change goes beyond the mainstream corporate media and the fossil fuel companies. In many ways it includes much of corporate America, for example through the U.S. Chamber of Commerce. The Chamber is supported by most of the large corporations in the U.S. and has aggressively opposed action on climate change with multiple tactics: massive lobbying, substantial campaign spending, and extensive involvement in lawsuits and other legal actions. The Chamber spends roughly three times as much on lobbying as the next most active group. It has spent almost $150 million on congressional campaigns since 2010, when the Citizens United Supreme Court decision unleashed corporate campaign spending. In most congressional election cycles, the Chamber is the biggest “dark money” spender, meaning that it shields the identity of the donors for its spending. This provides corporations with a protective veil; they can oppose climate change action through contributions to the Chamber and no one will know. The Chamber is also active in court cases. In a three-year period during Obama’s presidency, it was involved in over 500 court cases. Although not all these court cases and all this spending is in opposition to climate change action, environmental issues were the third most frequent subject of its court cases and energy and environmental issues are a major part of its lobbying activities. The Chamber’s position on energy and environmental issues inevitably is in support of fossil fuels. [8] It would be hard to overstate the political clout of the U.S. Chamber of Commerce and the laundry list of major corporations that provide its funding.

In summary, the mainstream media have failed in their coverage of climate change in terms of both quantity and quality (i.e., accuracy) because of:

  • Their conflict of interest due to revenue from the fossil fuel industry for advertising and the preparation of advertorial Op-Ed pieces,
  • Brainwashing by fossil fuel industry propaganda, and
  • Being part and parcel of corporate America.

[1]      Moyers, B., 7/15/19, “What if reporters covered the climate crisis like Murrow covered World War II?” The Nation (https://www.thenation.com/article/climate-change-media-murrow-boys/)

[2]      Westervelt, A., May 6, 2019, “Why are The New York Times and The Washington Post creating ads for Big Oil?” The Nation (https://www.thenation.com/article/big-oil-pr-fossil-fuel-lobby-herb-schmertz/)

[3]      Westervelt, A., May 6, 2019, see above

[4]      Moyers, B., 7/15/19, see above

[5]      Hertsgaard, M., & Pope, K., 4/22/19, “The media are complacent while the world burns,” The Nation (https://www.thenation.com/article/climate-change-media-aoc-gnd-propaganda/)

[6]      Hertsgaard, M., & Pope, K., 4/22/19, see above

[7]      Hertsgaard, M., & Pope, K., 4/22/19, see above

[8]      Schumer, C.E., & Whitehouse, S., 11/21/19, “Climate change and dark money,” The Boston Globe

MEDICARE’S PROBLEMATIC PRIVATE OPTION

Medicare was created in 1965 when people over 65 found it virtually impossible to get private health insurance coverage. Medicare made access to health care a universal right for Americans 65 and over. It improved the health and longevity of older Americans, as well as their financial security. Initially, Medicare consisted solely of a public insurance program that included all seniors.

Today, a mixed public-private health insurance market exists under Medicare. An examination of it is very instructive in terms of how a mixed public-private system would be likely to work if extended to people under age 65. The Medicare-eligible population has been able to enroll in private health insurance plans since the 1980s. The private health insurance industry lobbied heavily for access to the large, Medicare market.

Private health insurers argued for a private option under Medicare, stating that they could deliver better quality services at lower cost due to their efficiencies, thereby saving Medicare money. Initially they were paid 95% of what a Medicare enrollee cost based on promised efficiencies. However, once they had their foot in the door, the private insurers successfully lobbied for their payment rate to be increased. In 2009, it was as high as 120% of what a senior enrolled in the traditional, public Medicare program cost.

Not only have private health insurers been getting paid more per enrollee than it costs the government to serve seniors in the traditional, public Medicare insurance pool, but they have healthier enrollees who cost less to serve! Clearly, these private Medicare plans, referred to as Medicare Advantage plans, have not been saving Medicare any money, but rather costing it more than it would have to serve these seniors directly. [1] [2] And there’s no evidence that they are providing better quality services that would justify such a high rate of reimbursement. The Affordable Care Act is now working to lower this over-payment to private insurers.

Since shortly after they began, the private Medicare Advantage plans have been getting over paid, and this is exactly what is likely to happen if private insurers are allowed to participate in a universal health insurance program for people other than seniors.

There are four main strategies the Medicare Advantage plans have used to get paid more than they should. Private insurers in a mixed market for non-seniors would be expected to do the same things: [3]

  • Cherry-picking: The private Medicare Advantage insurers have worked to enroll  healthier seniors who are less expensive to serve. Through targeted advertising, special benefits (e.g., subsidized health club memberships), and specialized outreach they have successfully attracted a healthier than average clientele. In the market for non-seniors, the private insurers can be expected to successfully work to attract younger, healthier, and therefore less expensive enrollees, leaving sicker and more expensive people for the public plan.
  • Lemon-dropping: The Medicare Advantage insurers have implemented strategies to get sick and expensive enrollees to drop out of their plans, even though this is ostensibly illegal under Medicare. For example, they limit access to providers of expensive specialty services, require high co-pays for expensive drugs, and put a complex approval process and other barriers in front of patients trying to access expensive care. The data from Medicare Advantage plans are clear, when patients need expensive services like dialysis or nursing home care they switch back to the public, traditional Medicare in large numbers because the private insurers make it difficult to access these services and get them paid for. In the market for non-seniors, the private insurers can be expected to drop or force out the sicker, more expensive patients, dumping this burden onto the public plan.
  • Over-reporting the seriousness of diagnoses: Medicare Advantage insurers report more and more serious diagnoses than they should. This makes their enrollees appear to be sicker than they are and therefore eligible for more or higher reimbursements from Medicare. For example, knee pain can be reported as arthritis and an episode of distress can be reported as major depression. Medicare’s occasional audits of Medicare Advantage insurers indicate that they are getting paid $10 billion annually for fabricated diagnoses and much more for what appear to be overly serious diagnoses. Private insurers in a non-seniors’ market can be expected to game the payment system this way too.
  • Lobbying Congress for generous payments: Over the 35 years of Medicare Advantage plans, the private insurers have cost Medicare more than it would have cost for Medicare to serve their enrollees directly because Congress has directed Medicare to pay the insurers higher premiums than are warranted. These higher premiums support Medicare Advantage plans’ 14% overhead (e.g., profits, advertising, and executive salaries), which is seven times more than Medicare’s overhead of only 2%. The over-payment of Medicare Advantage plans peaked in 2009 at around 120% of the per patient costs of traditional, public Medicare. Since then, the over-payments have been reduced by provisions of the Affordable Care Act (aka Obama Care). The private health care industry has lots of lobbying clout with Congress and can be expected to strongly and successfully lobby for favorable treatment under any expansion of health care coverage to non-seniors, as they did when the Affordable Care Act was being passed. At that time, for example, they were able to eliminate a public option plan from being offered because they were scared (perhaps even knew) that a public option like Medicare for All might well out-perform them.

As the debate about changing the U.S. health care system to a universal single-payer system, e.g., Medicare for All, has been unfolding, some opponents of a single-payer system have proposed a mixed system with both private health insurers and a public health insurance option, often referred to simply as a “public option.”

Unfortunately, a mixed public-private health insurance market for non-seniors won’t achieve the efficiencies and quality of a single-payer system as is evident in the Medicare Advantage experience. A single-payer system is the only way to both improve quality and control costs. (See this previous post for more details.)

I urge you to contact your U.S. Representative and Senators, as well as candidates in the 2020 election, and ask them where they stand on moving toward a single-payer health insurance system, e.g., Medicare for All. The health care and related industries will lobby strenuously against this, but in the end a single-payer health care system will provide better health care and health outcomes for Americans and will save us all a lot of money.

You can find contact information for your US Representative at  http://www.house.gov/representatives/find/ and for your US Senators at http://www.senate.gov/general/contact_information/senators_cfm.cfm.

[1]      Patel, Y.M., & Guterman, S., 12/8/17, “The evolution of private plans in Medicare,” The Commonwealth Fund (https://www.commonwealthfund.org/publications/issue-briefs/2017/dec/evolution-private-plans-medicare)

[2]      McGuire, T.G., Newhouse, J.P., & Sinaiko, A.D., 2011, “An economic history of Medicare Part C,” The Milbank Quarterly (https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3117270/pdf/milq0089-0289.pdf)

[3]      Himmelstein, D.U., & Woolhandler, S., 10/7/19, “The ‘public option’ is a poison pill,” The Nation (https://www.thenation.com/article/insurance-health-care-medicare/

LOBBYING: HOW TO WEAKEN ITS INORDINATE INFLUENCE

Big companies and their wealthy executives and owners have inordinate influence on our supposedly democratic policy making. They wield their power through the cumulative impact of lobbying, campaign spending, and the revolving door of personnel going back and forth between the private and public sectors. This post presents some steps that can be taken to reduce the ability of lobbying to skew our public policies to the benefit of big business and the wealthy. (See my previous posts for background on lobbying and examples of how it works to thwart policies that benefit the public.)

Multiple proposals have been made for reining in lobbying. Senator Elizabeth Warren has probably made the most extensive and detailed proposal. [1] [2] It would:

  • Require everyone who is paid to influence government decisions to register as a lobbyist
  • Impose strict disclosure of whom lobbyists contact and what information is exchanged
  • Prohibit lobbying on behalf of foreign governments
  • Ban contributions to federal campaigns by federal lobbyists
  • Shut the revolving door between government positions and lobbying jobs
  • Tax any organization that spends more than $500,000 on lobbying in a year (see details below)

Senator Warren proposes a tax on companies spending over $500,000 in a year on lobbying. This would reduce the incentives for what she calls “excessive” lobbying and provide funding to counteract lobbying blitzes when they occur. Any organization that exceeded the $500,000 threshold would pay a 35% tax on lobbying expenditures from $500,000 to $1 million. For spending above $1 million, the tax would be 60% and it would increase to 75% for spending above $5 million.

Experts estimate that under this proposal, over the last ten years, 1,600 corporations and industry groups would have paid $10 billion in excessive lobbying taxes. Fifty-one of these organizations, including the U.S. Chamber of Commerce, fossil fuel-based Koch Industries, drug maker Pfizer, defense contractor Boeing, Microsoft, Walmart, and Exxon, would have paid the 75% rate every year due to lobbying expenditures of over $5 million in each of the last ten years.

The U.S. Chamber of Commerce is the biggest spender on lobbying and would have paid an estimated $770 million in taxes on over $1 billion in lobbying expenditures over the last ten years. The National Association of Realtors, Blue Cross Blue Shield, the pharmaceutical industry association, and the American Hospital Association are the next four organizations on the list of the biggest spenders on lobbying, each having spent between $200 million to $425 million on lobbying over the last ten years. The five industries paying the most in lobbying taxes would have been the pharmaceutical, health insurance, oil and gas, financial, and electric utility industries.

Under Warren’s proposal, the funds raised from the excessive lobbying tax would go into a new Lobbying Defense Trust Fund, which would be dedicated to blunting the influence of excessive lobbying and strengthening the voice of the public interest in policy making. The funding would be used to: [3]

  • Strengthen Congressional expertise so members aren’t relying on lobbyists for information and expertise. For example, the Congressional Office of Technology Assessment (which was eliminated by Speaker Newt Gingrich) would be resurrected and the Congressional Budget Office would be strengthened.
  • Support federal agencies that are facing an onslaught of lobbying. They would be provided funding, for example, to allow them to hire personnel to complete rule-making more quickly when being inundated by lobbyists’ comments, to which they are required to respond. When an organization goes over the $500,000 expenditure threshold (triggering the lobbying tax) and spends money lobbying against a proposed rule or regulation, the tax on the spending would go to the federal agency doing the rule-making to help it respond.
  • Establish a new Office of the Public Advocate that would fight for the public interest in the rule-making process.

Senator Sanders also has a plan to reduce the influence of businesses and their lobbying in policy making. It would prohibit political contributions by federal lobbyists. It also calls for a lifetime ban on lobbying by former members of Congress and senior Congressional staff. [4]

The ethics and election reform bill, H.R.1, the first bill introduced after Democrats took control of the House in 2016, would tighten lobbying regulations. It would reduce from 20% to 10% the amount of time an individual could spend on lobbying activities before having to register as a lobbyist. The American Bar Association, among others, has proposed eliminating the 20% threshold and replacing it with a less arbitrary and more enforceable criterion. Numerous calls for a lifetime ban on lobbying by former members of Congress have been put forth, but the effectiveness of such a law is questionable given the amount of shadow lobbying, i.e., lobbying activities by unregistered persons, that currently exists. [5]

Big companies and their wealthy executives and owners work relentlessly through lobbying, campaign spending, and the revolving door to block or weaken policy changes that would benefit workers and the public. They attack legislation as it goes through Congress. They work to get the President to oppose or veto proposed laws. Failing that, they work to block or weaken the implementation of laws, including the issuance of relevant rules and regulations. If they can’t block the issuing of rules or regulations, they sue in court to block their implementation. At best, this delays policy changes that would benefit workers and the public by years; often it succeeds in killing them completely.

I urge you to contact your elected officials at the federal level, and at the state and local levels too, and to ask them to pass laws that require full disclosure of paid lobbying activities. Ask them to ban campaign spending by lobbyists and to close the revolving door between public sector positions and related private sector jobs, including as lobbyists. Finally, ask them to use tax laws and other mechanisms to provide financial disincentives for excessive lobbying spending.

We need to take these steps to reduce the inordinate and undemocratic influence of companies and wealthy individuals in our policy making.

You can find contact information for your US Representative at  http://www.house.gov/representatives/find/ and for your US Senators at http://www.senate.gov/general/contact_information/senators_cfm.cfm.

[1]      Warren, E., 10/2/19, “Excessive lobbying tax proposal,” Team Warren (https://medium.com/@teamwarren/excessive-lobbying-tax-fca7cc86a7e5)

[2]      Tusk, B., 10/14/19, “Lobbyists should embrace Warren’s anti-corruption plan,” The Boston Globe

[3]      Warren, E., 10/2/19, see above

[4]      Sanders, B., retrieved from the Internet on 10/15/19, “Get corporate money out of politics,” Sanders for President (https://berniesanders.com/issues/money-out-of-politics/)

[5]      Evers-Hillstrom, K., & Auble, D., 10/3/19, ‘Shadow lobbying’ in Trump’s Washington,” Open Secrets, Center for Responsive Politics (https://www.opensecrets.org/news/reports/shadow-lobbying-2019#reforms)

LOBBYING: HOW THE WEALTHY WIELD POWER

Wealthy individuals and their companies have inordinate influence on our supposedly democratic policy making through the reinforcing combination of lobbying, campaign spending, and the revolving door of personnel going back and forth between the private and public sectors. This post presents two examples of how lobbying has successfully blocked policies with strong public support and benefits for the public. My next post will focus on how to control lobbying and curb its use as a tool for undue influence. (See my previous post for background on lobbying.)

Drug price controls are one example of how lobbying, campaign spending, and the revolving door all come into play when corporate America and its wealthy executives and investors want to influence policy making. The costs of prescription drugs have been increasing dramatically and growing numbers of people can’t afford their drugs. In the first half of 2019, prices of 3,400 drugs surged an average of 10.5%, which is five times the rate of inflation. The cost of insulin, an old drug that is essential for many diabetics, has tripled in price over the last ten years for no reason other than greed. A third of uninsured Americans report they cannot afford their prescribed drugs and, as a result, millions of people are not taking needed medications.

With strong public support, Congress and the President have been considering ways to control and reduce drug prices. In response, the pharmaceutical industry is ramping up its lobbying and campaign spending. It is launching an advertising campaign opposing such steps and trying to blame others for high drug prices. In addition, courtesy of the revolving door, the pharmaceutical industry has one of its own on the inside in President Trump’s cabinet. Alex Azar, the secretary of Health and Human Services, which oversees Medicare and Medicaid among other things, was the president of a branch of drug maker Eli Lilly. Eli Lilly faced a class action lawsuit over its tripling of the price of insulin while Azar worked there. Eli Lilly has spent $4.2 million on lobbying so far in 2019 and has hired a former assistant to President G.W. Bush, who went through the revolving door to lobbying, as one of its lobbyists. In addition, Joe Grogan, a former lobbyist for Gilead Sciences, a drug company, is President Trump’s top policy adviser.

The pharmaceutical industry association has spent $16.3 million on lobbying so far this year and more than 70% of its lobbyists are revolving door participants, having previously worked for the government. It has spent $3.5 million on social media ads over the last 15 months, which typically blame others for high drug prices. It spends millions through affiliated advocacy groups and on election campaigns, including $2.5 million in 2017 to a pro-Trump dark money political group (i.e., one that hides the identity of its donors). Individuals and entities in the pharmaceutical industry have given millions to Congresspeople already this year, including $135,486 to Senate leader Mitch McConnell (R-KY) and $205,100 to Kevin McCarthy (R-CA), the House Minority Leader and the biggest recipient of pharmaceutical industry contributions so far this year. [1]

The  pharmaceutical industry has been very successful in blocking attempts to rein in drug prices . Even though the public identifies drug prices as the number one issue it wants Congress to do something about, no meaningful relevant legislation has been passed in the ten months this Congress has been in session. For example, Senator Cornyn (R-TX) launched tough attacks in a Senate hearing on AbbVie, a pharmaceutical company, and its CEO for filing more than 100 patents for its arthritis drug Humira. This “patent thicketing” as it’s called, is a way to prevent competition from generic drugs. Cornyn filed legislation to address this problem but lobbying and campaign contributions from the pharmaceutical industry convinced him to eliminate his own proposal that would have given the Federal Trade Commission the power to address the abuse of patent laws. Similarly, numerous other proposals to address drug prices and patenting issues have been dropped or dramatically weakened, and none have been passed. And the pharmaceutical industry was able to overturn in court the Trump administration’s recently issued rule that would have required drug prices to be disclosed in TV ads. [2]

Even when policies have been passed into law, the business lobbyists are experts at killing or weakening their implementation. In these efforts, they count on assistance from their friends in Congress (both elected members and staff) and from allies in the executive branch (who often have entered through the revolving door).

For example, in October 2010, the Department of Labor (DOL) proposed a “fiduciary rule” as part of the implementation of existing law. It would have required investment advisers for retirement savings accounts to act as fiduciaries, meaning that when providing investment advice they would have to put the best interests of their clients first, ahead of benefits for themselves, such as commissions, fees, etc. Some advisers have been recommending that their clients make investments that paid the advisers high fees and commissions but were not the best options for the clients and, in some cases, were clearly inappropriate investments for retirement savings.

Because this fiduciary rule could potentially reduce the incomes of financial advisers and the profits of their employers in the financial industry, the corporate lobbyists undertook an extensive and unrelenting campaign to kill the rule. First, during the public comment period on the proposed regulation, the financial industry and the Chamber of Commerce literally buried the DOL with hundreds of written comments and lots of testimony at public hearings. Because agencies are required by law to respond to every concern presented in public comments, a deluge of comments takes significant time and resources from the sponsoring agency. This delays the rule making process and can kill a proposed rule.

After 11 months of work, the DOL withdrew the proposed rule but said it would try to implement something similar in the future. The financial industry lobbyists continued their campaign against the fiduciary rule, trying to dissuade DOL from proposing a similar rule. In June 2013, a lobbyist drafted a letter urging Obama’s DOL to delay a second attempt and got 32 members of Congress from both parties to sign it. Nonetheless, the DOL persisted and re-proposed the rule in February 2015. The Wall Street lobbyists again geared up to fight the rule and submitted thousands of comments.

The DOL and its supporters persisted and got the rule through the process. However, the delay of five years meant that the rule couldn’t be fully implemented until after President Trump was elected.

After another $3 million of lobbying by the financial industry, the Trump administration delayed implementing the fiduciary rule and then its Department of Justice refused to defend it when the financial industry sued to block the rule from going into effect. So, after 7 years of work by DOL to protect workers’ retirement savings, the financial industry succeeded in killing this broadly supported, common-sense protection. Then, rubbing salt in the wound, President Trump appointed Eugene Scalia (son of Supreme Court Justice Antonin Scalia), the corporate lawyer and lobbyist who filed the lawsuit to block the fiduciary rule, as the Secretary of the DOL. [3]

This same pattern of industry lobbyists blocking implementation of laws passed by Congress and signed into law by the President happens repeatedly. For example, it happened when the Environmental Protection Agency tried to regulate methane emissions. And it happened when the Consumer Financial Protection Bureau tried to regulate payday lenders who rip off desperate borrowers with incredibly high interest rates and fees that often lock low-income individuals into an inescapable debt trap.

Companies and their wealthy executives and investors work relentlessly through lobbying, campaign spending, and the revolving door to block or weaken policy changes that would benefit workers and the public. They attack legislation as it goes through Congress. They work to get the President to oppose or veto proposed laws. Failing that, they work to block or weaken the implementation of laws, including the issuing of relevant rules and regulations. If they can’t block the issuing of rules or regulations, they sue in court to block them from going into effect. At best, all of this delays policy changes that would benefit workers and the public by years; often it succeeds in killing them completely.

My next post will discuss how to control lobbying and curb its use as a tool for undue influence.

[1]      Stella Yu, Y., 9/25/19, “Big pharma invests millions as Congress readies drug pricing bills,” Open Secrets, Center for Responsive Politics (https://www.opensecrets.org/news/2019/09/big-pharma-invests-millions-drug-pricing-bills/)

[2]      Florko, N., & Facher, L., 7/22/19, “How Big Pharma keeps winning in Washington,” The Boston Globe

[3]      Warren, E., 10/2/19, “Excessive lobbying tax proposal,” Team Warren (https://medium.com/@teamwarren/excessive-lobbying-tax-fca7cc86a7e5)

LOBBYING: A KEY PIECE OF PLUTOCRATS’ POWER

Plutocrats and their companies have inordinate influence on our supposedly democratic policy-making through the reinforcing combination lobbying, campaign spending, and the revolving door of personnel going back and forth between the private and public sectors. This post focuses on presenting background information on lobbying, how much of it is occurring and who lobbyists are. My next posts will focus on a couple of specific examples of how lobbying works, and then present some ways to control lobbying and curb its use as a tool for undue influence by plutocrats and their companies. Lobbying, by the way, is defined as an individual or organization interacting directly with government officials, either elected ones or employees, in an effort to influence public policy.

In 2018, corporate interests spent more than $2.8 billion (yes, that’s BILLION) on lobbying; that’s more than we spend to fund the entire operation of Congress. More than $58 billion has been spent on lobbying the federal government since 1998; an average of almost $3 billion a year. Currently, there are about 11,000 registered lobbyists in Washington, D.C. [1]

The Lobby Disclosure Act of 1995 requires lobbyists to register if they are:

  • Paid to lobby on behalf of a client,
  • Make more than one contact with government officials, and
  • Spend more than 20% of their time on lobbying and related activities.

In addition to registered lobbyists, lots of “shadow” lobbying occurs by individuals who are paid to lobby but are not registered, either because of loopholes in the law or failure to abide by the law. Conservative estimates are that the number of paid employees who lobby the federal government is at least double the number of registered lobbyists (22,000 instead of 11,000) and some people estimate the number might be close to 90,000.

The registration requirement that 20% of an individual’s time be spent on lobbying and related activities serves as a big loophole. Many unregistered lobbyists claim they don’t spend 20% of their time on lobbying activities. For example, former members of Congress who advise lobbyists and corporate officials who oversee lobbying activity but who infrequently engage in direct lobbying often don’t register. Every year, hundreds of registered lobbyists from one year don’t register as lobbyists the next year even though they remain in the same job or move to a similar job for a different employer. In 2019, 1,621 registered lobbyists from 2018 did not re-register although 769 (47%) of them remained with the same employer and 298 (18%) moved to similar jobs. In addition, giving a glimpse into who goes through the revolving door, 138 (8.5%) of them moved into government jobs.

Enforcement of the Lobby Disclosure Act has been limited. Of 19,705 cases of potential non-compliance reported to the U.S. Attorney for enforcement, only nine violations have been substantiated in 24 years. All of them resulted only in fines.

Despite his pledge to “drain the swamp” in Washington, President Trump has already hired 177 registered lobbyists into his administration in less than three years. Seven of those former lobbyists are in his cabinet running major federal agencies. In comparison, Obama hired 223 lobbyists in eight years and neither he nor President G.W. Bush had as many lobbyists in their cabinets over eight years. In 2018, 138 registered lobbyists left lobbying and took jobs as government employees. [2]

The Members of Congress who leave and go to lobbying firms are another stream of people going through the revolving door. Since January 2011, 176 members of Congress left to go to work influencing public policy, either as registered lobbyists or in other roles. Most of them went to high-profile lobbying firms with addresses on K Street in Washington, D.C., (aka K Street firms) or to the big law firms that engage in lobbying. However, of the 176, only about half (53%) registered as lobbyists.  [3]

The thousands of people who leave Congressional staff positions or executive branch agency jobs to become lobbyists represent another stream of people going through the revolving door.

In addition to the influence lobbyists have due to their personal contacts and knowledge of policy and the policy-making process, they also wield influence by giving or raising money for election campaigns. The timing of campaign contributions often coincides with the targeted Congressperson’s active involvement in a policy decision the lobbyist wants to influence. Or contributions may be made around the time of a meeting with a Congressperson, i.e., just before or just after the meeting, apparently to facilitate getting the meeting or as a reward for having the meeting or for commitments made during the meeting.

My next post will present a couple of specific examples of how lobbying works to influence policy. The subsequent post will review some ways to control lobbying and curb its use as a tool for undue influence by plutocrats and their companies.

[1]      Evers-Hillstrom, K., & Auble, D., 10/3/19, “‘Shadow lobbying’ in Trump’s Washington,” Open Secrets, Center for Responsive Politics (https://www.opensecrets.org/news/reports/shadow-lobbying-2019#reforms)

[2]      Evers-Hillstrom, K., & Auble, D., 10/3/19, see above

[3]      Evers-Hillstrom, K., 10/9/19, “Congress to K Street: 176 members left for influence gigs over the last decade,” Open Secrets, Center for Responsive Politics (https://www.opensecrets.org/news/2019/10/congress-to-k-street-176-members/)

REVITALIZING DEMOCRACY TO END PLUTOCRATIC ECONOMICS

This is the final post of an eight-part series on the failures of forty years of plutocratic economics that have harmed workers, the middle class, our economy, and our democracy.

The basic arguments of plutocratic economics are 1) markets work and government doesn’t and 2) markets are the best way to foster life, liberty, and the pursuit of happiness. Supporters of plutocratic economics believe that the highest form of freedom is the opportunity to engage in individual transactions in the marketplace. However, they oppose public or community-based efforts to ensure an equal opportunity for all to participate in the marketplace. (See this previous post for more details.)

Supporters of plutocratic economics believe that markets and businesses, on their own without regulation or oversight by government, are efficient and will meet human and societal needs. They believe that an individual’s lack of economic resources to buy the necessities of life is indicative of a personal failing. This means that they do not support efforts to level the playing field when structural inequities exist (or have existed), including discrimination, oppression, and subjugation. [1]

Plutocrats (i.e., people whose power comes from their wealth) believe that power and privilege are rightfully earned. Therefore, they support public policies that systematically favor wealthy individuals and business interests. They view corporations as the ultimate expression of market efficiency and believe businesses should be endowed with the rights of persons (e.g., free speech) and the powers of sovereign states.

Plutocrats use their economic power (i.e., their wealth) to control markets and policy making. They control policy making by effectively buying elected officials through campaign spending and government bureaucrats through lobbying and the revolving door (i.e., by having either themselves or their employees become government bureaucrats or by promising lucrative jobs to government bureaucrats whenever they leave their government jobs). Plutocrats also have provided a scholarly veneer to plutocratic economics by funding think tanks and academic scholars to promote supportive theories and provide supportive data.

Plutocrats use their economic power to enhance their political power in what becomes a mutually reinforcing spiral. For example, they have gotten campaign finance laws changed to allow them to engage in unlimited campaign spending and to hide their identities when they do so. They have changed the rules of the market so their businesses can become ever bigger and more powerful (e.g., by weakening the enforcement of antitrust laws). (See these previous posts for more details on the weakening of antitrust enforcement and what we should do about it.)

In addition to efforts that actively promote plutocratic economics, plutocrats actively work to undermine support for democracy. They work to discredit the belief that a democratic government can enhance life, liberty, and the pursuit of happiness for its citizens.

For example, supporters of plutocratic economics have misused antitrust laws to discredit and undermine public support for antitrust enforcement. [2] They have used antitrust laws to prevent collective actions by workers and small businesses. [3] The Trump administration recently opened an antitrust investigation into four large automakers (Ford, Honda, Volkswagen, and BMW) for agreeing to abide by California’s auto emissions standards (which are more stringent than national standards). By politicizing the use of anti-trust laws, many experts feel that the administration is trying to create the public perception that all use of antitrust enforcement is simply political.

The forty-year track record of failures for plutocratic economics has shown it to be a smoke screen for a self-serving grab for wealth and power by economic elites, i.e., a vehicle for plutocrats’ greed and desire for political influence. The failures are big and small – the 2008 financial collapse, out-of-control carbon emissions and climate change, skyrocketing inequality in incomes and wealth, and repeated failures to protect individuals’ privacy and personal data – and have harmed everyone – workers, taxpayers, small business people and entrepreneurs, and consumers – as I’ve documented in previous posts. Market failures have been widespread in the absence of effective government regulation and oversight. [4]

When plutocratic economics’ effects overwhelm society and government, preventing many residents from enjoying life, liberty, and the pursuit of happiness, there is a significant risk that citizens will turn to authoritarian and tyrannical leaders who promise a return to the good old days. Whether in the U.S. today or at other places and other times, these politicians promise resurgent economic well-being (often falsely) through nationalistic and emotional rhetoric. They typically blame immigrants, minorities (racial, ethnic, gender identity, and / or religious), and even the growing presence of women in the job market for workers’ loss of economic security. Supporters of plutocratic economics will also use other emotional, hot-button issues (such as gun control, abortion, and contraception) and even voter suppression to win political support and elections so they can implement their economic agenda.

Real freedom to pursue life, liberty, and happiness requires government and community-based entities that work to equitably balance economic and social power among all members of society. Democratic governments and institutions, including civic associations, are the vehicles that can and should serve as the guardians of this true freedom.

The antidote to the plutocrats and their plutocratic economics is the revitalization of democracy through increased participation by informed citizens. We need our democratic government institutions to assert their power over the plutocrats and their economic and political power. This will restore policy making to being of, by, and for the people and to promoting the lives, liberty, and pursuit of happiness of all residents. (See this previous post for more detail on policies to reverse plutocratic economics and its effects.)

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

[2]      Dayen, D., 9/10/19, “Is Trump’s Justice Department trying to discredit all antitrust?” The American Prospect (https://prospect.org/article/trumps-justice-department-trying-discredit-all-antitrust)

[3]      Dayen, D., 6/24/19, “In the land of the giants,” The American Prospect (https://prospect.org/article/land-giants)

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

HOW TO REIN IN MONOPOLISTIC BUSINESSES

The failure to enforce antitrust laws during forty years of plutocratic economics has produced dominant businesses in numerous sectors. The resultant concentration of economic power, and, along with it, political power, has undermined our democracy both economically and politically. It has also led to rapidly growing income and wealth inequality. (See my previous post for details.)

The monopolistic, unregulated markets created by plutocratic economics since the late 1970s have made it clear that well-managed markets, where real competition thrives, are more efficient and equitable. There is a stark contrast between the economy of well-managed competition from the 1950s through mid-1970s and today’s plutocratic economy. In the post-World War II period, income and wealth were much more evenly distributed and workers’ compensation rose with their increases in productivity. In the latter period, economic inequality has grown tremendously and workers’ compensation has been stagnant, despite increasing productivity.

The economic security of the middle class has disappeared, in part because of increased economic and financial instability. After a period of over 30 years without an economic crash or major economic scandal, from 1980 on there have been three major economic crashes or scandals: the Savings and Loan crisis, the bursting of the dot com bubble, and the 2008 financial collapse and Great Recession.

There are a variety of solutions that would reverse the trend toward greater industry concentration, [1] [2] [3] as well as steps that can be taken to reduce the power of monopolistic firms. [4] There is much the U.S. can learn from Europe where more vigorous antitrust enforcement has produced more competitive markets, lower economic inequality, and more equitable sharing of corporate earnings. [5]

  • Reviving vigorous use of antitrust laws to block mergers and acquisitions, including:
    • Declaring a moratorium on approvals of large mergers and acquisitions (e.g., those above $6 billion in value or ones creating firms with over 10% of local market share)
    • Banning mergers or acquisitions that would reduce the number of major firms in a local market to less than four
    • Expanding the antitrust judgment criteria from the simplistic focus on lower prices for consumers and “productive efficiency” to include a broader interpretation of the public’s interests
    • Reinvigorating enforcement of laws limiting predatory pricing, and
    • Considering monopsony power (i.e., a dominant buyer) as well as monopoly power (i.e., a dominant seller)
  • Using antitrust laws to break up companies with monopolistic power
  • Imposing much bigger fines for violations of antitrust laws
  • Making the merger and acquisition review process more public and transparent
  • Banning “exclusive dealing” where dominant firms require customers, wholesalers, and suppliers to sign contracts banning them from doing business with rivals or rewarding them for not doing so
  • Banning pharmaceutical companies from paying potential competitors not to introduce generic versions of drugs
  • Stopping pharmaceutical companies from extending their patents on drugs through trivial changes in a drug, erroneous patent filings, and outright patent fraud
  • Restoring consumers’ ability to repair durable products (e.g., smartphones, computers, cars, and tractors and other farm machinery) themselves or at independent repair servicers by banning product designs intended to prevent servicing and prohibiting restrictions on the availability of spare parts, repair tools, and detailed owners’ manuals

There are also a variety of solutions that would ameliorate some of the negative effects of industry concentration:

  • Making the formation of a union easier and less susceptible to employers’ efforts to block and delay unionization
  • Allowing workers of franchisees or ones in the gig economy to unionize
  • Banning non-compete agreements for low-paid, low-skill workers and ban non-poaching agreements for franchisees
  • Increasing the minimum wage

Recognition of the importance of antitrust enforcement is growing. It is being discussed in the presidential campaign for the first time in many years. Congress is holding hearings on monopolistic practices by businesses for the first time in decades. This included a hearing in May where a military spare parts supplier was called to task for charging over 40 times its costs for some parts and where a bipartisan group of legislators called for the company to return over $16 million in excess profits. [6]

Democratic society is threatened by dominant, market-controlling businesses. Huge monopolistic corporations can transcend the power of elected government to effectively control them. Every entrepreneur and businessperson should have the opportunity to compete without unfair competition and domination by monopolistic firms. Regional-level businesses should be able to thrive without being throttled by giant, national, monopolistic companies.

A functioning democracy relies on citizens who are free from domination by employers and sellers of goods and services. I encourage you to listen to what candidates for public office have to say about reducing the presence and power of monopolistic businesses and to ask them questions about what they would do to restore a vibrant, competitive economy in the U.S. – an economy that is fair for consumers, workers, small businesses, and entrepreneurs.

[1]      MacGillis, A., Jan./Feb./March 2019, “Taking the monopoly threat seriously,” Washington Monthly (https://washingtonmonthly.com/magazine/january-february-march-2019/taking-the-monopoly-threat-seriously/)

[2]      Cortellessa, E., April/May/June 2019, “Meet the new trustbusters,” Washington Monthly (https://washingtonmonthly.com/magazine/april-may-june-2019/meet-the-new-trustbusters/)

[3]      Sussman, S., July/Aug. 2019, “Superpredators: How Amazon and other cash-burning giants may be illegally cornering the market,” Washington Monthly (https://washingtonmonthly.com/magazine/july-august-2019/superpredators/)

[4]      Vaheesan, S., 9/24/19, “Unleash the existing anti-monopoly arsenal,” The American Prospect (https://prospect.org/day-one-agenda/unleash-anti-monopoly-arsenal/)

[5]      Horowitz, E., 7/30/16, “Europe may do capitalism better than US,” The Boston Globe

[6]      Dayen, D., 6/24/19, “In the land of the giants,” The American Prospect (https://prospect.org/article/land-giants)

MONOPOLISTIC COMPANIES HARM THE ECONOMY AND DEMOCRACY

Forty years of plutocratic economics has resulted in monopolies and near monopolies in many business sectors due to the failure to enforce antitrust laws. This concentration of economic power, and, along with it, political power, has undermined our democracy both economically and politically. It has also contributed to rapidly growing income and wealth inequality. (For information on plutocratic economics in general, see this previous post. For more on the effects of its deregulation of business, see this post.)

The Sherman Antitrust Act of 1890 laid the groundwork for antitrust regulation. Its purpose was to reduce the size and economic power of large, monopolistic companies. It was based on the federal government’s responsibility to regulate interstate commerce. At the time, the conglomeration of companies under trusts had come to dominate several major business sectors, such as the oil industry under the Standard Oil Trust. These trusts were monopolistic and destroyed competition.

The Sherman Act banned business activity that was “in restraint of trade or commerce among the several states, or with foreign nations”. The Sherman Act sought to balance the power of commercial, for-profit enterprises and the public interest. [1] The Clayton Antitrust Act of 1914 built on the Sherman Act and states that any merger is illegal if “in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly”. The reference to “any section of the country” is significant because when a few companies dominate an industry, they often have effectively divided the country up geographically so each one has a monopolistic position in some areas. Therefore, to effectively enforce antitrust laws, industry concentration should be analyzed in markets properly defined by product or service AND geography. Such an analysis often finds that market concentration is much higher than a nationwide analysis would suggest. [2]

In the 1960s, a concerted effort to undermine the historically broad economic and public interest goals of antitrust enforcement began. It was spearheaded by a group from the Chicago Law School with Robert Bork playing a leading role. (He was nominated for the Supreme Court by President Reagan in 1987 but was rejected by the Senate.) Bork and others argued that the only legitimate use of antitrust laws was to maximize consumer welfare, narrowly defined as low prices (often presumed to be the inevitable result of the economies of scale possible for large companies). This theory was adopted by pro-business economists, judges, and policy makers, including President Reagan.

Under President Reagan, antitrust enforcement was significantly scaled back and the Federal Trade Commission actually stopped collecting data on industry concentration. In eight years, President George W. Bush’s administration did not initiate a single antitrust case. [3] [4] The number of mergers grew from 2,308 in 1985 to 15,361 in 2017. [5]

Since 2000, three-quarters of U.S. industries have become more concentrated, including the technology, health care, communications, defense, and agriculture industries. This is perhaps most noticeable in the high-tech industry where Google and Facebook now control over 60% of all digital advertising and Amazon controls over half of all e-commerce. [6] From 1997 to 2012, the top four firms in any given industry saw their share of industry-wide revenue grow from 24% to 33%. [7]

There’s clear evidence that entrepreneurship and the number of start-up companies is down in the U.S. This is mostly due to dominant companies suppressing competition in multiple ways. They can block the entry of new firms simply by dominating the consumer and supplier markets. They can simply acquire competitors, especially given the lack of antitrust enforcement. Or these large companies can overwhelm start-ups in the market through fair and unfair competition using their vast resources. Among the evidence of reduced entrepreneurship and start-ups is that from 1987 to 2015 employment by companies under 10 years old has declined from 33% of the workforce to just 19%. [8]

Fewer, bigger employers have negative effects on workers and their compensation. Industry concentration means employees have fewer options, reducing their bargaining power. One reflection of this is the reduction in employment by newer companies. Furthermore, increasing numbers of companies, including low-wage, franchise businesses like McDonald’s, are forcing workers to sign non-compete agreements and franchisees to sign non-poaching agreements (banning solicitation or hiring of employees from other franchisees), further limiting workers’ options for employment, advancement, and wage growth. [9]

The growing size and reduced number of companies have exacerbated the economic divide between urban and rural areas. The large, highly profitable companies tend to be in urban areas, and people and economic vitality are drained from rural areas. Furthermore, the relatively small number of highly profitable, very large companies has made a handful of big cities the big economic winners, leaving many other cities behind.

The growing number of large, dominant companies also gives them power over suppliers. The condition of having a dominant buyer in a marketplace is called monopsony. It allows buyers like Wal Mart or Amazon to drive down suppliers’ prices, often forcing them to reduce the compensation of their workers, or in some cases, to drive the supplier out of business and take over the business for themselves. [10]

The result of industry concentration in the U.S. economy has been soaring profits, stagnant wages, and falling investment in companies’ equipment, research, and product development. In addition, service quality has fallen, along with entrepreneurship and innovation. This combination of rising profits with falling investment and stagnant worker pay violates the basic economic theory of competitive markets.

There is only one explanation: monopoly or near-monopoly conditions that allow companies to give their increased profits to owners while under-investing in human and physical capital, as well as service quality and innovation, because they can squelch competition, for example by buying up or crushing competitors and innovators. [11]

My next post will present solutions to the problem of large, monopolistic companies dominating our economy and democracy.

[1]      Paul, S., 6/24/19, “The double standard of antitrust law,” The American Prospect (https://prospect.org/article/double-standard-antitrust-law)

[2]      Abdela, A., & Steinbaum, M., Sept. 2018, “The United States has a market concentration problem,” The Roosevelt Institute (https://rooseveltinstitute.org/wp-content/uploads/2018/09/The-United-States-has-a-market-concentration-problem-brief-final.pdf)

[3]      MacGillis, A., Jan./Feb./March 2019, “Taking the monopoly threat seriously,” Washington Monthly (https://washingtonmonthly.com/magazine/january-february-march-2019/taking-the-monopoly-threat-seriously/)

[4]      Dayen, D., 6/24/19, “In the land of the giants,” The American Prospect (https://prospect.org/article/land-giants)

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

[6]      MacGillis, A., Jan./Feb./March 2019, see above

[7]      Shambaugh, J., Nunn, R., Breitwieser, A., & Liu, P., 6/16/18, “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., 6/16/18, see above

[9]      Covert, B., 2/15/18, “Does monopoly power explain workers’ stagnant wages?” The Nation (https://www.thenation.com/article/does-monopoly-power-explain-workers-stagnant-wages/)

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

[11]     Covert, B., 2/15/18, see above

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)

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

THE PLUTOCRATS’ ECONOMIC CON

Since the late 1970s, a concerted effort has been made by right-wing, wealthy elites to promote a new brand of “free market” capitalism, which I refer to as plutocratic economics. [1] Their broad, well-funded initiative was successful in reversing and undermining the progressive, managed capitalism that was put in place in the 1930s and 40s in response to the failure of the largely unregulated markets that led to the Great Depression.

After 40 years of experience with these plutocratic policies, the results are in: they don’t work. Wealthy elites (the plutocrats) have benefited substantially, but the consequences for the economy, workers, and the middle class have been very negative.

The plutocrats’ basic argument is that markets work and government doesn’t. They assert that government is inherently incompetent, in part because it and its regulators have been “captured” by the special interests they were supposed to regulate. [2]

The wealthy individuals and large, often multi-national, corporations pushing plutocratic economics invested in politicians, academicians, think tanks, and advocacy organizations to promote their theories, rationales, and policies. Academicians and think tanks were hired and funded to give a scholarly veneer and rationale to what otherwise would have been seen for what it was – a raw power grab. The resultant public policies greatly benefited the self-interest of the wealthy elites and corporate executives.

On the political front, the plutocrats use multiple strategies to achieve their policy goals. They employ lobbyists who work to convince policy makers to support their policies. They place supporters (often former corporate employees) within the government bureaucracy (a.k.a. the revolving door). They make campaign contributions and “independent” expenditures on behalf of candidates to elect supportive individuals and to buy access to elected officials. They promote trade policies and a type of globalization that undermines American workers. They got U.S. policy makers to choose trade policy options that put the interests of multi-national corporations and investors first and those of workers last. [3]

Proponents of the plutocratic economics promised that markets and businesses would regulate themselves for the good of all, that markets would be more efficient without government regulation, and that social goals could be more effectively achieved by using market forces. They also argued that social programs that supported low income workers and families were inefficient, unnecessary, and provided disincentives to work hard and make positive contributions to our economy.

In concert with their economic and political theories, the plutocrats pushed to reduce progressive taxation, eliminate government regulation and anti-trust enforcement (which had limited the size and marketplace power of corporations), and dramatically weaken public programs that provide support for workers and a safety net (including the minimum wage, unemployment benefits, unions, and welfare payments to the poor). Their trade policies allowed U.S. multi-national corporations to ship five million jobs overseas over the last 20 years. As a result, multi-national corporations now have a smaller portion of their global workforce in the U.S. than the portion of their sales that are in the U.S. [4]

The plutocrats and their hired experts developed rationales for their policies based on economic theories and assumptions about markets that were not supported by actual experience (and have since been disproved by actual experience). For example, they assumed ideal and efficient markets where perfect information was available to buyers and sellers, where prices were set solely by supply and demand, where sellers and buyers were numerous and no one had any marketplace power, and where there were no significant externalities, such as pollution. Supply-side economics is a classic case of an economic theory with no actual evidence for it and with substantial evidence refuting it today. It claims that cutting taxes, particularly on the wealthy and businesses, will 1) stimulate economic growth and 2) do so to such an extent that government tax revenue will actually increase. Despite multiple experiences where tax cuts have been enacted and have not produced the promised effects, the plutocrats still use supply-side theory to justify tax cuts, as they did successfully with the December 2017 $150 billion a year tax cut.

It is important to note, that despite the rhetoric, markets under plutocratic economics are NOT actually free markets. All markets require rules to function, such as rules about ownership of property including patents, copyrights, and other protections for intellectual property; laws governing contracts and courts to enforce them; standards for what constitutes unfair competitive practices; laws and courts to determine liability for accidents and harm from products; and standards for credit, debt, bankruptcy, financial transactions, and investments.

The issue for policy makers is how the markets’ rules balance the power and interests of various parties. The bottom-line questions are who makes the rules and who benefits. For 40 years, plutocratic economic policies have put returns to shareholders (i.e., primarily wealthy investors) and, by implication, corporate executives, ahead of the interests of workers and also of investment in a company’s future. As a result, compensation for workers has been flat while their productivity has continued to grow. Overall, the result of these plutocratic policies has been dramatic growth in income and wealth inequality, leaving the U.S. with the most unequal income distribution of any rich democracy. [5]

Future posts will 1) summarize the evidence that plutocratic economic policy has failed, 2) discuss the politics of plutocratic economics and how the plutocrats have reacted as the failure of their policies has become clear, 3) review the harm that plutocratic economics has done to our democracy, and 4) identify progressive policies that are needed to reverse the harmful effects of plutocracy.

[1]      Technically, among policy wonks and economists, this form of capitalism has been labeled neoliberal economics. This is confusing because liberal in the economic world means something quite different than liberal means in common political usage. Although this is a bit of an oversimplification, liberal in economics refers to individualism – an every person for him or herself approach.

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

[3]      Kuttner, R., 6/4/19, “Warren’s astonishing plan for economic patriotism,” The American Prospect (https://prospect.org/article/warrens-astonishing-plan-economic-patriotism)

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

[5]      Tyler, G., 1/10/19, see above

SHOULD THE U.S. HAVE A WEALTH TAX?

Economic inequality has been growing rapidly in the U.S. over the last 40 years. The wealthiest 10% of households now have roughly 80% of all wealth in the U.S. and 50% of all income. The richest 130,000 households now have almost as much wealth as the poorest 117 million households combined. The top 0.1% of households have seen their share of all wealth nearly triple, from 7% to 20%, in the last 40 years. Changes in tax laws since the 1980s have dramatically reduced taxes on the wealthy, even though they are the ones who receive the greatest benefit from the U.S. economic system and our public infrastructure. Economic disparities in the U.S. are greater than in any of the other 36 countries with advanced economies that make up the Organisation for Economic Co-operation and Development (OECD). [1]

One way to slow the growth of inequality, and perhaps reverse it, would be to tax wealth annually, like income taxation. Income is taxed because it is one way to determine how much someone has benefited from our economic system and public infrastructure, how much they can afford to pay in taxes, and how much it would be fair for them to contribute to the maintenance of our public infrastructure and the smooth functioning of our society – our education system, our transportation systems, our public safety systems, our legal system of laws and courts, etc. As with the income tax, a wealth tax would have a standard deduction or exemption so that low-wealth households would not pay any wealth tax. For example, the current exemption in Switzerland is about $75,000 per person in wealth (i.e., savings), in Spain it’s around $800,000 per person, and Senator Warren has proposed $50 million per household for the U.S. (See below.)

Under our current tax system (including federal, state, and local taxes), wealthy households pay a smaller portion of their financial resources in taxes than poorer households. This is true whether the calculation is done based on income or wealth. For example, the 0.1% wealthiest households are estimated to pay 3.2% of their wealth in all taxes, while the bottom 99% of households are estimated to pay 7.2%. U.S. tax laws no longer reflect the core principle of fairness – that what one pays in taxes reflects his or her ability to pay.

Some current taxes share some characteristics of a wealth tax but are limited in scope or scale. At the state and local levels, the ownership of real estate is typically taxed and in some places some forms of tangible property, such as cars or business assets, are taxed. However, ownership of financial assets (e.g., stocks, bonds, etc.), of boats and planes, of jewelry and art, of collectibles, and of other forms of wealth are generally not taxed. Income from wealth held as financial assets and the profits from the sales of assets are taxed. Transfers of assets through gifts and inheritance are taxed.

For every one of the wealth-related taxes – on property, on income and gains from assets, and on inheritance – the wealthy and well-connected (often due to their campaign spending) have gotten policy makers to change and write loopholes into our tax laws that reduce the taxes wealthy individuals pay. For property ownership, real estate taxes and interest payments on mortgages are deductible when calculating federal income taxes (although the 2017 tax bill has surprisingly put some limits on these deductions). Income from wealth held as financial assets and the profits from the sales of assets are taxed at a lower rate that income earned from working. If assets are transferred to another person, through inheritance, gifts, or other means, the gain or profit on the assets is typically NOT taxed, allowing the wealthy to pass on their wealth tax-free. Furthermore, the inheritance tax has been cut and serious efforts have been made to eliminate it. Currently, it is applied only on assets over $11 million per person. In addition, loopholes in tax laws allow wealthy families and their tax experts to avoid or reduce their payment of inheritance taxes. If an asset is given to a charity, the gain or profit on it is not taxed, even though the donor can deduct the full, current value of the asset to reduce the income tax they would otherwise owe. This is a double tax avoidance scheme that provides huge benefits to the wealthy.

Four European countries have a wealth tax and back in 1990 twelve of them did. The wealth tax has been dropped in eight countries for a variety of reasons, but one was that wealthy individuals in Europe can relatively easily designate a tax-free location as their official residence to avoid the wealth tax. In addition, the wealth taxes were not generating much revenue because the tax rate was low (e.g., 1% to 2%), because exemptions for certain assets or circumstances have been written into the laws, and because of tax avoidance. Furthermore, other wealth-related taxes were viewed as preferable, e.g., taxes on gains or profits when assets are sold, inheritance taxes, property taxes, and taxes on inter-generational gifts. [2]

Senator Elizabeth Warren, as part of her presidential campaign, has proposed a wealth tax for the U.S. that she calls the Ultra-Millionaire Tax. It would apply only to the 0.1% richest households – about 75,000 households – with net wealth (i.e., assets minus debts and other liabilities) of over $50 million. They would pay an annual tax of 2% on net worth over $50 million up to $1 billion and 3% on net worth over $1 billion. This tax is estimated to generate $275 billion per year and, thereby, increase federal government revenue by about 7%. [3]

Warren’s proposed wealth tax would apply to all assets held anywhere in the world by a U.S. citizen. The IRS would be able to grant deferments (i.e., a postponement or delay) in the payment of the tax in extenuating circumstances. To calculate someone’s wealth, Warren notes that the IRS already has rules for valuing most assets for inheritance tax purposes. These rules could be used or they could be improved, and the IRS would be authorized to use cutting-edge valuation techniques for hard-to-value assets. Her proposal includes an increase in the IRS’s enforcement budget to oversee taxpayers subject to the Ultra-Millionaire Tax. A 40% exit tax would be charged on net worth above $50 million for anyone renouncing their U.S. citizenship to avoid the tax. The revenue this proposal would generate is what Senator Warren would use to pay for the programs she has proposed in other policy areas.

Economic inequality in the U.S. is spiraling to unprecedented levels because the wealthy have been using their wealth to skew public policies, such as tax policies, to their benefit. For example, some Republicans in Congress acknowledged that the 2017 tax bill, with its huge tax cuts for the wealthy, was passed to satisfy and reward donors to their campaigns, who were demanding a return on their “investment”. [4]

A wealth tax could be one strategy to address the huge and growing economic inequality in the U.S. It would ask those who have benefited tremendously from the U.S. economic system and our public infrastructure to pay something back to maintain this business environment so that the next generation has the same opportunity to succeed as they did.

[1]      Thornton, A., & Hendricks, G., 6/4/19, “Ending special tax treatment for the very wealthy,” Center for American Progress (https://www.americanprogress.org/issues/economy/reports/2019/06/04/470621/ending-special-tax-treatment-wealthy/)

[2]      Taylor, T., 2/4/19, “Why have other countries been dropping their wealth taxes?” Conversable Economist (http://conversableeconomist.blogspot.com/2019/02/why-have-other-countries-been-dropping.html)

[3]      Warren, E., retrieved 6/12/19, “Ultra-Millionaire Tax,” (https://elizabethwarren.com/ultra-millionaire-tax/)

[4]      Thornton, A., & Hendricks, G., 6/4/19, see above

WHO WAS BAILED OUT AFTER THE 2008 FINANCIAL CRASH?

The 2008 financial crash and resultant bailout have been in the news recently for two reasons: 1) some critiques have been leveled at Sen. Bernie Sanders’ statement on the presidential campaign trail that no Wall St. executives went to jail and that they got a trillion-dollar bailout, and 2) a new book has come out: Crashed: How a decade of financial crises changed the world by Adam Tooze. The book has been described as insightful and telling a story that is both “opaquely complex and dazzlingly simple.” [1] In terms of Sen. Sanders’ statement, it takes a real spin doctor to dispute the truth of it (see below).

In the aftermath of the 2008 implosion of the huge Wall St. corporations, the U.S. government and Federal Reserve Bank came to the rescue. The government quickly made $700 billion available to bailout the Wall St. firms. Otherwise, twelve of the 13 largest ones probably would have gone bankrupt in late September or October of 2008 (as Lehman Brothers did before the rescue was in place and the scale of the disaster was clear). The government also bailed out the auto industry, insurance companies (e.g., AIG), and the quasi-public mortgage-purchasers Fannie Mae and Freddie Mac.

In addition, the Federal Reserve Bank (Fed) made unprecedented purchases of assets from the technically bankrupt financial corporations under the innocuous-sounding banner of “quantitative easing”, to the tune of over $4 trillion. The six largest firms alone (JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley) also borrowed about $500 billion from the Federal Reserve Bank in peak periods of need. [2] Furthermore, the Fed extended what were effectively loans to the central banks of other countries of an also unprecedented $10 trillion. Estimates of the overall contribution of the Fed to the bailout range from $7.7 trillion to $29 trillion.

In addition, the U.S. government supported the big financial corporations in a variety of other ways. For example, short-selling of 799 financial stocks was banned in 2008 to protect these companies from free market speculation, which boosted their stock prices. Emergency bank charters were given to Goldman Sachs and Morgan Stanley on Sept. 21, 2008, so they could borrow from the Fed as only banks can do. In October, the Fed, for the first time in history, paid interest to the banks on required reserve deposits. Shortfalls in required reserves and failed stress tests were effectively ignored. And except for one relatively low-level officer at Credit Suisse, no one and no company was criminally prosecuted or went to jail. The value of all these benefits is truly incalculable.

Therefore, pinning down a single figure for the total bailout is impossible because there were so many different pieces and the amounts in some of them fluctuated daily, given that banks borrow money from the Fed daily to meet their reserve requirements. However, to state that it was a trillion-dollar bailout is definitely true and to say that no Wall St. executives went to jail is also true for all meaningful purposes.

With all this bailout money and support for the financial corporations and the financial system, one might think that some significant money or support would have been made available to bailout out the workers and homeowners caught in the maelstrom of Wall St. malfeasance. However, precious little assistance was made available to the millions of homeowners trying to pay mortgages on homes where the mortgage was now greater than the value of the home, given that many homes had lost half their value. Very little was done for the millions of homeowners who suffered foreclosure. And it was not only individuals who suffered; whole communities – usually minority and low-income communities – were underwater due to predatory and discriminatory mortgage lending by the big financial corporations and their agents. Moreover, millions were unemployed as the economy went into a severe recession due to the malfeasance on Wall St. [3]

Two things make all this truly galling. The first is that despite the massive intervention of the U.S. government and the Fed, the rescued financial corporations were not required to change their basic mode of operation. The instability of speculative financial transactions that is endemic in their model of profitability and the huge financial rewards for employees, especially executives, was left intact, along with public insurance against losses that threaten consumers’ deposits.

The second galling outcome is that no executives of the financial corporations were punished, either through significant loss of compensation or criminal prosecution, let alone jail time. Remember, that in the 1980s Savings and Loan crisis, which was much smaller in scale, nearly 900 executives of Savings and Loan banks went to jail.

“The contrast between the solicitous care shown the culpable financial sector and the negligence shown to the innocent homeowner was startling.” [4] As a result, class-based economic inequality in the U.S. was exacerbated and economic gaps in income and wealth between Whites and Blacks grew dramatically.

The bailed out financial corporations were expected to make loans available to help households and businesses, as well as to avoid foreclosures whenever possible. When foreclosure was unavoidable, it was expected that the financial corporations would promptly resell those homes. These actions would have helped individuals, businesses, and communities recover. However, no requirements were placed on bailed out banks to do these things and, therefore, they did not happen.

The programs that were supposed to assist homeowners typically had draconian rules to prevent “undeserving” homeowners from benefiting. The story line from Wall St. and its backers on Capitol Hill was that home buyers were the ones at fault; they should have known better than to be duped by the predatory practices of the mortgage brokers or that the home buyers were simply trying to live above their means. This concern about benefiting undeserving individuals clearly did not extend to the undeserving bank and financial sector executives responsible for perpetrating fraud in the mortgage business and crashing their companies and the economy.

Similar opposition blocked the expansion of unemployment benefits and job training for workers who had lost their jobs. On the other hand, there were no significant limits put on the pay of executives whose corporations were bankrupt without the bailout, let alone requirements that executives pay back compensation they had received based on profits generated by fraudulent activities.

As the Great Recession lingered on and jobs, homes, and economic security did not return (still true today for many people), the deep anger and discontent that set in was the breeding ground for support for Trump.

The 2008 financial crisis and the bailout of the financial corporations and their executives, but not the homeowners and workers who suffered from the resultant crash, are exhibit one in the indictment of the corporate takeover of U.S. policy making. I urge you to contact your elected officials and ask them to stand up against corporatocracy and demand democracy back. Our government should work for the people, the workers and homeowners of America, not the big corporations.

[1]      Bloom Raskin, S., Winter 2019, “Whose recovery was it?” The American Prospect (This article is a review and commentary on Tooze’s book.)

[2]      Taibbi, M., 3/18/19, “Turns out that trillion-dollar bailout was, in fact, real,” RollingStone

[3]      Bloom Raskin, S., Winter 2019, see above

[4]      Bloom Raskin, S., Winter 2019, see above, page 86

U.S. CAPITALISM KILLS COMPETITION

The theory of capitalism says that free market competition will ensure quality products and services at competitive prices. Unfortunately, that theory is not the reality of U.S. capitalism today.

Deregulation and our business laws and practices, from anti-trust to financing to patent protections, have destroyed competition. Without competition, businesses have no incentives to restrain price increases, to ensure quality, or to provide consumers the choices that free market theories assume. Furthermore, monopolistic employers and business owners have little incentive to fairly compensate workers or even invest in the future of their businesses. Instead, they can and have been keeping profits high and lining their own pockets.

Rather than free markets, the U.S. economy is sea of monopoly or, at least, oligopoly, where a small group of sellers or producers control a market. For example: [1]

  • Four airlines control the bulk of air travel
  • Two corporations produce the bulk of beer
  • Six enormous banks / financial institutions hold over 40% of deposits and 50% of assets
  • Drug companies find ways to extend patents or otherwise restrict competition so they can jack up prices and make huge profits (see previous posts here, here, and here)
  • Two corporations control all on-line travel bookings
  • Two companies make nearly all the intravenous saline solution used in hospitals
  • Two firms control the majority of on-line advertising
  • Three companies control the agricultural markets for seeds and pesticides
  • Four firms make 89% of baby formula
  • Two companies make 76% of coffins
  • The supermarket and media industries are continuing to consolidate so that a handful of corporations control these markets
  • Two companies control the mobile app market

Furthermore, the oligopolists find ways, such as carving up geography or colluding (for example, generic drug makers) to make themselves effectively monopolists and charge exorbitant prices and/or deliver low quality goods and services. For example, there are many Internet service providers (ISPs) in the U.S., but three dominant providers (Comcast, Charter Communications, and AT&T, each with over 15 million subscribers) and six midsize providers (with between 3.5 and 7 million subscribers). Every other provider has under 1.3 million users. The nine dominant and midsized companies have carved up the country so that 76% of households have only one choice of Internet provider making the ISPs effectively monopolies.

The monopolists and oligopolists have used political and market place power to restrict new entrants to their markets. The rate of new business formation today is half of what it was in the late 1970s. When competition does emerge, the big, dominant companies often simply buy up the competition, sometimes to use its technology or innovations, and other times simply to eliminate it as competition.

Our anti-trust laws and regulators have failed to stop anti-competitive acquisitions. In the last ten years, Amazon, Apple, Facebook, Google, and Microsoft have purchase 436 companies and startups without a single challenge from anti-trust regulators. [2] As a result, with almost every purchase consumers make, we are paying a toll, an excessive price, to one or another of the many monopolies or sets of oligopolies.

This trend of business and economic concentration, which allows companies to build high levels of market share and power, began in the 1980s under President Reagan and supposedly “conservative” Republicans. An important symbolic step in this trend was when the Federal Trade Commission stopped collecting data on market concentration in 1981.

Capitalism without real competition is not capitalism; it’s monopoly or oligopoly. The monopolists and oligopolists have very strong incentives to preserve their dominant status. Until the American public responds forcefully, and demands that its elected representatives do so as well, the number and size of monopolies and oligopolies are likely to grow.

Unfortunately, the mass media, which could provide the information to the public on the growing economic concentration, lack of competition, and harm to consumers and our politics, are highly concentrated corporations themselves. Therefore, our mass media have a vested interest in not telling us this story.

In the early 1900s, when the U.S. government fought back against the giant trusts such as Standard Oil and U.S. Steel, anti-trust laws and anti-monopoly regulatory actions were viewed as a check on excessive private power, and competition was seen as necessary to preserve opportunity, as well as human freedom and liberty. We need to fight back against the excessive private power of economic concentration again today.

An important piece of reclaiming our democracy from the plutocrats is reclaiming our economy from the monopolists and oligopolists. Some of the 2020 presidential candidates, especially Senator Elizabeth Warren, are talking about this and presenting policy proposals (e.g., here and here) to do so.

I encourage you to follow the presidential candidates’ proposals and the discussion of America’s Winner-Take-All, anti-competitive, faux free market, monopolistic capitalist economic system.

 

P.S. Sorry for the recent lack of posts to this blog. I was managing a campaign for the local Select Board (i.e., town council). The election was April 2 and we were successful! Over the last 3 years, we’ve replaced 4 of the 5 Select Board members with strong progressives, including two young mothers. A real turnaround!! All politics is local and political change does start at the grassroots.

[1]      Dayen, D., Winter 2019, “The new economic concentration,” The American Prospect

[2]      Dayen, D., Winter 2019, see above

WHY WE NEED EFFECTIVE GOVERNMENT REGULATION

The need for effective government regulation has been highlighted by recent events including the crash of an airliner in Africa and a mass shooting in New Zealand. We rely on federal regulators to keep us safe and to make informed and independent decisions about the safety of consumer products and services. Deregulation and privatization over the past 40 years, which have accelerated in recent years, have weakened federal regulation and increased risks for consumers and the public.

The Federal Aviation Administration’s (FAA) mission is to keep air travel safe. However, after the crash of a Boeing 737 in Africa, the second for that model airplane in four months, the FAA did not order this plane to be grounded, even though virtually every other airplane regulator in the world did. President Trump, of all people, overruled the FAA and ordered the plane to be temporarily grounded.

Because of the weakening of the FAA and privatization of some of its functions, the FAA relies on Boeing employees to certify that Boeing planes are safe. It’s hard to imagine a more obvious conflict of interest or lack of independent decision making, when the public’s safety should be the sole decision-making criterion.

The FAA’s regulatory mission has been compromised, at least in part, because Boeing is very active politically. It spent $15 million on lobbying in 2018. Its political action committee and employees have donated over $8 million to the election campaigns of members of Congress and presidential candidates since 2016. Trump’s decision was somewhat surprising because Boeing’s president and CEO frequently visits with Trump at his Mar-a-Lago resort and at the White House. He also gave $1 million to Trump’s inaugural committee. A former Boeing executive has also been appointed acting Secretary of Defense by Trump. [1] [2] All these activities by Boeing and its executives are meant to increase its influence over policy makers who oversee the FAA and its budget.

On a different front, Facebook allowed a mass shooting by a White supremacist in New Zealand to be live streamed and widely viewed over its platform. YouTube / Google and Twitter were guilty of allowing this shocking video to be broadly shared. Despite safeguards these companies claim to have in place to prevent this, it took them many hours to remove this video from their platforms. And this isn’t the first time violent, disturbing videos have been widely shared on these platforms. Furthermore, Facebook had been used by the shooter and other like-minded individuals to communicate and share ideas and plans. [3] [4]

Facebook has also faced strong criticism for its repeated failures to protect the privacy of individuals’ data – even after it had promised regulators that it would do so, including in a 2011 consent agreement with the Federal Trade Commission. [5] It has also faced criticism for allowing the spread of false information and inflammatory, racist, bigoted, and terrorist messaging by individuals and groups who were able to establish accounts on Facebook often with false identities or to hijack the accounts of legitimate Facebook users. It has also allowed groups that traffic in such mindsets and mis-information to flourish on its platform, exacerbating extremism and societal divisions, tensions, and hatred. [6]

Finally, Facebook blocked an advertisement by presidential candidate Elizabeth Warren that promoted her policy proposal to regulate and break up huge, monopolistic technology corporations, such as Facebook. Facebook relented and let the advertisement run after a firestorm of criticism.

Clearly, Facebook and other social media platforms need better and stronger government regulation. Government regulators need to figure out how to better protect citizens from mis-use of personal information; on-line sharing of violent videos, inflammatory content, and false information; discrimination by platform operators; and hackers, bullies, and trolls. Ultimately, if regulators can’t get these companies to correct these problems, the social media companies should be forced to shutdown services they can’t run responsibly, such as live-stream video sharing.

As a third example, the Consumer Financial Protection Bureau (CFPB) was created in the aftermath of the 2008 financial collapse in which millions of Americans lost their homes, their savings, and/or their jobs. The collapse occurred because Wall St. financial firms were weakly regulated and were able to engage in fraud and speculative investing that lost huge amounts of money. [7] The CFPB is an example of a federal regulator that was created in the wake of a huge scandal but is now being hampered and weakened by elected officials in response to campaign contributions and heavy lobbying from regulated industries. (See previous posts here, here, here, and here for more background.)

Recently, President Trump and many members of Congress, especially Republicans but including some Democrats, have been working to roll back regulation of payday lenders that the CFPB spent five years carefully crafting. These lenders exploit financially stressed individuals who need a short-term loan until their next payday. The lenders charge annual interest rates as high as 400% and make loans they know the individual is unlikely to be able to pay back on time. When the borrower defaults, the lender then renews the loan (often again and again), typically with additional fees each time, capturing the borrower as a perpetual revenue stream. The payday lending industry makes most of its profits from these financially distressed and desperate repeat borrowers. [8] [9]

Clearly, we need the CFPB to protect consumers from abusive, predatory, and fraudulent behavior by financial companies and to protect our economy from the likelihood of another financial collapse like the one in 2008.

We rely on, or perhaps at this point in time I should say that we should be able to rely on, these and other regulators, such as the Consumer Product Safety Commission, the Environmental Protection Agency, and the Department of Education, to protect us. However, due to regulatory failures, we are increasingly experiencing dangerous consumer products from manufacturers and importers, serious pollutants in our air and water, and fraudulent, for-profit colleges. Weakened federal regulators and increased influence of regulated industries over the regulators are to blame.

We, as citizens and voters in a democracy, and our elected representatives need to realize how important strong, independent regulation is to our health and safety. This is important to us individually and to the functioning of our economy. Regulators’ sole focus must be to protect the health and safety of consumers, workers, and the public. They must be truly independent of the industries they regulate and must have the necessary resources to effectively carry out their responsibilities.

[1]      Robinson, M. S., 3/15/19, “We shouldn’t depend on Boeing to tell us whether Boeing planes are safe to fly,” The Boston Globe

[2]      Lardner, R., & Lemire, J., 3/14/19, “Boeing packs massive lobbying arm,” The Boston Globe from the Associated Press

[3]      Editorial, 3/15/19, “New Zealand mosque attack should be a wake up call for big tech,” The Boston Globe

[4]      Pham, S., 3/15/19, “New Zealand shooting video,” CNN Business

[5]      LaForgia, M., & Rosenberg, M., 3/14/19, “US aims probe at Facebook’s data-sharing,” The Boston Globe from The New York Times

[6]      Schiffrin, A., Winter 2019, “The digital destruction of democracy,” The American Prospect

[7]      Warren, E., 9/17/18, “10 years after Lehman collapse, Washington is back to its old tricks,” The Boston Globe

[8]      Sweet, K., 10/27/18, “Federal agency eyes looser payday loan rules,” The Boston Globe from the Associated Press

[9]      Gordon, M., 3/8/19, “Fresh scrutiny for consumer watchdog,” The Boston Globe from t/he Associated Press

PRIVATE WEALTH IS MADE ON PUBLIC INVESTMENTS

Private companies and individuals benefit from public investments in many ways. You may remember Senator Elizabeth Warren saying back in 2014 that “Nobody got rich on their own. Nobody. People worked hard, they built a business, God bless, but they moved their goods on roads the rest of us helped build, they hired employees the rest of us helped educate, they plugged into a power grid the rest of us helped build,” they are protected by police and firefighters that we all pay for, and so forth. [1]

Clearly, successful companies and individuals owe their success in part to public infrastructure and investments. Therefore, they should pay their fair share in taxes to support public spending on both the infrastructure they depend on and also to invest in the future so other individuals and companies can succeed as they did.

Another way that public investment supports and benefits private individuals and companies is that the federal government invests heavily in basic research that is then used by the private sector to develop products and services.

One example of this is that the National Institutes of Health (NIH) spends $30 billion each year on drug research and development (R&D). The pharmaceutical industry routinely justifies the high prices of drugs by citing the high cost of R&D to bring new drugs to market. This rationale is overstated from many perspectives (see my previous blog on drug pricing), but Representative Ocasio-Cortez shed new light on this overblown claim in a hearing in Congress earlier this year.

Rep. Ocasio-Cortez asked Dr. Aaron Kesselheim [2] whether the public was receiving any return on the investments in drug R&D made by the NIH when they led to highly profitable drugs. His answer, “No, … when those products are … handed off to a for-profit company, there aren’t licensing deals that bring money back into the coffers of the NIH.” [3]

Every one of the 210 new drugs approved by the Food and Drug Administration (FDA) between 2010 and 2016 benefited from NIH funded R&D.

The U.S. government is the biggest venture capital investor in the world. Examples outside of pharmaceuticals abound. The Internet grew out of the 1960s ARAPNET program funded by the Defense Department. Touchscreen technology was developed at a publicly-funded university using National Science Foundation grants. GPS technology began as a 1970s Defense Department program. Voice recognition technology came out of a project of the Defense Advanced Research Projects Agency (DARPA). Every one of the 12 key technologies of smart phones grew out of government-funded research projects. The Department of Energy has made over $35 billion in loans to high-risk clean technology projects, including Tesla’s development of electric cars. [4]

Unfortunately, the U.S. public is not getting the return it deserves on these investments. One way to get a public return is to tax the profits of companies using technologies in which the government has invested. Currently however, some of these companies pay very little or nothing in taxes. Furthermore, the 2017 tax cuts reduced corporate taxes to a near-record low. In addition to taxes, in countries such as Germany and Finland, the government obtains partial ownership or royalty payments from companies that benefit from public investments.

Part of the reason the public does not get a return on public investments in the U.S. is that our political system has been skewed to favor the interests of the private sector through our campaign finance system, lobbying, and the revolving door between government and private sector jobs. For example, over the last ten years, the pharmaceutical industry has spent almost $2.5 billion lobbying Congress. This includes hundreds of millions of dollars spent to influence the drug coverage provisions of the Affordable Care Act, which produce about $35 billion in additional profits for the pharmaceutical corporations.

Our elected officials and government regulators need to begin insisting that private companies and individuals provide the public – the taxpayers – with a reasonable return on public investments, including everything from roads, bridges, and air transportation, to our education system, to research and development. Fair taxation is one way to do this, but other avenues, such as partial ownership and royalty payments, should be explored as well.

[1]      Senator Elizabeth Warren, August 2012, campaign event https://www.youtube.com/watch?v=AHFHznu-N-M (30 seconds in)

[2]      Dr. Kesselheim is a doctor and a lawyer. He is an Associate Professor of Medicine at Harvard Medical School. He is an expert on the effects of intellectual property laws and regulatory policies on pharmaceutical development, the drug approval process, the costs, availability, and use of prescription drugs, and bioethics. (https://bioethics.hms.harvard.edu/person/faculty-members/aaron-kesselheim)

[3]      Karma, R., 3/6/19, “Alexandria Ocasio-Cortez and the myth of American innovation,” The American Prospect (https://prospect.org/article/alexandria-ocasio-cortez-and-myth-american-innovation)

[4]      Karma, R., 3/6/19, see above

RAISE THE MINIMUM WAGE? FEDS: NO! VOTERS: YES!

The bad news is that Congress and the President have not raised the federal minimum wage since July 2009 when it was set to $7.25 (about $14,500 per year for a full-time worker). After adjusting for inflation, it is now worth only $6.19. At its peak in 1968, the minimum wage was worth $11.39 in today’s dollars. If it isn’t raised by this July, which seems unlikely, it will have been 10 years that low-income workers governed by the federal minimum wage have gone without a raise; the longest period without an increase since it was first establish in 1938. [1]

Failing to raise the minimum wage as inflation increases prices shifts money from low-income workers’ pockets and the local economies where they spend their earnings to the pockets of their employers’ executives and shareholders. This is borne out by the fact that executive pay and corporate profits are at record levels. The minimum wage does not get increased because employers are greedy and politicians cater to wealthy campaign supporters rather than regular voters and workers. By the way, the best data available show that increasing the minimum wage does NOT reduce overall employment.

The good news is that some states and communities, often driven by grassroots activists, are increasing the minimum wage. On January 1, 2019, the minimum wage in 20 states and 24 communities went up, increasing pay for over 5 million workers. Over the course of the year, workers will earn over $5 billion more as a result. In eight states, the minimum wage is linked to inflation and is automatically adjusted each year. Alaska is one; there the minimum wage will go up, but by just $0.05 per hour, the smallest of the increases. [2]

The minimum wage increases were set by legislative action in six states and by local governing bodies in the communities where the wage increased. In New York City, for example, the minimum wage went up by $2.00 per hour.

In six states, increases in the minimum wage were the result of ballot measures that voters approved. Increasingly, as the federal government and some state governments (Arkansas and Missouri for example) are refusing to increase the minimum wage, grassroots activists are taking matters into their own hands and putting increases on the ballot.

The bad news is that in Michigan and the District of Columbia (D.C.) legislators blocked, reduced, and/or delayed increases in the minimum wage that had been put forth by voters! In D.C., city councilors overturned a law approved by 55% of voters that would have increased the minimum wage of tipped workers so that over time it would be the same as the minimum wage for other workers. [3]

In Michigan, the Republican legislature and Governor went out of their way to deny the will of the voters. Over 300,000 citizens had signed a petition to put a minimum wage increase on the November ballot, where its approval seemed certain. The ballot measure would have increased the minimum wage from $9.25 to $10 on January 1, 2019, to $12 by 2022, and then had it increase automatically based on inflation.

In September, the Michigan legislature and Governor, in an effort to circumvent the proposed minimum wage increase, adopted the language of the ballot initiative. This meant it would not appear on the ballot, thereby denying voters the opportunity to approve it. Then, the legislature voted for (and the Governor signed) a delay in the minimum wage increases with the increase to $12 delayed from 2022 to 2030! They also eliminated the automatic increases based on inflation. This would likely mean that minimum wage workers would see their real wages (after adjusting for inflation) decline over this period.

The good news is that the Michigan law that allows the legislature and Governor to intercept a ballot measure and prevent it from appearing on the ballot by approving it, states that the approved measure cannot be amended in the same legislative session. However, this is exactly what they did. Therefore, a lawsuit to the state’s Supreme Court is likely and would appear to have a good chance of succeeding. [4]

Given the almost 10 years since the federal minimum wage was increased and the 40 years of other policies that have left workers’ wages stagnant, raising the minimum wage at the state or local level is perhaps the most effective way to lift the incomes of our lowest-paid workers. Unfortunately, 21 states still rely on the federal minimum wage of $7.25.

The resistance of our elected officials to increasing the minimum wage reflects the extent to which many Republican and some Democratic elected representatives are more responsive to large employers and their wealthy executives and shareholders than to every day workers. The fact that every minimum wage increase that’s appeared on the ballot has been approved by voters shows the strength of support for a higher minimum wage among the voting public.

[1]      Ingraham, C., 12/27/18, “Here’s how much the federal minimum wage fell this year,” The Washington Post

[2]      Cooper, D., 12/28/18, “Over 5 million workers will have higher pay on January 1 thanks to state minimum wage increases,” Common Dreams (https://www.commondreams.org/views/2018/12/28/over-5-million-workers-will-have-higher-pay-january-1-thanks-state-minimum-wage) or Economic Policy Institute (https://www.epi.org/blog/over-5-million-workers-will-have-higher-pay-on-january-1-thanks-to-state-minimum-wage-increases/)

[3]      Cooper, D., 12/28/18, see above

[4]      Anzilotti, E., 12/6/18, “Michigan Republicans decide that people can live on $9.25 an hour for the next decade,” Fast Company (https://www.fastcompany.com/90277788/michigan-republicans-decide-that-people-can-live-on-925-an-hour-for-the-next-decade)

ELECTION AND ETHICS REFORM

With Democrats taking over control of the U.S. House in January, there’s a wide range of issues they might tackle. Even if many of the bills they propose, and hopefully pass, don’t become law (because they aren’t passed by the Senate or are vetoed by President Trump), they will frame the debate going forward and into the 2020 elections. Furthermore, policies can become law by attaching bills or provisions to must-pass bills such as those funding the government. This is a tactic that has been used for many, many years and has been used frequently by Republicans over the last 12 years. Talking about substantive issues will shift the discussion to ideas from personalities and to meaningful, long-term policies to address important problems rather than short-term, idiosyncratic, one-off deal making.

Two key topics will be the focus of the first bill in the new House in January. They were the first two topics on my previous post’s list of possible issues for House Democrats to address. They are:

  • Elections: stop voter suppression, encourage voting, stop gerrymandering, and reform campaign financing (e.g., limit contributions, provide matching public funds, and require full disclosure of spending and donors)
  • Ethics: address conflicts of interest for Congress and all federal workers; stop the undue influence of special interests obtained through lobbying, the revolving door, and campaign expenditures

Rep. Nancy Pelosi, the current leader of the House Democrats (and likely Speaker of the House come January), has stated that the first bill in the new House in January, known as H.R. 1, will address the restoration of democratic principles and procedures. It will address election and integrity issues where government of, by, and for the people has been undermined by wealthy individuals and corporations. The overall goal of the bill will be to end the ability of special interests to bend public policies to their benefit and against the interests of hard-working Americans and our democracy. This will restore Congress’s and the federal government’s abilities to enact policies that address the problems of average Americans. This is essential to renew the public’s faith in our democracy. [1]

Pelosi’s bill would do many of the things President Trump promised to do during his campaign when he stated he would “drain the swamp” in Washington, D.C. His actions and appointments have done nothing to drain the swamp and have probably made things worse.

This bill will address the huge amounts of money in our elections and the significant portion of that money that is “dark money” – money where the identity and interests of the true donor are hidden. The bill would require all organizations making donations to or expenditures on campaigns to disclose who their donors are. [2]

The proposed legislation would also take steps to increase the impact and number of small-dollar campaign donors. Incentives would be provided for individuals to make small campaign donations and the impact of those donations would be multiplied by matching them with public funds. Candidates who agree to accept these matching funds would have to limit the size of donations they accept and, perhaps, their overall spending.

The Pelosi bill would re-establish the Voting Rights Act’s protections of every citizen’s right to vote and would stop voter suppression. It would make it easier to vote through automatic and on-line voter registration while strengthening election infrastructure to prevent hacking and ensure accurate, auditable, tabulations of votes. To ensure that everyone’s vote has a fair chance of being meaningful, it would end gerrymandering, probably by requiring that an independent redistricting commission in each state draw congressional district boundaries.

The bill would strengthen ethics and conflict of interest laws governing Congress and federal government workers. It would ban members of Congress from serving on the boards of for-profit companies, which presents a clear conflict of interest. It would also enhance disclosure of who’s lobbying the federal government, so these efforts would be publicly known and not hidden in the shadows. And it would require Presidents to disclose their tax returns.

Pelosi’s bill would implement a code of ethics for Supreme Court Justices, who are currently exempt from the code of ethics that applies to other federal judges. [3]

It would close the revolving door of personnel between government positions and private sector jobs, which creates major conflicts of interest and is a major avenue for undue influence by special interests. It would prohibit employers from giving bonuses to reward employees for moving into public sector positions (as Wall St. has done repeatedly in the past). These individuals often go back to the same private sector employers later. The bonuses present the individuals with a significant conflict of interest from day one in their public sector job, particularly if the bonus is being paid out over time and, therefore, is being received when they are in their public sector role.

Tackling elections and ethics reform as a top priority makes sense for several reasons. First, these issues are very much on voters’ minds. Voters passed several ballot measures addressing them at the state and local levels in November, as was summarized in a previous blog post. Publicity about voting and ethical scandals in the Georgia election, as well as in Florida and North Carolina, have heightened the public’s awareness and concern about these issues. [4] In addition, candidates who refused corporate and PAC money fared very well in November. Noting incumbents’ acceptance of special interest money and linking it to specific votes was an effective tactic for beating them. [5]

Second, over the longer-term, addressing elections and ethics issues is critical to restoring democratic decision-making to government by ending the undue influence of wealthy individuals and corporations. This is essential to making progress on every other issue that would advance the public good. A fairer political process, where government is truly of, by, and for the people, is necessary to eliminate the system-rigging power of wealthy individuals and corporations. This will actually drain the Washington swamp. [6] Restoring faith in the fairness and integrity of our elections and policy making is a necessary first step toward restoring trust in our government.

If Democrats are willing to commit to a new code of conduct and to stand up for true democracy, they could reap the benefits of the current backlash against corrupt behavior by elected officials and the overall corruption of our political processes. There’s an opportunity to lead on re-establishing fairness and integrity in our politics. Some Democrats will resist this, fearing the loss of campaign donations and spending by wealthy individuals and corporations, but not doing so will risk losing a tremendous opportunity, both politically and for the good of our democracy.

I encourage you to communicate with your elected officials at the national and state levels about these issues. Nothing is more likely to persuade them than hearing from constituents who care about fair and ethical elections and behavior by government officials. I welcome your comments and feedback on steps you feel are needed to make our elections and policy making fairer and more responsive to regular Americans.

Thank you for your feedback on the list of topics in my previous post. In upcoming posts, I will delve into infrastructure investment and environmental policy issues since these were the two topics that were most frequently identified as priorities.

[1]      Pelosi, N., & Sarbanes, J., 11/25/18, “The Democratic majority’s first order of business: Restore democracy,” The Washington Post

[2]      Wertheimer, F., 10/10/18, “House Democratic challengers demand campaign-finance reforms,” The American Prospect (http://prospect.org/article/house-democratic-challengers-demand-campaign-finance-reforms)

[3]      Mascaro, L., 12/1/18, “House Democrats’ bill seeks reforms,” The Boston Globe from the Associated Press

[4]      Carney, E. N., 11/29/18, “Read it and weep: Georgia lawsuit paints stark portrait of voter suppression,” The American Prospect (http://prospect.org/article/read-it-and-weep-georgia-lawsuit-paints-stark-portrait-voter-suppression)

[5]      Lardner, J., 11/30/18, “What the Democrats must do first,” The American Prospect (http://prospect.org/article/what-democrats-must-do-first)

[6]      Lardner, J., 11/30/18, see above

WHY WE NEED A POLITICAL REVOLUTION

Bill Moyers – one of the most savvy and respected commentators on US politics and society over the last 40+ years – just published an interview with the author of a book Moyers describes as the best political book of the year. [1] The author is Ben Fountain and the book is Beautiful Country Burn Again.

Fountain, an acclaimed novelist, was hired by The Guardian (a respected British daily newspaper with a US edition) to cover the 2016 US presidential race. His reflections on and analysis of the current US political environment are poignant and very relevant to this fall’s election.

Fountain found that millions of Americans are experiencing significant confusion, frustration, and anger. Working and middle-class people are finding it harder and harder to make ends meet and, therefore, are feeling more and more beleaguered. Their financial and psychological security has been undermined by the shredding of the social contract of the 1950s – 1970s, which promised that if they worked hard and played by the rules, they would have a secure middle class life. They are working harder than ever but, nonetheless, are falling further behind in their efforts to have a decent life, provide for their children, and have a secure retirement. Meanwhile, they see the wealthy doing better and better, getting richer and richer.

Fountain states that this is “not a situation that can be sustained long-term in a genuine democracy.” (p. 3 of the interview transcript). The tremendous increase in the inequality in income and wealth over the last 40 years has led many Americans to have a “basic, pervasive sense that the system is not fair.” (p. 4) Given this legitimate sense of grievance among the millions living economically precarious lives, the declaration by candidate Trump, Senators Bernie Sanders and Elizabeth Warren, and others that “The system is rigged” resonated strongly.

These beleaguered, aggrieved Americans are resentful and looking for an explanation for why they are experiencing such hard times. This makes them vulnerable to false narratives and scapegoating from politicians. This resentment is exacerbated by the fact that for many white Americans their position of power and privilege has been (rightfully) challenged over the last 50 years. The uncomfortable truths of the racism of America have presented “a challenge to some people’s identity and sense of personal integrity.” (p. 4)

Trump was a master at playing on this resentment, vulnerability, and discomfort. He gave many white Americans “psychological, emotional affirmation as an antidote for all the anxiety, all the resentment they’d been feeling.” (p. 5) Despite the obvious contradictions of Trump’s wealth, New York background, and anti-worker business practices, he provided easy-to-digest explanations and solutions for beleaguered white, working people (especially men). Fountain describes this as the “classic con man dynamic” that shows “how easily we’re taken in when we’re hearing what we want to hear … [which has] more to do with emotion and raw attraction than anything that might be called rational thought.” (p. 7)

Fountain says that the gullibility of the American public is in part due to what he calls the “Fantasy Industrial Complex.” The public believes in the possibility of the fantasy lifestyle we see in the advertisements and commercial propaganda that bombard us day and night from our screens in movies, TV, celebrity news, and social media. The cumulative effect is that this “numbs us out and dumbs us down.” (p. 8) As a result, “it takes a supreme effort of will on the individual’s part to distinguish advertising and propaganda from facts,” (p. 8) lies from truth, and fantasy from reality.

Fountain states that both of our political parties have lost their way. Trump, with the help and acquiescence of many others, has taken the Republican Party’s “politics of paranoia and racism, cultural resentment, xenophobia, misogyny and all the rest” to new extremes. The Democrats, during the 1990s with leadership from the Clintons, maintained their commitment to civil rights and diversity, including based on sexual orientation, but abandoned their commitment to workers, the poor, and Main Street for financial support from Wall Street and the wealthy. They stopped making the case for the important roles of government in maintaining a safety net and regulating business and the economy. As a result, the economic security of working and middle-class people collapsed, while income and wealth inequality skyrocketed.

The political power of the wealthy has been super-charged by changes in laws governing the financing of our political campaigns. Unlimited amounts of money can now be spent on campaigns and the sources of much of it may be kept secret. Without wealth, everyday citizens are left speechless in our elections and, therefore, underrepresented in the halls of government. The big campaign spenders have unprecedented access to and influence on policy makers, resulting in policy outcomes they favor and that benefit them further.

Democracy is overwhelmed by the hyper-capitalism in the US today with its great concentrations of wealth and power, both in our economy and in our political system and government. This is the result of the deregulation of business and the economy over the last 40 years, which has been supported by both political parties. The big corporations and the capitalists will overreach if they are unregulated and unrestrained. The 2008 crash demonstrated this again, as the savings and loan crash of the 1980s had, along with the dot com bubble crash and the crash that led to the Great Depression. Today, the system is indeed rigged, and the result is plutocracy – where the wealthy elites rule.

The American identity, and the exceptionalism of the US that the right-wing asserts, are based on democracy and the foundational principles of equality and representative government that is responsive to all the people. This is not the America we have today. Citizens can’t be equal with corporate CEOs and wealthy investors if they can’t earn enough to support a family and don’t have time to devote to public civic and political responsibilities, often because they are working multiple jobs or long hours.

Fountain concludes that “corporate power and concentrations of wealth have such a hold over our economic system that for the country to wrest some of that power from them, it can’t be incremental. It will take a political revolution.” (p. 12) The New Deal, responding to the 1929 financial crash and the Great Depression, was, in fact, a bloodless political revolution. It saved capitalism from itself, building the regulatory infrastructure that we relied on with great success for 50 years. It also built the physical infrastructure of sewers and water mains, parks, libraries, public buildings, the power grid, and many of the roads and bridges that we rely on to this day. We take all this largely for granted today, forgetting about the trauma that triggered it and the public sector response that turned the country around and built the foundation for the future.

Fountain notes that the American commitment to and understanding of the importance of public civic, political, and physical infrastructure “has been stunted the last 40 years by a very aggressive sales program on behalf of free-market fundamentalism and hard-core capitalism.” (p. 13) The subtitle of his book, Democracy, Rebellion, and Revolution, highlights his belief that we need a political revolution to save our democracy – and to save capitalism from itself.

You can be part of the political revolution:

  • By being an informed voter in this fall’s election, and
  • By encouraging and helping everyone you know to also be an informed voter this fall.

As I’ve written about previously, voter participation in the US is dismally low and higher voter turnout will produce different election and policy results. This is how the political revolution must happen.

[1]      Moyers, B., 10/12/18, “The bold bravery of ‘Beautiful Country Burn Again’”, Common Dreams (https://www.commondreams.org/views/2018/10/12/bold-bravery-beautiful-country-burn-again)

CORPORATE PROFITS MORE IMPORTANT THAN BABIES’ SURVIVAL

The influence of large corporations on federal policy is nothing new, although the Trump administration seems to be even more unabashedly aligned with corporate interests than previous administrations. Meanwhile, the Trump administration’s callousness and inhumanity on issues having to do with families and children is clear, most notably in its policy of separating immigrant parents and children – despite the First Lady’s “Be Best” campaign that promotes good child outcomes.

Nonetheless, the Trump administration’s efforts to undermine a World Health Organization (WHO) resolution in support of breastfeeding shocked medical professionals, diplomats, and public health officials around the world. In case you haven’t heard, the US delegation to a WHO meeting in May attempted to block and then succeeded in somewhat watering down a resolution that called on governments to “protect, promote and support breastfeeding” and to put limits on misleading and dangerous marketing of breast-milk substitutes, such as infant formula, and other food products harmful to young children.

This effort by US officials promoted the interests of the $70 billion infant formula industry, despite decades of evidence of the benefits of breastfeeding over the use of infant formula. [1] Lobbyists for the industry were present at the meeting to support the Trump administration’s efforts. [2] The American Academy of Pediatrics recommends breastfeeding exclusively for a baby’s first 6 months whenever possible, as well as for the next 6 months or longer as other foods are appropriately introduced. [3]

Some of you may remember the boycott of Nestle in the 1970s when it was aggressively promoting infant formula in developing countries where clean water for preparing infant formula was often not available. Babies died because infant formula was contaminated with bad water and because mothers couldn’t afford to the continue with the formula but couldn’t breast-feed because they had stopped lactating. Abbott Laboratories, based in Chicago, is one of the biggest corporations in the infant formula industry, along with Nestle, which is based in Switzerland but has a significant presence in the US.

Breastfeeding is the cheapest, easiest, and safest form of nutrition for infants in most cases, especially for low-income mothers and where clean, safe water is not reliably available. A 2016 study found that universal breastfeeding would save 800,000 infants’ lives annually around the world, while saving $300 billion as well. Breast milk provides not only nutrition, but hormones and antibodies that protect babies from diseases. Breast-fed infants have significantly fewer respiratory tract, ear, and gastrointestinal infections. Breast-feeding is also associated with lower risks of sudden infant death syndrome, allergies, asthma, eczema, celiac disease, bowel disease, diabetes, obesity, and leukemia. Mothers who breast-feed have lower risks of breast and ovarian cancers, diabetes, arthritis, heart disease, and high blood pressure. [4]

As part of its efforts to block the breastfeeding resolution, the US delegation threatened to cut its funding for the World Health Organization. The US is the biggest funder of the WHO, providing about 15% of its budget or $845 million. The WHO is essential to public health globally and in the US, as it provides, for example, the first response to flu and Ebola epidemics wherever they occur. It also plays a leading role in addressing the rising death toll from diabetes and cardiovascular disease around the world.

Ecuador, the original sponsor of the breastfeeding resolution, withdrew its sponsorship after the US threatened it with trade sanctions and withdrawal of military assistance, which helps it deal with violence spilling over its border with Columbia. Health advocates scrambled to find another sponsor, but at least a dozen other countries refused citing fear of retaliation from the US. Russia finally agreed to sponsor the resolution, and apparently the US did not threaten it. [5]

Nonetheless, the US succeeded in weakening parts of the resolution. It insisted on adding the words “evidence-based” to references to long-standing practices that promote breastfeeding, despite public health experts pointing out that doing random assignment studies (where some children would be denied breast milk) to establish “evidence-based” outcomes would be ethically and morally unacceptable. The US unfortunately succeeded in getting language removed from the resolution that called on the WHO to support governments in their efforts to block the “inappropriate promotion of foods to infants and young children.”

In another part of the resolution, the US succeeded, unfortunately, in removing language that supported taxing sugar-laden soft drinks as a strategy for addressing soaring rates of obesity around the world. Fortunately, however, the US was unsuccessfully in its attempts to block a WHO program that helps poor countries obtain life-saving medicines at an affordable cost; opposition to this program comes, not surprisingly, from the pharmaceutical corporations.

It is appalling to me that the US government is making corporate profits a higher priority than the lives, health, and well-being of children and adults around the world, including in the US. These examples from the WHO meeting are some of the more dramatic and appalling ones, but there are plenty of other ones.

Corporate profits have been prioritized over the well-being of workers and the middle class in the US, in a variety of ways, for almost 40 years now. This is why US voters were so angry with the status quo in the federal government that in 2016 almost half of eligible voters did not vote in the presidential election and why almost half of those that did vote, voted for Trump. (He won in the Electoral College even though he lacked a majority of the actual votes.)

We need to change our policy priorities and put people first and regulate corporations so they serve the public good. The whole point of allowing the creation of corporations and other limited liability organizations was to more efficiently promote the public good and an economy where everyone could pursue life, liberty, and the pursuit of happiness. The purpose for corporations and the priorities of our public policies have gotten turned upside down. Particularly in the US., but elsewhere as well, the priorities of government and the role of corporations in our economy need to be returned to those of the late 1940s through the 1970s when income inequality was much lower and economic security was much higher.

[1]      Khazan, O., 7/10/18, “The epic battle between breast milk and infant-formula companies,” The Atlantic

[2]      Jacobs, A., 7/8/18, “U.S. opposition to breast-feeding resolution stuns world health officials,” The New York Times

[3]      Williams, E., 7/10/18, “Breastfeeding: The benefits,” The Boston Globe

[4]      Rabin, R. C., 7/9/18, “Trump stance on breast-feeding and formula criticized by medical experts,” The New York Times

[5]      Jacobs, A., 7/8/18, see above

CONSUMER FINANCE PROTECTIONS UNDER ATTACK

Many in Congress and the Trump administration are openly working to weaken the Consumer Financial Protection Bureau (CFPB). It was created as part of the Dodd-Frank Law, the major piece of legislation passed to reform the financial industry after the 2008 crash. The CFPB protects consumers from abusive and fraudulent practices of financial corporations, such as mortgage loans that consumers can’t afford (which were a major element of the 2008 crash and the foreclosures that destroyed many families’ savings), abusive and discriminatory practices on student and auto loans, usury by payday lenders, and deceptive marketing. The CFPB also reduces the risk of future financial industry crashes by stopping the marketing of financial products that can create financial bubbles and lead to high rates of loan defaults and bankruptcies. These can threaten the stability of financial corporations, as happened with mortgages in 2008.

The CFPB’s role is to protect consumers from unsafe financial products and practices in the same way that the Consumer Product Safety Commission protects consumers from unsafe physical products – from appliances to toys. The financial industry has opposed the CFPB from when it was first included in drafts of the Dodd-Frank legislation. The financial industry does not want to be held accountable. It wants to be able to make profits with no holds barred. It has been lobbying hard to have the CFPB emasculated.

Despite the valuable roles the CFPB can and has been playing, Congress and the Trump administration, at the urging of the financial industry, have been working to keep the CFPB from being an effective advocate for consumers by:

  • Blocking or repealing its consumer protection regulations
  • Stopping its enforcement actions
  • Weakening its independence and effectiveness

For example, in April Congress passed and the President signed a law repealing a Consumer Financial Protection Bureau (CFPB) regulation that prevented car dealers and corporations making car loans from discriminating based on race. The CFPB had fined several lenders and dealers millions of dollars for charging higher interest rates to Black and Hispanic borrowers, even when they had the same credit scores as White borrowers. Consumer advocacy groups note that this discriminatory behavior is pervasive and repeal of this regulation will allow it to continue. [1]

In October, a law was passed repealing a CFPB regulation that allowed consumers to band together in class action lawsuits against financial corporations and prohibited financial corporations from forcing consumers into arbitration. Many financial institutions include mandatory arbitration clauses in the agreements consumers sign when they open a bank account, take out a loan, or get a credit card. This legal language, buried in the fine print, requires the consumer to pursue any claim against the company only through arbitration and not through the courts or a class action lawsuit. The arbitration process is skewed in favor of the financial institution and a typical consumer doesn’t have the time and resources to pursue their claim on their own. [2]

Forced arbitration language initially protected Wells Fargo and Equifax by preventing large-scale consumer scandals from coming to light. Forcing consumers to pursue claims individually in arbitration hid Wells Fargo’s opening of and charging millions of customers for unauthorized accounts. Only after many months did the authorities and the public become aware of the scandal and its scale, and force Wells Fargo to compensate customers. The same pattern occurred with Wells Fargo’s requirement that auto loan borrowers buy insurance they didn’t need and with Equifax’s huge data breach.

To respond to these problems, the CFPB issued a regulation banning the use of mandatory arbitration clauses by financial corporations in individual consumer agreements. However, at the behest of the financial industry, Republicans in Congress pushed through a bill repealing the regulation; Vice President Pence cast the tie-breaking vote in the Senate.

Separate from Congressional action, Mick Mulvaney, the acting director of the CFPB appointed by President Trump in November 2017, has delayed regulation of payday lenders, who charge usurious interest rates and often trap customers into loans they can never repay, while the lender collects huge amounts of interest and fees.

Mulvaney has also stalled the CFPB’s investigation of the Equifax data breach, which allowed hackers to obtain the personal information, including Social Security numbers and birth dates, of 145 million people. Equifax’s breach was particularly egregious because it was preventable: Equifax did not install a software patch that had been available for months. Equifax failed to disclose the breach for months while people’s identities and accounts were at-risk. And Equifax executives sold $2 million of stock in the months between the breach and its becoming public knowledge. [3]

Not content to just attack the regulations and enforcement actions of the CFPB, Mulvaney, the Trump administration, and members of Congress (mainly Republicans) have worked to weaken the CFPB’s organizational effectiveness and independence. In June, Mulvaney fired the agency’s 25-member advisory board which included consumer advocates, experts, and industry executives. It had played, and was created to play, an influential role in advising CFPB’s leadership on regulations and policies. Two days before their firing, eleven of the 25 members held a press conference to criticize Mulvaney for canceling legally required meetings of the advisory board, ignoring them and their advice, and making unwise changes at the CFPB. [4]

Mulvaney has stripped enforcement powers from the CFPB unit pursuing discrimination cases. He has undermined the consumer complaint system. [5] He has asked Congress to weaken CFPB’s power and independence by giving Congress and the executive branch more control over its budget and regulations. [6]

The reasons we need a strong and independent Consumer Financial Protection Bureau are clear. Its enforcement actions have led to a $1 billion fine on Wells Fargo for a series of misdeeds in consumer banking, lending, compliance with regulations, and overall management, [7] [8] as well as to a $335 million settlement with Citigroup for overcharging 1.75 million credit card customers over eight years. [9]

Since its creation, the CFPB has protected consumers from financial corporations that violate the law. It has gotten compensation of over $12 billion for more than 31 million victimized consumers. In less than 8 years, it has responded to over 1.5 million consumer complaints and issued, for example, new standards that make home mortgage documents clearer and easier to understand. At CFPB’s website, you can find information that will help you understand your credit score and make a good decision about a car or student loan. (See my earlier post about the CFPB here for more information.)

I urge you to contact your U.S. Representative and Senators and to ask them to support the Consumer Financial Protection Bureau and the very valuable work it does. The efforts to weaken the CFPB and regulation of the big financial corporations are putting consumers at-risk and increasing the likelihood of another collapse of the financial sector and our economy. You can find your US Representative’s name and contact information here and your Senators’ information here.

[1]      Merle, R., 4/18/18, “The Senate just voted to kill a policy warning auto lenders about discrimination against minority borrowers,” Washington Post

[2]      Freking, K., 10/25/17, “Senate votes to end consumer credit rule,” The Boston Globe from the Associated Press

[3]      Rucker, P., 2/4/18, “Exclusive: U.S. consumer protection official puts Equifax probe on ice – sources,” Reuters (https://www.reuters.com/article/us-usa-equifax-cfpb/exclusive-u-s-consumer-protection-official-puts-equifax-probe-on-ice-sources-idUSKBN1FP0IZ)

[4]      Merle, R., 6/7/18, “Consumer bureau chief fires advisers,” The Boston Globe from the Washington Post

[5]      Singletary, M., 4/8/18, “Switching from watchdog to lapdog,” The Boston Globe

[6]      Merle, R., 4/3/18, “Trump-appointed head of consumer watchdog asks Congress to hamstring his agency,” Washington Post

[7]      Dreier, P., 2/7/18, “Wells Fargo gets what it deserves – and just in time,” The American Prospect (http://prospect.org/article/wells-fargo-gets-what-it-deserves-and-just-time)

[8]      Flitter, E., & Thrush, G., 4/20/18, “US to slap $1b fine on Wells Fargo,” The Boston Globe from the New York Times

[9]      Hamilton, J., 6/30/18, “Citigroup will repay $335 million to customers,” The Boston Globe from Bloomberg

THE DISMANTLING OF POST-CRASH FINANCIAL INDUSTRY REFORMS

Many in Congress and the Trump administration have either forgotten or don’t care about protecting us from the risky and corrupt behavior of Wall St. financial corporations that caused the 2008 economic collapse and Great Recession. They are repealing, weakening, or failing to implement the policies that were put in place to reduce the likelihood that such behavior and events would happen again. Keep in mind that those policies didn’t go far enough to prevent such as event from happening again – such as breaking up to too-big-too-fail financial corporations or separating risky financial trading activity from federally-insured consumer banking.

The Dodd-Frank Law was the major piece of legislation passed to reform the financial industry and reduce the likelihood of another meltdown. It included the creation of the Consumer Financial Protection Bureau (CFPB) to protect consumers from unsavory practices by financial corporations, such as the making of mortgage loans that were highly likely, if not certain, to be unaffordable for the home owners.

The financial industry has fought the implementation of these new safeguards; industry-friendly regulators have moved so slowly that some of the provisions of the Dodd-Frank Law are just finally getting implemented eight years later. For example, the simple requirement that corporations disclose the ratio of the pay of the corporation’s Chief Executive Officer (CEO) to that of the midpoint of workers’ pay is just now being implemented. Honeywell Corporation just reported that its CEO made 333 times what it’s median employee earns. And it didn’t include the pay of employees in developing countries, which undoubtedly would have increased the ratio. Most measures of the CEO-to-worker pay ratio have found CEO pay to be between 200 and 350 times the pay of the median worker. Fifty years ago, the ratio was roughly 20 and even Harvard Business School gurus felt at the time that this ratio should be a ceiling on CEO pay. [1]

Meanwhile, Congress and the Trump administration, at the urging of Wall St. lobbyists, have been dismantling the Dodd-Frank financial reforms, including:

  • Weakening regulations that reduce the risk of big financial corporations going bankrupt
  • Blocking or repealing consumer protection regulations from the Consumer Financial Protection Bureau (CFPB)
  • Stopping enforcement actions of the CFPB
  • Weakening the CFPB’s independence and effectiveness

Regulations that limit the risks from speculative financial transactions by big financial corporations are being weakened. Industry-friendly regulators plan to weaken the so-called Volcker Rule, thereby giving banks more flexibility to engage in financial trading activity that can be highly profitable but also vulnerable to big losses. Given that these banks also have consumer deposits that are federally insured, big losses could lead to the need for taxpayer bailouts (again). [2] Paul Volcker, the former head of the Federal Reserve banking and oversight system, had recommended this regulation to limit financial corporations from engaging in financial risk-taking when government-funded-insurance would end up covering any big losses. The six largest US financial corporations have spent millions of dollars lobbying for this change. (They are Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo.)

Federal regulators are also proposing to reduce that amount of a financial corporation’s own money that must be available to cover any losses from lending, trading, speculating, and other activities. Currently, financial corporations must have only 6 cents of their own money (reserves) for every dollar of potential financial liability. This would mean that if the corporation sustained losses of just 6% on the tens of trillions of dollars of loans, trades, speculative investments, etc. that it has, that it would be bankrupt and looking for a government (i.e., taxpayer) bailout.

In 2008, the reserve requirement was only 3 cents on every dollar and the big financial corporations had losses of twice that amount. Therefore, the government and taxpayers had to provide trillions of dollars to bail them out and prevent bankruptcies that would have caused a much more severe economic collapse.

Given the experiences of 2008, it seems foolish to be reducing the reserves that financial corporations must hold to cover losses. However, reducing reserves and increasing leverage (as it is referred to) allows the financial corporations to make more and bigger financial transactions, which, if all goes well, can increase their profits. However, it also increases the risk that a bailout will be needed. [3]

The financial corporations claim that a reduction in reserve requirements will allow them to make more loans to spur business growth and the economy. However, there is no evidence of unmet demand for loans and experience indicates that the financial corporations will actually use the reduction in reserves to pay more to shareholders and executives, buyback stock, and engage in speculation and non-banking activities.

Note that the big financial corporations are all reporting record profits even before any of these changes goes into effect. Banks, overall, reported $56 billion in profits during the first quarter of 2018, up 28% from a year earlier. [4]

In May, Congress passed, and the President signed, a law reducing the stringency of the oversight of banks, weakening the oversight that the Dodd-Frank Law put in place to reduce the risk of bankruptcies and government bailouts. The 26 banks with between $50 billion and $250 billion in assets (including American Express and Ally Financial) are now exempt from the strictest oversight. The 12 biggest banks will still be subject to the strictest oversight, although they can probably take advantage of some of the weakening of oversight in the law.

One result of the law is expected to be mergers of small and medium size banks because they can get bigger without triggering stricter oversight. The law also exempts “small” banks (under $10 billion in assets) from the Volcker Rule banning risky financial speculation and from reporting detailed data on borrowers that was targeted at preventing discrimination. [5]

I urge you to contact your U.S. Representative and Senators and to ask them to support strong regulation of the big financial corporations. Encourage them not only to oppose efforts to weaken the regulations and oversight put in place by the post-collapse Dodd-Frank Law, but to strengthen regulations and oversight to prevent, not just reduce the likelihood of, another financial industry collapse and crisis for the economy. The weakening of the regulations and oversight of the big financial corporations is increasing the likelihood of another financial sector collapse that would do serious damage to our economy and require a government, taxpayer-funded bailout.

You can find your US Representative’s name and contact information at: http://www.house.gov/representatives/find/. You can find your US Senators’ names and contact information at: http://www.senate.gov/general/contact_information/senators_cfm.cfm.

[1]      Meyerson, H., 2/22/18, The American Prospect blog (http://prospect.org/blog/on-tap?page=6)

[2]      Flitter, E., & Rappeport, A., 5/30/18, “Big banks to get a break from limits on risky trading,” The New York Times

[3]      Hoenig, T.M., & Bair, S.C., 4/26/18, “Relaxing bank capital requirements would risk another crisis,” Wall Street Journal

[4]      Thomhave, K., 5/25/18, “A Great Deal for Banks, Not So Much for American Jobs,” The American Prospect (http://prospect.org/blog/tapped/great-deal-banks-not-so-much-american-jobs)

[5]      Werner, E., 5/25/18, “Trump signs bill easing banking rules passed after crisis,” The Boston Globe from the Washington Post

THE EFFECTS OF THE FEDERAL TAX CUT

The initial effects of the federal tax cuts enacted in December 2017 by the Tax Cuts and Jobs Act (TCJA) are now visible; they are not what their Republican architects promised.

Although it’s too early to know definitively if the tax cuts will have an effect on the overall economy, growth in the first quarter of 2018 was steady but not noteworthy. There is no evidence of the tax-cut-fueled acceleration of economic growth the Republicans promised. [1] The latest projections, as well as experiences elsewhere, strongly suggest that the effects on economic growth will be small at best.

The effects of the tax cut on the deficit are becoming clearer. The latest projections from the non-partisan Congressional Budget Office (CBO) are that the federal government’s revenue will be reduced by $1.3 trillion over the next 10 years. When the costs of paying interest on the growing debt are included, the CBO projects that the cumulative deficit will increase by $1.9 trillion over the period from 2018 to 2028 due to the tax cuts, despite the Republicans’ promise of no increase in the deficit. [2] Furthermore, the growth in the deficit will be exacerbated by the spending bill that was enacted in early 2018, which increases spending by $300 million over the next two years.

The CBO projects the federal government’s deficit will be $804 billion for fiscal year 2018, up 21% from 2017. Furthermore, it projects the deficit will be over $1 trillion a year by 2020, despite President Trump’s campaign promise to eliminate the deficit. From 2021 to 2028, the CBO estimates the deficits will average 4.9% of Gross Domestic Product (GDP), the total of all economic activity in the U.S. This is higher than at any time since World War II, except during the Great Recession of 2008 – 2009 when tax revenue slumped with the collapsing economy and spending was high to bail out Wall St. and to stimulate the economy.

The growing deficit reflects the gap between what the Republicans who control the federal government want to spend and their unwillingness to enact the taxes necessary to pay for it. This is blatant fiscal irresponsibility. Moreover, growing deficits are of serious concern when the economy is doing well and unemployment is low. In this situation, many economists and responsible officials recommend reducing the deficit and even generating a surplus, as President Clinton did, so that the country has the capacity to weather the next economic downturn.

Analysis of the individual tax cuts finds that the wealthiest households will receive the biggest tax cuts, both in terms of dollars and percentage increase in after-tax income. Households with incomes under $25,000 will receive an average tax cut of $40. Meanwhile, those with incomes from $49,000 to $86,000 will receive an average tax cut of about $800, those with incomes of $308,000 to $733,000 will get about $11,200, and those with incomes over $733,000 will get a tax cut of about $33,000. [3]

As an example of the benefits of the corporate tax cuts, the six biggest, multi-national banking corporations (JPMorgan Chase, Citigroup, Wells Fargo, Goldman Sachs, Morgan Stanley, and Bank of America) together paid at least $3.6 billion less in taxes for the first quarter of 2018 than they would have without the 2017 tax cut law. Before the tax cut, these corporations had paid 28% to 31% of their income in taxes; for the first quarter of 2018 they paid between 17.2% and 23.7%. Their tax rate is estimated to be 20% – 22% for the full year, meaning they will receive a tax cut of $19 billion for this year. [4] By the way, the tax cut law also provides benefits, and therefore incentives, to corporations to move jobs and profits overseas to dodge U.S. income taxes. [5]

The Economic Policy Institute projects that roughly 80% of the benefits of the corporate tax cuts will be passed on to shareholders and executives, and not used to pay employees or re-invest in the business. Although some corporations gave small raises or bonuses to their workers – thanks to intense public visibility and pressure – a huge chunk of the tax cut has been used to buy back company stock.

In just the four months since the tax cuts were enacted in December, corporations have announced more than $250 billion in stock buybacks. This rewards stockholders and executives as it pushes up the price of the corporation’s stock. These buyback announcements are an acceleration from an already record-high, $5.1 trillion of buybacks over the previous decade. Virtually all the profits of the country’s 500 largest corporations from 2005 to 2015 went to share buybacks and dividends, and not to workers’ wages or investments that would increase productivity, both of which have stagnated. [6]

Stock buybacks give huge rewards to corporate executives because much of their compensation is paid in shares of stock. For example, the CEO of Wells Fargo bank got a $4.6 million raise for the year due to the increase in the corporation’s stock price from stock buybacks.

Stock buybacks were illegal until 1982, which is roughly (and probably not wholly coincidentally) the same time wages stopped rising for most Americans. Before then, a bigger share of corporate profits was used to increase workers’ wages and re-invest in the business, rather than for less economically productive stock buybacks. [7]

Some corporations have announced bonuses or pay increases for workers. However, so far these announcements have applied to only 4.1% of workers and roughly 80% of them are one-time bonuses not on-going pay increases, even though the corporations’ tax cuts are permanent and on-going. [8] In some cases, the workers have not received (and may never receive) actual increases in pay. For example, some corporations have made the pay increases the subject of negotiations with unions. Corporations have announced spending 42 times as much on stock buybacks as on increases in employees’ pay. [9]

To put all this in some perspective, it is estimated that the Koch brothers, extremely wealthy corporate executives, will see their incomes increase by about $27 million per week or $1.4 billion per year. Not coincidentally, they have pumped hundreds of millions of dollars into Republican election campaigns over the last four years. Meanwhile, the few workers lucky enough to get a pay increase are typically getting, at most, a one-time bonus of a few hundred or maybe a thousand dollars for the year. [10]

I encourage you to contact your U.S. Representative and Senators and to ask them to support the Reward Work Act. This bill would significantly limit stock buybacks, give employees of publicly traded corporations the power to elect one-third of the corporation’s Board of Directors, and force corporations to use their tax cuts to reward their workers, instead of executives and stockholders.

You can find your US Representative’s name and contact information at: http://www.house.gov/representatives/find/. You can find your US Senators’ names and contact information at: http://www.senate.gov/general/contact_information/senators_cfm.cfm.

[1]      Horowitz, E., 4/28/18, “So far, tax cuts aren’t noticeably driving growth,” The Boston Globe

[2]      Stein, J., 4/9/18, “Deficit to top $1 trillion per year by 2020, CBO says,” The Washington Post

[3]      Sammartino, F., Stallworth, P., & Weiner, D., 3/28/18, “The effect of the Tax Cuts and Jobs Act individual income tax provisions across income groups and across the states,” Tax Policy Center (http://www.taxpolicycenter.org/publications/effect-tcja-individual-income-tax-provisions-across-income-groups-and-across-states/full)

[4]      Sweet, K., 4/20/18, “Big banks saved $3.6 billion in taxes last quarter under new law,” Associated Press

[5]      Thomhave, K., “Even the CBO says the GOP tax reform will incentivize corporate offshoring,” The American Prospect (http://prospect.org/article/even-cbo-says-gop-tax-reform-will-incentivize-corporate-offshoring)

[6]      Heath, T., 4/13/18, “America’s biggest companies are announcing buybacks. But whose cash is it, anyway?” The Washington Post

[7]      Reich, R., 3/21/18, “The buyback boondoggle is beggaring America,” The American Prospect (http://prospect.org/article/buyback-boondoggle-beggaring-america)

[8]      Madrid, M., 4/13/18, “Waiting — and waiting– for corporate tax cuts to deliver those wage hikes,” The American Prospect (http://prospect.org/article/waiting-and-waiting-corporate-tax-cuts-deliver-those-wage-hikes)

[9]      Americans for Tax Fairness, retrieved 4/28/18, “Trump tax cut truths,” (https://americansfortaxfairness.org/trumptaxcuttruths/)

[10]     Hoxie, J., 4/18/18, “Five tax myths debunked,” Institute for Policy Studies (http://otherwords.org/five-tax-myths-debunked/)

GUN VIOLENCE PREVENTION NOW!

In the wake of the latest gun violence tragedy, surviving students from the high school in Florida where the incident occurred have inspired the nation with their commitment to reduce gun violence in the US. Here are four things we can all do to work to achieve that goal:

  • Support the students from Marjory Stoneman Douglas High School in Parkland, FL, and others who join their movement to change laws in states and federally on access to guns, particularly semi-automatic weapons and magazines with dozens of bullets.
  • Support organizations that are fighting to reduce gun violence.
  • Know how to refute the arguments of the National Rifle Association (NRA) and others that are opposing efforts to reduce gun violence.
  • Know what meaningful policy changes should and need to be made to reduce gun violence.

If you’d like some inspiration to act, please watch this short video of the new anthem for gun control written and performed by Stoneman Douglas High School students in response to the shooting at their school: https://www.facebook.com/justicechoir/videos/1677544419005142/.

Ways to support these students and the movement they have inspired are evolving, but here are three actions you can participate in or support in other ways:

  • Women’s March Youth EMPOWER is calling for students, teachers, school administrators, parents, and allies to take part in a #NationalSchoolWalkout for 17 minutes at 10 am on Wednesday, March 14, to protest inaction on gun violence prevention. More information is at: https://www.actionnetwork.org/event_campaigns/enough-national-school-walkout
  • Students from Stoneman Douglas High School are calling for people to join them on Saturday, March 24, in Washington, DC, and cities across the country for the March for Our Lives to demand legislation to stop gun violence. More information is at: https://www.marchforourlives.com/
  • Public rallies will be held nationwide on Friday, April 20, as part of a National Day of Action to Prevent Gun Violence in Schools. More information is at: https://networkforpubliceducation.org/national-day-action/

There are a number of organizations that you can join or support with contributions or volunteer activities that are on the front lines in working to prevent gun violence. Here are three major ones:

The NRA and others who oppose meaningful steps to reduce gun violence have crafted their arguments and media strategy over many years. Here are some responses to their arguments:

  • No civilian needs to have or should be allowed to have a semi-automatic weapon or a magazine with more than 6 bullets. Semi-automatic weapons are military weapons that are designed to kill human beings and to kill as many as possible as quickly as possible. There is absolutely no need for anyone other than law enforcement and military personnel to have one.
  • Some people will kill other people. But guns mean those people will kill many more people. And semi-automatic weapons and magazines that hold dozens of bullets mean they can kill LOTS of people very quickly.
  • Mental illness is NOT the issue; guns are. Every country has individuals with mental illness, but no other country has anywhere near the level of gun violence that we have in the US because no other country allows the level of civilian gun ownership that the US does. The great majority of people who experience mental illness – and there are many who experience some mental illness at some point in their lives – are not violent. Moreover, a violent person without a gun can do very limited harm. (See the bullet above.) By the way, the Republicans in Congress and President Trump in the budget he presented just days ago significantly cut federal spending to address mental illness. Furthermore, by reducing access to health care by cutting Medicaid and the Affordable Care Act, fewer people will have access to mental health services.
  • The Second Amendment to the US Constitution states: “a well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.” Beginning in the 1970s, the gun manufacturers, along with the NRA, undertook an extensive campaign to get activist judges to interpret the Second Amendment as giving civilian individuals the “right” to possess guns. The goal was to allow the gun industry to sell more guns and ammunition and, therefore, to make much bigger profits. Keep in mind that at the time the amendment was written, the arms referred to were muzzle loading weapons that took many seconds to reload, not weapons that fired multiple bullets per second. This individual “right” to have a gun represented a major change in interpretation of the Second Amendment, which for the first 200 years of this country’s existence was understood to apply only to arms for military purposes. Furthermore, until this re-interpretation, the power of state and local governments to regulate gun ownership had NOT been viewed as limited whatsoever by the Second Amendment. [1] The efforts to change the interpretation of the Second Amendment were so successful that by 1991 retired US Supreme Court Chief Justice Warren Burger stated that the Second Amendment “has been the subject of one of the greatest pieces of fraud, I repeat the word ‘fraud,’ on the American public by special interest groups that I have ever seen in my lifetime.”
  • Every serious piece of research on the presence of a gun in a home or elsewhere has found that the presence of a gun increases the chance of death or injury from gun usage. Having a gun does not make you safer, it makes it more likely that you, a family member, or someone else will be injured or killed by gun violence, accidental or intentional. (Some statistics on this are in my earlier blog post here.) (In response to this research, the gun industry and the NRA got a federal law passed that effectively bans federal agencies from doing or funding research on gun violence.)

I urge you to support the emerging movement to reduce gun violence through common-sense guns laws. Please participate in or provide financial or other support to one (or more) of the events and organizations listed above. In my next post, I’ll list some of the common-sense policies that should be enacted and would reduce gun violence.

[1]      Stevens, J.P., 4/11/14, “The five extra words that can fix the Second Amendment,” The Washington Post (The author, John Paul Stevens, was a judge on the US Supreme Court from 1975 to 2010.)

 

CORPORATE MEDIA THREATEN OUR DEMOCRACY Part 2

Senator Bernie Sanders’ book, Our Revolution: A Future to Believe In  [1] includes a chapter titled, Corporate Media and the Threat to Our Democracy. I summarized its information on the six huge media corporations that control 90% of what we see, hear, and read in my previous post.

Senator Sanders experienced firsthand the control and power the six huge media corporations have when he ran for President. Certainly initially, and probably throughout the whole campaign, his candidacy received less coverage than other candidates. Perhaps this was because many of the issues he raised and discussed were ones that made corporate executives uncomfortable. Senator Sanders summarized his experience as follows: “as a general rule of thumb, the more important an issue is to large numbers of working people, the less interesting it is to the corporate media. … Further, issues being pushed by the top 1 percent get a lot of attention.” (page 421)

As an example, Sanders cites the coverage of the assertion that Social Security’s benefits needed to be cut because, supposedly, money to pay them would soon run out. The financial challenges facing Social Security were exaggerated and solutions other than cutting benefits were largely ignored by the corporate media. Sanders and others organized a broad coalition in opposition to Social Security cuts that included AARP and virtually every other seniors’ organization in the country, the American Legion and every major veterans’ group, the AFL-CIO representing 13 million workers, the largest organizations in the country representing people with disabilities, the National Organization of Women (NOW), and others.

A press conference opposing cuts to Social Security benefits was held by this broad coalition, which represented tens of millions of Americans, along with U.S. Senators and Representatives. It received almost no coverage from the corporate media. Similarly, throughout the presidential campaign, many issues that Sanders raised got little to no coverage from the big media corporations, including economic inequality, poverty, Native American issues, the housing crisis, climate change, fracking, and a single-payer health care system. On the other hand, the topics of how much money each candidate had raised, when Sanders was going to formally announce his candidacy, and when he was going to drop out and endorse Clinton received lots of attention from the corporate media.

The corporate media view politics and elections as entertainment and a way to capture attention (and therefore revenue). They do not take responsibility for helping to build an informed American electorate. They are large corporations whose goal is to make as much money as they can for their shareholders and executives.

These media corporations rely on billions of dollars in advertising from the pharmaceutical, auto, financial, health insurance, and fossil fuel industries (among others). This advertising revenue presents conflicts of interest for the media corporations’ executives’ decisions on the reporting of news. Viewers and readers would be naïve to think that news coverage – or lack of coverage – is not influenced by the interests of large advertisers.

The media corporations have a perspective on what is important and worthy of coverage, and what is not. Few of the journalists who work for them cross the boundaries of the corporate perspective. As Senator Sanders writes:

“Over the course of my political life [roughly 45 years] I cannot recall a mainstream journalist coming up to me and asking what I was going to do to end the scourge of poverty in this country, or how I was going to combat the disgraceful level of income and wealth inequality, or what role I would play in ending the influence of big money in politics. Those, and many similar issues, are just not what the corporate media considers important. And my strong guess is that if by mistake, or in some state of confusion, a reporter for the corporate media started asking those types of questions, he or she would not last long with the company.” (page 436)

Concentrated, corporate ownership of the media limits the points of view and the information Americans receive. It limits cross-cultural and cross-class awareness and knowledge. It tends to break us into factions rather than building community in our diverse country. This is not good for democracy.

Furthermore, mergers are in various stages of consideration that could reduce the six corporate media giants to only three. Therefore, media concentration is likely to increase further in the near future, unless we and regulatory government agencies take a stand against it.

Meanwhile, the Federal Communications Commission (FCC) has eliminated net neutrality, which gives more market place power to the big media corporations through their control of Internet access.

I encourage you to take action to stop mergers among the giant media corporations and to work to ensure net neutrality. If you want more information about these issues, including how you can take action on them, go to freepress.net. There, you can join with hundreds of thousands of other engaged Americans to fight to save the free and open internet, curb runaway media consolidation, protect press freedom, and ensure diverse voices are represented in our media.

You can also review my earlier post, Our failing mainstream media, that encourages the support of not-for-profit, public or consumer-funded media as a better model for a democracy than the current giant, for-profit, advertising-funded corporations. It identifies six broadcast, on-line, and print media outlets you can patronize and support as good sources of information and good alternatives to the corporate media.

[1]      Sanders, B., 2016, Our Revolution: A Future to Believe In. St. Martin’s Press, NY, NY.

CORPORATE MEDIA THREATEN OUR DEMOCRACY Part 1

I’ve just finished reading Senator Bernie Sanders’ book, Our Revolution: A Future to Believe In. [1] The first part (6 chapters) is about the campaign and is interesting if you’re a political junkie.

The second part (10 chapters) is the policy platform that was the basis for his run for the presidency. It includes chapters on health care, education, climate change, criminal justice, immigration, the middle class, an economy that works for everyone, and reclaiming our democracy. These chapters are interesting if you’re interested in any of these issues or in knowing how we can get back to a society that is fair and just and provides equal opportunity for all.

The chapter that had the biggest effect on me was the one titled, Corporate Media and the Threat to Our Democracy. This chapter identifies the six huge corporations that control 90% of what we see, hear, and read. Combined, they have over $275 billion in revenues and are controlled by 15 billionaires. (In 1983, 50 corporations controlled 90% of our media and that was a high level of concentration.) Today’s 6 media corporations, and some key information about them, are:

  • Comcast (Revenue: $56 billion in 2011) It owns NBC, Telemundo, USA Network, New England Cable News, and a portion of A&E, the History Channel, Lifetime, PBS KIDS Sprout, and Hulu, as well as much, much more. It wants to merge with Time Warner (see below).
  • Disney (Revenue: $40 billion in 2011) It owns ABC; ESPN; Marvel; 277 radio stations; music and book publishers; Touchstone, Miramax, and Pixar production companies; and majority stakes in A&E, the History Channel, and Lifetime; as well as much, much more.
  • News Corp (Revenue: $33 billion in 2011) It owns Fox, National Geographic, Dow Jones (which includes The Wall Street Journal, Barron’s, and Smart Money), the New York Post, TV Guide, the book publisher HarperCollins, Blue Sky Studios, and a portion of ESPN and Hulu, as well as much, much more.
  • Time Warner (Revenue: $29 billion in 2011) It owns CNN, HBO, TMZ, TBS, TNT, Cartoon Network, 22 magazines (including Time, People, Sports Illustrated, Life, Entertainment Weekly, Fortune, etc.), and much, much more. It wants to merge with Comcast (see above).
  • Viacom (Revenue $15 billion) It owns MTV, Nickelodeon, Comedy Central, Spike TV, BET, Paramount Pictures, and over 160 cable networks that reach over 600 million people, as well as much, much more.
  • CBS (Revenue $14 billion) It owns Showtime; Smithsonian; Simon & Schuster, Scribner, and Free Press book publishing; 130 radio stations; and much, much more.

Currently, Comcast and Time Warner, two of these corporate media giants, are proposing to merge, while two others, Disney and News Corp, are discussing a possible merger, and some shareholders are pressing the final two, CBS and Viacom, to merge. Therefore, media concentration is likely to increase further in the near future, unless we and regulatory government agencies take a stand against it.

These media giants play a huge role in shaping public consciousness and knowledge, and, therefore, affect political beliefs, the public’s understanding (or lack thereof) of policy issues, and election outcomes. Note that there are multiple joint ventures among these media giants, which further limit the variety of content available and provide opportunities for collusion.

Realistically, freedom of the press is accessible only to those who own a press, a radio or TV station, or a cable network, or who produce content distributed by these media outlets. Concentrated ownership of our news media means that a very few human beings, who have significant conflicts of interest (e.g., with advertising revenue), make the decisions about what news is presented and how. More importantly, they make decisions about what is NOT covered or reported.

In my next post, I’ll share some examples that Sanders gives of what’s covered and not covered by the corporate media and why. I’ll also identify some opportunities for action on the power of the giant media corporations and their threat to our democracy.

[1]      Sanders, B., 2016, Our Revolution: A Future to Believe In. St. Martin’s Press, NY, NY.

THE GREED OF THE PHARMACEUTICAL INDUSTRY Part 2

The pharmaceutical industry can engage in the unethical and sometimes illegal practices that I’ve highlighted in previous posts [1] because they have:

  • Monopolistic power in the market place due to limited competition,
  • An absence of government regulation, and
  • Political power to block or weaken regulation and oversight due to campaign spending, lobbying, and the revolving door of personnel moving between these corporations and government regulatory positions.

The result is that the greed of the executives of these corporations is unconstrained by market place competition, government regulations, their ethics, or, in some cases, even legality. The examples presented in my previous posts have not been isolated incidents or past bad behavior that has been rectified. This behavior by the pharmaceutical corporations is an on-going pattern.

A 2010 study found that the U.S. prices of prescription drugs were, on average, double what those same drugs cost in Canada, Australia, and the United Kingdom. And things have only gotten worse since then. As a result, one out of five Americans was unable to afford medicines prescribed by their doctors, while the five largest drug corporations had profits of a combined $50 billion in 2015. As Bernie Sanders wrote, “people go to the doctor because they are sick, they get a diagnosis from their doctor, but they can’t afford the treatment. Then they get sicker. Does this make any sense to anyone?” [2]

As part of their price gouging strategies, drug companies will go to great lengths to block competition. For example, Allergan corporation has transferred six drug patents to the St. Regis Mohawk Indian tribe. Because the tribe is a sovereign entity, it is immune from a type of challenge to drug patents that low-cost generic drug makers sometimes use to get the right to produce a generic version of a drug. It is expected that this will become a popular strategy to delay the availability of cheaper, generic versions of drugs, unless Congress intervenes and changes the law. Allergan will pay the tribe only $15 million a year under the deal for the right to continue to sell the drugs, which had $1.4 billion in sales last year.

For a different drug, Allergan tried to avoid competition from a generic version by pulling the drug from the market and forcing patients to buy a new, more expensive version. This move was blocked by a federal appeals court. By the way, Allergan has also moved its headquarters to Ireland to avoid U.S. taxes. [3]

There is no reason to believe that the behavior of pharmaceutical corporations is going to change on its own. Clearly, the free market and competition are not going to stop it. Public outrage, negative publicity, and criticism from elected officials may blunt the worst of the behavior, but it will not stop it.

The behavior of the pharmaceutical industry (which is evident in other industries like the financial industry as well) is not the way the economy should work in a democracy. This behavior is that of a corporatocracy, where large corporations are in control of both our (supposedly free) market place and our (supposedly democratic) government.

Only strong legislation from Congress and strong leadership from regulatory agencies in the executive branch of government will stop these harmful and greedy business practices of the pharmaceutical corporations (and other large corporations). The opioid crisis and the fueling of it by illegal and irresponsible marketing of narcotic prescription drugs has made this absolutely clear.

I urge you to contact your U.S. Representative and Senators and ask them to:

  • Support strong legislation to regulate the pharmaceutical industry,
  • Only confirm executive branch appointees (include the Secretary of Health and Human Services) who have a clear track record of supporting strong regulation of the drug corporations, including their drug pricing and marketing of narcotics, and
  • Pass legislation that not only allows, but requires, Medicare and insurance companies participating in the Affordable Care Act to negotiate drug prices with suppliers to receive the best price based on what other countries pay. A good place to start would be to ask them if they support the Medicare Drug Price Negotiation Act of 2017, which would allow the government to negotiate directly with drug companies to lower drug prices for Medicare beneficiaries, much like the Veterans Health Administration and Medicaid do today.

As we approach the Congressional and state level elections of 2018, I encourage you to scrutinize and ask about candidates’ positions on these issues. Then we can elect candidates who support strong regulation of drug corporations, who will take meaningful steps to control drug prices, and who will seriously tackle the opioid crisis and the pharmaceutical industry practices that have led to it.

 

[1]      You can go to any of the blog posts on my site and click on the categories in the right hand column to find other posts on corporate behavior or corporate power and influence to read more about unethical and illegal practices by large corporations.

[2]      Sanders, B., 2016, “Our revolution: A future to believe in,” St. Martin’s Press, NY, NY. Page 327.

[3]      Silverman, E., 9/19/17, “This CEO’s latest move is raiding eyebrows,” The Boston Globe

THE GREED OF THE PHARMACEUTICAL INDUSTRY Part 1

The unconstrained greed of pharmaceutical corporations is abundantly clear on multiple fronts:

  • Huge price increases on existing drugs with no reasonable justification (See my previous posts on this here and here.)
  • Inhibiting competition however possible (See my previous posts that include this topic here and here.)
  • Blocking regulation and oversight (See my previous post here.)
  • Selling and distributing narcotics that are clearly being diverted to the black market (See my previous posts on this here, here, and here.)

Despite Trump’s campaign rhetoric about bringing down the cost of drugs, his administration has not taken any significant steps to make drugs more affordable. Roughly 45 million Americans don’t buy drugs that are prescribed for them because they can’t afford them.

President Trump has nominated Alex Azar to be Secretary of Health and Human Services. Azar was the CEO of the drug corporation Eli Lilly when it increased the price of an insulin product from $74 to $269. In Sweden, the same medicine is sold for the (still profitable) price of $18.38. Insulin is the life-saving drug needed by the 30 million Americans with diabetes. [1]

The production of insulin is effectively controlled by a cartel of three drug corporations, Eli Lilly, Novo Nordisk, and Sanofi, that produce more than 90% of the insulin products in the world. Because of the inflated prices in the U.S., the typical American with Type 1 diabetes spends about $571 each month on insulin. Many can’t afford the full amount they need, so they risk serious health consequences by stretching their supply and under-medicating their diabetes. Some die as a result. Worldwide, the leading cause of death for a child with Type 1 diabetes is lack of insulin.

The pharmaceutical corporations’ typical response to criticism of drug price increases is that they need the increases to pay for research and development (R&D). However, this is simply not true. [2] Insulin, for example, was developed at a publicly funded lab at the University of Toronto in 1921. Eli Lilly was a small company when it signed an agreement with the University for the right to sell insulin in 1922. Clearly, greed, not R&D costs, is fueling the insulin price increases.

Today, the U.S. National Institute of Health (NIH) annually spends $34 billion to fund university research. When researchers develop new drugs, corporate drug manufacturers typically purchase the rights to them, tweak them, patent them, and then market them to maximize their profits. The U.S. needs to legislate a new, public health-focused drug licensing system that prioritizes access and affordability, along with innovation, instead of profit.

Another example of price gouging by drug corporations comes from the response to the opioid crisis and the increased demand for the drug naloxone, the antidote for a narcotic overdose. With over 60,000 Americans dying of drug overdoses each year, emergency responders, not-for-profit human service organizations, and family members want to have naloxone readily available to save lives. However, the drug manufacturers have responded by jacking up the prices of naloxone and its various delivery systems. Kaleo corporation has raised the price of its easy-to-use, naloxone auto-injector from $690 in 2014 to $4,500 in 2016. Amphastar Pharmaceuticals has raised its wholesale price for naloxone from $20 to $40. Adapt Pharma’s new Narcan nasal spray came on the market in 2015 at $150. These prices and the opioid crisis have increased the drug corporations’ revenue from sales of naloxone from $12 million in 2011 to $274 million in 2016. Economics, specifically economies of scale, would suggest that the price should be going down with increased demand, not up.

As prices for naloxone have risen, first responders and community-based non-profits who provide services to people with drug problems, who are on the front-lines of the opioid crisis, are finding that their tight budgets do not allow them to have the number of naloxone doses they’d like to have. [3] Naloxone has been available since 1985, although new delivery vehicles, such as a nasal spray, have been developed recently. Public funding through the NIH has contributed to the development of and conducting of clinical trials for some of these products. Only five corporations make naloxone and they have been working to block competitors. One of them is Mylan Pharmaceuticals, infamous for its price gouging with its EpiPen product.

Some drug companies are simply investors, buying the rights to drugs, often life-saving ones, that they believe can deliver big profits, usually through dramatic price increases. A recent example is NextSource, a start-up with no research and development costs. In 2013, it bought the rights to a cancer treatment drug with low demand and therefore a single producer. It was priced at $50 per dose. In three years, NextSource has raised the price to $768 per dose.

Soaring cancer drug costs are driving the cost of treatment well over $100,000 a year in many cases. As a result, some patients delay treatment to figure out how they can get the treatments paid for. A study earlier this year found that 24 cancer drugs had, on average, quadrupled in price over the last 8 years. [4]

In an interesting example of how our corporate media sometimes cover increasing drug prices – putting a positive spin on outrageous corporate behavior – The Boston Globe recently had a big headline on the front page of its Business Section that read “Price hikes on top-selling drugs were a lot smaller this year.” The article began with “Average annual price increases have declined at least four years in a row for 20 of America’s top-selling brand-name prescription drugs.” Nowhere in the article does it mention that the 6.9% increase over the last year is three times the rate of inflation or that over the last 5 years the cost of these drugs is up 66%. On a subsequent page the article does note that “these drugs have increased by an average of 213 percent since their launch, well out-pacing inflation.” It also notes that many of these drugs are very expensive with seven having an average, annual cost per patient of between $59,000 and $92,000. [5]

In my next post, I’ll discuss why the pharmaceutical corporations can get away with this price gouging and what we can do about it.

[1]      Zaitchik, A., 11/28/17, “Beyond the planet of the pharma bros,” The American Prospect (http://prospect.org/article/beyond-planet-pharma-bros)

[2]      Kesselheim, A.S., Avorn, J., & Sarparwari, A., 8/23/16, “The high cost of prescription drugs in the United States: Origins and prospects for reform,” The Journal of the American Medical Association

[3]      Denvir, D., 12/15/17, “These pharmaceutical companies are making a killing off the opioid crisis,” The Nation (https://www.thenation.com/article/these-pharmaceutical-companies-are-making-a-killing-off-the-opioid-crisis/)

[4]      Berr, J., 12/26/17, “Price of 40-year-old cancer drug hiked 1,400% by new owners,” CBS News, MoneyWatch (https://www.cbsnews.com/news/cancer-drug-lomustine-price-hiked-1400-percent-by-new-owners/)

[5]      Robbins, R., 12/29/17, “Price hikes on top-selling drugs were a lot smaller this year,” The Boston Globe

U.S. FAILS TO PROSECUTE PRESCRIPTION OPIOID DISTRIBUTOR

After years of work by U.S. Drug Enforcement Agency (DEA) investigators building a case against a major drug distributor for fraudulently shipping millions of prescription opioid pills, high-ranking lawyers at the DEA and the US Department of Justice (DOJ) recently decided to settle the case and not pursue criminal charges. Instead, the lawyers settled for a $150 million fine (from a corporation with roughly $200 billion per year in revenue) and a temporary suspension of shipments of narcotics from four of its 30 distribution centers. The lenient settlement was agreed to despite the corporation having promised in a 2008 settlement to be diligent in preventing fraudulent shipments of controlled substances. However, rather than improving its oversight of narcotics shipments, its fraudulent shipments increased. [1]

The DEA team had compelling evidence that McKesson Corporation, the fifth largest public company in the U.S., had fulfilled and failed to report suspicious orders for millions of highly addictive painkillers from pharmacies, including Internet pharmacies. The nationwide DEA team, working with U.S. attorney’s offices in 11 states, wanted to fine the corporation over $1 billion and pursue criminal charges against the corporation and perhaps some of its executives. A senior DEA official stated that the corporation could have been put out of business through an indictment or a very large fine.

But when the team turned over the evidence to top lawyers at DEA and DOJ, the lawyers negotiated a settlement with the corporation and never even discussed possible criminal charges. They even allowed McKesson to keep its $31 billion federal government contract to supply drugs to the Veterans’ Administration, federal prisons, and the Indian Health Service.

Meanwhile, a pharmacy owner in a small town in Colorado that McKesson supplied was found guilty of drug trafficking and was sentenced to 15 years in prison. From 2008 (when McKesson had settled the first set of charges) to 2011, McKesson’s shipments of oxycodone (the narcotic drug that is OxyContin) to this small-town pharmacy had increased 15-fold.

The DEA team had convincing evidence that McKesson’s activities had fueled the nationwide opioid drug crisis. The $150 million fine was a slap on the wrist for a $200 billion corporation that paid its top executive $100 million last year, has 76,000 employees, and makes $100 million a week in profits. The DEA team felt insulted, undermined, and was demoralized.

This is another example of a powerful corporation, as well as its senior executives, getting off with a slap on the wrist for significant criminal activity that harmed hundreds of thousands of Americans. Purdue Pharma, the major player in the prescription opioid drug scandal, also has (so far) gotten off with a slap or two on the wrist, despite the deaths of over 200,000 Americans. (See my previous posts on Purdue Pharma here and here.) The Wall St. financial corporations and their executives have also gotten off with slaps on the wrist despite a long trail of criminal activity across many years and many business lines.

One must ask why this is happening today when in the late 1980s, during the savings and loan (S&L) bank scandal, 750 S&Ls were forced into bankruptcy and out-of-business and over 1,000 of their executives went to jail.

Since the 1980s, corporations have grown in size and power, while government regulation and oversight have been weakened. As corporations have grown, they have gained power in the economy and in the halls of government. In the economy, their size has led to monopolistic power, a lack of competition, and, therefore, the power to control prices and make huge profits.

In the halls of government, the deregulation of campaign financing now allows wealthy corporations and individuals (often business executives) to spend hundreds of millions of dollars on candidates’ campaigns for legislative, executive, and judicial branch offices. As a result, elected officials – legislators, governors, presidents, and judges – are indebted to wealthy donors. These wealthy special interests further influence government decision making by spending millions of dollars on lobbying and by having individuals move back and forth between government roles and private sector jobs, in what is referred to as the revolving door. An example of this is that one of McKesson’s lawyers negotiating the settlement with the DEA and DOJ was a former top DEA official.

Therefore, government decisions tend to favor the interests of wealthy corporations and individuals. Examples include the lack of meaningful punishment for serious wrong doing, favorable tax policies, a failure to protect the public from rip offs in the market place, and weak regulation of the safety of consumer products and our air and water.

In this environment of market place power and weak regulation, the greed of large corporations and their executives is unconstrained and ethics, morality, and often legality get pushed aside. The public interest is overwhelmed by the power of wealthy special interests. This power imbalance is exacerbated by the growing inequality of income and wealth.

We need to elect officials who will represent the public interest and not wealthy corporations and individuals. We also need to let our elected officials know that we are watching and that we know when they are doing the bidding of the wealthy interests, such as in the recent tax bill. And we need to hold them accountable by being informed and voting. That alone could create dramatic change in our country if more people did so.

Only 53% of eligible voters voted in the last presidential election. Many of them were understandably voting against the tilt in favor of the wealthy in Washington. However, they were hoodwinked by the promises of a con man who, now that he is in office, is tilting the scales even further in favor of the wealthy.

Hopefully, this election woke people up to the fact that democracy is NOT a spectator sport. We need a broad, informed, and engaged electorate for our democracy to deliver on its promise of government of, by, and for the people.

[1]      Bernstein, L., & Higham, S., 12/17/17, “‘We feel like our system was hijacked’: DEA agents say a huge opioid case ended in a whimper,” The Washington Post

PURDUE PHARMA AND OXYCONTIN CAUSED THE OPIOID EPIDEMIC Part 1

Purdue Pharma, a privately-owned corporation, and its narcotic pain-killer, OxyContin, caused the current opioid epidemic. The mainstream media have not provided much coverage of Purdue Pharma’s role in their reporting on the opioid epidemic, which is perhaps the worst health epidemic in US history. The most detailed coverage of the role of Purdue and OxyContin that I am aware of is the article that appeared in the October 30th issue of The New Yorker, “The family that built an empire of pain”. [1] This blog post is largely a summary of that article.

This story is a familiar, but particularly deadly one, of greed, the power of wealthy corporate executives, and the willingness of members of Congress and government to do the bidding of powerful, wealthy interests. Many facets of the story mirror that of the tobacco industry, such as denial of known deadly effects. However, the connection between OxyContin and death is much quicker and clearer.

Purdue Pharma developed OxyContin in 1995. It is oxycodone, a chemical cousin of heroin and twice as powerful a pain-killer as morphine. Purdue’s innovation was a time release formula that allowed a large dose of oxycodone to be taken all at once and whose effect would last for 12 hours (supposedly). This meant that a pill had to be taken only twice a day and that its effect would last through the night, so the patient could get a full night’s sleep. Other narcotic pain-killers come in pills with much smaller doses and must be taken more frequently.

Potent, narcotic pain-killers like OxyContin were, at the time, only used to treat the acute pain of cancer and end-of-life situations. However, Purdue’s marketing worked to broaden the use of OxyContin to less acute pain. It targeted both the public and prescribing doctors. It included hiring doctors, researchers, and other experts to downplay the risks of OxyContin and argue that pain was being under-treated.

Using this strategy, Purdue engaged in one of the most extensive marketing campaigns in the history of the drug industry. It built a salesforce of over 1,000 people who were strongly incentivized through commissions and bonuses to sell lots of OxyContin. Some salespeople made over $100,000 in commissions and in 2001 Purdue paid out over $40 million in bonuses. Within 5 years of its introduction, sales of OxyContin hit $1 billion.

Today, roughly 250 million opioid pain-killer prescriptions are being written each year. In Ohio, a state hard hit by the opioid epidemic, 2.3 million people, about 1 out of every 5 people in the state, received a prescription for an opioid in 2016.

It is estimated that 2.5 million Americans are addicted to opioids and over 300,000 people have died due to the opioid epidemic. An addicted baby is now born every 30 minutes in the US and 10% of newborns in Huntington, West Virginia, are born opioid addicted. According to the American Society of Addiction Medicine, 4 out of every 5 people who use heroin start opioid use with a prescription pain killer.

Purdue has realized about $35 billion in revenue from OxyContin and billions in profits. The Sackler family that owns Purdue is worth an estimated $13 billion.

In my next post, I’ll outline the fraudulent marketing Purdue engaged in to profit from OxyContin and its on-going efforts to block any restrictions on the prescribing of it.

[1]      Keefe, P.R., 10/30/17, The family that built an empire of pain, The New Yorker (https://www.newyorker.com/magazine/2017/10/30/the-family-that-built-an-empire-of-pain)

THE OPIOID CRISIS: SAVING LIVES VS. SAVING PROFITS

President Trump pledged months ago to declare the nationwide opioid crisis a national emergency. He now says he’ll do so this week. The crisis has claimed well over 200,000 lives and the death rate continues to climb.

Declaring opioid deaths a national emergency would be nice, but taking effective action is even more important. So far, the Trump administration and key Republicans in Congress have shown no interest in doing so.

Trump recently nominated Representative Tom Marino, a Pennsylvania Republican, to be his national drug czar. Marino withdrew his name from consideration last week after it was revealed that he had spearheaded a successful effort in Congress to block the Drug Enforcement Agency’s (DEA) efforts to stop fraudulent distribution of prescription opioids. [1]

In April 2016, as the deadliest drug epidemic in US history raged, Congress passed a bill stripping the DEA of its ability to stop the distribution of large quantities of prescription narcotics. Drug industry experts blame the origins of the opioid crisis on the over-prescribing, some of it fraudulent, of narcotic pain killers. [2] The pharmaceutical corporations’ marketing of these drugs has also come in for blame, as they downplayed the potential for addiction to the drugs and promoted the supposed under-treatment of pain.

At the behest of the drug industry, Representative Marino in the House and Senator Hatch in the Senate (a Utah Republican) led the efforts by a handful of members of Congress to undermine DEA enforcement efforts aimed at blocking the supply of narcotic pain killers to corrupt doctors and pharmacists who were selling them on the black market. They passed a law making it impossible for the DEA to freeze suspicious shipments of narcotics by drug distributors who had repeatedly ignored DEA warnings while selling millions of pills for billions of dollars. Marino had spent years working to pass such a law.

The drug industry contributed at least $1.5 million to the campaigns of the 23 members of Congress who sponsored the bill and spent over $100 million lobbying Congress.

Besides the sponsors of the bill and the drug industry, few members of Congress or others outside of Congress knew of the impact the bill would have. It was passed in Congress by “unanimous consent,” an expedited process supposedly reserved for non-controversial bills. Former White House officials say they and President Obama were unaware of the bill’s impact when it was signed into law. Requests for interviews with current and former officials, as well as dozens of Freedom of Information (FOI) Requests, have been submitted to the DEA and the Justice Department by the media to try and find out who knew what when. The interview requests have been declined or ignored, and the FOI requests have been denied or delayed; some have been pending for 18 months. [3]

This is a powerful example of the incredible influence and control our large corporations have over policy making in Washington, D.C. The large pharmaceutical corporations and their distributors have gotten Congress to make their profits from illegally selling narcotic painkillers more important than the 60,000 deaths that are occurring each year from opioid use. These deaths are roughly twice the number that occur due to gun violence or car accidents. The number of deaths last year was roughly 50% more than occurred at the peak of the HIV/AIDS crisis. Drug overdoses have become the leading cause of death among those under 50. [4]

I urge you to contact your US Representative and Senators and ask them to take real action to fight the opioid crisis. This includes spending money on addiction treatment and drug enforcement. And it requires repealing the 2016 legislation that undermined the DEA’s efforts to control the distribution of prescription, narcotic pain killers. We must assert that people’s lives, as well as recovery from and avoidance of addiction, are more important than profits for large pharmaceutical corporations.

[1]      Superville, D., & Daly, M., 10/18/17, “Marino pulls name from US drug czar consideration,” The Boston Globe from the Associated Press

[2]      Higham, S., & Bernstein, L., 10/16/17, “Drug industry quashed effort by DEA to cut opioid supply,” The Boston Globe from The Washington Post

[3]      Higham, S., & Bernstein, L., 10/16/17, see above

[4]      Katz, J., 6/5/17, “Drug deaths in America are rising faster than ever,” The New York Times (https://www.nytimes.com/interactive/2017/06/05/upshot/opioid-epidemic-drug-overdose-deaths-are-rising-faster-than-ever.html)

DEREGULATION AND THE ELECTION OF TRUMP

Thirty years of deregulation have produced a declining standard of living and reduced economic security for the working and middle class. This is causing them significant stress and anxiety. In particular, there is strong evidence of the toll this is taking on the members of the white working and middle class. After decades of increasing life expectancy among all Americans, the life expectancy of middle-aged (35 – 59 years old), non-Hispanic whites without a college education is now actually declining largely due to premature deaths from drug and alcohol abuse and from suicides. [1] These “deaths of despair” as they are being called, are linked to the stress of falling behind one’s own life expectations as well as relative to others. [2] [3] [4]

The loss of economic well-being for the working and middle class generally has produced real anger against the political establishment that has allowed and abetted it. Numerous books have been written on the alienation of this demographic group. [5] It’s no wonder many of them voted for Trump and against the Washington, D.C., establishment in 2016. Many of them felt they had no better way to express their anger or to demand change in our policies than to vote for Trump. The fact that Trump (despite some of his rhetoric) is the embodiment of everything that has driven workers to this brink of despair is the great irony of the election. It is also an indication of the incredibly deep frustration, anxiety, and despair felt by many in the middle and working class.

Both in the U.S. and internationally, democracy – the power of the people to drive policy making including regulation – has only been successful when corporate power is under control. Regulation of big corporations has historically been necessary for workers to have the economic security that allows them to realistically engage in life, liberty, and the pursuit of happiness. In a capitalistic society, a basic level of economic security is essential if individuals are to have the freedom to make important choices in their day-to-day lives (such as where to live and what education to obtain for themselves and their children). [6]

For a capitalistic democracy to work, market place rules and regulations are essential to maintain fair and competitive markets for consumers and workers. They are also necessary to keep large corporations from wielding controlling influence over government and undermining democracy. When President Teddy Roosevelt used anti-trust laws to break up giant corporations in the early 1900s, the focus was “less on the power of giant corporations to dominate markets and more on the power of giant corporations to dominate government.” [7]

The political establishment in Washington, D.C., appears either to have forgotten this lesson of the early 20th century or to have allowed themselves to be bought by the corporate elites. As a result, the anxiety, anger, and frustration of the working and middle class has grown to historic proportions. In the election of 2016, they voted for Trump for President to clearly repudiate the Washington establishment. The Tea Party wing of the Republican Party and the Bernie Sanders wing of the Democratic Party both reflect this same rebellion against the political establishment, albeit from opposite ends of the political spectrum.

How this anxiety, anger, and frustration gets expressed in the future is very much up for grabs. We’re likely to be in for a rocky ride politically as individual candidates and the political parties battle to channel this energy and emotion in elections and policy making.

If we want to have a democracy instead of a corporatocracy and to revitalize our working and middle class, we must restrain corporate power, both in the private market place and in the public sphere of government. Strong regulations that control corporate power; protect the well-being of workers, consumers, and the public; and ensure that political power rests with the people are essential. As Supreme Court Justice Louis Brandeis warned in the 1930s, “We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can’t have both.” [8] Clearly, Justice Brandeis understood that great wealth also means great political power, which, when concentrated in the hands of a few, is antithetical to democracy.

[1]      Boddy, J., 3/23/17, “The forces driving middle-aged white people’s ‘deaths of despair,” National Public Radio (http://www.npr.org/sections/health-shots/2017/03/23/521083335/the-forces-driving-middle-aged-white-peoples-deaths-of-despair)

[2]      Payne, K., 7/5/17, “Economic inequality goes well beyond the bank account,” The Boston Globe

[3]      Burke, A., 3/23/17, “Working class white Americans are now dying in middle age at faster rates than minority groups,” Brookings (https://www.brookings.edu/blog/brookings-now/2017/03/23/working-class-white-americans-are-now-dying-in-middle-age-at-faster-rates-than-minority-groups/)

[4]      Case, A., & Deaton, A., 5/1/17, “Mortality and morbidity in the 21st century,” Brookings (https://www.brookings.edu/wp-content/uploads/2017/03/casedeaton_sp17_finaldraft.pdf)

[5]      Kuttner, R., 10/3/16, “Hidden injuries of class, race, and culture,” The American Prospect (http://prospect.org/article/hidden-injuries-0) This is an insightful review of nine books on the “decline of the white working class and the rise of the Tea Party and Donald Trump.”

[6]      Kuttner, R., 4/7/17, “Corporate America and Donald Trump,” The American Prospect (http://prospect.org/article/corporate-america-and-donald-trump)

[7]      Warren, E., 2017, “This fight is our fight: The battle to save America’s middle class,” Metropolitan Books, NY, NY. p. 159

[8]      Warren, E., 2017, see above, p. 159

TO REGULATE OR DEREGULATE? THAT IS THE QUESTION

Regulations put in place after the financial collapse of 1929 and the resultant Great Depression served the country well. The current push for deregulation began with the deregulation of the railroad and trucking industries in the late 1970s. The consensus at the time was that regulations in these industries were not serving the public interest. Initial deregulation efforts worked to eliminate regulations that favored existing corporations and prevented competition from start-ups and innovators.

In 1982, anti-trust laws were used to break-up the AT&T monopoly on telephone service and introduce competition into the long-distance phone market. This reflected both strong regulation – the breaking up of a large corporation using anti-trust laws – and a belief that deregulation of the long-distance phone market coupled with the introduction of competition would best serve consumers.

During the late 1980s, the focus shifted to deregulation that benefited corporations rather than the public interest. Deregulation became “a mantra that can be translated to mean: let corporate America do more of whatever corporate America wants to do.” [1]

A telling example of this change in attitude is seen in the Consumer Product Safety Commission’s (CPSC) history. It was created in 1972 to protect consumers from dangerous products. It is responsible for the safety of all consumer goods except vehicles, guns, food, drugs, and cosmetics. Initially, it had 786 employees. However, as the regulatory focus shifted to benefiting corporations, it fell out of favor. In 2016, before Trump’s election, it was down to 567 employees, despite significant growth in the economy and in imports. Many imported products come from low wage countries with minimal safety standards. Therefore, the need for the CPSC to inspect and regulate goods has increased, while its capacity to do so has decreased. [2]

In a glaring example of its failure to live up to its initial promise and goals, in 2007, imported toys for young children that had lead paint (a neurotoxin) were not detected until well after the fact. For example, 1.5 million Thomas the Train components that had been imported and sold had to be recalled. [3] The weakening of the CPSC is occurring even though it reports that deaths, injuries, and property damage from consumer product incidents cost more the $1 trillion each year.

Since the late 1980s, the push for deregulation has reduced product safety standards; relaxed regulation of mergers, acquisitions, and financial practices (including allowing virtual monopolies); reduced on-the-job protections for workers; and weakened enforcement in many areas. Simultaneously, deregulation of the labor market has weakened workers’ bargaining power. The regulations that supported workers’ ability to bargain collectively with employers, largely through unions, have been undermined and weakened repeatedly since the 1980s. The formation of a union is now more difficult, while the ability to eliminate unions by outsourcing jobs overseas or hiring “replacement” workers has been made easier. As a result, union membership for private sector workers has declined from 25% in 1972 to 6% today.

Weak labor market regulation has allowed dramatic growth in the number of part-time, temporary, contracted, and consultant workers. This has undermined the economic security of the middle and working class, which was based on a full-time job with benefits. The explosive growth of the “gig” economy reflects this trend. Corporate employers have used the weak regulation of the labor market to restructure the workforce and reduce workers’ pay and benefits. As a result, fewer and fewer workers have employer provided health insurance, and when they do have it, they are typically paying a greater share of the cost and/or are footing the bill for higher co-payments for seeing doctors or getting prescription drugs. The guaranteed retirement incomes of pensions are largely a thing of the past. Workers are now much more likely to have to self-fund retirement through contributions to retirement savings accounts (sometimes with employer matching contributions). Furthermore, the investment decisions and risk fall on the worker. This decreases economic security for workers and gives financial corporations and advisors opportunities to charge fees and make commissions that often undermine the return on investment for workers, who typically are not sophisticated investors. As a result, workers are much less likely to be able to afford to retire at normal retirement age and are less likely to be financially secure in retirement.

The financial collapse of 2008, which was caused by the deregulation of the financial industry, robbed many in the working and middle class of their living standard and the last vestiges of their economic security. It destroyed many of their middle-class jobs and also their equity in their homes. Over 60% of U.S. households experienced a decline in wealth and many of those who didn’t lose wealth simply didn’t have any savings or assets to lose (e.g., the young and the poor). Although the high unemployment of the Great Recession has now finally declined after 8 years, high under-employment remains. Many workers are now in lower paying jobs for which they are over-qualified or are working part-time or in the “gig” economy instead of in full-time jobs, let alone ones with benefits.

Simultaneously, these workers watched the federal government bailout the Wall Street corporations and allow their executives not only to avoid penalties or jail, but to continue to enjoy huge paydays. There was no bailout for homeowners or laid off workers.

Although Republicans have typically been the politicians leading the charge on deregulation for the benefit of big corporations, many Democrats have not been far behind in their support of the deregulation agenda. Somewhat surprisingly, big corporations themselves have largely escaped the wrath of workers and the public, at least to-date. [4] This is partly because neither of our major political parties or any other powerful group has pointed the finger in their direction. Conversely, there are well-funded media, think tanks, public relations, and other initiatives that have promoted the deregulation and pro-corporate message.

My next post will link deregulation and its effects with the election of President Trump.

[1]      Warren, E., 2017, “This fight is our fight: The battle to save America’s middle class,” Metropolitan Books, NY, NY. p. 79

[2]      Steinzor, R., 4/17/17, “The war on regulation,” The American Prospect (http://prospect.org/article/war-regulation-0)

[3]      Lipton, E., & Barboza, D., 6/19/07, “As More Toys Are Recalled, Trail Ends in China,” The New York Times

[4]      Kuttner, R., 4/7/17, “Corporate America and Donald Trump,” The American Prospect (http://prospect.org/article/corporate-america-and-donald-trump)

MAKING REGULATION WORK

For society to function, regulatory agencies must protect consumers, workers, and the public from self-interested and unscrupulous individuals, employers, and businesses. In a democracy, this requires a concerted effort and leadership from elected officials to put appropriate regulations in place and to ensure that they are enforced.

In a recent speech, Senator Elizabeth Warren (MA) noted that an essential piece of regulating large corporations is to use anti-trust laws to stop mergers that create huge corporations that have the power to distort our economy and policy making. The Justice Department, the Federal Trade Commission, and state attorneys general all have the power to do this. However, the political climate and, to some extent, the judicial climate have left anti-trust regulation withering on the vine in recent decades. [1]

Due to weak anti-trust law enforcement, a few giant corporations now control major U.S. industries including the airline, banking, health care, pharmaceutical, agriculture, telecommunications, and technology industries. Today, two-thirds of the 900 U.S. industries that are tracked by The Economist are more concentrated than they were in 1997, i.e., have fewer and larger corporations making them up. Competition is increasingly choked off. Small businesses and innovators are shut out of the market place, either by being bought up or squashed.

With this reduced competition, consumers pay more and get lower quality, while workers have their pay and benefits cut. A classic example of this is the cost and speed of Internet access. The U.S. has some of the most expensive Internet access among the developed countries of the world. And the speed of access is among the slowest in the world, particularly when comparing major cities. [2] Furthermore, cost and speed of access in the U.S. varies tremendously among urban and rural areas, as well as among wealthier and poorer communities.

The poor Internet service in the U.S. occurs because we have a small number of large, private, lightly regulated telecommunications providers that often have a monopoly or near-monopoly on service in a geographical area. To improve access, cost, and speed, a handful of U.S. cities have chosen to create their own municipal broadband services to compete with private Internet service providers: Chattanooga, Tennessee; Bristol, Virginia; Lafayette, Louisiana; Cedar Falls, Iowa; and Wilson, North Carolina. However, the private providers are working to get states and the federal government to ban the creation or expansion of these municipal providers because they do not want the competition. The private providers are also lobbying hard to weaken regulation, such as the net neutrality rules that the Federal Communications Commission recently put in place.

The argument that corporations and competition in a free market will result in effective self-regulation has been shown to be false time and again. The financial industry is probably the poster child for refuting this argument. The deregulation of the financial industry led, not to effective self-regulation as the proponents promised, but to the savings and loan crisis of the late 1980s and early 1990s, as well as the financial collapse of 2008. The lack of regulation led to risky and abusive business practices that spiraled out of control and eventually collapsed, causing major disruption to the financial industry and the whole economy.

In another example, U.S. industry has not, on its own, kept our air and water clean. Without regulation, it is much easier and cheaper for industry to dump its waste products into our air and water.

Corporations have a knee-jerk reaction against regulation because they want unfettered control of their products, their markets, and their marketing. They highlight the (often exaggerated) costs of regulations and ignore benefits. Unfortunately, this has been a very effective strategy for resisting regulation in our current political climate. It seems that no one is highlighting the benefits of regulation or standing up for consumers, workers, and the public.

Corporations always claim (with little evidence) that regulation will hurt business and reduce the number of jobs. However, as the financial collapse demonstrated, a lack of regulation can lead to a crisis that dramatically hurts businesses and reduces the number of jobs.

In fact, studies have shown that regulation has a neutral or modestly positive effect on the overall number of jobs, although it may cause some shifting of jobs, for example from the coal industry to the wind and solar power industries. [3]

Furthermore, the Office of Management and Budget (OMB) reported to Congress that the cost-benefit analyses of new, major federal regulations from 2009 to 2015 showed that benefits exceeded costs by between $103 billion and $393 billion annually. These findings are corroborated by other reports.

In another report, OMB reviewed major regulations from 2000 to 2010 and found that the average annual benefits of regulations were about 7 times the costs. This finding is especially significant given that almost all costs are included in such analyses and are often over-estimated, while many benefits are not monetized and, therefore, are not included (e.g., the lifetime benefit of better cognitive functioning when children’s exposure to lead and mercury is reduced). In other words, benefits outweigh costs by 7 to 1 even though costs are over-estimated and benefits are under-estimated. [4]

So, what will it take to get good regulations in place that protect workers, consumers, and the public? Senator Warren in a recent speech called for 4 policy changes to reduce corporate power and allow appropriate regulation to occur:

  • Enforce anti-trust laws to limit the size and power of corporations,
  • Reform campaign finance laws, including enhancing the value of small contributions from individuals by matching them with public funds,
  • Close the revolving door of personnel who move between industry and government jobs, creating conflicts of interest and an industry-friendly mindset among regulators, and
  • Reform the process for implementing regulations to limit corporate influence. [5]

We as citizens and voters need to work with our elected officials to make sure that the influence and interests of large corporations are appropriately balanced with the interests of workers, consumers, and the public. This means we need to be active and engaged in our democratic processes – in our elections and in communicating with our elected officials. Senator Warren notes that the concentrated money and power of large corporations and wealthy business people influence nearly every decision made in Washington, D.C. We must ensure that the voices of we the people are heard and have every bit as much influence as those of wealthy individuals and large corporations.

[1]      Marans, D. 5/16/17, “Elizabeth Warren has a real plan to drain the swamp in Washington,” HuffPost (http://www.huffingtonpost.com/entry/elizabeth-warren-clean-up-washington-trump_us_591b6f2ae4b0a7458fa3f3d8)

[2]      Yi, H., 4/26/15, “This is how Internet speed and price in the U.S. compares to the rest of the world,” PBS NewsHour (http://www.pbs.org/newshour/updates/internet-u-s-compare-globally-hint-slower-expensive/)

[3]      Shierholz, H., & McNicholas, C., 4/11/17, “Understanding the anti-regulation agenda,” Economic Policy Institute (http://www.epi.org/publication/understanding-the-anti-regulation-agenda-the-basics/)

[4]      Shierholz, H., & McNicholas, C., 4/11/17, see above

[5]      Marans, D. 5/16/17, see above

SAVING OUR REGULATORS FROM THE WAR ON REGULATION

The war on regulation is a war not only on regulations themselves, but on the regulatory agencies that work to protect consumers, workers, and the public. The federal regulatory agencies that we rely on include the:

  • Consumer Financial Protection Bureau (CFPB) that protects us from deceptive financial products (e.g., loans and credit cards) and abusive financial corporations (e.g., banks, payday lenders, and loan sharks);
  • Consumer Product Safety Commission (CPSC) that protects us from dangerous physical consumer products (e.g., toys, children’s car seats, cribs, power tools, appliances, cigarette lighters, and household chemicals);
  • Environmental Protection Agency (EPA) that protects us from pollution of our air and water;
  • Federal Trade Commission (FTC) that protects us from unfair and deceptive practices in the marketing of consumer goods (e.g., products that promise that your baby can learn to read);
  • Food and Drug Administration (FDA) that protects us from tainted food and unsafe medications;
  • National Labor Relations Board (NLRB) that protects workers from unfair treatment on the job;
  • Occupational Health and Safety Administration (OSHA) that protects workers from unhealthy and unsafe working conditions; and
  • Securities and Exchange Commission (SEC) that protects investors from unfair or deceptive practices in the buying and selling of securities.

The Consumer Financial Protection Bureau (CFPB) is the newest of these agencies. It was created after the financial collapse of 2008 as part of the Dodd-Frank financial reform act. Its creation was spearheaded by Massachusetts Senator Elizabeth Warren. It is stopping the abusive and deceptive mortgage loans that were a major contributor to the financial collapse and to the loss of over 9 million homes by middle and working-class Americans.

The CFPB works to protect consumers from unfair, discriminatory, deceptive, and abusive practices by banks and other financial institutions. It provides consumers with information and tools to make good financial decisions. It receives and responds to consumer complaints. And it takes action against financial corporations that break the law. In its short life, it has handled over 1 million consumer complaints and obtained $12 billion in relief for over 29 million consumers.

Because the CFPB regulates Wall Street firms and holds them accountable, it has been in the crosshairs of the big banks and investment corporations. Since before the CFPB came into existence, Wall Street, through its campaign spending, its lobbyists, and its friends in government offices (both elected and appointed ones), has worked to weaken, delay, and eliminate the CFPB and its regulations. Currently, CFPB’s opponents are working to reduce the power of its director or to get him to resign so Trump can appoint someone who won’t stand up for consumers and take on the big financial corporations. They are also trying to cut its budget and weaken its independence by putting it under the control of the President and Congress. [1] [2]

President Trump and Scott Pruitt, his head of the Environmental Protection Agency (EPA), are working hard to weaken the EPA. They have proposed dramatic budget cuts for it and significant weakening of its regulations promoting clean air and water, as well as its efforts to reduce global warming and climate change. The proposed budget cut, from $8.2 billion to $5.65 billion (31%), is the greatest percentage cut proposed for any federal agency. It would have so many very serious implications that many of them will get very little if any attention from the media.

For example, the proposed budget for the EPA would eliminate federal funding for protecting children from poisoning by lead paint. According to a 2014 report from the Centers for Disease control, 243,000 children in the U.S. have lead levels in their blood that exceed the danger threshold for permanent neurological damage. Moreover, there is compelling evidence that significantly lower blood lead levels can cause serious harm.

The Lead Risk Reduction Program at the EPA educates the public and certifies home renovators on the safe removal of lead paint. This program’s $2.5 million and 73 employees would be eliminated in the Trump budget. The supposed rationale for this is that state and local governments can do this better than the federal government. However, the proposed budget also eliminates the $14 million for grants to state and local governments to help them address the risks of lead paint. [3]

I urge you to contact your U.S. Representative and Senators. Ask them to stand up for children and all of us by supporting a strong, well-funded EPA, as well as a strong and independent Consumer Financial Protection Bureau. Strong consumer and worker protections, in general, should be the priority, not kowtowing to large corporations.

[1]      Frank, B., 5/2/17, “The art of the deal: Bait and switch division,” The Boston Globe

[2]      Freking, K., & Gordon, M., 5/5/17, “GOP-led House panel votes to overhaul Dodd-Frank,” The Boston Globe from the Associated Press

[3]      Mooney, C., & Eilperin, J., 4/6/17, “EPA programs to protect kids from lead paint may end,” The Boston Globe from the Washington Post

FIGHTING RESISTANCE TO NEEDED REGULATIONS

We need rules and regulations to protect workers, consumers, and the public. However, opposition to regulations comes from organizations and individuals that have strong self-interests at stake and often lots of resources. Typically, it’s large corporate employers and producers of goods and services that oppose regulation. They use campaign spending and lobbying to persuade public officials to side with them. They use public relations campaigns to try to win support from voters and the public, often using deceptive messages. They claim that the costs of regulation are too high, but they almost never discuss the benefits.

My previous two posts described the war being waged on regulation by the Trump administration and some Members of Congress, particularly Republicans. (You can read them here and here.) My last post highlighted examples of rules and regulations that have been repealed or delayed. Every one benefits corporations at the expense of workers, consumers, or the public.

How does this happen in a democracy? There are several factors, but ultimately it comes down to the concentrated self-interests of large corporations and their political power.

Regulation typically has immediate and sometimes significant costs that are concentrated on a small group of organizations or individuals. The benefits typically are spread over a much broader group of people and often over a longer time period. The costs are typically easy to identify and measure in dollars, while the benefits are often much more difficult to monetize and some are even hard to identify.

As a result, those bearing the costs of regulation have strong self-interests in opposing and stopping or weakening regulation. When they are large corporations, they have tremendous resources to use in their opposition (e.g., money, people [including lobbyists], and the ability to sustain efforts over time).

Those who benefit (i.e., workers, consumers, and the public) have a self-interest in regulation. However, the impact is much smaller at the individual level and often gets lost among the many demands of every-day life. Furthermore, individuals’ resources (e.g., time, energy, and attention span) to use in supporting regulation are generally quite limited. Although the aggregate benefit may be huge, it is often very diffuse – spread over millions of people and across many years.

Therefore, the politics of regulation tend to favor weak or no regulation and even de-regulation. It typically takes political leadership that stands up for the broader public interest to push through (and maintain) strong regulation. With our corporations growing larger and more powerful all the time, the ability to stand up to them has become more difficult.

Let’s look at a specific, current example of regulation that is being considered.

Scientists at the Environmental Protection Agency (EPA) and other agencies, along with advocates for public health and the environment, are urging that certain pesticides need to be regulated. However, to-date, the Trump administration has failed to act on findings that the pesticide chlorpyrifos (for example), a Dow Chemical product, can cause significant harm. (By the way, Dow Chemical contributed $1 million to Trump’s inauguration activities and its chairman heads a White House working group on manufacturing.)

Chlorpyrifos has been widely used on fruit crops since the 1960s. Dow Chemical sold 5 million pounds of it in the US last year. Traces of it are commonly found in drinking water and umbilical cord blood, which is the blood a mother provides to her baby while pregnant. It can harm children’s brain development at very low exposure levels. Scientists have also compiled over 10,000 pages of evidence that chlorpyrifos harms animals, presenting a risk to 1,778 out of the 1,835 animals and plants that were studied, including endangered species of frogs, fish, birds, and mammals. [1]

The costs of the regulation of chlorpyrifos, i.e., a reduction in its use, fall immediately and directly on Dow Chemical, an $8 billion corporation (that is about to merge with DuPont and get even bigger). The benefits of regulating chlorpyrifos are clear but are hard to monetize. They occur over time to a broad range of people and to animals and our ecosystem.

Dow Chemical has strong political connections and lobbying capacity. It has spent about $12 million per year on lobbying in each of the last 5 years. [2] The political resources and clout of the beneficiaries of regulating chlorpyrifos are nowhere near as great as those of Dow Chemical.

Unless there is strong political leadership on behalf of the public and the environment, regulation of chlorpyrifos probably won’t happen or will be very weak. Given the current political environment in Washington, D.C., I’d bet that Dow Chemical corporation’s efforts to block regulation of chlorpyrifos will succeed.

This is a classic example of why democracy won’t succeed if the public and voters treat it as a spectator sport. We need to be informed, sometimes down to the level of detail of this example, and engaged. We must insist that our elected officials – and candidates during elections – are committed to standing up for the public interest despite the power and resources that large corporations can bring to bear on our political system.

We need to join and support advocacy groups that will act on our behalf on issues such as these, and that will let us know when there are opportunities for us to act and have an impact. We need to support the regulatory agencies (more on them in a future post) that are working to protect us. Many of them are under attack by President Trump, corporations, their lobbyists, and some of our other elected officials. And finally, we need to pay attention to and support information sources that will cover these issues.

We certainly can’t do all of these things all the time. But each of us, as a voter and citizen in a democracy, needs to be an active participant in our political system, and to do what we can to ensure that government works for us, not for the big corporations.

[1]      Biesecker, M., 4/21/17, “Dow wants Trump to set aside report on pesticide risks,” Associated Press in The Boston Globe

[2]      OpenSecrets.org, retrieved from the Internet on 5/27/17, “Dow Chemical,” Center for Responsive Politics (https://www.opensecrets.org/lobby/clientsum.php?id=D000000188&year=2016)

REPEALING OR DELAYING REGULATIONS HARMS WORKERS AND THE PUBLIC

The Trump administration and Republicans in Congress are repealing or delaying rules and regulations that protect workers, consumers, and the public. Some of these rules and regulations protect workers from unsafe working conditions, help them save for retirement, or protect their rights and pay. Trump and the Republicans are also delaying rules that would protect investors and the environment.

For example, over a dozen rules that provided important protections for workers have been repealed, including: [1]

  • Repealed the Fair Pay and Safe Workplace Rule that required companies applying for federal contracts to disclose past violations of labor laws. As a result, companies that have violated labor and employment laws will continue to be rewarded with federal contracts and taxpayers’ money. The rule would have required disclosure of violations of laws on:

o   Workers’ pay (including pay for overtime),

o   Workplace health and safety,

o   Collective bargaining rights, and

o   Civil rights.

  • Repealed the Workplace Injury and Illness Recordkeeping Rule that required employers to keep records of injuries and illnesses on the job. As a result, the Occupational Health and Safety Administration (OSHA) will be unable to accurately identify and protect workers from unsafe, and potentially life-threatening, working conditions.
  • Repealed a pair of rules that allowed state and local governments to set up retirement savings accounts for private-sector workers whose employers do not provide a retirement plan. Therefore, 55 million workers without a retirement savings plan will not be afforded this retirement savings opportunity, primarily because Wall Street lobbyists made it clear they did not want this competition from a public-sector sponsored program.
  • Repealed a rule that blocked drug testing (which is probably unconstitutional) of applicants for unemployment insurance (UI). Drug testing is an unnecessary and inappropriate hurdle for laid off workers applying for UI. However, whenever a former employee is denied UI or delayed or discouraged from obtaining it by drug testing, it saves their employer from having to pay for unemployment benefits.

The Trump administration has also delayed the implementation of many regulations that would benefit workers, consumers, and the public. These include: [2]

  • Delayed for at least 2 months, the Fiduciary Rule that would require financial advisors, including retirement planners, to put their clients’ best interests first. This is what most people seeking financial advice assume they are getting, but nothing currently prevents financial advisors from steering clients toward investments that pay the advisor a larger commission even if the client is likely to get a lower return on their investment. It is estimated that such behavior costs investors $17 billion a year and that each week’s delay in implementing the rule will cost retirement savers over $400 million over the 30 years (on average) until they take their money out to support them in retirement.
  • Delayed rules limiting exposure to silica and beryllium in the workplace. Roughly 2.3 million workers are exposed to silica dust at work. It is estimated that the rule’s limits would have prevented 900 new cases of silicosis each year and saved over 600 lives. The net benefits are estimated at $7.7 billion annually. In the case of beryllium, an estimated 62,000 workers are exposed to it at work and this can lead to lung disease and lung cancer.
  • Delayed requiring mine operators to inspect their mines for safety hazards and notify miners of hazardous conditions that have not been corrected. The rule also would have required mine operators to keep a record of safety examinations, hazards found, and corrective action taken. In 2010 – 2015, 122 miners died in 110 workplace accidents.
  • Delayed the implementation of a regulation requiring oil and gas companies to monitor and reduce methane (i.e., natural gas) leaks. This delay is occurring due to lobbying by the American Petroleum Industry and other industry groups. Methane gas is a potent global warming gas that is 100 times more harmful than carbon dioxide (i.e., CO2). This is one example, of many, where Environmental Protection Agency (EPA) head, Pruitt, is working to repeal or delay environmental regulations that benefit the public and the environment, but are opposed by corporate interests. [3]

Repealing and delaying these regulations, and many others, puts large corporations and their profits first and America’s workers and consumers in danger. It demonstrates the continuing influence of big money, corporate special interests, and their lobbyists in Washington. This is not what many voters expected when Trump spoke (and speaks) about putting America (and its workers) first and draining the swamp of special interests in Washington.

[1]      Shierholz, H., & McNicholas, C., 4/11/17, “Understanding the anti-regulation agenda,” Economic Policy Institute (http://www.epi.org/publication/understanding-the-anti-regulation-agenda-the-basics/)

[2]      McNicholas, C., Shierholz, H., Bivens, J., & Costa, D., 4/27/17, “The first 100 days: President Trump’s top priorities include rolling back protections to workers’ wages, health, and safety,” Economic Policy Institute (http://www.epi.org/publication/the-first-100-days-president-trumps-top-priorities-include-rolling-back-protections-to-workers-wages-health-and-safety/)

[3]      Associated Press, 4/21/17, “Trump EPA balks at new emission rule,” in The Boston Globe Talking Points

REGULATORY REFORM PUTS LARGE CORPORATIONS, NOT AMERICA, FIRST

The Trump administration and the Republicans in Congress have declared war on regulations. This puts large corporations and their profits first (not America) and puts America’s workers and consumers in danger.

Regulations and rules are what the Executive Branch of government (i.e., the President and his administration) uses to implement laws passed by the Legislative Branch (i.e., Congress). Rules and regulations are also used to update the implementation of laws over time as things change. For example, new products are brought to market, new medical procedures are developed, new chemicals are formulated, new financial instruments and transactions are invented, and so forth. If rules and regulations can’t be updated to respond to these situations, the implementation of our laws would fairly quickly become outdated and inappropriate. New laws would have to be passed to deal with every significant change in the real world. This would clearly be an inefficient and ineffective way to deal with our changing world, especially given the current dysfunction in Congress.

Rules and regulations protect public health and public goods (e.g., our air and water, our environment). They also protect workers and consumers from unsafe situations and products.

The Trump administration and the Republicans in Congress want to block new regulations and repeal existing ones for two, inter-related ideological reasons:

  • Belief in an unfettered free market that allows corporations to make profits without any constraints, and
  • Belief in a very limited role for government.

I believe there is another, non-ideological reason: our elected officials want to reward and do the bidding of their large campaign donors, both individuals and corporations. (Note that their donations are often given via intermediaries that are used to disguise the actual donors and their interests.) These large campaign donations buy essentially unfettered access to our elected officials so large donors can lobby and communicate their perspective on every rule or regulation. This, along with paid lobbyists, skews rules and regulations to favor the interests of these large donors. For example, the oil and gas industry spends $300 million per year on lobbying and has over 1,600 lobbyists working to communicate and convince officials in the legislative and executive branches to follow the industry’s preferences on rules and regulations.

The current war on regulations is being fought on multiple fronts and with multiple tactics:

  • Repealing the 150 or so regulations implemented by the Obama administration in its last 6 months in office. Currently, there are over 50 resolutions in the House or Senate targeting over 30 regulations for repeal.
  • Passing legislation that would give Congress the power to review and veto new regulations. This would substitute the political judgement of Congress for the judgement of scientists and experts in federal agencies in developing rules and regulations.
  • Passing legislation requiring new regulations to be evaluated with a focus on costs, reducing or ignoring the importance and value of their benefits.
  • Requiring that 2 regulations must be eliminated for every new one issued. This is being applied only in areas where the Trump administration opposes regulation but not for new regulations they favor, such as ones restricting the implementation of the Affordable Care Act.
  • Appointing executive branch personnel who do not support the mission of the agencies they head or are in. As a result, the agencies’ regulations won’t be effectively enforced. This clearly applies to Secretary Pruitt at the Environmental Protection Agency (EPA), as well as to the Securities and Exchange Commission (SEC) (which regulates banks and financial institutions) and the Department of Health and Human Services (which oversees the implementation of the Affordable Care Act).
  • Underfunding agencies so they do not have the capacity to enforce the regulations they oversee. Again, this applies to the EPA and the SEC, among others.
  • Reducing opportunities for public input into the repeal of existing regulations and the development of new ones.

In my next post, I’ll share some specific examples of rules and regulations that are being repealed, delayed, or weakened.

DAMAGE IS BEING DONE BEHIND THE TRUMP SMOKESCREEN

What you don’t know can hurt you. Behind the smokescreen of President Trump’s high profile Executive Orders and public statements, he and Congress are undermining public health and safety, as well as government revenue. By undoing or weakening existing policies, they are allowing, among other things:

  • Underpayment of royalties on fossil fuel extraction,
  • Use of unsafe and inefficient private prisons,
  • Dumping of coal mining wastes into streams, and
  • Weakened background checks for gun purchases by people unable to manage their own affairs.

President Trump rescinded a rule that stopped corporations from paying royalties based on artificially low prices. When a corporation extracts oil, gas, and coal on public lands, it will (if it can) sell them to a subsidiary at an artificially low price that allows it to pay an artificially low royalty to the federal government. Its subsidiary then sells the extracted fossil fuel at a much higher, market price. The result is a windfall for the corporation and a rip-off of taxpayers. [1]

Trump’s Attorney General has rescinded the decision to eliminate the use of unsafe and inefficient private prisons. Last August, a Department of Justice Inspector General’s report found that the private prisons used by the Bureau of Prisons did not provide the same level of safety and security as government owned and operated prisons. Therefore, Obama’s Deputy Attorney General announced a decision to eliminate this use of private prisons. In her announcement, she also noted that the private prisons did not provide the same level of correctional services, programs, and resources to prisoners as government-run prisons, and that they did not substantially reduce costs.

Despite this evidence, the Trump administration has decided that 13 private federal prisons, which hold 22,000 inmates, will continue to be run by private corporations. Thus, hundreds of millions of taxpayers’ dollars will pay three corporations to run unsafe, substandard, inefficient prisons. (See my previous posts here and here for more details.) Perhaps not surprisingly, these three corporations have given significant amounts of money to politicians, including to President Trump. One of them, CoreCivic, formerly the Correction Corporation of America, gave $250,000 to Trump’s inaugural festivities. GEO Group, another one of the three private prison corporations, also gave $250,000 to Trump’s inaugural festivities, on top of the $275,000 it had given to a Super PAC that supported the Trump campaign. [2]

Congress has also taken steps to roll back regulations that are in the public interest. A measure to rescind a rule banning the dumping of coal mining debris into streams has passed the House and Senate. President Trump is expected to sign it. The House and Senate have also voted to rescind a regulation requiring oil and gas corporations to disclose payments to foreign governments for mining and drilling rights. The House has voted to overturn a rule that reduced the harmful atmospheric emissions from burning unused natural gas at drilling operations on federal lands. [3] The House has also passed a resolution weakening background checks for gun purchases by Social Security recipients who have been declared incompetent to manage their personal affairs. [4]

Republicans in Congress are employing a rarely used tool, the Congressional Review Act, to roll back rules issued in the final months of Obama’s presidency. The Act provides a temporary window in which a simple majority of both chambers can rescind a newly promulgated rule. Trump must sign these measures to complete the rescinding of the targeted rule. The Act also prevents the executive branch from enacting a substantially similar rule in the near future. [5]

Furthermore, Congress is considering two new laws that would make it even easier for it to exercise its political judgement and overrule science-based regulations. One of the new laws, dubbed the Midnight Rules Relief Act, is described as the Congressional Review Act on steroids and would, among other things, prohibit federal agencies from re-proposing a rejected regulation indefinitely. The other new law, called the Regulations from the Executive In Need of Scrutiny (REINS) Act, would require any new regulation to be approved by Congress. If Congress failed to approve the regulation, it would not go into effect. Both of these laws are being pushed by corporate lobbyists who want to block the implementation of science-based standards for air and water quality, among other things. [6]

Behind the smokescreen of Trump’s high-profile actions, his administration and Congress are undermining public health and safety. It seems clear that the current Congress and administration are committed to benefiting corporate America and ignoring the well-being of every-day Americans. Furthermore, sweetheart deals for large corporations are providing them a financial windfall at the expense of every-day taxpayers.

I urge you to tell your Representative and Senators in Congress that you believe it is government’s job to protect the health and safety of the public, even if it is an inconvenience for big corporations. And that corporations should pay their fair share of taxes and government fees, because otherwise you and I and all the other individual taxpayers have to make up the difference. Tell your Congress men and women that our democracy is supposed to be of, by, and for the people, not large corporations.

[1]      Sierra Club, 2/14/17, “Trump ends rule blocking corporate polluters from paying themselves,” Common Dreams (http://www.commondreams.org/newswire/2017/02/24/trump-ends-rule-blocking-corporate-polluters-paying-themselves)

[2]      Zapotosky, M., 2/23/17, “Justice Department will again use private prisons,” The Washington Post (https://www.washingtonpost.com/world/national-security/justice-department-will-again-use-private-prisons/2017/02/23/da395d02-fa0e-11e6-be05-1a3817ac21a5_story.html?utm_term=.f631c1be57d2)

[3]      Daly, M., 2/3/17, “House votes to overturn Obama rule on natural gas ‘flaring’,” Associated Press (http://bigstory.ap.org/article/d84e8dd2a74042ed8d9e864fdb59d069/house-poised-overturn-obama-rule-natural-gas-flaring)

[4]      Freking, K., & Daly, M., 2/2/17, “Congress scraps Obama rules on coal mining, guns,” Associated Press (http://bigstory.ap.org/article/bf29ce0c4ba84550b51f503e7618d901/house-gop-aims-scrap-obama-rule-gun-background-checks)

[5]      Freking, K., & Daly, M., 2/2/17, see above

[6]      Kothari, Y., 1/4/17, “Attacking science in week one: How Congress is trying to dismantle public protections,” Union of Concerned Scientists in Common Dreams (http://www.commondreams.org/views/2017/01/04/attacking-science-week-one-how-congress-trying-dismantle-public-protections)

IS TRUMP A POPULIST, A FASCIST, BOTH, NEITHER?

Some in the media and many political pundits have referred to President Trump as a populist or a fascist or both. These terms are not opposites, but they aren’t comfortable bedfellows. I cringe every time I see Trump referred to as a populist because my vision of populism is the inclusive, broad-based populism of Senators Bernie Sanders and Elizabeth Warren.

A populist is someone who supports the concerns of ordinary, working people, as opposed to the elite, upper class. Populist activism is based on the belief that the common people are being exploited by the privileged elite. The underlying ideology of populists can be left, right, or center. Populist activism becomes likely when mainstream political institutions fail to deliver economic and social well-being for ordinary people. [1] The direction that populist activism takes depends heavily on the style of the politician who taps into it.

Populism has a long history in the US. There was a Populist Party in the 1890s and William Jennings Bryan ran as the Democratic presidential candidate on a populist platform in 1896, 1900, and 1908. President Theodore Roosevelt and the Republican Party took over the populist banner in the early 1900s. George Wallace’s campaigns of the 1960s and 1970s had populist themes that some labeled reactionary populism due to their racist underpinnings. Ralph Nader in the 1990s and 2000s ran for president using populist themes.

Trump’s campaign and presidency have a populist element in their appeals to the working class. However, their focus on the white working class evokes memories of the reactionary populism of George Wallace. Trump argues that the working class is being hurt by the actions of political elites in Washington, D.C. He also appeals to the working class by asserting that their well-being is being undermined by immigrants. There is a racist element to Trump’s appeals, as he lays the blame for the struggles of the white working class on (largely Latino) immigrants and Blacks. Historically, this type of reactionary populism has been fertile ground for the development of fascism.

Some view Trump’s populism as faux-populism and demagoguery because his appeals to the working class are based only on rhetoric and unrealistic policy proposals. Trump exhibits attributes of a demagogue, such as exploiting the prejudices and gullibility of some voters, and stirring up anger and resentment while eschewing reasoned debate. Historically, demagogues often overturn established customs of political conduct, assert the presence of a national crisis, and accuse moderate and thoughtful opponents of weakness or disloyalty to their country. A demagogic populist typically claims legitimacy directly from the people and asserts that he alone will do what the people want. He refuses to acknowledge the legitimacy of opposition and attacks institutions, from the courts to the news media, that don’t support him. Trump has exhibited many of these attributes. [2]

Personally, when I think of populism, I think of inclusive populism that is committed to including stigmatized groups (e.g., the poor, minorities, immigrants, and women). They are embraced and supported rather than being targeted for blame and as scapegoats. This is the type of populism that Senator Bernie Sanders promoted during the presidential primaries and for which Senator Elizabeth Warren has been advocating. [3]

Fascism, on the other hand, is an authoritarian and nationalistic approach to governing where the government controls or partners with business and/or labor. Typically, opposition is not tolerated and the government is led by a strong leader who asserts that strong central control is needed to effectively combat economic difficulties and external threats. A principal goal is self-sufficiency and independence through protectionist economic policies. [4]

Trump’s rhetoric echoes many of the themes of fascism. Perhaps most prominently, he promotes ethnic stereotypes and fear of foreigners, which is typical fascist rhetoric. Asserting concern about national decline is another common element of fascist discourse. Trump’s slogan “Make America great again” fits this theme exactly. Even though the US, by most measures, isn’t in serious decline, he’s able to persuade the white working class that the country is in decline, or at least their position in it is. Poorly-educated white males have experienced economic decline over the last 35 years. The Great Recession of 2008 and the weak recovery from it have left many working people economically worse off. [5]

Fascists tend to use threats of violence to intimidate opponents and silence critics. They are skilled at getting their followers to believe them even when the narrative they present is at odds with facts; truth becomes subjective. [6] These are also themes that have been apparent in the Trump campaign and presidency.

Trump’s selections for his Cabinet appear to contradict the populism of his campaign rhetoric. They do, however, fit with fascism’s alignment of business and government. Many of his nominees are from the corporate elite who have played a major role in diverting federal policy from supporting the working class to supporting large corporations. They seem positioned to strengthen the role of the private sector in policy making and undermine the role of the federal government in supporting working people. For example, they have opposed labor unions, workplace regulation, and workers’ rights; they have worked to privatize public education; they have weakened voting and civil rights; they have opposed environmental regulation and action on global warming; and they have supported weakening the social safety net. [7] [8]

There were and are elements of xenophobic, reactionary populism in Trump’s rhetoric and in some of his (to-date largely symbolic) actions. His style, cabinet nominees, and some of his actions exhibit themes of fascism. Although it’s too early to conclusively decide whether he is more of a populist or a fascist, President Trump has never expressed support for the inclusive populism of Senators Sanders and Warren. On the other hand, he has consistently displayed, and his background seems much more aligned with, some of the core themes of fascism.

[1]      Wikipedia, retrieved 2/18/17, “Populism” (https://en.wikipedia.org/wiki/Populism)

[2]      Wilkinson, F., 2/16/17, “Why Donald Trump really is a populist,” BloombergView https://www.bloomberg.com/view/articles/2017-02-16/why-donald-trump-really-is-a-populist

[3]      The Economist, retrieved 2/18/17, “The Economist explains populism,” http://www.economist.com/blogs/economist-explains/2016/12/economist-explains-18

[4]      Wikipedia, retrieved 2/18/17, “Fascism” (https://en.wikipedia.org/wiki/Fascism)

[5]      Chotiner, I., Feb. 2016, “Is Donald Trump a fascist?” Slate (http://www.slate.com/articles/news_and_politics/interrogation/2016/02/is_donald_trump_a_fascist_an_expert_on_fascism_weighs_in.html)

[6]      Kuttner, R., 12/16/16, “The audacity of hope,” The American Prospect (http://prospect.org/article/audacity-hope)

[7]      Vanden Heuvel, K., 12/20/16, “Sham populism, shameless plutocracy,” The Washington Post

[8]      Bonham, L., & Jennings, G., 2/17/17, “Is Trump’s billionaire cabinet actually a closet full of fascists?” Common Dreams (http://www.commondreams.org/views/2017/02/17/trumps-billionaire-cabinet-actually-closet-full-fascists)

STOP COMMERCIALIZATION OF OUR NATIONAL PARKS

Unfortunately, the National Park Service (NPS) has just enacted a policy that allows expanded commercialization of our national parks. Corporations have been pushing for years to commercialize our national parks with their names, logos, and products. The timing of the new policy is particularly inappropriate because this year is the 100th anniversary of our national parks. Their pristine beauty and intergenerational legacy were celebrated in the Ken Burns’ wonderful 2009 PBS special, “The National Parks: America’s Best Idea.” [1]

This new policy has been put in place despite overwhelming public opposition – hundreds of public comments in opposition and over 200,000 signatures on a petition opposing this policy. [2] The new policy will allow corporate sponsorships and partnerships, lift naming rights restrictions, allow advertising in parks (including for alcohol), and allow, if not require, parks to seek donations from corporations.

The new policy allows facilities from auditoriums to benches to have corporate names on them. Buses in national parks can now be plastered with advertising. Bricks or paving stones can have corporate names and logos on them. Educational programs and endowed positions can be branded by corporations. Large banners with corporate logos will now be allowed in the parks.

Even before this policy was in place, Coca-Cola, after donating $13 million to the NPS, blocked a proposed ban on bottled water in Grand Canyon National Park. The ban would have reduced trash in the park by 20%, saving money and employees’ time, while reducing litter and wasteful use of plastic. After public pressure, NPS allowed a park-by-park ban that requires a rigorous cost-benefit analysis and a multi-layered approval process. In another pre-policy example, Budweiser had a joint marketing campaign with NPS that allowed it to use the image of the Statue of Liberty on its labels and to co-sponsor a concert in a national park.

This is happening because our national parks are starved for money. While attendance at the parks has been up for three years in a row and is 20% higher than it was in 2013, Congress and the President have provided flat funding for operating the parks. [3] Despite the increased wear and tear, as well as the need for more parking and greater capacity on trails and roads, due to the increased number of visitors, the parks have received dramatically insufficient funding to maintain, let alone expand, infrastructure. It is estimated that there is an $11 billion backlog in maintenance projects. [4] Park superintendents struggle to meet their goals of preserving their parks for future generations, while providing a safe and enjoyable experience for visitors. They will now be put in the awkward position of needing to be involved in fundraising to support their park while being banned by federal law from directly soliciting donations.

As a poignant example of the problems commercialization can cause, Delaware North Corporation (DNC) is suing the NPS for $51 million for compensation for trademarks on the names of facilities in Yosemite National Park. DNC had been the concessionaire at the park since 1993, but recently lost the contract. Because this suit could take some time to resolve, Yosemite National Park has had to rename facilities in the park. The iconic Ahwahnee Hotel has been renamed, despite having operated under this name since 1927. It was named after the Native Americans who lived in the valley and whose descendants still work in the park. The Badger Pass Ski Area, among other facilities, has also been renamed and the trademark on the name “Yosemite National Park” may also be disputed. [5]

Commercialization is spoiling the pristine beauty of our national parks and detracting from the inspiring experience of visiting them. Conservationist and President Teddy Roosevelt envisioned our national parks as being preserved for future generations “with their majestic beauty all unmarred.” Commercialization of our national parks is antithetical to that vision and to the basic principle for creating national parks – to preserve our natural wonders and beauty for future generations in their natural, awe-inspiring state. We need to do a better job of protecting our national parks and the experience of visiting them.

I encourage you to contact your members of Congress and urge them to adequately fund our national parks and to ban commercialization of them. We must resist the efforts by corporate America and budget cutting politicians to commercialize and privatize these truly unique and irreplaceable public assets.

[1]      Burns, K., & Duncan, D., 2009, “The National Parks: America’s Best Idea,” Public Broadcast System, (http://www.pbs.org/nationalparks/)

[2]      Strader, K., 1/4/17, “Disregarding public concern, the National Park Service finalizes commercialism policy and opens parks to industry influence,” Public Citizen as reported by Common Dreams (http://www.commondreams.org/newswire/2017/01/04/disregarding-public-concern-national-park-service-finalizes-commercialism-policy)

[3]      Associated Press, 1/17/17, “National Parks set yet another attendance mark,” The Boston Globe

[4]      Rein, L., 5/9/16, “Yosemite, sponsored by Starbucks? National Parks to start selling some naming rights,” The Washington Post

[5]      Howard, B.C., 1/15/16, “National park advocates appalled by Yosemite name changes,” National Geographic (http://news.nationalgeographic.com/2016/01/160115-yosemite-names-ahwahnee-hotel-wawona-curry-badger-pass/)

PROBLEMS WITH PRIVATIZED PRISONS

The problems with privatized prisons have come to public attention largely due to the investigative journalism of The Nation and Mother Jones. Their reporting underscores the importance and challenges of investigative journalism. It has become relatively routine for targets of investigative journalism to sue (or at least threaten to sue) the journalists and their publishers. Both corporate and government entities have built an ever stronger set of legal protections including employee non-disclosure agreements and other employer protection laws and legal precedents. The mainstream, corporate media have largely abandoned investigative journalism at least in part due to the threat of litigation and because news and reporting budgets have been slashed to increase profits.

When Mother Jones published its report based on a guard’s experiences at a private prison run by the Corrections Corporation of America (CCA, see overview and link below), it received a threatening letter from a law firm on behalf of CCA. It was the law firm that had represented a billionaire and large political campaign donor who had spent 3 years suing Mother Jones over its reporting of his anti-LGBT activities. Although the billionaire lost his case, the legal costs Mother Jones incurred in defending itself were a very serious financial burden. Furthermore, he pledged $1 million to support others who might want to sue Mother Jones over its reporting. [1] Needless to say, this type of aggressive behavior by the subjects of investigative reporting puts a chill on this valuable kind of journalism.

The Nation’s investigative reporting was based on reviewing a large number of documents from the Bureau of Prisons (BOP) in the US Department of Justice. The documents were obtained only after a lengthy and costly process using the Freedom of Information Act to gain access to these public records.

The records showed that the Bureau of Prisons’ monitors had documented, between January 2007 and June 2015, the deaths of 34 inmates who were provided substandard medical care in the BOP’s private prisons. Fourteen of these deaths occurred in prisons run by the Corrections Corporation of America, while fifteen were in prisons operated by the GEO Group. These two corporations are the largest operators of for-profit prisons. [2]

Despite this and other documentation of serious problems at the for-profit prisons, top BOP officials repeatedly failed to enforce the remediation of dangerous deficiencies and routinely extended contracts for the prisons. This was due, at least in part, to a cozy relationship between BOP leadership and the private-prison operators because of the revolving door of personnel between the BOP and the private providers. In 2011, for example, Harley Lappin, who had served as the Director of the BOP for eight years, left to join CCA as executive vice president. There he earned more than $1.6 million in one year; roughly 10 times his salary at BOP. Two previous BOP Directors, J. Michael Quinlan and Norman Carlson, had gone to work for CCA and the GEO Group, respectively. Five BOP employees recalled the former BOP Directors participating in meetings between the BOP and the contractor for whom they worked. The BOP employees felt this influenced decisions that were made and made taking disciplinary action against the contractors difficult.

Mother Jones magazine’s investigative reporting was done by Shane Bauer, a reporter who spent 4 months as a guard at one of CCA’s private prisons in Louisiana. [3] He found that cost cutting was a focus of both the state and CCA. Employee costs made up 59% of CCA’s operating expenses and therefore were a key target for cost-cutting. Starting guards at Bauer’s CCA facility made only $9 per hour while those at public prisons in the state made $12.50. To further save money and increase profits, the CCA facility was typically under-staffed. The facility’s guard towers were unmanned on a regular basis and staffing inside the facility was typically 10% – 20% below standard. Lockdowns, where prisoners can’t leave their wing of the prison, were supposed to be punishments for major disturbances, but they also occurred over holidays and other times when there simply weren’t enough guards to run the prison. Security checks on prisoners were logged as being done even when they weren’t because of understaffing. However, when the state’s Department of Correction was coming for an inspection, guards were required to work overtime so the facility was fully staffed.

As a result of under-staffing and perhaps under-training (another cost-cutting strategy), the use of force or chemical agents, typically pepper spray, occurred more often at the CCA prison than at comparable facilities: twice as often for force and 7 times as often for chemical agents. With 1,500 inmates, 546 sexual offenses were reported at Bauer’s prison in 2014, 69% higher than at a comparable government-run facility. Between 2010 and 2015, CCA was sued more than 1,000 times nationwide, with approximately 3% of the cases involving a death, 6% sexual harassment or assault, 10% physical violence, 15% injuries, 15% medical care issues, and 16% prison conditions and treatment.

Louisiana’s efforts to cut costs and use contractors to run cheap prisons was reflected in the $34 per inmate per day that it paid CCA, while funding for state-run prisons was about $52. In addition, the inflation-adjusted cost per prisoner at the CCA facility Bauer worked at had dropped by 20% between the late 1990s and 2014.

CCA has an incentive to keep prisoners in its prisons in order to maximize revenue. An inmate can be charged with an infraction of the rules and lose credit for good behavior. This can mean that an inmate stays in prison an extra 30 days and that CCA gets paid an additional $1,000.

In Louisiana, the state also had an incentive to keep the prison full because CCA’s contract with the state required that CCA get paid for a minimum of 96% of full occupancy. Occupancy guarantees are common in private prison contracts and are one aspect of privatization that leads to perverse incentives for the state. The state’s incentive to keep the prison full may mean that prisoners who could be released are kept in prison or that the criminal justice system is pressured to arrest and sentence enough people to ensure that the prison is full.

CCA has been very active politically through lobbying and campaign contributions. Since 1998, CCA has spent $23 million on lobbying the federal government. Since 1990, it and its employees have contributed more than $6 million to candidates and other political activity. It has lobbied for high levels of incarceration. It co-chaired the criminal justice task force of the American Legislative Exchange Council (ALEC), a corporate and conservative think tank that drafts and promotes state-level legislation. Among the pieces of legislation it has promoted are mandatory sentencing laws, punitive immigration reform, and truth-in-sentencing laws, all of which helped fuel the growing prison population of the 1990s.

CCA and other for-profit prison corporations aggressively lobbied Congress in 2009 for a minimum number of undocumented immigrants to be in private detention centers. They succeeded; US taxpayers are required by law to pay for a daily minimum of 34,000 beds in private detention centers. [4] These corporations have also lobbied against bills in Congress that would require private prisons to be subject to public information laws, such as the Freedom of Information Act. Such bills have been introduced at least 8 times in Congress, but have failed to pass each time.

These are examples of the problems and issues with private prisons, and with privatization in general. The problems with the private prisons were severe and intractable enough that the BOP concluded that it had to terminate its use of them. The BOP’s experiences and decision to end privatization should be kept in mind as other privatization efforts are reviewed or proposed.

[1]       Jeffery, C., July/August 2016, “Why we sent a reporter to work as a private prison guard,” Mother Jones (http://www.motherjones.com/politics/2016/06/cca-private-prisons-investigative-journalism-editors-note)

[2]       Wessler, S.F., 6/15/16, “Federal officials ignored years of internal warnings about deaths at private prisons,” The Nation (https://www.thenation.com/article/federal-officials-ignored-years-of-internal-warnings-about-deaths-at-private-prisons/)

[3]       Bauer, S., July / August 2016, “My four months as a private prison guard,” Mother Jones (http://www.motherjones.com/politics/2016/06/cca-private-prisons-corrections-corporation-inmates-investigation-bauer)

[4]       Editorial, 8/27/16, “Dump private prisons – all of them,” The Boston Globe

SOLVING THE PROBLEMS OF OUR PRIVATIZED HEALTH CARE SYSTEM

Clearly, the private market is not working well for health insurance or health care in the U.S. Costs are rapidly escalating in a system that is already the most expensive in the world, but that has mediocre to poor outcomes. Many private health insurance, pharmaceutical, and health care corporations are putting profits before patients.

Increasing premiums for health insurance and high drug prices (see my previous post on drug prices) are undermining efforts to control health care costs. The exorbitant and fast growing costs of U.S. health care are squeezing state and federal governments’ budgets, as well as employers and individuals. In many states’ budgets, increased costs for health care for poor families and seniors through Medicaid, as well as for employees and retirees, are eating up all the increases in revenue from economic growth – and then some. This means that without tax increases or other sources of increased revenue, states and the federal government are having to cut spending in other areas of their budgets.

Increasing costs for employees’ health insurance are hurting employers’ competitiveness with foreign companies and reducing their profitability. Some employers have dropped health insurance as an employee benefit, while others have increased the portion of health insurance premiums employees must pay or are offering insurance plans with less comprehensive coverage as well as higher deductibles and co-pays. As fewer employees get health insurance through their employers, the number of people in subsidized government health programs increases, further increasing costs for governments.

Individuals are not getting the health care they need because insurance is not making it accessible and affordable. Many people are suffering financial hardship and some file for bankruptcy because of the costs of health care.

The clear solution to these problems is to provide everyone access to what’s referred to as a “public option” or a Medicare-for-all type health insurance plan. This would be a government run insurance pool, which is what Medicare is for seniors. When the Affordable Care Act (ACA) was being considered by Congress, a public option was initially included. In other words, a government run insurance plan would have been offered by each of the ACA’s state-level health insurance marketplaces (aka exchanges) where people without health insurance would buy coverage. A public option was vehemently opposed by the private insurers and was eventually dropped from the ACA legislation. They opposed it because they didn’t want the competition from a Medicare-type program that would be likely to expose their inefficiencies – despite, of course, these private corporations’ dedication to free markets and competition whenever any government regulation is proposed.

With problems in our privatized health care system becoming increasingly apparent, including a public option in the ACA exchanges is gaining increased support. [1] With some private health insurers abandoning the exchanges, it is projected that 7 states will have only one private insurer offering coverage. [2] In these state, having a public health insurance plan as an option would mean that there was still competition. This would serve as a check on the sole private insurer, ensuring that its coverage and pricing remained competitive and that it didn’t exploit a monopoly situation.

More broadly, there have been numerous proposals over many years to allow anyone over 50 or 55 years old to “buy into” Medicare. In other words, although they hadn’t yet reached the normal Medicare eligibility age of 65, these individuals would be allowed to pay an appropriate premium to buy health insurance as part of the Medicare insurance pool.

Senator Sanders, in his presidential campaign, highlighted his proposal for Medicare-for-All. This proposal would allow anyone to pay an appropriate premium to buy health insurance as part of a large, Medicare-like, government insurance pool. This proposal received broad and often enthusiastic support. [3]

A public option in the ACA exchanges or a Medicare-for-All option for everyone is the only way to realistically address the shortcomings of our privatized system of health care. By providing real competition for the private insurers, this would ensure the quality and affordability of health insurance. By giving the public option or Medicare-for-All insurance pools the right to negotiate with the pharmaceutical corporations over drug prices, prescription drug costs could be brought under control. (The Medicare drug benefit should also be changed to allow Medicare to negotiate drug prices.)

If we want quality and affordability in our health care system, a public option or Medicare-for-All program is essential as a check on the private corporations that currently dominate our health care system. Currently, a proposal in the U.S. Senate would add a public option to the ACA exchanges. It already has the support of over 30 Senators, including Senators Bernie Sanders (VT), Elizabeth Warren (MA), Jeff Merkley (OR), Charles Schumer (NY), Patty Murray (WA), and Dick Durbin (IL).

I encourage you to contact your U.S. Senators and other elected officials to tell them you support a public option under the Affordable Care Act specifically and a Medicare-for-All program in general. The for-profit health insurance, pharmaceutical, and health care corporations will fight tooth and nail to stop this competition. They will make huge campaign and lobbying expenditures to try to maintain their ability to manipulate our health care system to generate large profits and exorbitant executive compensation. Only a huge outcry and sustained pressure from the grassroots – from we the people – will get our policy makers to enact the significant reforms needed to create a health care system that delivers affordable, high quality care for all.

[1]       Willies, E., 8/28/16, “Recent headlines signal need for single-payer Medicare for All – now,” Daily Kos (http://www.dailykos.com/story/2016/8/28/1563720/-Recent-headlines-signal-need-for-single-payer-Medicare-for-All-now)

[2]       Alonso-Zaldivar, R., 8/29/16, “Challenges mount for health law,” The Boston Globe from the Associated Press

[3]       Nichols, J., 9/16/16, “Make the public option a central focus of the 2016 campaign,” The Nation (https://www.thenation.com/article/make-the-public-option-a-central-focus-of-the-2016-campaign/)

HEALTH INSURANCE: A BIG PROBLEM IN OUR PRIVATIZED HEALTH CARE SYSTEM

The goals of health insurance are to provide affordable access to health care and to protect people from the catastrophic costs of serious health problems. The health insurance system in the US is failing to meet these goals for many Americans.

The most recent and newsworthy issues with private health insurance are occurring in the so-called health insurance exchanges. These are state-level marketplaces created by the Affordable Care Act (ACA, aka Obama Care) where individuals without health insurance can buy coverage.

Many of the private health insurers offering policies through the exchanges are increasing the premiums they charge; some by as much as 62%. This is happening in part because some insurers initially set premiums unrealistically low in order to attract customers and gain market share. In addition, health care costs for those enrolling through the exchanges have been greater than some insurers estimated. [1]

As a result of these increased premiums, customers may switch to less expensive policies with less comprehensive coverage as well as higher deductible and co-payment amounts. This will increase the costs of health care for these customers, leaving some of them under-insured and vulnerable to financial hardship or bankruptcy if a major medical expense occurs.

Some insurers are terminating their participation in the exchanges, ostensibly because they aren’t making money on the policies they are selling there. However, in the case of Aetna, apparently it is planning to withdraw from 11 of the 15 exchanges in which it participates as retaliation for the federal government’s opposition to Aetna’s proposed merger with Humana. Both Aetna and Humana are among the 5 largest health insurers in the country. If this merger and another one (between Anthem and Cigna) that the government is blocking were approved, the top 5 health insurers would become 3 huge corporations. These are exactly the kinds of mergers that are resulting in decreased competition, increased prices, and near monopolistic power. (See my earlier blog post for more details.)

Overall, the health insurance corporations are raising premiums and cutting their participation in the exchanges to cut losses or increase profits. Profits are more important to them than meeting the goals of health insurance for customers.

Furthermore, private insurers are much less efficient than Medicare, the public health insurance program for our seniors. This is well documented. Medicare spends over 95% of its budget on actual health care. Private health insurers spends as little as 67% of premiums on actual health care. They use money from premiums to pay for advertising, profits, and executives’ compensation. To ensure a reasonable level of efficiency, the ACA requires health insurance policies offered on its exchanges to spend 80% of their premiums on actual health care – as opposed to administrative and corporate expenses.

Private health insurance simply doesn’t make sense from two key perspectives. First, health insurance and health care are not “markets” as defined by economics. Consumers don’t have perfect and clear information about the competing products. Consumers can’t and don’t effectively shop around for health insurance plans or health care services. When one needs a medical procedure, one doesn’t have the time, information, or capacity to shop around and find the best combination of quality and price.

Second, the whole premise of insurance is that risk is shared among a large, random pool of people. However, the multiple health insurers fragment the pool and, furthermore, each one works to attract healthy people (who are less costly to serve) and avoid those who are sick. With one large, random pool, the unpredictable nature of health care needs and costs is shared. The financial hardship of a serious medical issue does not fall on one individual or family. However, our private health insurance industry fragments the pool and tries to only insure healthy people. They do this through advertising, which therefore becomes a major expense, along with special perks like coverage for membership in a fitness center. They do it by denying payment so sick customers get frustrated and leave. This is clearly documented in Medicare, where the private insurers that provide services under Medicare are clearly successful at attracting the healthier seniors but then dumping them back into the government insurance pool when they get sick.

In addition, the presence of multiple private health insurers also increases costs for doctors, hospitals, and other providers of health care. Each insurer has its own forms and procedures with which the providers have to cope.

Roughly 50 – 60 million adults struggle with health care bills each year and the great majority of them have health insurance. This includes roughly 20% of the adult population under 65, the age of eligibility for automatic health insurance under Medicare. [2] Nearly 2 million Americans will file for bankruptcy this year in cases where unpaid medical bills are a major factor. Overwhelming health care bills are the number one reason for personal bankruptcy filings. [3]

More Americans have health insurance today than ever before thanks to the ACA, which has provided health insurance to 15 million people. However, because of the dysfunction of privatized health insurance, this has not significantly reduced financial hardship due to medical bills. Notably, the easiest way for health insurers to reduce costs and increase profits is to refuse to pay for health care services. Having a health insurer deny authorization or payment for care is something almost all Americans have experienced. In addition, health insurers are increasing premiums while reducing coverage and raising deductibles and co-payments.

Clearly, private health insurance is not meeting the goals of affordability and protection from financial hardship. My next post will present solutions to the problems of our privatized health care system.

[1]       Alonso-Zaldivar, R., 8/29/16, “Challenges mount for health law,” The Boston Globe from the Associated Press

[2]       Sanger-Katz, M., 1/5/16, “Even insured can face crushing medical debt, study finds,” The New York Times

[3]       Mangan, D., 6/25/13, “Medical bills are the biggest cause of US bankruptcies,” CNBC (http://www.cnbc.com/id/100840148)

DRUG PRICES: A BIG PROBLEM IN OUR PRIVATIZED HEALTH CARE SYSTEM

A series of recent events have highlighted the problems with our privatized, for-profit health care system. First, there have been numerous cases of drug prices that have increased dramatically. I’ll discuss this topic in this post.

Second, health insurance corporations have been merging (and continue to try to) to create a few, enormous corporations that have monopolistic power, which leads to increases in health insurance costs. A similar pattern is occurring among health care providers, although this tends to be more regional than national. I’ll discuss these issues in my next post, followed by a post on solutions to the problems of our privatized health care system.

These recent events highlight that per capita health care spending in the U.S. continues to climb more rapidly than overall inflation. And they underscore that our health care spending is already exorbitant compared to every other country, while our health outcomes are worse.

The dramatic increase in the cost of EpiPens has been the most recent and perhaps most prominent of the extraordinary increases in drug prices. Perhaps this is because of its widespread usage and dramatic life-saving potential, especially for allergic reactions in children. The history here is that the EpiPen cost $50 in 2004. It was bought by Mylan in 2007, which began to steadily increase its price. It hit $250 in 2013 and then, in August, Mylan jumped the price to $600 – 12 times what it cost in 2004. By the way, the actual drug in the EpiPen costs about $1. [1]

The pharmaceutical corporations typically argue that their high drug prices are needed to pay for research and development. The validity of this argument is questionable at best and clearly false in many cases, such as the EpiPen case. A recent study found no evidence of a connection between drug research and development costs and prices. It concluded that drug prices are based on what the manufacturer can squeeze out of consumers and their insurance. [2]

For example, in August the price of Daraprim was raised to $750 per pill from $13.50. It had been $1 per pill in 2010. This is a 62-year-old drug that treats a life-threatening parasitic infection in babies and those with compromised immune systems, such as AIDS and cancer patients. In 2010, GlaxoSmithKline sold the drug to CorePharma, which quickly increased the price from $1 to around $10 per pill. In August, the drug was acquired by Turing Pharmaceuticals, a start-up run by a former hedge fund manager, and its price was immediately increased to $750 – 750 times its cost in 2010. [3] Turing is not a pharmaceutical company; it doesn’t do research and development. It is basically a hedge fund that buys the rights to drugs on which it believes it can dramatically increase prices to make a great return on its investment. Why the price increases? Greed coupled with a lack of regulation is the only answer.

Similarly, Rodelis Therapeutics bought Cycloserine, a drug to treat drug-resistant tuberculosis. It quickly increased the price per pill to $360 from about $17. Likewise, Valeant Pharmaceuticals acquired two heart drugs and more than doubled the price of one and quintupled the price of the other. This was on top of a quintupling of their prices in 2013 by the previous owner that had recently purchased them. So, overall their prices have jumped to 10 and 25 times what they were in 2013.

Per capita prescription drug spending in the U.S. is the highest in the world. U.S. drug spending is more than twice as high as the average for 19 other advanced countries and one-third higher than in the next most expensive countries, Canada and Germany.

Medicare, the huge health insurance plan for our seniors, is prohibited from negotiating with pharmaceutical corporations for lower drug prices. [4] This was written into the expansion of Medicare that added coverage of drugs by the George W. Bush administration at the behest of the pharmaceutical corporations. Meanwhile, the Veterans Administration, many health insurers, and health care systems in other countries negotiate far lower prices for drugs than what Medicare ends up paying.

U.S. patent laws and other market protections slow the availability of less expensive, generic versions of drugs, thereby supporting high prices for brand name drugs here in the U.S. Brand name drugs (as opposed to generics) represent 10% of prescriptions but 72% of drug spending.

The pharmaceutical corporations also use multiple business strategies to limit competition so they can maintain high prices for their drugs. One strategy is to use what the pharmaceutical industry calls “controlled distribution.” This means that the drugs are not distributed through drugstores but only directly by the corporation. Therefore, companies that want to make and sell a generic version of the drug, cannot get the samples they need to analyze, replicate, and test a generic version of the drug. Another strategy is to pay generic drug manufacturers not to make a generic version of a drug, even after its patent has expired. A third strategy is to make a minor modification to a drug, one that often has no functional impact, in order to obtain a patent extension based on the modification.

Dramatic increases in the prices of generic drugs (i.e., non-brand-name drugs that are no longer covered by a patent) are a relatively new phenomenon. Prices of generic drugs declined from 2006 to 2013. However, there are numerous examples of dramatic price increases over the past 3 years: [5]

  • Tetracycline (a common antibiotic): $0.06 to $4.60 per pill (77 times as expensive)
  • Amitriptyline (an antidepressant): $0.04 to $1.03 per pill (26 times)
  • Clobetasol (a prescription skin cream): $0.26 to $4.15 per gram (16 times)
  • Captopril (a blood pressure med): $0.11 to $0.91 per pill (8 times)
  • Digoxin (a heart med): $0.12 to $0.98 per pill (8 times)

Drug prices in the U.S. are not regulated or routinely negotiated as they are in other countries. Mergers of pharmaceutical corporations have reduced competition. Increasingly, the remaining large corporations have monopolistic power in the marketplace, and hence can increase prices more or less at will.

In California, the pharmaceutical industry, led by Merck and Pfizer, is spending over $80 million to defeat a ballot question that would limit state health plans to paying the discounted drug prices negotiated by the US Department of Veterans Affairs. Back in 2005, the pharmaceutical industry spent $135 million to defeat a ballot question that would have required it to provide discounted drugs for the poor. [6]

Perhaps not surprisingly, prescription drug costs represent the fastest growing portion of health care costs. Overall spending on prescription drugs has been growing at 10% per year, double the rate of increase of total health care spending, and roughly 5 times the rate of general inflation in the economy. Prescription drugs now account for 17% of all health care spending. [7]

[1]       Rosenthal, E., 9/2/16, “The lesson of EpiPens: Why drug prices spike, again and again,” The New York Times

[2]       Kesselheim, A.S., Avorn, J., & Sarparwari, A., 8/23/16, “The high cost of prescription drugs in the United States: Origins and prospects for reform,” The Journal of the American Medical Association

[3]       Pollack, A., 9/21/16, “Huge hikes in prices of drugs raise protests and questions,” The Boston Globe from The New York Times

[4]       Weisman, R., 8/24/16, “Exclusivity rule seen driving up drug costs,” The Boston Globe

[5]       McCluskey, P. D., 11/7/15, “The not-so-cheap alternative,” The Boston Globe

[6]       Robbins, R., 9/7/16, “A revolt against high drug prices,” The Boston Globe

[7]       Weisman, R., 8/24/16, see above

THE TRUTH ABOUT RAISING THE MINIMUM WAGE

 Whenever a proposal to raise the minimum wage is put forth, especially one for a significant increase such as to $15 per hour (the current federal minimum wage is $7.25), the business community and its allies among elected officials immediately warn that there would be dramatic negative effects on the number of jobs and the growth of the economy.

However, there is no actual evidence that raising the minimum wage to $15 over the course of a few years would reduce the number of jobs or slow economic growth. These assertions by the business sector are pure speculation based on the economic theory of ideal markets (which don’t exist in reality). The warnings are meant to create fear among voters and elected officials, and therefore foster opposition to increasing the minimum wage.

Past increases in the minimum wage have not led to increases in unemployment. In January 1950, the minimum wage was increased 87.5% (from $.40 to $.75). Over the next 15 months, the unemployment rate fell from 7.9% to 3.1%. A similar result occurred after a 33.3% increase in the minimum wage in March 1956. A study by the NY Department of Labor found that after six of eight increases in New York’s minimum wage between 1991 and 2015 employment increased.

When San Jose increased its minimum wage by $2 in 2013, the business community and particularly restaurants and small businesses predicted disaster. However, new business registrations grew and unemployment fell, including in the restaurant and hospitality sector where 4,000 jobs were added over the next year. [1]

Washington State has the highest minimum wage in the country at $9.47, and it applies to tipped workers. (This is four and a half times the federal minimum wage for tipped workers of $2.13.) And yet Seattle has the second highest concentration of restaurants per capita in the country (behind only San Francisco, where the city’s minimum wage is even higher). Washington State also boasts the highest rate of small-business job growth in the country.

In 2014, when Seattle raised its city minimum wage to $15, the restaurant industry and the business sector predictably claimed that disaster would follow. But six months later, Seattle’s restaurant industry was growing faster than ever. And in early 2016, Washington State was first in the country in job and wage growth.

International comparisons demonstrate that a high minimum wage does not reduce the number of low paying jobs or increase the unemployment rate of low-education workers. Among 18 countries with advanced economies, the U.S. has the highest proportion of low-wage jobs (25%) but only an average employment rate for low-education workers (57%). In other words, having lots of low-wage jobs in the U.S. has not led to high employment among workers with low levels of education.

It is the presence of a high minimum wage and collective bargaining for workers that explains the presence of jobs with good wages in other countries. Furthermore, most of the 18 other countries have stronger social supports for workers and families than the U.S. in areas such as health care, housing, education, and especially child care. The lower minimum wage and weaker social supports in the U.S. reflect the lack of political power of ordinary workers in America. [2]

It has been seven years since the federal minimum wage was raised to $7.25. That’s seven years without a raise for many workers, while housing, food, and health care costs have risen. Not since the 1930s has the American workforce experienced such a low-wage and insecure labor market. Relatively high unemployment and very high under-employment, as well as the rise of part-time and contingent jobs with their uncertain incomes, are the symptoms of insecure jobs.

Today’s low wages (which have been declining with inflation) and job insecurity are largely the result of decreased union membership and weakened government regulation of the labor market. As Adam Smith wrote over 200 years ago, if workers negotiate wages and working conditions individually with employers, employers will always have the upper hand.

In competitive markets for goods and services, without government regulation (such as a strong minimum wage law) and collective bargaining for workers, the job market becomes a race to the bottom. Employers will drive down wages, benefits, and working conditions to maximize competitiveness and profits.

This is what has happened in the U.S. since 1968 as government regulation and union membership have declined. Using 1968 as the reference point, today’s current federal minimum wage of $7.25 would be:

  • $9.63 if it had kept up with inflation; (In other words, the minimum wage today has roughly 25% less purchasing power than it had in 1968.)
  • $11.35 if it had kept up with the average wage in the economy; or
  • $18.85 if it had kept up with the improvement in workers’ productivity. [3] (In other words, the value of the increased production of today’s workers over those of 1968 is not getting paid to the workers but is going to managers and investors or shareholders.)

So, the truth about increasing the minimum wage is that it doesn’t increase unemployment and slow economic growth. In fact, the opposite may occur. Furthermore, there are many benefits to increasing the minimum wage (which I’ll discuss in my next post) that outweigh any possible negative effects.

[1]       Hanauer, N., Summer 2016, “Confronting the parasite economy,” The American Prospect

[2]       Howell, D.R., Summer 2016, “Reframing the minimum-wage debate,” The American Prospect

[3]       Cooper, D., 7/25/16, “The federal minimum wage has been eroded by decades of inaction,” The Economic Policy Institute (http://www.epi.org/publication/the-federal-minimum-wage-has-been-eroded-by-decades-of-inaction/)

A LARGE CORPORATION BLACKMAILS OUR GOVERNMENT

The U.S. Department of Justice (DOJ) is blocking two mergers, each of which would combine two of the five largest health insurance corporations in America. Aetna and Humana have plans to merge as do Anthem and Cigna. As a result, the big five health insurers would become three, reducing competition and choice for consumers, and, presumably, increasing the cost of health insurance. As I’ve written about in previous posts (here, here, and here), huge corporations with near monopoly power are bad for our economy and our democracy.

It appears in this case that Aetna is using its marketplace and political power to attempt to blackmail the federal government into approving its merger. On August 15, Aetna announced that it will withdraw from 11 of the 15 state health insurance marketplaces (called exchanges) in which it currently participates. These exchanges were created by the Affordable Care Act (aka Obama Care) and are where people without health insurance go to find and buy insurance.

Aetna claims it is dropping out of the exchanges because it cannot afford the losses it is experiencing on consumers from them. However, this is a dramatic reversal from the corporation’s statements four months ago when its CEO Mark Bertolini said that Aetna planned to stay in the exchanges and was “in a very good place to make this a sustainable program.” It appears the major reason for the shift was the DOJ’s decision to block its merger with Humana. [1]

Back in July, in a letter to the DOJ (obtained by The Huffington Post through a Freedom of Information Act request), Aetna CEO Bertolini stated that Aetna would reduce its participation in the health exchanges if the merger wasn’t approved. [2] Note that Bertolini would personally receive up to $131 million if the merger goes through [3] and that Aetna made a profit of $2.4 billion in 2015 on revenue of $60 billion.

The withdrawal of Aetna from the health insurance exchanges will force consumers to switch plans and will result in fewer choices and perhaps increased costs for Americans obtaining health insurance through the exchanges. Other health insurers, including regional Blue Cross Blue Shield plans, find their participation in the exchanges profitable or plan to continue their participation even if currently there are some losses. Obama Care has brought 20 million new consumers to the health insurers through its exchanges and subsidies.

Many people, including former presidential candidate Bernie Sanders, are pointing to Aetna’s action as an example of the unhealthy amount of power that giant corporations have. More specifically, many health advocates are concerned about corporate power in the health care arena and are citing this as another example of corporations putting profit before people’s health. Senator Elizabeth Warren wrote that “The health of the American people should not be used as bargaining chips to force the government to bend to one giant company’s will.” [4]

The need for a publicly sponsored alternative (sometimes referred to as Medicare-for-All) to the private, generally for-profit, health insurers in the health insurance exchanges, is being put forth as the solution to counter the pitfalls of for-profit health insurance. [5]

Corporations shouldn’t have the power – which largely comes with size and near-monopoly market share – to effectively blackmail our federal, state, and local governments. These large health insurers and other huge corporations have amassed unhealthy amounts of power. Fortunately, the DOJ is blocking the two proposed mergers that would only make the situation worse.

The “laws” of economics (more accurately economic theory) assume that markets have multiple small suppliers of goods and services. Therefore, there would be real competition and consumer choice that could constrain market prices and companies’ behavior. Small is beautiful (to revive an old saying).

However, major, critical sectors of our economy have one or a very few large corporate suppliers. Aetna’s actions provide a poignant example of how corporate power can harm consumers, our economy, and democracy.

[1]       Bryan, B., 8/17/16, “Now we know the real reason Aetna bailed on Obamacare,” Business Insider (http://www.businessinsider.com/aetna-humana-merger-reason-for-leaving-obamacare-2016-8)

[2]       Cohn, J., & Young, J., 8/17/16, “Aetna CEO threatened Obamacare pullout if Feds opposed Humana merger,” The Huffington Post (http://www.huffingtonpost.com/entry/aetna-obamacare-pullout-humana-merger_us_57b3d747e4b04ff883996a13)

[3]       Knight, N., 8/17/16, “Sanders: Aetna’s Obamacare threat shows what ‘corporate control looks like’,” Common Dreams (http://www.commondreams.org/news/2016/08/17/sanders-aetnas-obamacare-threat-shows-what-corporate-control-looks)

[4]       Knight, N., 8/17/16, see above

[5]       McCauley, L., 8/16/16, “Aetna’s greed proves that Medicare-for-All is the best solution,” Common Dreams (http://www.commondreams.org/news/2016/08/16/aetnas-greed-proves-medicare-all-best-solution)

SECRET MONEY IN STATE AND LOCAL ELECTIONS FACILITATES CORRUPTION

The growth of secret money in state and local elections means that voters know less and less about who is working to influence their votes and the outcomes of their elections. Secret money is money spent by organizations that do not have to report their funding sources. Therefore, it is referred to as “dark” money. Most of this money is spent by social welfare non-profits (i.e., 501(c)(4) organizations) and trade or industry associations (e.g., the Chamber of Commerce or the Pharmaceutical Research and Manufacturers of America association, 501(c)(6) organizations). Based on the Supreme Court’s Citizens United decision, these groups can spend unlimited amounts of money on advertising and other campaign activities as long as it is independent of a candidate’s campaign, although the independence of such spending is often very questionable.

As I noted in my previous post, big money may have more impact in state and local elections than in federal ones. For example, a race for school board or a state’s public utilities commission costs much less than a race for federal office and gets much less media coverage. State ballot questions are also frequent targets of dark money spending. In such low-cost, low-information elections, it can be relatively easy to sway voters, particularly in non-partisan elections where party affiliation does not serve as a guidepost for voters.

These elections can have significant financial consequences, often for a narrow but economically significant constituency. A utility commission, for example, makes decisions that can effect energy corporations’ profits and homeowners’ electricity rates. Dark money at the state and local levels frequently comes from corporations and other special interests that have a direct and immediate stake in the outcome of the election, whereas at the federal level the outside spending tends to be more ideologically or party focused.

For less than $100,000, a corporation or wealthy individual can have a significant impact on a state or local election. When there is a significant self-interest at stake, this is a modest business expense. On the other hand, for state or local candidates or community groups, such sums are dauntingly large.

By using dark money for its campaign spending, the corporation or wealthy individual can hide its identity so voters don’t know who is trying to influence their votes or about the self-interested nature of the spending. And a growing portion of the big money in state and local elections is dark money. The ability to significantly affect or even dominate an election with high stakes but without public transparency means significant conflicts of interest can be hidden and outright corruption is facilitated. [1]

The Brennan Center for Justice recently studied outside campaign spending (i.e., spending not by a candidate’s own campaign organization) in six diverse states with almost a fifth of the U.S. population (Alaska, Arizona, California, Colorado, Maine, and Massachusetts). [2] It examined dozens of state and local elections in these states. It found that the amount of dark money spent in 2014 was 38 times what was spent in 2006, a rate of increase greater than that for federal elections. It also found that in 2006 76% of the outside spending was fully transparent – that the true identities of the donors was known to voters as they voted. In 2014, only 29% of outside spending was fully transparent.

In Arizona’s 2014 election for two utility commissioners, $3.2 million was spent by dark money groups. This was more than double what all six candidates’ campaigns combined spent and was almost 50 times the amount of dark money spent in the 2012 election. After the election, it was learned that the source of the money was the state’s largest private utility, Arizona Public Service, which didn’t like the state’s requirement that it buy power from homeowners’ solar panels that the homeowners didn’t need. (This is called net metering.) After the candidates the dark money supported were elected, the Commission shifted its stance from actively encouraging homeowner-generated solar power to making it more costly for homeowners.

In Mountain View, CA, a group calling itself the Neighborhood Empowerment Coalition spent $83,000 in dark money in the 2014 city council election. This was more than half of the combined total of what all nine candidates’ campaigns spent. Land use and housing policy were prominent issues in the election in this community where property values and rents have soared. After the election, the voters learned that the coalition was funded by a PAC linked to the country’s largest property owners association and its goal was to prevent the establishment of rent control. The newly elected councilors did not enact rent control.

In the Utah attorney general’s race in 2012, after the election it was learned that an aide to the winner had arranged for payday lenders to fund $450,000 in dark money advertising in exchange for a promise to shield them from consumer protection laws. The attorney general resigned after less than a year in office due to this and other revelations.

Compounding the problem of dark money is the recent growth of “gray” money. This is money spent by organizations such as Political Action Committees (PACs) that are required to disclose their donors, but where the identities of the true donors are hidden. PACs can receive donations from other PACs or organizations and sometimes these organizations are set up to obscure identification of the original donor. Donations can pass through a succession of multiple organizations to obfuscate the true source. This is political money laundering. Furthermore, some of these donor organizations may be “dark” organizations that do not have to disclose their donors. Donations from dark organizations to PACs have grown from less than $200,000 in 2006 to $9.2 million in 2014 in the six states studied by the Brennan Center. Gray money grew from 15% of all outside spending in 2006 to 59% in 2014. [3]

The impact of big money and dark money in state and local elections is undermining democracy by allowing special interests to impact election outcomes and to do so secretly. The potential for outright corruption is clear.

In my next post, I will share some effective steps that can be taken now to address the problems of big money and dark money in state and local elections; ones that can be taken within the constraints of current Supreme Court decisions (e.g., Citizens United and McCutcheon).

[1]       Lee, C., & Norden, L., 6/25/16, “The secret power behind local elections,” The New York Times

[2]       Lee, C., Valde, K., Brickner, B.T., & Keith, D., 2016, “Secret spending in the states,” The Brennan Center for Justice, New York University School of Law (https://www.brennancenter.org/sites/default/files/analysis/Secret_Spending_in_the_States.pdf)

[3]       Lee, C., Valde, K., Brickner, B.T., & Keith, D., 2016, see above