PROBLEMS WITH STUDENTS AND STUDENT OUTCOMES IN CHARTER SCHOOLS

SUMMARY: Having looked at problems in our public schools, let’s take a look at problems in charter schools. One problem has to do with claims of improved student outcomes that are confounded by issues with student selection and retention.

Student outcomes at charter schools are no better than those of public schools when similar students are compared.
There are multiple concerns about the selection and retention of students at charter schools:
- Fewer special education, English as a second language, and low income students than in public schools;
- Students are recruited and retained who face fewer challenges than those in public schools; and
- Weak and difficult students who enroll in charter schools are frequently pushed out.
Charter schools have no accountability for the outcomes of students they fail to retain.

These strategies for “creaming the crop” leave the weaker and more challenged (and more costly) students and families to be served by the public schools. Furthermore, the funding public school systems desperately need to serve their students is diverted to charter schools. As a result, charter schools undermine the ability of some school districts to provide an education that allows students to realize their potential.

FULL POST: Having looked at problems in our public schools, let’s take a look at problems in charter schools. One problem has to do with claims of improved student outcomes that are confounded by issues with student selection and retention.

Some charter schools do produce excellent student outcomes, but so do some public schools. Some charter schools have lousy outcomes, as do some public schools. Overall, the outcomes of charter schools do not appear to be significantly different than those of public schools. The most rigorous study comparing students in charter schools to similar students in public schools (they were on the waiting lists for the charter schools but did not get in) found no better outcomes overall for students in charter schools. [1]

Similarly, in Freakonomics, Levitt and Dubner studied all the students who had applied to be in charter schools in Chicago when a lottery was held because more students applied than there was capacity to serve. Charter school advocates compared the outcomes of students in those charter schools to the outcomes of all Chicago Public Schools students and found that the charter school students did better. Levitt and Dubner compared the charter school students with the Chicago Public School students who had applied to the charter schools but had lost out in the lottery. They found that there were no significant differences between the outcomes of those two groups. [2]

The reason for this is that parents who are organized and motivated to apply to charter schools are typically more capable, engaged parents than those who don’t apply. Their children are going to have better outcomes than the average student whether they get into a charter school or not.

This makes it very difficult to accurately compare the performance of charter schools to public schools because it’s very difficult to determine if they are serving similar students. [3] The findings that claim that charter schools have much better outcomes than public schools are often comparing the charter schools to public schools that are serving a much more challenging population of students.

One of the problems with charter schools is that many of them “cream the crop.” In other words, they recruit and retain students and families who are more capable and engaged, or in other words, face fewer challenges, than those in the public schools. Compared to public schools, most charter schools have lower portions of students who are special education students, have English as a second language, or are from low income families. [4] [5] One large national study found that 4.4% of charter school students were English Language Learners compared to 11% of all students. Apart from the roughly 60 charter schools that specifically focus on serving students with disabilities, less than 7% of charter school students have a disability and most of them have mild disabilities. Nationally, 13% of students have disabilities and almost all of those with moderate to severe disabilities are served by public schools. [6]

Another reason that charter schools have better students than the typical public school is that charter schools often weed out the less capable students that initially enroll. For example, they can expel students and never have to worry about them again. The public schools, on the other hand, are required to provide services to all students. Some charter schools have much higher discipline rates than public schools and some of the disciplined students will leave and not return. For example, in Massachusetts, the Holyoke Public Schools had the highest discipline rate of any public school district, suspending 21.5% of its students. At least five other urban districts had suspension rates above 10%. However, two charter schools in Boston had suspension rates of roughly 60%. [7] Overall in Massachusetts, charter schools serve 3% of students but account for 6% of all suspensions and expulsions. [8] These disciplinary practices tend to weed out and send back to the public schools students with behavioral issues.

Charter schools also tend to push out students with poor test scores, sometimes by telling them they will have to repeat a grade if they stay at the school. Many charter schools have declining numbers in their student cohorts as they progress through the grades due to the attrition of weaker students. Therefore, when the cohort gets to graduation or test results in the later grades, the results look quite good.

There have been a series of articles in the New York Times about the Success Academy charter school network in New York City. It is the city’s largest charter school network with 34 schools and plans to grow significantly. The articles highlight the ways Success Academy weeds out weak or difficult students, such as using harsh discipline (its schools suspended 4% to 23% of their students compared to 3% for the public schools) and making parents’ lives so difficult that they withdraw their children. [9]

Charter schools are almost never held accountable for students they enroll but who later leave prior to graduation or completion of the highest grade the school offers. Charter schools also tell some students who are applying but have weak academic skills that they will have to repeat a grade if they enroll. This discourages weak students from even enrolling.

These charter school strategies for creaming the crop leave the public schools with the weakest and most challenging students. Therefore, when comparing student outcomes, the charter schools look good. However, this drives up per student costs in the public schools. If charter schools continue to expand and are allowed to continue creaming the crop, the public schools will be left with students that are ever more challenging, but with less money to serve them due to funding diverted to charter schools.

Therefore, charter schools present real costs to our public school systems where the great majority of students are served. As a result, charter schools undermine the ability of some school districts to provide an education that allows students to realize their potential, most notably large, urban districts with high portions of students facing significant challenges.

Future posts will discuss other problems with charter schools.

[1] Miron, G., Mathis, W., & Welner, K., 2015, “Review of separating fact & fiction,” National Education Policy Center (http://nepc.colorado.edu/thinktank/review-separating-fact-and-fiction) Note: This document is a rebuttal of an advocacy document from the National Alliance for Public Charter Schools entitled, “Separating fact & fiction: What you need to know about charter schools.” (http://www.publiccharters.org/wp-content/uploads/2014/08/Separating-Fact-from-Fiction.pdf)

[2] Levitt, S.D., & Dubner, S.J., 2005, “Freakonomics: A rogue economist explores the hidden side of everything,” NY: William Morrow

[3] Office of the State Auditor, Commonwealth of Massachusetts, 2014, “The Department of Elementary and Secondary Education’s oversight of charter schools,” Published by the author (http://www.mass.gov/auditor/docs/audits/2014/201351533c.pdf)

[4] Program on Human Rights and the Global Economy, 2014, “At what cost? The charter school model and the human right to education,” Northeastern Law School (http://www.northeastern.edu/law/pdfs/academics/phrge/charter-paper-2014.pdf)

[5] Office of the State Auditor, 2014, see above.

[6] Miron, Mathis, & Welner, 2015, see above.

[7] Taylor, J., Cregor, M., & Lane, P., 2015, “Not measuring up: The state of school discipline in Massachusetts,” Lawyers’ Committee for Civil Rights and Economic Justice (http://lawyerscom.org/not-measuring-up/)

[8] Miron, Mathis, & Welner, 2015, see above.

[9] Taylor, K., 10/29/15, 1/4/16, 1/21/16, 1/23/16, 2/13/16, & 2/16/16, The New York Times (http://topics.nytimes.com/top/reference/timestopics/people/t/kate_taylor/index.html?action=click&contentCollection=N.Y.%20%2F%20Region&module=Byline&region=Header&pgtype=article

THE MASSACHUSETTS EFFORT TO PROVIDE EQUITABLE FUNDING FOR PUBLIC SCHOOLS

My previous post described the need for additional funding for schools with high numbers of at-risk children. Current school funding is inequitable because these students require greater resources to be successful than their better-off peers, but the low income communities they tend to live in typically are not able to provide those resources.

Massachusetts responded to the inequitable funding of its public schools in low income communities (highlighted by a court decision in the McDuffy case) by changing its formula for providing state funding to local school districts. The new (and quite complicated) formula, implemented in 1993, provides special funding for districts with high numbers of at-risk students. However, this special funding is inadequate. A 2011 study found, among other things, that the state’s formula underestimates the costs of educating students with special needs by about $1 billion. [1]

The state’s funding formula targets additional resources to meet the needs of low income students by 1) providing funding for 3 extra teachers for every 100 such students, and 2) allocating an extra $380 per low income student to help schools expand instructional time and provide tutoring. However, the 2011 study found little evidence that low income students are receiving these additional instructional supports. The Massachusetts funding formula also provides special funding for students who are English language learners.

Above and beyond this special funding, it was recommended that the funding formula include 1) free, half-day pre-kindergarten and full-day kindergarten for low income students, and 2) increased pay for teachers in predominantly low income schools. However, funding for these enhancements has never been provided. (In New Jersey, increased funding for pre-kindergarten programs is part of the court-ordered response in a similar case.)

The Massachusetts funding formula estimates that it costs $10,500 to provide an appropriate education for each student in the one-fifth of communities with the lowest income families. The 2011 study found that these low income communities spend almost exactly the state’s estimate of necessary per student spending, using a combination of state and local funding. The state’s estimate for the cost of an appropriate education for each student in higher income communities ranges from $8,500 to $9,500. However, many of the wealthier communities raise additional local revenue and fund their schools at levels significantly above the state’s estimate. The wealthiest one-fifth of school districts spend 39% above the state’s estimate of necessary per student spending.

Therefore, despite the state’s effort to provide a level playing field for all its public schools, high income communities are providing greater levels of resources than low income communities – and dramatically so when adjusted for students’ needs. Furthermore, because of underestimated costs for special education and employees’ health benefits, low income communities actually spend 32% less on regular classroom teachers (not including special education teachers) than the state formula’s target. On the other hand, high income districts spend significantly above targeted levels. This implies that low income school districts must have larger class sizes, less planning and meeting time for teachers during the school day, and/or fewer specialist teachers such as tutors, literacy specialists, language teachers, art teachers, etc. This is the opposite of what the funding formula intended to provide.

A similar pattern is evident in spending on professional development for teachers. The one-fifth of districts with the lowest incomes are only able to spend about half of what the state formula targets for professional development, while the one-fifth highest income districts spend about one-third more than the state target.

The Massachusetts example highlights the difficulty of achieving equitable funding for public schools among high income and low income communities. It is a politically difficult challenge because parents in high income communities have the financial means as well as the time and skills to support and effectively advocate for their children’s schools. They know how to make their voices heard, including through communication with and campaign contributions to elected officials.

If we truly want all our children to succeed in school, we need to find a way to overcome the political challenges of providing equitable funding to schools in low income communities.

[1] Schuster, L., 2011, “ Cutting Class: Underfunding the Foundation Budget’s Core Education Program,” Massachusetts Budget and Policy Center (http://www.massbudget.org/report_window.php?loc=Cutting_Class.html)

EQUITABLE FUNDING FOR PUBLIC SCHOOL SUCCESS

Schools need the resources to provide the supports and services students need to succeed. However, our public schools are largely locally funded. Therefore, schools in poor communities often lack the necessary resources to meet their students’ needs. These communities typically have many parents with low incomes and low levels of education, i.e., low socio-economic status (SES). Therefore, children in these communities often have the highest levels of need, but their schools typically have the lowest levels of financial resources. Conversely, students in high SES communities generally have the lowest levels of need, but their schools tend to have the highest levels of resources. As a result, our public school systems vary tremendously in their abilities to meet students’ needs.

Many states (and to a small degree the federal government) do attempt to address this inequity in funding for public schools. To varying degrees, they provide special funding to public school systems with high numbers of children likely to struggle in school. They typically focus on children from low income families, from families where English is not the primary language, and students with disabilities. However, this targeted funding is rarely sufficient to provide the level of supports and services at-risk children need to match the performance of their better-off peers.

States provide 46% of the funding for kindergarten through twelfth grade (K-12) public schools with local communities providing the bulk of the rest. However, since the Great Recession of 2008, most state governments have cut their funding for public schools, despite growing numbers of students (an increase of about 800,000 from 2008 to 2014) and growing demands to improve student performance. At least 31 states were providing less funding per student in 2014 than they had in 2008.

Although some local communities were able to make up for reduced state funding, typically they did not. Nationwide, total public school funding by local communities also declined from 2008 to 2014. As a result, public school systems had about 300,000 fewer employees, primarily teachers, in 2014 than in 2008, despite the increase in the number of students. [1]

Research shows that school funding does affect student outcomes, particularly for poor children. Children who attended better funded schools are more likely to graduate from high school and to have higher earnings and lower poverty rates as adults. [2]

About 30 states have had court cases over school funding and its implications for educational equity and adequacy. [3] For example, Massachusetts and New Jersey have had successful class action lawsuits on behalf of public school students from low income communities. The courts found in both cases that inequitable funding for public schools in low income communities violated students’ rights to a free and appropriate public education as specified by their state’s constitution. (I’ll describe Massachusetts’s efforts to address this inequity in some detail in a subsequent post.)

If we truly want all our children to succeed in school, additional funding is needed from state and federal governments that targets low income and other at-risk children. Not only must we provide greater funding for public schools in low income communities, we must increase funding for the early childhood and family support programs that ensure that children arrive at school ready to learn and succeed. As my previous post described, at-risk children are not getting the supports and services they, their families, their early care and education providers, or their schools and teachers need.

[1] Leachman, M., Albares, N., Masterson, K., & Wallace, M., 12/10/15, “Most states have cut school funding, and some continue cutting,” Center on Budget and Policy Priorities

[2] Jackson, C.K., Johnson, R.C., & Persico, C., 2015, “The effects of school spending on educational and economic outcomes: Evidence from school finance reforms,” National Bureau of Economic Research, Working Paper No. 20847

[3] Schneider, R.E., 9/27/07, “The state mandate for education: The McDuffy and Hancock decisions,” Massachusetts Department of Elementary and Secondary Education. Retrieved from the Internet on 1/24/16 at http://www.doe.mass.edu/lawsregs/litigation/mcduffy_hancock.html.

IMPROVING STUDENT SUCCESS IN OUR PUBLIC SCHOOLS

ABSTRACT: Students who are struggling in our public schools are ones who for a variety of reasons are experiencing barriers to learning and to succeeding in the classroom. They should be identified as early as possible, starting at birth, and effective intervention should be provided. For families who have issues that put children’s school success at risk, our public policies and programs need to do a better job of supporting these parents.

Our public school systems need to enhance their kindergarten and pre-kindergarten programs, and also to work with private providers of early care and education (ECE), to ensure that every child arrives in first grade ready to learn and succeed in school.

The primary goal of testing of children, in school and before they get to school, should be to identify issues in development and learning so that interventions can be provided. High stakes testing only serves to punish students, teachers, and schools. It does nothing to solve the problems and challenges that students, their teachers, and their schools are struggling to overcome.

Student success requires quality public schools, as well as quality early care and education programs. It also requires families that have the economic security, supports, and services necessary to nurture their children. Appropriate assessment and effective intervention, for children and families, are essential to ensuring that every child receives the developmental and educational experiences necessary for consistent progress and success at home and in school, from birth to high school graduation.

FULL POST: Students who are struggling in our public schools are ones who for a variety of reasons are experiencing barriers to learning and to succeeding in the classroom. These students need to be identified and they – and in many cases their families – need to be provided with the additional supports and services necessary to get them back on track. They should be identified as early as possible (i.e., starting at birth) and effective intervention should be provided because the costs to our education system, and to the children and families themselves, are much less if intervention occurs early on.

The research on early childhood development is clear: the school readiness of children born to parents with low income and low levels of education is at risk from the day they are born. In addition, school readiness is at risk for a child in any family with significant parental issues such as mental illness (particularly maternal depression), substance abuse, domestic violence, or incarceration. The children of first-time parents, as well as young parents, those with multiple young children, and those who are not fluent in English, are also at higher risk for not being ready when they reach school. Finally, some children have physical, cognitive, or health issues that put their school success at risk.

For families who have issues that put children’s school success at risk, our public policies and programs need to do a better job of supporting these parents. This should start with paid family leave for new parents, along with home visiting, parenting education, and other supports. It should include affordable, accessible, quality early care and education (ECE) – both so parents can work and so children receive nurturing care that supports their development and early learning. Parents need jobs that pay a living wage, provide a predictable and manageable work schedule, and offer benefits and economic security. And parents and children need specialized services to be available when they are necessary to meet crises or special needs.

Our public school systems need to enhance their kindergarten and pre-kindergarten programs, and also to work with private providers of ECE, to ensure that every child arrives in first grade ready to learn and succeed in school.

The primary goal of testing of children, in school and before they get to school, should be to identify issues in development and learning so that interventions can be provided. For those focused on improving school success for all children, this was the whole point of the requirements for testing in the No Child Left Behind federal education law of 2001. However, this goal got undermined and perverted in multiple ways. First, the resources to provide interventions for children who were struggling – that were promised as part of the law – never materialized. Second, the purpose for testing students got perverted from identifying issues and needed interventions to a focus on high stakes, judgmental testing. For students, the testing determined whether they got a high school diploma or not, or in some cases whether they advanced to the next grade or were held back. These high stakes outcomes were implemented despite the fact that the resources to help struggling students never arrived.

For schools, the high stakes judgements were whether they were declared “under-performing” and therefore subject to receivership and possible closure. For teachers, the results were mass firings when schools were declared under-performing or were closed. In some cases teachers’ pay was determined by student test scores. This is clearly unfair given that a teacher typically has taught a group of children for only one year out of their whole time in school. In many cases, failing students have been failing to achieve grade level norms throughout their whole school careers.

High stakes testing only serves to punish students, teachers, and schools. It does nothing to solve the problems and challenges that students, their teachers, and their schools are struggling to overcome.

The solution for the problem of children arriving at school not ready to learn and succeed is, first, to provide appropriate screenings and assessments starting early on – in the pediatrician’s office and in early care and education programs. And second, to ensure that when issues are identified the necessary supports and services are provided to the child and his or her family. Once children enter school, appropriate testing and needed interventions must continue in order to keep them on a successful trajectory.

WHAT IS THE PROBLEM WITH OUR PUBLIC SCHOOLS?

SUMMARY: Every child should receive high quality educational experiences that lead to a trajectory of progress and success throughout his or her years in school, as well as in life beyond school. Many children who are educated in public schools in the US are very successful. There are, however, two problems that face US public school systems overall:

Our public school systems vary tremendously in their quality and funding.
Students arrive at school with significant variation in their school readiness.

These two problems negatively reinforce each other. As a result, many of our public schools in low socio-economic status (SES) communities are failing to adequately serve children from low SES families. Our society, not just our schools, is failing these low SES families; we frequently do not provide them with the support and services parents need to be able to nurture and support their children. As a result, their children often are not ready to learn and succeed when they enter school.

It is not the teachers who are to blame for the failure of these children. Teachers in schools and early care and education (ECE) care tremendously about their students, work extremely hard, and do everything in their power to help their students succeed. To overcome the disadvantages and learning delays many children from low SES families have, not only would they need to be great teachers, they would also need the resources and supports any professional requires to do his or her job successfully in a challenging environment. Unfortunately, many of the schools and ECE programs they work in are in low SES communities and lack the good physical facilities and learning environment that are required.

The forces pushing charter schools say that US public schools are failing and it’s because teachers are performing poorly. Neither assertion is true.

FULL POST: Every child should receive high quality educational experiences that lead to a trajectory of progress and success throughout his or her years in school, as well as in life beyond school. We all know that this does not occur for every child in our public schools. So what’s the problem?

Many children who are educated in public schools in the US are very successful. They graduate from high school and go on to selective and rigorous higher education and then to highly successful lives and careers. This is true for most children who attend public schools in communities where parents are well educated, have good jobs, and good incomes. In other words, children in communities and families with high socio-economic status (SES) are well served by our public education system. They do well in comparisons with students from around the world.

There are, however, two problems that face US public school systems overall:

Our public school systems vary tremendously in their quality and funding. Because they are locally based and largely locally funded, schools in high SES communities tend to have much better quality and resources than schools in low SES communities.
Students arrive at school with significant variation in their school readiness. Children from low SES communities and families are typically significantly behind their better-off peers.

These two problems negatively reinforce each other because children who arrive at school behind in their school readiness, often arrive at schools that are low in quality and resources. As a result, many of these children never catch up to their better-off peers. And when the US public schools are viewed as a whole, these children drag down the US averages so that our public education system appears to generate mediocre results when international comparisons are done.

Many of our public schools in low SES communities are failing to adequately serve children from low SES families. Moreover, our society, not just our schools, is failing these low SES families. We frequently do not provide them with the support and services parents need to be able to nurture and support their children. As a result, their children are often not ready to learn and succeed when they enter school; they do not have appropriate cognitive skills in early literacy and numeracy nor the social-emotional skills for working in groups and controlling emotions, and the often have health issues (e.g., asthma, obesity) or nutritional issues (e.g., they are hungry, undernourished, or have unhealthy diets). As a result, they are unable to succeed when they enter school and that failure typically continues throughout their school years.

It is not the teachers who are to blame for the failure of these children. The great, great majority of teachers, including those in low quality schools in low SES communities, care tremendously about their students, work extremely hard, and do everything in their power to help their students succeed. (In the interests of full disclosure, I attended high quality public schools in high SES communities from kindergarten through high school and taught in private schools for three years in the 1970s when I was just out of undergraduate school. My wife recently taught for ten years in the Boston Public School system.)

The same can be said for the teachers in our early care and education (ECE) system that serves children from birth until school entry. They work hard and often make heroic efforts to nurture children, particularly those from disadvantaged backgrounds, whether they are in private ECE centers or home-based child care programs, or in Head Start programs (which are for children from families living in poverty), or in public school pre-kindergarten programs. And these early childhood teachers are poorly paid – often making under $25,000 per year – and typically with few if any benefits (e.g., health insurance, paid sick time, vacation time, retirement plan).

To overcome the disadvantages and learning delays many children from low SES families have, teachers in schools and early care and education would not only need to be great teachers, they would also need the resources and supports any professional requires to do his or her job successfully in a challenging environment. Unfortunately, many of the schools and ECE programs they work in are in low SES communities and lack the good physical facilities and learning environment that are required – and that schools and programs in high SES communities typically have.

These teachers also need the support of colleagues to help them respond to the challenges and stress they experience, and to maintain high morale. My guess is that an average teacher with great morale is a more effective teacher than a great teacher with low morale because the stress and challenges can be overwhelming in the absence of a supportive, highly qualified supervisor, supportive peers, and a positive working environment.

The forces pushing charter schools say that US public schools are failing and it’s because teachers are performing poorly. Neither assertion true. Most of the failure in our public schools is because the schools are attempting to educate students who arrive at school not ready to learn. And neither the schools nor the children’s families have the special resources needed to make up this deficit. The proof that our public schools and teachers aren’t the problem is the fact that the charter advocates aren’t pushing charter schools in high SES communities and there isn’t much demand for them from parents in these communities either. Our schools and teachers are doing fine with these students.

In my next post on our education system, I will discuss real solutions to these problem.

PRESIDENTIAL CANDIDATE SANDERS ON DEMOCRATIC SOCIALISM

Democratic presidential candidate Bernie Sanders recently gave a speech focused on defining what he means by democratic socialism and why he has identified as a socialist for his entire political career. Our mainstream corporate media can’t seem to cover him or his campaign without labeling him a socialist. The intent seems to be to identify him as outside the mainstream at best or as a dangerous radical. Often the implicit or explicit message is that a socialist is one step away from being a communist – and many Americans do not know what socialism or communism means or the difference between them.

To address this pejorative use of the term socialist, Sanders began by noting that many of the programs and policies that President Franklin Delano Roosevelt (FDR) instituted in the 1930s in response to the Great Depression were called socialist: Social Security for seniors, the minimum wage, unemployment insurance, the 40 hour work week, an end to child labor, collective bargaining for workers, job programs to reduce unemployment, and banking regulations. They were enacted despite the strong opposition of the economic elites and have become part of the fabric of our society and the foundation of the American middle class.

Similarly, when President Johnson provided health insurance through Medicare for seniors and Medicaid for poor children and families, these programs were called socialist and a threat to the American way of life.

Sanders stated that we need to transform our democracy and our country as FDR did in the 1930s. We are facing a political and economic crisis that requires dramatic change. He noted that the US is the wealthiest nation in the history of the world and yet we have high rates of poverty that include over one-quarter of our children. He called for a political movement to take on the ruling, economic elite class, whose greed is destroying our democracy and our economy.

Sanders cited FDR’s inaugural address in 1944 as one of the most important speeches in our nation’s history. In it, FDR proposed an economic bill of rights, noting that true individual freedom cannot exist without economic security. Sanders pointed to this economic bill of rights as reflecting the core of what democratic socialism means to him. It includes:

Decent jobs at decent pay with time off and the ability to retire with dignity;
The ability to have food, clothing, a home, and health care; and
The opportunity for small businesses to operate without domination by large corporations.

Sanders noted that Martin Luther King, in 1968, echoed FDR’s call for economic rights and stated that the US provides “socialism for the rich and rugged individualism for the poor.”

Sanders went on to present specific examples of what democratic socialism means to him. He stated that the principle of economic rights for all is not a radical concept and that many countries around the world have done a far better job of providing economic security for their citizens than the US has done. In particular, he noted that almost all countries provide 3 months of paid family leave for new mothers and that all major countries provide health care as a right, not a privilege. The US does neither of these. He addressed climate change, racism, and economic and social justice issues including a fairer tax system and an end to excessive incarceration. He called for a more vibrant democracy with higher voter participation and the removal of barriers to voting.

You can listen to Sanders’ speech at https://www.youtube.com/watch?v=slkQohGDQCI. It’s an hour and 36 minutes long. You can listen to it while you’re doing something else or, if you want to listen to the highlights, listen to minutes 4 – 9 and from minute 24 for 5 – 10 minutes.

GOOD NEWS FOR US WORKERS

ABSTRACT: This Labor Day workers were able to celebrate falling unemployment, increased hiring, improved access to health insurance, and increases in the minimum wage. Expanded eligibility for overtime pay is also in the works. And the US Labor Department has proposed a new regulation that would cover home care workers under minimum wage and overtime rules. (They are currently exempted.) Policies could also be changed that would require more contingent or gig workers to be treated as employees under some or all of our labor laws and/or to require part-time employees to get pro-rated benefits.

Laws that support the right to unionize and bargain collectively could be strengthened, as could the enforcement of existing laws. Higher unionization correlates with lower inequality and a greater portion of national income going to the middle class.

Our public policies need to change, both to reinstitute workers’ bargaining power and to better serve workers in the gig economy. Workers in the US have been getting the short end of the stick for 40 years. Changes in public policies to address these issues are long overdue.

FULL POST: This Labor Day workers were able to celebrate falling unemployment and increased hiring. They could also celebrate improved access to health insurance through the Affordable Care Act (aka Obama Care). Increases in the minimum wage in a number of states and cities are more good news, along with the growing momentum behind the Fight for 15, which is pushing for a $15 minimum wage. Grassroots activism in support of workers specifically, and the middle and working class in general, is on the rise. [1] A number of political leaders have taken on this fight as well, including Senators Bernie Sanders (who is running for President), Elizabeth Warren, Jeff Merkley, Al Franken, Tammy Baldwin, Brian Schatz, Mazie Hirono, and Sherrod Brown. Pope Francis is also advocating for fairer treatment of workers and a reduction in economic inequality.

The momentum for increases in the minimum wage is supported by examples like San Jose, CA, which are refuting the scare-tactic claims of the business community and its political supporters in opposing any increases in the minimum wage. In San Jose, the minimum wage has gone from $8.00 per hour to $10.15. As a result, 70,000 of the city’s 370,000 workers directly or indirectly got a raise. But rather than costing jobs as opponents always assert minimum wage increases will do, unemployment has fallen to 5.4% from 7.4% in March 2013. The hardest hit industry – the restaurant business – has seen a 20% increase in the number of restaurants in the last 18 months. Although restaurants raised prices by an average of 1.75%, business is good and most customers don’t seem to notice that prices went up by a bit. [2]

Expanded eligibility for overtime pay is also in the works. Currently, most hourly workers are required to be paid time and a half for overtime work, i.e., work beyond 40 hours per week. However, employers are not required to pay overtime to salaried workers who are classified as managers or supervisors and are paid over $23,660 per year. (This is below the federal poverty line for a family of 4 people.) This $23,660 cutoff was established in 1975 and has not been updated since. In 1975, 60% of salaried workers qualified for overtime pay; today, less than 10% do. The US Department of Labor is proposing to raise the cutoff to $50,440, which is roughly adjusting it for the inflation of the last 40 years. If implemented, this change in regulations would mean that over 10 million additional US workers would qualify for overtime pay when they work over 40 hours per week. [3]

When the Fair Labor Standards Act was passed in 1938, it excluded domestic services workers and farm labor from its standards, such as the minimum wage and overtime pay. Many believe this happened because these workers were largely black and/or female. Amazingly, this exclusion remains in place today. Partly because of sub-minimum wages for their domestic services workers, the publicly-traded, national home-care corporations are very profitable – gross profits range from 30% to 40%. Furthermore, their CEOs’ compensation has risen 150% since 2004 (after adjusting for inflation), while their workers’ pay has declined 6%. [4]

In 2013, the US Labor Department proposed a new regulation that would cover home care workers under minimum wage and overtime rules. The coverage was supposed to take effect in January 2015, however the home care industry has been vehement in its opposition and has delayed the change by challenging the new regulation in court.

Policies could also be changed that would require more contingent or gig workers to be treated as employees under some or all of our labor laws, such as minimum wage, overtime pay, Social Security, workers’ compensation, and unemployment insurance laws. Rules could be changed to require part-time employees to get pro-rated benefits under many of these laws. Or employers could be required to make contributions to “individual security accounts” for gig workers to help them pay for benefits. [5] [6] Workers would also benefit from laws that regulate their schedules so they have more predictable hours and incomes. (See my post Supporting families is an investment in human capital Part 2 for more detail.)

Laws that support the right to unionize and bargain collectively could be strengthened, as could the enforcement of existing laws. For example, laws could be changed to make it easier for workers in franchised businesses and gig work to form unions and bargain collectively. [7] Enhanced workers’ bargaining power and workplace precedents based on union contracts would benefit all workers and support the revitalization of the middle class. Data over the last 100 years document a strong correlation between higher unionization and lower income inequality. Data from the last 50 years show a strong correlation between higher union membership and a greater portion of national income going to the middle class. [8]

Our public policies need to change, both to reinstitute workers’ bargaining power and to better serve workers in the gig economy. Our policies need to reflect the change from an industrial to a knowledge-based economy. Many current labor market standards, regulations, and economic security provisions were put in place around the Great Depression and responded to the transition from an agrarian economy to an industrial one. They need to be updated and adjusted to better align with current economic realities. [9]

Workers in the US have been getting the short end of the stick for 40 years. The results are stagnant wages, growing economic insecurity for most workers and families, a dramatic increase in economic inequality, and a declining middle class that lacks the purchasing power to keep our consumer-based economy humming. Changes in public policies to address these issues are long overdue.

[1] Hightower, J., Sept. 2015, “The rebellious spirit of Matthew Maguire’s first Labor Day is spreading again across our country. Join the parade,” The Hightower Lowdown

[2] Clawson, L., 6/16/14, “In San Jose, a minimum wage increase and falling unemployment,” Daily Kos (https://www.dailykos.com/story/2014/06/16/1307351/-In-San-Jose-a-minimum-wage-increase-and-falling-unemployment?detail=emailclassic)

[3] Wise, K., 9/3/15, “Labor Day 2015: Important gains, many challenges for MA workers,” Massachusetts Budget and Policy Center (http://www.massbudget.org/report_window.php?loc=Labor_Day_2015.html)

[4] Rogers, H., Summer 2015, “A decent living for home caregivers – and their clients,” The American Prospect (http://prospect.org/article/decent-living-home-caregivers%E2%80%94and-their-clients)

[5] Ramos, D., 9/6/15, “The sharing revolution and the uncertain future of work,” The Boston Globe

[6] Chen, M., 9/14/15, “This is how bad the sharing economy is for workers,” The Nation (http://www.thenation.com/article/this-is-how-bad-the-sharing-economy-is-for-workers/)

[7] Johnston, K., 9/6/15, “Work’s dark future,” The Boston Globe

[8] Clawson, L., 5/26/14, “The tight link between unions, the middle class and inequality in two charts,” Daily Kos (https://www.dailykos.com/story/2014/05/27/1301209/-The-tight-link-between-unions-the-middle-class-and-inequality-in-two-charts?detail=emailclassic)

[9] Goodman, M.D., 9/6/15, “Public policies fail to keep pace with changing economy,” The Boston Globe

WORKING HARD, GAINING LITTLE

FULL POST: We recently celebrated the Labor Day holiday and workers in the US do have some things to celebrate, but in general the outlook is bleak. First, the bad news, and then in my next post the good news.

Wages (adjusted for inflation) fell 4% between 2009 (when the recovery officially started) and 2014. The fall was the greatest for low income workers – even in industries where hiring was strong – such as restaurant cooks (down 8.9%), home health aides (down 6.2%), and retail workers. Many workers are worse off than they were 20 years ago. [1]

Hourly wages for the typical worker have been basically stagnant since 1970, despite significant increases in worker productivity. From 2000 to 2014, for example, productivity grew by 21.6% while hourly compensation grew by just 1.8%. The value of the increased productivity has primarily gone to highly paid managers, business owners, and shareholders. Workers are not getting the fruits of their increased productivity because the rules of our economy have changed over the last 40 years to the benefit of employers. Workers’ power, through collective bargaining and other means, has been intentionally eroded by policy decisions by federal and state governments at the behest of powerful corporations. [2]

An important factor in these stagnant and falling wages is the growth of the number of workers who are not full-time employees; those who are temporary, part-time, or contract workers. This reflects the growth of what is called the gig economy. Roughly 40% of US workers were contingent or gig workers in 2010, up from 35% in 2006. [3] Roughly 27 million Americans are working as independent contractors or temporary workers, while another 24 million work at a mix of traditional and freelance work. These workers not only suffer from low wages, they also typically do not receive benefits and are not protected by labor laws covering health, safety, and working conditions, such as minimum wage and overtime pay laws. Furthermore, much of the safety net for workers in the US depends on being a regular, full-time employee: health insurance, retirement benefits, unemployment insurance, and workers’ compensation and disability insurance (for being unable to work due to an injury or a health issue). [4]

Our current employee-focused policies provide perverse incentives for employers because costs and administrative burdens are lower with non-employees than employees. As a result, employers actively work to maximize the use of contingent workers and minimize the number of full-time employees. They also misclassify workers as contractors to avoid paying payroll and unemployment taxes.

The gig economy means less economic security for workers now and in the future. Their jobs can disappear at any moment with no unemployment benefits to tide them over to the next job. Their weekly hours and income fluctuate. And typically they have no retirement benefits and no health insurance. If they buy health insurance on their own, they may have caps and high deductibles that could leave them in a financial crisis if a serious accident or illness were to occur. The risk of economic changes and recessions now falls primarily on employees, with little support from employers or our public safety net.

My next post will review good news for workers, including policy changes that would recapture workers’ bargaining power and better serve workers in the gig economy.

[1] Schwartz, N.D., 9/3/15, “Pay has fallen for many, study says,” The Boston Globe from The New York Times

[2] Economic Policy Institute, 9/2/15, “Gap between productivity and typical workers’ pay continues to widen,” Economic Policy Institute (http://www.epi.org/press/gap-between-productivity-and-typical-workers-pay-continues-to-widen/)

[3] Johnston, K., 9/6/15, “Work’s dark future,” The Boston Globe

[4] Ramos, D., 9/6/15, “The sharing revolution and the uncertain future of work,” The Boston Globe

WHY ECONOMIC INEQUALITY IS A PROBLEM Part 3

The lack of equal opportunity and upward mobility when there are high levels of economic inequality is most dramatically clear when looking at children. Children born and raised in low income families are more likely to have:

health problems at birth,
worse living conditions including toxins in their environment (e.g., lead and air pollution),
worse nutrition, and
less nurturing and stimulating care from parents and non-parental caregivers.

Therefore, the opportunity for children in low income households to achieve their full potential – the foundation of equal opportunity and mobility – is compromised literally from day one. Growing up in an environment that is likely at times to be unhealthy and stressful can do long-term harm to a young child’s developing brain and, therefore, to his or her chances for success in school and in life. [1]

The relationship between a child’s family’s income during childhood and his or her life outcomes is well-established. Decades of research have established that a child’s family’s socioeconomic status is the strongest predictor of a child’s success in school and in life.

Without a very robust safety net and system of supports for low income families – which conservatives oppose both philosophically and fiscally – high levels of income and wealth inequality leave lower income children behind from birth (and probably even pre-natally).

Children from families with lower incomes and wealth also receive much less financial support from parents, both during parents’ lifetimes and through inheritance. Many parents who have the means provide financial assistance to their children to further their education, to buy a home or a car, to start a business, or to weather a health or job-related setback. The ability to support children’s opportunities and upward mobility is inherently lower for families with less income and wealth than it is for well-off families.

The lack of opportunity and upward social mobility for those with middle class and lower incomes, not to mention those in poverty, is not a separate problem from the inequality of income and wealth, but part and parcel of it. For example, children who graduate from college but are from the 20% of families with the lowest incomes are two and a half times less likely to be in the top 20% of income earners as adults than children from wealthy families who did not even graduate from college. [2]

If we and our democracy are committed to equal opportunity and social mobility, we must address economic inequality. Public policies created the Great Prosperity of the post-World War II economy. Back then everyone shared in the benefits of economic growth, and income and wealth gaps shrank. The public policies of the last 40 years have undermined the middle class and fostered the growing economic inequality that now rivals that of any point in American history. Changes in public policies can reverse our economic inequality and restore the equal opportunity and social mobility that are cornerstones of our American democracy. [3]

[1] Pollak, S., et al. (July 2015). “Association of child poverty, brain development, and academic achievement,” JAMA Pediatrics

[2] Bernstein, J., & Spielberg, B. (6/5/15). “Inequality matters,” The Atlantic

[3] Reich, R. (2010). “Aftershock: The next economy and America’s future,” Random House books.

WHY ECONOMIC INEQUALITY IS A PROBLEM Part 2

Economic inequality is a problem because it undermines our economy and our democracy. High levels of economic inequality make the US economy fragile, and perhaps unsustainable. Our economy is built on consumer spending, which accounts for about two-thirds of our economic activity. However, the rich don’t spend as much of their incomes as those with lower incomes do. They save more, they invest more (including in speculative investments that add no value to our economy), and they save, invest, and spend overseas, which does not support the American economy. Envision the difference between a) a large corporation’s CEO or a Wall St. hedge fund manager taking home $100 million for a year’s work and b) 2,000 middle class families taking home the same $100 million, which would be $50,000 each (perhaps in unemployment benefits or to support continued education). Which income distribution is going to result in more spending in our local economies and more support for local businesses, their employees, and their suppliers? Which income distribution is better for American workers and businesses, or in other words, for the US economy? [1]

The 90% of us who aren’t wealthy have a smaller and smaller share of the income and wealth of our society. Therefore, we simply do not have the consumer purchasing power needed to keep our economy running at full speed. Without sufficient demand for consumer products and services, businesses reduce production and lay off workers. This ripples through the whole economy as these laid-off workers don’t have money to spend in their local economies. Furthermore, related businesses feel the downturn, including the companies that build the equipment that manufacturers of consumer goods use, those that transport the goods, and those that build and furnish the buildings that house consumer businesses. As a result, unemployment (and under-employment) increase, and a vicious cycle of declining prosperity ensues.

There is also a political dimension to economic inequality. The wealthy donate money (and lots of it) to candidates for elected offices. Therefore, elected officials hear the voices of the wealthy much more loudly than they do the voices of lower income voters. As a result, policies tend to favor the wealthy, such as cutting their taxes, including the estate tax, income tax rates on high incomes, and corporate taxes (especially for large and multi-national firms). These tax cuts mean government has less revenue to spend on safety net programs and for investments in basic infrastructure such as education, mass transportation, and roads. Furthermore, many of the well-off advocate for cuts to safety net programs that support stability, if not opportunity and upward mobility, for those working in low paying jobs or facing adverse circumstances such as loss of a job or a health crisis. Therefore, economic inequality begets political inequality that begets even greater economic inequality.

Inequality and lack of social mobility are intimately linked; we can’t increase mobility and opportunity without reducing inequality. Those with low income and wealth simply are unable to make the investments in themselves, their children, and their neighborhoods that are needed to foster mobility and opportunity. In addition, unequal political power perpetuates and exacerbates economic inequality. As a result, the ability of the middle class and poor to build better lives for themselves and their children has become very limited indeed. [2]

[1] Reich, R. (2010). “Aftershock: The next economy and America’s future,” Random House books.

[2] Bernstein, J., & Spielberg, B. (6/5/15). “Inequality matters,” The Atlantic

WHY ECONOMIC INEQUALITY IS A PROBLEM Part 1

Some conservative commentators and politicians argue that economic inequality isn’t a problem. They claim that as long as there’s opportunity and social mobility, inequality in income and wealth doesn’t matter. They’re wrong, because high levels of economic inequality mean that social mobility is limited and opportunity is far from equal. [1]

One of the conservatives’ arguments is that economic growth provides opportunity and mobility regardless of inequality. However, almost all of the income and wealth generated by economic growth is going to the already well-off. For example, since the economic recovery began in 2009, 95% of income growth has gone to the richest 1% of the population. That doesn’t leave much opportunity or mobility for the other 99%.

There are at least five reasons that high levels of economic inequality are a problem. The first three are directly linked to social mobility and opportunity. I’ll cover those in this post. The other two reasons are that high levels of inequality undermine our economy and democracy. I’ll cover those in my next post. In a third post, I’ll focus on the effects of inequality on children.

Economic inequality is a problem because low income and wealth limit the ability to invest in a better future for oneself and for one’s children (e.g., in education or in living in better housing or a better community). They increase the likelihood of being stuck in a neighborhood that lacks opportunity (e.g., good schools and jobs) and the likelihood of living in an environment that is unhealthy and stressful (which does long-term harm to a young child’s brain development and, therefore, to his or her chances for success in school and in life). [2]

High levels of inequality produce high levels of residential segregation by economic status. Low income communities don’t have the resources to provide the public safety or good schools that high income communities can. Access to jobs and a safe, clean environment are more likely to be found in high income communities. Children growing up in neighborhoods where low income families are concentrated have worse outcomes in school and in life. The reverse is true as well: children from neighborhoods of concentrated wealth do best. The portion of families living in neighborhoods of concentrated wealth or concentrated poverty more than doubled between 1970 and 2009. The portion of families living in middle-income neighborhoods declined from 65% to 42%.

Growing economic inequality leads to growing educational inequality. While the gap in educational outcomes between blacks and whites has closed somewhat in recent years, the gap based on class (i.e., socioeconomic status) has widened. This gap is evident even before children start school: rich children score much higher on tests of school readiness than poor children do. At the other end of the educational spectrum, the high cost of college impedes access to higher education and high levels of post-college debt limit economic opportunities and mobility in adulthood. Children from lower income families are more likely to leave college with high levels of debt that limit their opportunities to save, to buy a home, to invest in further education, or to start a business. Between 1995 and 2013, the bottom half of the population economically (which includes many in the middle class) had college debt more than double relative to their incomes. Meanwhile, the top 5% of the population saw no increase in college debt relative to their incomes and had debt levels that were one-seventh of those of the bottom half.

In my next post, I’ll look at the effects of inequality on our economy and democracy.

[1] Bernstein, J., & Spielberg, B. (6/5/15). “Inequality matters,” The Atlantic

[2] Pollak, S., et al. (July 2015). “Association of child poverty, brain development, and academic achievement,” JAMA Pediatrics

A FAIR ESTATE TAX WILL REDUCE INEQUALITY

Wealth inequality in the US is even more dramatic than income inequality. The richest 1% of Americans own 42% of all the wealth in the country. And the richest 0.1% (300,000 people) have as much total combined wealth as the combined wealth of the bottom 90% (270 million people). This is the highest concentration of wealth in this country since the Gilded Age of the late 1800s. The richest 1% have an average of $14,000,000, while the bottom 90% average $80,000.

Thomas Piketty, in his book Capital in the Twenty-First Century, analyzes wealth and economies over the last 250 years and concludes that without a progressive wealth tax wealth inequality will grow. Left unchecked, wealthy families will perpetuate and grow their wealth, while the rest of us fall farther and farther behind. This will produce a permanent, wealth-based aristocracy.

To prevent the rise of this new aristocracy, we need to raise the estate tax — a modest tax on inherited wealth. Raising the estate tax on the wealthiest Americans is one key way to slow growing inequality. Yet some lawmakers in Congress actually want to eliminate this tax on inherited wealth.

Currently, the estate tax applies only to estates over $10,860,000 for a couple. The 40% tax applies only to any amount over this threshold. This means that the wealthy can give $10,860,000 to their heirs tax-free.

If the estate tax were eliminated, for which some in Congress are advocating, the federal government would lose roughly $27 billion a year in revenue and the growth in inequality in the US would accelerate. The average household that currently pays the estate tax would get a $3 million tax cut. State governments would lose revenue as well, because many state estate taxes are tied to the federal tax. This means that our state and federal governments, that are already stretched very thin, would have even fewer resources for public safety, schools, roads and bridges, and so forth.

If the estate tax were returned to its level in 1998 (with an adjustment for inflation), couples could give $1,748,000 tax-free to their heirs and amounts over that would be taxed. The federal government would receive an additional $49 billion a year in revenue to fund important needs. A couple with an estate of $10,860,000, the current tax-free threshold, would still be able to give $7.15 million to their heirs after paying the estate tax. Clearly, restoring the estate tax to its 1998 level would reduce the ability to pass on inherited wealth, but by no means eliminate it. It would slow our growing inequality but it certainly wouldn’t stop the ability to pass on significant inherited wealth.

A reasonable estate tax would be a step in addressing the growing economic inequality in the US. Returning to the lower tax-free estate threshold of 1998 would be a step in the right direction; conversely eliminating the estate tax would be a step in the wrong direction. American democracy would be seriously undermined by a self-perpetuating, wealth-based aristocracy. Such concentrated economic and political power is antithetical to the principles of our democracy.

Raising the estate tax is the eighth of Ten Ideas to Save the Economy: The Big Picture presented by Robert Reich and MoveOn.org. (You can watch the 3 minute video at: https://www.facebook.com/moveon/videos/10152795905365493/.)

A VOICE FOR WORKERS

Workers need to have a strong voice in the workplace and in our democracy to maintain an equitable balance of power with large, corporate employers. As the voice of labor has weakened over the last 35 years, workers’ pay has barely kept up with the cost of living and has fallen far behind workers’ growing productivity. In addition, the minimum wage has fallen substantially relative to the cost of living and workers’ benefits have been cut – many fewer workers have pensions and workers are paying more and more for their health insurance, if they have it.

Without a strong voice and bargaining power, workers do not get their fair share of economic growth and prosperity. (See my previous post, The Undermining of the Middle Class, for more detail.) For example, as workers’ pay and benefits have fallen in recent years, corporate profits and executives’ pay and benefits have risen dramatically.

The primary vehicle for providing a voice and bargaining power to workers is a labor union. Over the last 35 years, large corporations and their allies in government have engaged in a concerted campaign to weaken unions and workers’ bargaining power. Corporate employers have voided union contracts by declaring bankruptcy (e.g., many airlines), employers have been allowed to hire replacement workers when unionized workers engage in a strike (e.g., the air traffic controllers), employers have closed factories and moved jobs overseas, it has been made harder to organize workers and form a union, labor laws have been only weakly enforced, and penalties on employers who break labor laws are minimal.

This campaign to weaken unions has succeeded in reducing union membership among corporate employees from over 1 in 3 workers in the 1950s to 1 in 14 workers today. It has also undermined all workers’ bargaining power and throughout our economy has caused wages to stagnate and benefits to decline. The result has been a decline in the middle class’s share of national income.

Three key policy changes are needed to strengthen unions and the voices of workers:

Make it easier to form a union. Eliminate the ability of employers to delay and put up procedural hurdles to workers organizing a union.
Implement meaningful penalties for labor law violations. For example, the current penalty for firing a worker who is working to form a union (which is illegal), is simply to give him or her a job back, possibly with back pay. There is no fine or other penalty for having broken the law. Often these cases take so long to resolve (often it’s over a year) that the worker has had to find employment elsewhere.
Overturn, through federal law, states’ “right to work” laws. These laws allow employees in a unionized workplace to benefit from union-negotiated pay and benefits without having to pay union dues. This is a backdoor way to weaken and destroy unions by reducing their membership and revenue.

Wages and benefits are better in states (and countries) with higher levels of union membership. For example, in states with “right to work” laws, wages are $6,000 per year lower than in states without such laws and workers have weaker health and pension benefits as well. This applies not just to unionized workers but to all workers; all workers’ wages and benefits are better when unions are stronger.

Workers deserve fair pay and benefits for a hard day’s work. Unions provide the voice and bargaining power for workers; they establish a countervailing power to that of large, corporate employers. They improve pay and benefits, as well as working conditions, such as limiting the standard work week to 40 hours. Strong unions lead to a strong and fair economy, as well as a strong middle class. We need to strengthen labor unions to bring back a thriving middle class, as well as the fairness and shared prosperity that our economy produced in the 1950s through 1970s.

Strengthening labor unions is the seventh of Ten Ideas to Save the Economy: The Big Picture presented by Robert Reich and MoveOn.org. (You can watch the 3 minute video at: https://www.facebook.com/moveon/videos/vb.7292655492/10152780314000493/?type=1&theater.)

IMPORTANT ISSUES FOR THE 2016 PRESIDENTIAL CAMPAIGN

ABSTRACT: There’s no shortage of important issues facing the U.S. today. As candidates announce their intention to run for president, it will be interesting to see which issues they make priorities and which issues the mainstream corporate media decide to cover. Many candidates and the mainstream media are likely to avoid the issues of the struggling middle and working classes and of the growing inequality of income and wealth.

However, MoveOn.org and Robert Reich have teamed up to present 10 important issues for supporting the middle and working classes, reclaiming our democracy from moneyed interests, and saving our planet. Reich does a 3 minute video on each issue.

Senator Bernie Sanders of Vermont, a Democratic candidate for President, has a similar focus. If these issues resonate with you, I encourage you to follow Senator Sanders’ campaign. If you want these issues to be discussed in the campaign, give him some support during the primary.

FULL POST: There’s no shortage of important issues facing the U.S. today. As candidates announce their intention to run for president, it will be interesting to see which issues they make priorities. It will also be interesting to see which issues the mainstream media – the big corporate media – decide to cover. Many candidates and the mainstream media are likely to avoid the issues of the struggling middle and working classes and of the growing inequality of income and wealth. However, there are efforts to explicitly put these issues in the spotlight.

MoveOn.org and Robert Reich [1] have teamed up to present “10 Big Ideas to Save the Economy.” These are 10 important issues for supporting the middle and working classes, reclaiming our democracy from moneyed interests, and saving our planet. The corporate media and many candidates will avoid them. Therefore, MoveOn and Reich are using social media to try and bring these ten issues to voters’ attention. The issues are:

Enacting a $15 minimum wage
Supporting working families through equal pay for women, predictable work schedules, quality child care, and paid leave
Expanding Social Security
Reining in Wall Street
Reinventing education
Ending corporate welfare
Strengthening workers’ bargaining power through stronger unions
Increasing the estate tax
Implementing a carbon tax to cut pollution and address global warming
Getting big money out of politics

I’ve done blog posts on the first five and will do posts on the others soon. In the posts, I include a link to the 3 minute video that Robert Reich does to explain each one.

There’s one Democratic candidate for President, Senator Bernie Sanders of Vermont, whose campaign has a similar focus on the middle and working classes and on inequality. Although the mainstream (corporate) media tend to describe him as a fringe candidate and highlight his socialist political label, his positions on issues are very well aligned with what the voting public supports. For example, he supports: [2] [3] [4]

Providing universal pre-kindergarten – supported by 77% of the public
Reducing income and wealth inequality – supported by 63% of the public
Fair trade that protect workers, the environment, and jobs – supported by 75% of the public
Increasing taxes on the rich – supported by 52% of the public
Expanding Social Security – supported by 70% of the public
Breaking up the big banks – supported by 58% of the public
Making higher education more affordable – supported by 79% of the public
Reducing the burden of student debt – supported by 78% of the public
Ending tax loopholes for corporations that ship jobs overseas – supported by 74% of the public
Closing offshore corporate tax loopholes – supported by 70% of the public
Addressing climate change – supported by 71% of the public
Getting big money out of politics – supported by over 70% of the public across party lines

If Senator Sanders’ positions on these issues resonate with you, I encourage you to follow to his campaign. If you want these issues to be discussed in the campaign, give him some support during the primary. His campaign website is https://berniesanders.com/.

[1] Robert Reich was President Clinton’s Secretary of Labor and MoveOn.org is the progressive, grassroots organization promoting participation in our democracy.

[2] Moyers, B., & Winship M., 6/3/15, “Turn left on Main Street,” Moyers & Company (http://billmoyers.com/2015/06/03/turn-left-main-street/?utm_source=General+Interest&utm_campaign=512c7d35f1-Midweek12171412_17_2014&utm_medium=email&utm_term=0_4ebbe6839f-512c7d35f1-168350969)

[3] Cole, J., 5/29/15, “Despite what corporate media tells you, Bernie Sanders’ positions are mainstream,” Common Dreams (http://www.commondreams.org/views/2015/05/29/how-mainstream-bernie-sanders)

[4] Progressive Change Institute, Jan. 2015, “Poll of likely 2016 voters,” (https://s3.amazonaws.com/s3.boldprogressives.org/images/Big_Ideas-Polling_PDF-1.pdf)

WHY ECONOMIC INEQUALITY CONTINUES TO GROW AND WHAT YOU CAN DO ABOUT IT

ABSTRACT: Despite many indicators that our economy is strong, most Americans are experiencing economic insecurity. Over half of US households have less than one month’s income in regular savings and median household income continues to decline. Low-wage workers at Walmart, McDonalds, and elsewhere are so poor they are receiving $45 billion in public assistance. This translates into the average US household paying $400 a year in taxes to support these workers.

So why are the majority of Americans falling behind economically? And why were things so different in the post-World War II period? The US job market has changed dramatically. Many full-time jobs have been replaced part-time jobs, contract work, and temporary work. Many large employers and some politicians have engaged in a conscious effort to undermine the bargaining power of workers and weaken the enforcement of labor laws. Policies that allow outsourcing of jobs overseas and high unemployment further undermine the availability of good jobs at good wages.

The ability of the public and voters to demand policies that support the middle class and workers has also been undermined. Wealthy individuals and corporations are now allowed to make huge contributions and expenditures in our elections, drowning out the voices of average voters. This means that economic inequality translates into political inequality and policies that favor the well-off. Furthermore, new barriers to voting and a strategy of paralyzing and denigrating government has fostered voter cynicism, which leads to “a downward spiral [of] depressed expectations and diminished participation.”

A genuine mass movement is needed to restore economic security and opportunity for the typical American worker. An opportunity to participate in building such a movement is available right now in the election of the Mayor of Chicago. Jesus “Chuy” Garcia is unexpectedly giving incumbent Mayor Rahm Emanuel, a crony of wealthy business interests, a run for his money. You can learn more about Garcia and contribute to his campaign at http://www.chicagoforchuy.com/index.html. The success of candidates like Garcia is critical to turning around the direction of our politics and policies, and to re-establishing government of, by, and for the people.

FULL POST: As the stock market sets record highs, as unemployment falls, and as the economy grows, most Americans are experiencing economic insecurity. Since 2007, US wealth as grown by over $30 trillion, but the number of children in families receiving public assistance to buy food has grown by 6.5 million to 16 million children (20% of all kids). Over half of public school students are poor enough to qualify for lunch subsidies and over half of US households have less than one month’s income in regular savings (as opposed to retirement accounts or home equity). Median household income has continued to decline in the 5 years since the official recession ended; 95% of income growth since 2009 has gone to the richest 1%. The jobs that are being created pay, on average, 23% less than the jobs that were lost. [1]

Low-wage workers (those earning less than $10.10 per hour) at Walmart, McDonalds, and elsewhere are so poor they are receiving $45 billion in public assistance. This translates into the average US household paying $400 a year in taxes to support these workers. Walmart’s highly publicized $1 raise for its lowest paid workers will cost the company about $1 billion per year. Its profits last year were $25 billion and it spent about $6.5 billion to buy back its own stock, enriching its investors. It’s estimated that taxpayers spent about $6 billion providing public assistance to Walmart employees last year. [2]

So why are the majority of Americans falling behind economically when many measures indicate that our economy is doing well and when the wealthy are doing very well? And why were things so different in the post-World War II period when our economy was doing well and the majority of Americans were getting ahead? Bob Kuttner offers seven reasons, which I summarize below. [3]

The US job market has changed dramatically. Many full-time jobs with career opportunities have been replaced part-time jobs, contract work, temporary work, and so forth. Many large employers and some politicians have engaged in a conscious effort to undermine the bargaining power of workers and weaken the enforcement of labor laws. Policies that allow outsourcing of jobs overseas and high unemployment (while limiting unemployment benefits) further undermine market forces that would provide good jobs at good wages – and with benefits.

Pro-business Republicans and Democrats have supported these policies. Furthermore, the ability of the public and voters to demand policies that support the middle class and workers has been undermined. Laws and court decisions have allowed wealthy individuals and corporations to make huge contributions and expenditures in our elections, drowning out the voices of average voters. This means that economic inequality translates into political inequality, and wealthy special interests can promote their own good at the expense of the public.

Similarly, laws and court decisions have made it more difficult for many voters to vote. And finally, a strategy of paralyzing and denigrating government, particularly at the national level, has fostered voter cynicism. This leads to passivity and lack of involvement in political activity including voting – “a downward spiral [of] depressed expectations and diminished participation.”

Kuttner says a genuine mass movement is needed to restore economic security and opportunity for the typical American worker, as well as democracy to our political process. He notes that the Roosevelt Revolution and New Deal of the 1930s accomplished this. The Civil Rights Movement of the 1960s also made major changes in economic justice and democratic processes. So it’s time again to throw off cynicism and apathy, and to activate and organize.

An opportunity to do so is available right now in the election of the Mayor of Chicago. Jesus “Chuy” Garcia is polling within 4 percentage points of incumbent Mayor, Rahm Emanuel, a crony of wealthy business interests (and former Chief of Staff for President Obama and former US Representative). As Mayor, Emanuel closed 50 public schools, attacked teachers, and engaged in privatizing schools, parking meters, transit fare collection, and other public sector functions and jobs. He has focused on downtown development while ignoring the neighborhoods. He has raised taxes and fees on working people while providing sweetheart deals for business people, many of whom have contributed to his election campaign. Emanuel has raised over $13 million, ten times what Garcia has raised, and has a super PAC backing him as well. He is receiving substantial support from wealthy business people who are active Republicans. [4]

Garcia shocked everyone in the primary by keeping Emanuel from getting a majority of the vote, thereby forcing the run-off election on April 7. If you would like to contribute to the movement to restore democracy, reduce inequality, and support workers and the middle class, supporting Garcia is a good opportunity. You can learn more about him and contribute to his campaign at http://www.chicagoforchuy.com/index.html. Even if you contribute just a few dollars, the number of donors is an important indication of the breadth of support. You can sign-up to make calls from your home encouraging Chicago residents to get out and vote for him here: http://pol.moveon.org/2015/garcia_calls.html?rc=kos.

The success of candidates like Garcia is critical to turning around the direction of our politics and policies, and to re-establishing government of, by, and for the people. Even if they don’t ultimately win, they change the issues and policies that are discussed, and help build the movement for change.

P.S. I think it’s noteworthy that there hasn’t been much coverage by the mainstream (corporate) media of this unexpectedly contested mayoral race in our 3^rd largest city.

[1] Buchheit, P., 2/9/15, “New evidence that half of America is broke,” Common Dreams

[2] Buchheit, P., 3/16/15, “Four numbers that show the beating down of middle America,” Common Dreams

[3] Kuttner, R., 3/23/15, “Why the 99 percent keeps losing,” Huffington Post

[4] Perlstein, R., Feb. 2015, “How to sell off a city,” In These Times (http://inthesetimes.com/article/17533/how_to_sell_off_a_city)

STOP “TRADE” TREATIES THAT FAVOR BIG MULTINATIONAL CORPORATIONS

ABSTRACT: The Obama administration is in the final stages of negotiating two major “trade” treaties. It is pushing for Fast Track approval, which requires Congress to ratify them quickly (only 20 hours of debate on the thousands of pages in each treaty) with no amendments. These “trade” treaties primarily serve to enhance the power and profits of large multi-national corporations.

The Congressional Progressive Caucus (CPC) has released a set of principles for trade including:

Trade treaties should promote balanced trade and reduction of the current US trade deficit;
Workers’ rights should be protected and assistance provided to those who are displaced;
Currency manipulation to gain unfair advantage in trade should be banned;
The environment should be protected and environmental laws should not be undermined;
Trade treaties must not supersede countries’ consumer protections;
Private court systems that bypass and supersede a countries’ court system must not be allowed;
Trade treaties must safeguard affordable access to essential medicine; and
Trade treaties should support the United Nations Universal Declaration of Human Rights.

I encourage you to contact your U.S. Representative and Senators to urge them to support the Congressional Progressive Caucus’s principles for trade, and to oppose these “trade” treaties and Fast Track approval of them.

FULL POST: The Obama administration is in the final stages of negotiating two major “trade” treaties, [1] the Trans-Pacific Partnership (TTP) and the Trans-Atlantic Trade and Investment Partnership (TTIP). It is pushing for Fast Track approval, which requires Congress to ratify them quickly (only 20 hours of debate on the thousands of pages in each treaty) with no amendments to or filibustering of the language to which the administration has agreed. Despite the fact that a vote on the Fast Track approval process was delayed last week in Congress, it and these treaties will be back soon.

These “trade” treaties primarily serve to enhance the power and profits of large multi-national corporations. U.S. sovereignty and workers will be undermined, along with protections for our health, consumer and worker safety, the environment, and the stability of the financial system. Laws and regulations to protect public well-being are treated as illegal barriers to trade, although in reality it’s because they might be barriers to corporate profits. Multi-national corporations would be able to return to practices that were prohibited by the Clean Air and Clean Water Acts of the early 1970s and to the financial schemes that caused the 2008 Great Recession. [2] (See my posts of 1/13/14, 1/8/14, 9/13/13, 9/10/13, and 7/22/12 for more details.)

US Senator Elizabeth Warren has focused her opposition to the TPP on a provision called Investor-State Dispute Settlement (ISDS). It gives foreign corporations special rights to challenge U.S. laws, rules, and regulations in international tribunals, instead of the normal process of going through the U.S. courts. They could win large financial awards for alleged loss of potential profits. Such awards would have to be paid by U.S. taxpayers without ever going to a U.S. court. This significantly undermines U.S. sovereignty. [3]

This ISDS provision is already in the North American Free Trade Agreement (NAFTA) and some other existing trade treaties. As a result, governments have paid hundreds of millions of dollars to multi-national corporations under decisions by international tribunals where high-priced corporate lawyers serve as the judges. The number of cases brought to these tribunals is growing and there were 58 cases in 2012 alone. For example, a French corporation sued Egypt because it raised its minimum wage, a Swedish corporation sued Germany because it is phasing out nuclear power after the Japanese Fukushima disaster, and Philip Morris is suing Uruguay to stop new tobacco regulations. Eli Lilly is suing Canada to overturn a decision by its Supreme Court that limits drug prices. [4]

As a candidate for President, Obama criticized ISDS provisions in NAFTA. He promised to oppose foreign corporations’ rights to sue governments over laws or regulations that protect public safety or promote the public interest. He has done an about face on this issue.

Robert Reich, Bill Clinton’s Secretary of Labor, has a great, 2 ½ minute video explaining why we should oppose Fast Track and the TPP. [5] He notes that although it is the largest trade treaty in history, involving almost 800 million people and 40% of the world’s economy, it is being negotiated in secret. The public, the media, and even Congress have been shut out from the process and denied access to draft documents. However, corporate leaders have been extensively involved. The leaked information that has come out indicates that the TPP will exacerbate inequality and the undermining of the middle class by facilitating the outsourcing of jobs. It will also undermine rules and regulations that protect people (but might reduce profits) and make drugs more costly by lengthening patent protections.

The TPP and TTIP will provide few if any benefits to the economy, jobs, wages, or our balance of trade. Past trade treaties, such as NAFTA, have resulted in documented job losses, declining wages for middle class workers, increased trade deficits, and increasing inequality. [6] (See my posts of 1/20/14 and 7/17/12 for more information.)

The Congressional Progressive Caucus (CPC) has released a set of principles for trade. [7] Those principles include the following:

Trade treaties must allow open debate with full disclosure of their provisions, sufficient time to discuss them, and the opportunity to amend them;
Trade treaties should promote balanced trade and reduction of the current US trade deficit;
Workers’ rights should be protected and assistance provided to those who are displaced;
Currency manipulation to gain unfair advantage in trade should be banned;
Trade treaties must not limit the United States government’s ability to set contract guidelines, including giving a preference to domestic producers when making purchasing decisions;
The environment should be protected and countries’ environmental laws should not be undermined;
Trade treaties must not supersede countries’ food and safety standards, financial regulations, or other consumer protections;
Private court systems, such as Investor State Dispute Settlement tribunals, that bypass and supersede a countries’ court system must not be allowed;
Trade treaties must safeguard affordable access to essential medicine and not establish unfair drug patent protections that delay access to affordable generic drugs; and
Trade treaties should require signatory countries to implement and enforce domestic laws consistent with the United Nations Universal Declaration of Human Rights and should not prevent the U.S. or other nations from using trade benefits to promote human rights.

I encourage you to contact your U.S. Representative and Senators to urge them to support the Congressional Progressive Caucus’s principles for trade. In addition, I encourage you to urge your elected representatives to oppose these “trade” treaties and the Fast Track approval process for them.

[1] I put trade in quotes because these and other recent “trade” treaties, such as the North American Free Trade Agreement (NAFTA), actually do little to reduce trade barriers (which are already quite low) or increase trade (which is already quite extensive). They primarily address a broad range of legal and regulatory issues.

[2] Stiglitz, J., 3/15/14, “On the Wrong Side of Globalization,” The New York Times

[3] Warren, E., 2/25/15, “The Trans-Pacific Partnership clause everyone should oppose,” The Washington Post

[4] Gallagher, K.P., 3/4/15, “Saving Obama from a bad trade deal,” The American Prospect

[5] Reich, R., 1/29/15, “Robert Reich takes on the Trans-Pacific Partnership,” https://www.youtube.com/watch?v=3O_Sbbeqfdw

[6] Meyerson, H., 1/14/14, “Free trade and the loss of U.S. jobs,” The Washington Post

[7] Congressional Progressive Caucus, 3/6/15, “Principles for trade: A model for global progress,” http://cpc.grijalva.house.gov/uploads/Final%20Principles%20for%20Trade%203-4-151.pdf

RECLAIMING AN ECONOMY THAT WORKS FOR EVERYONE, NOT JUST THE WEALTHY

ABSTRACT: We need to reclaim our economy so it works for everyone, not just the wealthy. With different choices and policies that reflect a different set of values, our economy can once again be one where a rising tide lifts all boats, not just the yachts of the wealthiest.

The policy changes that are needed to support the middle and working class include:

Raise the minimum wage
Strengthen laws on equal pay for equal work
Strengthen labor laws and enforcement, including workers’ right to bargain collectively
Strengthen Social Security while protecting and encouraging pensions
Close corporate and individual income tax loopholes, and raise tax rates on unearned income
Ensure that trade treaties are fair to workers and citizens
Strengthen the Dodd-Frank financial reforms and reinstitute a small financial transaction tax
Create jobs and make needed investments in our infrastructure

We need new policies and programs that reflect values and choices that put the average citizen and worker first, rather than wealthy individuals and corporations. If some of these proposals resonate with you, contact your elected officials and tell them. A grassroots movement is needed to shift our economy from the current one that is working only for the wealthiest 10% to the one we used to have where everyone benefited from economic growth.

FULL POST: In my last post, I summarized policy choices that have undermined the middle and working class, largely based on a great speech Senator Elizabeth Warren gave recently. She states that it doesn’t have to be this way and spells out what we need to do to reclaim our economy so it works for everyone, not just the wealthy. [1] With different choices and policies that reflect a different set of values, our economy can once again be one where a rising tide lifts all boats, not just the yachts of the wealthiest.

The policies that undermined the middle and working class were justified by the theory of “trickle-down” or “supply-side” economics. It was used to justify large tax cuts for wealthy individuals and corporations because the theory said that the country could count on the biggest and richest corporations and the wealthiest individuals to share their growing wealth and create an economy that worked for everyone. The experience of the last 30 years has shown that President George H.W. Bush was right when he called this “voodoo economics.” Nonetheless, there are politicians today who still pledge allegiance to “trickle-down” economics, despite the fact, as Senator Warren states, that it has been shown to be the politics of helping the rich and powerful get more, while cutting off the legs of the middle class.

The set of values that should drive our policies include the following:

A person shouldn’t work full-time and be in poverty.
Women should receive equal pay for equal work.
Labor laws should be strengthened and enforced so that workers are
- paid what they are due,
- able to retire with dignity, and
- able to bargain together as a group with employers for fair pay, benefits, and working conditions.
Our tax system should be fair and require wealthy individuals and corporation to pay their fair share. Workers shouldn’t pay higher income tax rates on their hard-earned income than the wealthy pay on their unearned income from investment gains and dividends.
The burden of student debt should be reduced.
Our trade policies should be fair for workers, creating jobs and raising wages in the U.S.
Big banks and financial corporations should not be too-big-to-fail, allowed to make risky investments with government insured deposits, or bailed out by taxpayers if they get into trouble.
Regulation and oversight should be enhanced, particularly of the big financial corporations, so consumers and our economy are protected from speculation and fraud.

The policy changes that are needed to support the middle and working class based on these values include:

Raise the minimum wage nationally. (Many states and cities are already doing this.)
Strengthen laws requiring and enforcing equal pay for equal work.
Strengthen labor laws and their enforcement, including workers’ right to form unions and bargain collectively so there is a balance of power between the workers and the employer during negotiations.
Strengthen Social Security while protecting and encouraging pensions, as well as personal and employer supported savings, such as 401(k)s.
Close corporate and individual income tax loopholes. For example, stop corporations and individuals from hiding income overseas to avoid paying taxes.
Raise tax rates on unearned income, including capital gains, dividends, and hedge fund mangers’ investment gains.
Allow students to refinance college loans at reduced interest rates and allow relief from student debt in bankruptcy.
Ensure that trade treaties are thoroughly debated in public and are fair to workers and citizens, balancing their interests with those of multi-national corporations.
Strengthen the Dodd-Frank financial reforms, as well as oversight and enforcement. Prevent financial corporations from gambling on risky investments with taxpayer insured deposits. Require too-big-to-fail corporations to split up into smaller entities.
Reinstitute a small financial transaction tax (for example, 0.5%) to discourage speculative trading and generate needed revenue.
Create jobs and make needed investments in our infrastructure by building roads, bridges, and schools; and investing in education and research.

While workers suffered after the 2008 economic collapse caused by out-of-control financial corporations, our politicians bailed out the corporations, often with no or few strings attached. Our politicians have also signed trade treaties and currently are negotiating new ones that are highly beneficial to multi-national corporations. Yet workers harmed by past policy changes and trade treaties, as well as homeowners who lost their homes and workers who lost their jobs in the 2008 collapse, have received little help and certainly have not been bailed out the way Wall Street was.

We need new policies and programs that reflect values and choices that put the average citizen and worker first, rather than wealthy individuals and corporations. I encourage you to listen to Warren’s speech if you haven’t already (just 23 minutes) or to read the press release. If some of these concerns or proposals resonate with you, contact your elected officials and tell them. A grassroots movement is needed to shift our economy from the current one that is working only for the wealthiest 10% to the one we used to have where everyone benefited from economic growth.

[1] You can listen to and watch Warren’s 23 minute speech at: https://www.youtube.com/watch?v=mY4uJJoQHEQ&noredirect=1. Or you can read the text in the press release her office put out at: http://www.warren.senate.gov/?p=press_release&id=696.

THE UNDERMINING OF THE MIDDLE CLASS

ABSTRACT: Senator Elizabeth Warren gave a great speech recently in which she laid out how actions taken by corporations and related policy changes have undermined the middle and working class. She also spelled out what we need to do to change the rules of our economy so it works for everyone, not just the wealthiest. Up until the 1980s, our economy and the wages of the middle and working class grew together. But since the 1980s, all the growth of the economy has gone to the wealthiest 10%. Wages for the 90% of us with the lowest incomes have been flat, while our living expenses for housing, health care, and college have grown significantly.

This change in our economy, where all the benefits of growth go to the wealthiest 10%, represents a huge structural economic shift. It occurred because of cutting taxes; trade treaties; financial manipulation via leveraged buyouts and bankruptcies; minimum wage erosion with inflation; reductions in health care, unemployment, sick time, and overtime benefits; cutting of pensions and retiree benefits; and restrictions on employees’ rights to negotiate pay and working conditions as a group. Furthermore, corporations have been allowed to turn full-time employees into independent contractors or part-time workers who get no benefits and no job security.

These changes affect all workers, those in the private and public sectors, as well as both union and non-union employees. The changes were promoted by corporations and their lobbyists. Senator Warren states that it doesn’t have to be this way. We can make different choices and enact different policies that reflect different values. More on that next time.

FULL POST: Senator Elizabeth Warren gave a great speech recently in which she laid out how actions taken by corporations and related policy changes have undermined the middle and working class. She also spelled out what we need to do to change the rules of our economy so it works for everyone, not just the wealthiest. [1] She notes that up until the 1980s our economy and the wages of the middle and working class grew together. The rising tide of our growing economy did lift all boats. While the wealthiest 10% got more than their share of the growth (about 30%) in those years, the other 90% of us got 70% of the money generated by the growing economy.

But since the 1980s, all the growth of the economy has gone to the wealthiest 10%. The pay for Chief Executive Officers (CEOs) of corporations was 30 times that of average workers in the 1980s; today it is 296 times that of workers. And in the last 25 years, corporate profits have doubled as a portion of our economy, while the portion going to workers has declined. [2]

Wages for the 90% of us with the lowest incomes have been flat, while our living expenses for housing, health care, and college have grown significantly. Mothers have gone to work and parents are working more hours but this has not been enough to maintain a middle class standard of living. It certainly looks like today’s young people will be the first generation in America to be worse off than their parents.

Since 1980, the wages of the wealthiest 1% have grown by 138% (adjusted for inflation) while wages for the 90% with the lowest wages have received only a 15% increase (less than half of one percent per year). Workers have not received the benefit of their increased productivity, as was the case up until 1980. Since 1980, productivity has increased 8 times faster than workers’ compensation. If the federal minimum wage had kept up with productivity, it would be $18.42 instead of $7.25. And if it had kept up with inflation since 1968, it would be $19.58. [3]

This change in our economy, where all the benefits of growth go to the wealthiest 10%, represents a huge structural economic shift. So how did the economy get rigged so the top 10% get all the rewards of economic growth?

In the 1980s, government was vilified by politicians who were supported by corporate money. The supposed evils of big government were used to argue for deregulation and cutting taxes. This turned Wall Street’s financial corporations and other large multi-national corporations loose to maximize profits with no holds barred. Furthermore, trade treaties allowed corporations to manufacture goods overseas and bring them back into the U.S. with low or no tariffs, few U.S. regulations, and no regulations on how foreign labor was paid or treated. In addition, the U.S. corporations were allowed to cut benefits and pay for U.S. employees, including by undermining workers’ bargaining power in multiple ways, and through financial manipulation via leveraged buyouts and bankruptcies, as well as changes in tax laws.

Middle class workers have been undermined by corporations moving (or threatening to move) their jobs overseas and by changes in state and federal laws. The minimum wage has been eroded by inflation; workplace safety and legal protections have been weakened; health care, unemployment, sick time, and overtime benefits have been reduced; restrictions on child labor have been lifted; and it has become harder to sue an employer for discrimination. Pensions and retiree health benefits have been cut or eliminated. Just 34 of the Fortune 500 list of the largest corporations offered traditional pensions to new workers in 2013, down from 251 in 1998. [4] And wage theft through failure to pay the minimum wage or overtime wages, or through manipulation of time cards and other means, has spread. Meanwhile, enforcement of labor laws has been weak.

Employees’ rights to negotiate pay and working conditions as a group have been restricted. In addition, the middle class has been hammered by labor laws that allow corporations to turn full-time employees into independent contractors or part-time workers who get no benefits and no job security.

These changes affect all workers, those in the private and public sectors, as well as union and non-union employees. The changes were promoted by corporations and their lobbyists, along with corporate-funded think tanks, the Chamber of Commerce, the National Federation of Independent Business, the National Restaurant Association, the National Association of Manufactures, and other business groups. These efforts were also advanced by corporate-funded advocacy organizations such as the American Legislative Exchange Council (ALEC), Americans for Tax Reform, and Americans for Prosperity. [5]

Senator Warren states that it doesn’t have to be this way. We can make different choices and enact different policies that reflect different values. My next post will discuss those values and policies. In the meantime, I encourage you to listen to Warren’s speech (just 23 minutes while you’re doing something else) or to read the press release. (See footnote 1 for links to them.)

[2] Tankersley, J., 12/25/14, “Amid gain, middle class wages get no lift,” The Boston Globe from the Washington Post

[3] Economic Policy Institute, 12/24/14, “The 10 most important econ charts of 2014 show ongoing looting by the top 1 percent,” The American Prospect

[4] McFarland, B., 9/3/14, “Retirement in transition for the Fortune 500: 1998 to 2013,” Towers Watson (http://www.towerswatson.com/en/Insights/Newsletters/Americas/Insider/2014/retirement-in-transition-for-the-fortune-500-1998-to-2013)

[5] Lafer, G., 10/31/13, “The legislative attack on American wages and labor standards, 2011-2012,” Economic Policy Institute (http://www.epi.org/publication/attack-on-american-labor-standards/)

THE CORPORATE EDUCATION INVASION Part 2

ABSTRACT: The most recent embodiment of the corporate efforts to capture (i.e., privatize) funding from public K-12 education is the new Common Core national curriculum standards and the testing that accompanies it. Common Core’s implementation will require public school systems to spend billions of dollars on new curriculum materials and on new testing, including software, hardware, and technology infrastructure as the testing is computer and Internet based. This comes at a time when school budgets are being cut, teachers and other staff are being laid off, and music, art, and extracurricular activities are being eliminated.

All the focus on privatization, on charter schools, on testing, and on the Common Core standards as the solutions to our supposedly failing public schools has diverted attention from the real failure of our public schools and our society. The failure of our public schools is their inability to close the gap in educational outcomes between well-off white children without special needs and everyone else. Low-income and minority students, along with those with special needs and English as a second language, typically arrive at school already well behind their better-off peers. Catching up is difficult and we don’t give our school systems the resources to have a realistic chance of closing the gap.

Expecting our schools to fix the pervasive impacts of poverty and inequality is a prescription for failure. To use that failure as an excuse to privatize schools and force public schools to spend billions on new curricula and testing is misguided (assuming the best of intentions) and only exacerbates the problem. It would be far more effective and efficient to use those billions of dollars to provide high quality early care and education (i.e., child care) and other supports to low income families with children under school age.

FULL POST: The most recent embodiment of the corporate efforts to capture (i.e., privatize) funding from public K-12 education is the new Common Core national curriculum standards and the testing that accompanies it. The corporations and their allies have convinced the public and policy makers that our public schools are failing through an extensive and inaccurate PR campaign. Their solutions are new education standards and accountability through testing.

The new Common Core standards have been widely adopted, in large part due to federal grants that effectively required their adoption. However, the pushback against Common Core is now taking hold with a broad and surprisingly varied set of opponents. The opposition includes working and upper class suburbanites, right wing Tea Partiers, and teachers. [1]

Common Core’s implementation will require public school systems to spend billions of dollars on new curriculum materials and on new testing, including software, hardware, and technology infrastructure as the testing is computer and Internet based. This comes at a time when school budgets are being cut, teachers and other staff are being laid off, and music, art, and extracurricular activities are being eliminated. [2]

It’s worth noting that the Gates Foundation spent over $200 million, given to a wide range of over 30 organizations (e.g., colleges and universities, for-profit and not-for-profit education corporations, states and local school systems, think tanks and advocacy groups, and teachers’ unions) developing and building support for the Common Core. [3] The Common Core standards were NOT developed and adopted through a democratic process that engaged the public and a broad set of stakeholders. The writers of the standards included no experienced classroom teachers, no educators of children with special needs, and no early childhood educators. The single largest group on the drafting committee was from the testing industry. Furthermore, the standards were not pilot tested in the real world and there is no process for challenging or revising them. [4]

While the stated goals of the Common Core are to improve student outcomes and produce a better prepared workforce, it’s hard to overlook the billions of dollars of immediate business for corporations. Therefore, it is not surprising that the Chamber of Commerce spent more than a million dollars promoting the adoption of the Common Core. [5]

All the focus on privatization, on charter schools, on testing, and on the Common Core standards as the solutions to our supposedly failing public schools has diverted attention from the real failure of our public schools and our society. The failure of our public schools is their inability to close the gap in educational outcomes between well-off white children without special needs and everyone else. However, this failure goes well beyond the school system. Low-income and minority students, along with those with special needs and English as a second language, typically arrive at school already well behind their better-off peers. Catching up is difficult and we don’t give our school systems the resources to have a realistic chance of closing the gap.

It would be much more cost effective and the likelihood of success would be higher if we addressed the root causes of the school readiness gap. This means supporting families and children in the years from birth until they enter school, and during pregnancy. However, our political leaders haven’t mustered the political will to seriously address these issues. And corporations haven’t figured out how to profit of off these services.

[1] Murphy, T., Sept./Oct. 2014, “Tragedy of the Common Core,” Mother Jones

[2] Ravitch, D., 6/9/14, “Time for Congress to investigate Bill Gates’ role in Common Core,” Common Dreams (http://www.commondreams.org/views/2014/06/09/time-congress-investigate-bill-gates-role-common-core)

[3] Murphy, T., Sept./Oct. 2014, “Tragedy of the Common Core,” Mother Jones

[4] Ravitch, D., 6/9/14, “Time for Congress to investigate Bill Gates’ role in Common Core,” Common Dreams (http://www.commondreams.org/views/2014/06/09/time-congress-investigate-bill-gates-role-common-core)

[5] Murphy, T., Sept./Oct. 2014, “Tragedy of the Common Core,” Mother Jones

40 YEARS OF CLASS WARFARE

ABSTRACT: Class warfare has been going on in the US for 40 years, but most people either haven’t realized that it is class warfare, or deny its existence. Inequality between the wealthy, elite class and the middle and working class has grown dramatically. This is the result of policy decisions made by federal and state governments not the accidental or inevitable result of non-political events or changes in our economy.

Since 1979, workers’ productivity has grown by 65% but their median pay has grown by only 8%. Large employers’ profits after taxes have increased 239% since 1980.

Since the 1970s, changes in government policies have tended to reward corporations, their executives and investors, at the expense of workers. Trade policies, deregulation, tax policies, and labor laws are key examples. As the incomes of the richest 1% have grown dramatically, the income tax rate for those with the highest incomes has been reduced from 70% to 39%, with even lower rates on income from investments (as opposed to income from work). Meanwhile, the minimum wage has failed to even keep up with inflation.

Increasing incomes for the working and middle class doesn’t just benefit them and their families, it will benefit the whole economy by increasing the purchasing power of the average consumer. Consumer spending is two-thirds of our economy.

It’s time to acknowledge that 40 years of class warfare has occurred, that government policies have been its weapons, and that tremendous (and growing) inequality has been the result. It’s time to work to improve the pay, benefits, and job security of the working and middle class. And it’s time for our wealthy individuals and corporations to pay their fair share of our taxes. Policy changes to achieve these results are possible and will be essential to strengthening our economy and reducing the startling inequality present in America today.

FULL POST: Class warfare has been going on in the US for 40 years, but most people either haven’t realized that it is class warfare, or deny its existence. The incomes and wealth of the wealthiest individuals and families in the US have grown dramatically, while the vast majority of Americans have seen their incomes stagnate, at best, and their wealth fall with the crash of home prices and the financial system in 2008. Large employers’ profits have grown significantly as well, while workers’ pay has stagnated or fallen.

As a result, inequality between the wealthy, elite class and the middle and working class has grown dramatically. This is the result of policy decisions made by federal and state governments, driven by wealthy campaign donors and lobbyists. It is not the accidental or inevitable result of non-political events or changes in our economy.

It used to be that as our economy and worker productivity grew, the rising tide lifted all boats. From 1947 to 1973, workers’ productivity grew by 97% and their median pay grew by 95%. That changed in the 1970s when the 40 years of class warfare began. Since 1979, workers’ productivity has grown by 65% but their median pay has grown by only 8%. The share of the national economy’s income going to workers in wages and salaries has declined from 67% (where it had been for decades) to 58% (the lowest level since this statistic has been recorded). Meanwhile, the share going to corporate profits is at a record high. [1] Large employers’ profits after taxes have increased 239% since 1980. [2]

Since the 1970s, changes in government policies have tended to reward corporations, their executives and investors, at the expense of workers. Trade policies, deregulation, tax policies, and labor laws are key examples. These policy changes have allowed and provided incentives for corporations to shift jobs overseas, reducing jobs and wages in the US. Financial deregulation has benefited Wall St. corporations and executives while hurting average American homeowners, credit card holders, and borrowers. Small businesses have been hurt by trade policies, deregulation, and tax policies that favor big corporations.

Changes in labor laws have shifted the balance of power toward employers, especially large employers, at the expense of workers. The use of part-time workers, “temporary” employees, and “independent” contractors instead of full-time employees has stripped workers of job security, benefits, and labor law protections, including the ability to unionize.

During the first 30 years of this class warfare, workers made up for the lack of income growth by working more hours (especially by women in two-parent households) and by borrowing, most notably against their homes (mortgages, second mortgages, and home equity loans), through their credit cards, and for the costs of higher education. Then, the Great Recession hit and the incomes and assets (primarily homes) of the middle and working class crumbled.

The result of this multi-faceted warfare against the working and middle class is the following (all figures adjusted for inflation):

Bottom 90% of the US population
- Average household income: $31,000, down 24% since 1980
Top 10%
- Average household income: $175,000, up 46% since 1980
Top 1%
- Average household income: $700,000, up 124% since 1980

The top 10% of Americans as a group now have as much income as the bottom 90% for the first time in 100 years. And the average US CEO’s salary is now 331 times the average workers’ pay. [3] The inequality in wealth is even greater than the inequality in income; the top 1% have 76% of wealth in the US.

If the incomes of all classes had grown at the same rate since 1979, low and middle income families would be earning $6,000 – $8,000 more each year than they are. [4]

In perhaps the starkest example of this class warfare, as the incomes of the richest 1% have grown dramatically, and as inequality has grown dramatically, the income tax rate for those with the highest incomes has been reduced from 70% to 39%. And many of those with the highest incomes pay a far lower effective income tax rate because of tax loopholes (such as offshore tax havens) and even lower rates on income from investments (as opposed to income from work).

Another stark example of this class warfare is that as upper incomes have soared, the minimum wage has failed to even keep up with inflation. This is a clear example of the eroding power of workers and a significant factor underlying their eroding incomes. Although successful efforts to increase the minimum wage have recently occurred in some states and cities, this is only one piece of a much larger puzzle. Much more will need to be done if workers are to regain the financial well-being and stability they enjoyed from the end of World War II until the 1970s.

Increasing incomes of the working and middle class doesn’t just benefit them and their families, it will benefit the whole economy by increasing the purchasing power of the average consumer. Consumer spending is two-thirds of our economy and the current economic recovery has been slow and weak because consumers simply don’t have money to spend.

[1] Meyerson, H., July / August 2014, “Why Democrats need to take sides,” The American Prospect

[2] Gilson, D., Sept. / Oct. 2014, “Survival of the richest,” Mother Jones

[3] In These Times, Sept. 2014, “Just the facts,” In These Times

[4] Horowitz, E., 8/23/14, “Mass. Economy still hasn’t rebounded,” The Boston Globe

THE BIGGEST LOSERS IN DETROIT’S BANKRUPTCY

ABSTRACT: The biggest losers in Detroit’s bankruptcy appear to be school children, current and former city employees, and poor residents. The emergency plan for Detroit’s public schools calls for increasing class sizes from 38 to 43 students in grades 6 – 12. Spending on classroom instruction has been cut 19% (falling from 58% of the school budget to 47%), while spending on central administration has grown by 64%. Detroit’s workers and retirees have agreed to accept cuts in their pensions.

Since March, over 15,000 households in Detroit have had their water cut off. While residents’ water has been shut off if they owe more than $150, 40 commercial users that owe a total of $9.5 million have not been shut off.

This country spent hundreds of billions of dollars to bail out huge financial corporations (that had engaged in egregious misconduct) so that they wouldn’t go bankrupt. We should be able to help poor and unemployed residents of Detroit so their water isn’t shut off, to ensure Detroit’s children get a good education, and to provide reasonable cost of living increases for city employees’ pensions – all for a tiny fraction of the cost of the bank bailout.

FULL POST: The biggest losers in Detroit’s bankruptcy appear to be school children, current and former city employees, and poor residents.

The emergency manager of Detroit’s public schools has put forward his emergency plan. It calls for increasing class sizes from 38 to 43 students in grades 6 – 12. Since control of the budget was removed from the elected school board, spending on classroom instruction has been cut 19% (falling from 58% of the school budget to 47%). Meanwhile, spending on central administration has grown by 64%. [1]

Detroit’s workers and retirees have agreed to accept cuts in their pensions (reluctantly I’m sure). Regular municipal employees’ pensions would be cut by 4.5% and they will get no annual inflation adjustments. (The average municipal workers’ pension is less than $23,000 per year.) Police and firefighters will lose only a portion of their annual inflation adjustment. [2]

Since March, over 15,000 households in Detroit have had their water cut off. The Detroit Water and Sewage Department has announced plans to shut off up to 3,000 households per month. A recent 15 day moratorium on some shutoffs was announced, but it is temporary and some shutoffs will continue. A human rights complaint has been filed with the United Nations, where a spokesperson noted that, “when there is genuine inability to pay, human rights forbids disconnections.” While residents’ water has been shut off if they owe more than $150, 40 commercial users that owe a total of $9.5 million have not been shut off. For example, the water is still on at a golf course that owes $200,000 and two sports venues that owe $80,000 and $55,000. [3]

Water bills in Detroit have more than doubled in the last 10 years and an 8.7% increase was recently approved. Meanwhile, over 40% of Detroit residents live below the federal poverty line (roughly $20,000 for a family of 3) and unemployment is at record levels.

This country spent hundreds of billions of dollars to bail out huge financial corporations (that had engaged in egregious misconduct) so that they wouldn’t go bankrupt. We should be able to help poor and unemployed residents of Detroit so their water isn’t shut off, to ensure Detroit’s children get a good education, and to provide reasonable cost of living increases for city employees’ pensions. All of this, together, would cost a tiny fraction of the cost of the bank bailout – on the order of $1 for every $1,000 given to the banks.

[1] Clawson, L., 7/18/14, “Detroit schools emergency manager raises class size to emergency levels,” Daily Kos (http://www.dailykos.com/story/2014/07/18/1314775/-Detroit-schools-emergency-manager-raises-class-size-to-emergency-levels)

[2] Daily briefing, 7/22/14, “Detroit retirees agree to pension cuts,” The Boston Globe

[3] Prupis, N., 7/24/14, “Canadian group delivering water to Detroit to protest shutoffs,” Common Dreams (http://www.commondreams.org/news/2014/07/24/canadian-group-delivering-water-detroit-protest-shutoffs)

INEQUALITY IS NOT INEVITABLE

ABSTRACT: “Inequality is not inevitable” is the title of a recent piece in the New York Times by Joseph Stiglitz. Our current levels of inequality – and the undermining of the middle class – are the result of policies and politics, not a fundamental feature of capitalism. One example is the recent bailout of the large bank and financial corporations with hundreds of billions of taxpayers’ dollars while only a pittance went to homeowners and other victims of these corporations’ predatory lending.

True economic success is measured by how well the typical citizen is doing, especially in America, which claims to be the bastion of equal opportunity. But here in the US, the typical worker’s income is lower today than it was 25 years ago.

There are policy solutions that will simultaneously strengthen our economy, address the federal government’s budget deficit and debt issues, tackle our infrastructure needs, and reduce inequality. Tax reform is a core ingredient of these policy changes. (See details below.) It and other policies that can and should be changed will reduce inequality, improve our economy, and address other important issues.

FULL POST: “Inequality is not inevitable” is the title of a recent piece in the New York Times by Joseph Stiglitz, [1] a Nobel prize-winning economist. It is the final piece of a New York Times series on inequality entitled “The Great Divide.” [2] The series presents a wide range of examples that demonstrate that our current levels of inequality – and the undermining of the middle class – are the result of policies and politics, not a fundamental feature of capitalism. Other countries’ economies are performing as well or better than ours with far greater equality.

Policies that have increased inequality and weakened the middle class include the recent bailout of the large bank and financial corporations with hundreds of billions of taxpayers’ dollars while only a pittance went to homeowners and other victims of these corporations’ predatory lending. More help for homeowners and the unemployed would have helped the economy recover more quickly and vigorously. We also allow corporate monopolies and near monopolies to exist and make huge profits while they ship jobs and profits overseas, avoiding paying US taxes.

Our campaign finance laws allow economic inequality to lead to political inequality by letting the wealthy buy political influence. And political inequality increases economic inequality in a vicious cycle: politicians increase corporate welfare and give the rich tax cuts while cutting support for middle class workers and the poor. The wealthy corporations and individuals increase their wealth, not by working harder or being smarter, but by manipulating the rules of our economic and political systems. As a result, for example, corporate income taxes have declined as a portion of the federal government’s revenue from 39.8% in 1943 to 9.9% in 2012. Furthermore, Wall St. corporations and executives were not brought to justice for their criminal behavior that led to the economic collapse, or even for their abuse of our legal system in foreclosing on and evicting homeowners, inappropriately, fraudulently, and sometimes in total error.

True economic success is measured by how well the typical citizen is doing, especially in America, which claims to be the bastion of equal opportunity. But here in the US, the typical worker’s income is lower today than it was 25 years ago. And the life prospects of our children are determined more by the income and education of their parents than they used to be, and more than they are in other advanced countries. The tremendous growth in income and wealth of the top 1% in the US has not trickled down, it has evaporated, often in Caribbean and other tax havens. [3] There is compelling evidence that the current level of inequality in the US is weakening our economy and our social cohesion.

There are policy solutions that will simultaneously strengthen our economy, address the federal government’s budget deficit and debt issues, tackle our infrastructure needs, and reduce inequality. We can improve economic growth, promote economic efficiency, and reduce unemployment through changes in our tax system. Tax reform is a core ingredient of the policy changes needed to reduce inequality. Such tax reform includes: [4]

Reducing incentives and opportunities for corporations and wealthy individuals to avoid paying taxes
Increasing the top marginal income tax rates and reducing preferential treatment of unearned income, such as capital gains and dividends
Reforming corporate taxation to incentivize investing in the US (rather than overseas) and to close loopholes that are essentially corporate welfare
Taxing too-big-too-fail financial institutions to create a rescue fund (for future, probably inevitable bailouts) and to provide a disincentive for unlimited corporate growth and for speculative, highly leveraged financial activities that increase the likelihood of a bailout
Implementing a financial transaction tax to provide a disincentive for unproductive and sometimes harmful financial speculation and activity, such as high volume, high speed, computer-driven trading
Reforming the estate and inheritance tax to improve economic efficiency and fairness
Taxing pollution and other negative environmental effects
Ensuring the government gets full value when it sells public assets, such as natural resources like oil and gas

Tax reform is not an end in itself. The objective is to create a more efficient tax system, while simultaneously producing higher employment and economic growth, reducing inequality and environmental harm, and enhancing the efficiency of our economy.

Inequality is the result of tax and other policies that can and should be changed. Moreover, well-designed changes that address inequality will simultaneously improve our economy and address other important issues.

[1] Stiglitz, J., 6/29/14, “Inequality is not inevitable,” The New York Times

[2] See a listing and abstracts of The Great Divide series at http://opinionator.blogs.nytimes.com/category/the-great-divide/?module=BlogCategory&version=Blog Post&action=Click&contentCollection=Opinion&pgtype=Blogs&region=Header

[3] Stiglitz, J. 6/29/14, see above

[4] Stiglitz, J., 5/28/14, “Reforming taxation to promote growth and equity,” The Roosevelt Institute, http://rooseveltinstitute.org/sites/all/files/Stiglitz_Reforming_Taxation_White_Paper_Roosevelt_Institute.pdf

THE RISE OF SUPER PACs AND THE DEMISE OF DEMOCRACY

ABSTRACT: The rise of Super PACs (Political Action Committees) in the last four years and their ability, along with that of wealthy individuals and organizations, to spend unlimited amounts of money in US political campaigns are dramatically reshaping our politics. This is a new version of a very old game – pay to play – where private interests buy access and influence in our political system and policy making. As a result, independent spending – spending on political campaigns separate from and independent (theoretically) of the candidates’ campaign committees themselves – skyrocketed in the 2010 and 2012 election cycles to over $400 million, ten times its level in 2008.

In the two-year 2012 election cycle, 132 wealthy Americans provided 60 percent of the Super PAC money raised. Super PACs have become the primary vehicle through which the wealthy elite exert political influence that overwhelms the common good and the voice of the vast majority of the people. Super PACS are just the latest, but certainly the most toxic, in a trend of increasing spending and influence by wealthy special interests in our political system.

FULL POST: The rise of Super PACs (Political Action Committees) in the last four years and their ability, along with that of wealthy individuals and organizations, to spend unlimited amounts of money in US political campaigns are dramatically reshaping our politics. This is a new version of a very old game – pay to play – where private interests buy access and influence in our political system and policy making. [1]

First, a little historical background on the rise of political spending and influence by wealthy individuals and corporations. In 1976, the Supreme Court (in the Buckley vs. Valeo decision) declared that the First Amendment gave rich people the right to spend unlimited amounts of money to influence political elections – so long as that influence was “independent” of a political campaign. It also allowed them to spend unlimited sums on their own campaigns if they ran for an elected office.

In 2010, the Supreme Court in the Citizens United case gave corporations, unions, and other organizations the same right to spend unlimited money in political campaigns that it had given to rich people. In March, 2010, another court ruled that if rich people could spend as much as they want independently of any political campaign, they should also be free to contribute as much as they want to any independent political action committee. Thus the Super PAC was created – free to accept and spend unlimited amounts of money, so long as it did not coordinate with any candidate’s campaign (at least not openly). As a result, independent spending – spending on political campaigns separate from and independent (theoretically) of the candidates’ campaign committees themselves – skyrocketed in the 2010 and 2012 election cycles to over $400 million, ten times its level in 2008.

In the two-year 2012 election cycle, 132 wealthy Americans provided 60 percent of the Super PAC money raised. That number will go up in 2014. If it goes up to say 3,000, the funders of these Super PACs will still represent only a tiny minority of the 300 million Americans.

Super PACs have become the primary vehicle through which the wealthy elite exert political influence that overwhelms the common good and the voice of the vast majority of the people. That’s the “democracy” we have now – a political system that has corrupted the intended representative democracy spelled out in our Constitution, Bill of Rights, and Declaration of Independence.

Super PACS are just the latest, but certainly the most toxic, in a trend of increasing spending and influence by wealthy special interests in our political system. As they learn to effectively coordinate campaigns without technically coordinating (because that would be illegal), they are becoming a critical component of any effective political campaign. Candidates quickly learn the dance that assures that funding gets directed to the Super PACs that support them. However, there is, in effect, no accountability for the statements or actions of these Super PACs, as the candidates can claim a lack of knowledge and control of their actions.

The single greatest fear of any candidate, particularly any incumbent, is that thirty days before an election, some anonymously-funded Super PAC will spend $1 million against him or her. Therefore, candidates work to ensure that a Super PAC will be there to support them if needed. Candidates will position themselves as the kind of elected official a Super PAC wants to support and protect from a last minute assault.

My next post will discuss the growing presence of secret donors and “dark” money in our political campaigns because of Super PACs that do not disclose their donors. I’ll also review the increasing ability of wealthy donors to contribute large sums directly to candidates’ campaigns and the impact that all of this big money in our politics has on who runs for office. Then, I’ll present solutions to this corruption of our democracy, in addition to the MAYDAY Super PAC strategy, which I described in my previous post on 6/10/14.

[1] Lessig, L., 6//4/14, “What’s so bad about a Super PAC?” https://medium.com/law-of-the-land/whats-so-bad-about-a-superpac-c7cbcf617b58 (This blog post is, in large part, a summarized excerpt from this article.)

CEO PAY: THE RACE TO THE TOP FOR THOSE AT THE TOP

ABSTRACT: CEO pay has increased over 50% in the last 4 years while pay for workers has barely increased. The typical CEO’s pay in 2013 was $10.5 million. The industry with the fastest growth in pay was the banking industry where CEO pay grew 22% in 2013 – on top of 22% growth the year before. While the economy remains weak and unemployment is high, the executives in the banking sector – that we as taxpayers bailed out after they crashed our economy – are making money hand over fist.

CEO pay has increased dramatically over not only the last 4 years but over the last 35 years for a variety of reasons. There also are a variety of reasons that the average workers’ pay has barely increased over the last 4 years and over the last 35 years as well. (See below for more detail.)

As income and wealth inequality have grown dramatically in the US over both the last 4 years and the last 35 years, the wealthy have re-invested part of their windfall in buying influence in our political system through campaign spending and lobbying. They have succeeded in tilting government policies to favor them and their large, typically multi-national, corporations.

Our elected representatives can and should change government policies and actions so that the growing inequality in the US is reduced. We, as the voters in a democratic political system, need to – and can – make them do so.

FULL POST: CEO pay has increased over 50% in the last 4 years while pay for workers has barely increased. CEO pay is now 257 times that of the average worker, up sharply from 181 times workers’ pay in 2009. The typical CEO’s pay in 2013 was $10.5 million – topping the $10 million mark for the first time. The highest paid CEO got over $68 million and the top 10 were all over $31 million. [1] CEO pay was up 8.8% last year while the average workers’ pay rose only 1.3%. [2] And CEO’s wealth is increasing dramatically too, in part because over 40% of their pay is in stock, where gains are taxed at a lower rate than regular cash income.

The industry with the fastest growth in pay was the banking industry where CEO pay grew 22% in 2013 – on top of 22% growth the year before. While the economy remains weak and unemployment is high, the executives in the banking sector – that we as taxpayers bailed out after they crashed our economy – are making money hand over fist.

CEO pay has increased dramatically over not only the last 4 years but over the last 35 years for a variety of reasons. One reason is that CEO pay is set by corporate Boards of Directors that include many current and former CEOs of other corporations and often include members hand-picked by the CEO him or herself. When friends and peers set your pay level, is it any surprise you get big increases? Furthermore, every corporation and board want to tout their CEO as the best and the brightest – and, of course, therefore, the highest paid. Hence, it becomes a race to the top for those at the top. [3] If shareholder approval were required for CEO pay, perhaps things would be different.

There also are a variety of reasons that the average workers’ pay has barely increased over the last 4 years and over the last 35 years as well. Over the last 4 years, high unemployment has meant that workers have little leverage to ask for pay raises and corporations don’t need to reward workers because there is little opportunity for workers to quit and find another job. Workers’ negotiating power has also been eroded over the last 35 years by the decline of union membership and power. In 1983, over 20% of workers were members of unions compared to 11% in 2013. Globalization and technology have played a role by reducing the number of middle class jobs in the US, which tends to increase unemployment and reduce workers’ bargaining power and wages. However, their effects could have been ameliorated through rules governing trade that better protect workers both at home and abroad, as well as by policies and programs for job retraining and retention. [4]

Tax laws that a) have dramatically reduced the income tax rate on high incomes, b) have even lower rates for unearned income (i.e., income from investments), and c) favor corporations;
Government spending priorities, that include bailouts for financial and banking corporations but not for homeowners and workers who were devastated by the recession caused by the financial and banking industry; and
Labor and other laws that weaken workers’ bargaining power and fail to increase the minimum wage to keep up with inflation.

[1] Sweet, K., 5/28/14, “Median pay for CEOs rises sharply to $10.5m,” The Boston Globe from the Associated Press

[2] Boak, J., 5/28/14, “Why executives get lavish compensation as rank-and-file wages lag,” The Boston Globe from the Associated Press

[3] Boak, J., 5/28/14, see above

[4] Boak, J., 5/28/14, see above

HISTORY AND LEAKS MAKE CASE AGAINST “TRADE” TREATIES

ABSTRACT: Twenty years of experience with previous “trade” treaties and the recent leaks of draft language for the Trans-Pacific Partnership (TPP) make the case that the “trade” treaties currently in negotiation will not benefit the US economy, our workers, or our middle class. These treaties focus on and benefit multi-national corporations and investors, rather than trade and the public interest. (See my previous posts of 1/13, 1/8, 9/13/13, and 9/10/13 for more detail.)

The growing resistance to Fast Track authority and these new “trade” agreements in Congress and the public is fueled by growing data on the damaging impacts of the 20 year history of the North American Free Trade Agreement (NAFTA). The same claims are being made for the current trade treaties as were made for NAFTA: that they will promote economic growth, increase jobs, and reduce trade deficits or increase trade surpluses. However, the Mexican trade surplus ($2 billion in 1993) quickly turned into growing deficits, totaling $1 trillion over the 20 year life of NAFTA. With Canada, the other country in NAFTA, the story is similar.

It is estimated that NAFTA has eliminated almost 700,000 jobs in the US. NAFTA established the principle that US corporations could move production out of the US but import the goods produced back into the US without any tariffs or other disincentives. This undermines the wages and benefits of American workers and the middle class. In all three NAFTA countries, wages and benefits for workers have not kept up with increased worker productivity over the last 20 years.

Since NAFTA, the US has entered into trade agreements with Korea, China, and others. While the promise has always been growth in US jobs, our economy, and our trade balance, the result has typically been the opposite. The trade agreements of the past 20 years have cost our economy more than $1 trillion through increased trade deficits and close to a million jobs.

I urge you to contact your elected officials in Washington and tell them you have serious concerns about the “trade” agreements being negotiated. And that these “trade” agreements are too important and too far reaching to be approved quickly and quietly.

FULL POST: Twenty years of experience with previous “trade” treaties and the recent leaks of draft language for the Trans-Pacific Partnership (TPP) make the case that the “trade” treaties currently in negotiation will not benefit the US economy, our workers, or our middle class. These treaties focus on and benefit multi-national corporations and investors, rather than trade and the public interest. (See my previous posts of 1/13, 1/8, 9/13/13, and 9/10/13 for more detail.)

The latest leak has been of the environmental provisions of the TPP. They lack mandated standards and have weak enforcement provisions. They are even weaker than the provisions in previous trade agreements, such as the North American Free Trade Agreement (NAFTA). [1]

Those arguing for Fast Track consideration of the TPP and other treaties by Congress (i.e., short timeframe, no amendments, and no filibuster) argue that treaties should be negotiated by the President and the Executive Branch (and not fiddled with by Congress) and that treaties are generally negotiated behind closed doors. [2] However, the current trade negotiations have included extensive involvement and input from corporate interests but virtually no input from the public; from advocates for workers, the environment, or ordinary citizens; or from Congress and other elected officials (other than the President). Furthermore, the Fast Track process is not necessary to pass trade agreements. President Clinton implemented more than 130 trade agreements without the Fast Track process. [3]

The growing resistance to Fast Track authority and these new “trade” agreements in Congress and among the public is fueled by growing data on the damaging impacts of the 20 year history of the North American Free Trade Agreement (NAFTA). The same claims are being made for the current trade treaties as were made for NAFTA: that they will promote economic growth, increase jobs, and reduce trade deficits or increase trade surpluses. And TPP has specifically been described as NAFTA on steroids.

When NAFTA was being promoted for approval by Congress in 1993, it was stated that it would expand our trade surplus with Mexico, thereby creating 200,000 US jobs in two years and a million in 5 years. However, the Mexican trade surplus ($2 billion in 1993) quickly turned into growing deficits (of $16 billion in 1995, $65 billion in 2008, and $50 billion in 2013). Our trade deficit with Mexico has totaled $1 trillion over the 20 year life of NAFTA.

With Canada, the other country in NAFTA, the story is similar: our trade deficit of $11 billion in 1993 grew to $78 billion in 2008 and $28 billion in 2013. (The dramatic drop in the deficit after 2008 is due to reduced imports because of our Great Recession.) [4]

It is estimated that NAFTA has eliminated almost 700,000 jobs in the US, with 60% of them being in manufacturing. Most of the workers who lost jobs have experienced a permanent loss of income; if they have found other jobs, they pay significantly less. [5] Many workers have experienced long-term unemployment (more than 6 months), which is at historically high levels. Numerous other workers have simply dropped out of the labor force. All of this has led to increases in the costs of government assistance programs, including unemployment benefits and food assistance. [6]

NAFTA established the principle that US corporations could move production out of the US but import the goods produced back into the US without any tariffs or other disincentives. This undermines the wages and benefits of American workers and the middle class. It increases job insecurity and weakens labor unions’ ability to negotiate because of the threat that jobs will be moved out of the US. The result has been stagnant wages for all but the richest Americans and, therefore, growing income inequality. In all three NAFTA countries, the US, Canada, and Mexico, wages and benefits for workers have not kept up with increased worker productivity over the last 20 years. [7]

Even Mexican workers have not experienced any significant increase in wages. An important reason for this is that the export of cheap, subsidized corn from the US to Mexico undermined the livelihoods of an estimated 2.4 million Mexican farmers. This displaced Mexican farmers and led to increased immigration (legal and illegal) to the US. Due to the abundant supply of desperate workers, it also pushed down wages in the maquiladora factory zone (the area just south of the US border). [8]

Although Mexico has experienced increased trade and some job growth under NAFTA, the jobs, even those in manufacturing, have been at low wages. The average Mexican manufacturing wage is only 18% of the US wage and that percentage has grown only slightly. The poverty rate in Mexico is 51%, down only slightly from the 52% when NAFTA went into effect. There has been an increase in the availability of consumer goods, but environmental protections have had mixed results at best. Disposal of US waste in Mexico has increased, including, for example, a 500% increase in US exports of highly toxic, spent lead-acid car batteries, with minimal control to ensure environmentally safe handling of them. [9]

Under NAFTA, US corporations have attempted to weaken Canadian regulations on a range of issues, including offshore oil drilling, fracking, pesticides, and drug patents. [10] Mexico and Canada have paid $350 million to foreign corporations for claims that their laws, rules, regulations, or other actions reduce current and expected profits.

Since NAFTA, the US has entered into trade agreements with Korea, China, and others. While the promise has always been growth in US jobs, our economy, and our trade balance, the result has typically been the opposite. Since the 2012 agreement with Korea, the US trade deficit with Korea has increased by $8.5 billion and an estimated 40,000 jobs have been lost. Our trade deficit with China has soared to $294 billion in 2013 from $83 billion in 2001 when China was permitted to join the World Trade Organization. [11]

The trade agreements of the past 20 years have cost our economy more than $1 trillion through increased trade deficits and close to a million jobs. They are key reasons that unemployment is high and the economic recovery is so weak. Furthermore, the mitigation provisions for these past trade agreements, such as retraining for workers who lost their jobs, have been woefully inadequate and ineffective.

[1] Queally, J., 1/15/14, “Leaked TPP ‘Environment Chapter’ shows ‘Corporate Agenda Wins,’” Common Dreams (http://www.commondreams.org/headline/2014/01/15)

[2] Boston Globe Editorial, 1/19/14, “Pacific, EU trade deals need up-or-down votes,” The Boston Globe

[3] Johnson, D., 1/10/14, “New Fast-Track bill means higher trade deficits and lost jobs,” Campaign for America’s Future

[4] US Census Bureau, retrieved 1/7/14, “U.S. trade in goods by country,” http://www.census.gov/foreign-trade/balance/

[5] Johnson, D., 12/18/13, “Will we fast-track past the lessons of the NAFTA trade debacle?” Campaign for America’s Future (http://ourfuture.org/20131218/obama-administration-to-push-fast-track)

[6] Folbre, N., 8/5/13, “The free-trade blues,” The New York Times

[7] Faux, J., 1/1/14, “NAFTA, twenty years after: A disaster,” Huffington Post

[8] Wallach, L., 12/30/13, “NAFTA at 20: ‘Record of damage’ to widen with ‘NAFTA-on-steroids’ TPP,” Global Trade Watch, Public citizen

[9] Stevenson, M., 1/3/14, “20 years after NAFTA, a changed Mexico,” The Boston Globe from the Associated Press

[10] Carter, Z., 12/8/13, , “Obama faces backlash over new corporate powers in secret trade deal,” The Huffington Post

[11] Johnson, D., 12/18/13, see above

TRADE TREATIES NEED OPEN DEBATE, NOT FAST TRACK

ABSTRACT: Action in Congress on requiring Fast Track consideration of trade treaties is likely to happen soon. Two broad “trade” agreements are scheduled for Congressional action this year: the Trans-Pacific Partnership (TPP) with a dozen Pacific Rim countries and the Trans-Atlantic Free Trade Agreement (TAFTA) with the European Union (EU). Fast Track authority requires that Congress consider and act on a treaty in a short timeframe with no amendments or changes allowed and with no filibustering.

I urge you to email, call, write, and, if you can, meet with your member of Congress and your Senators and tell them you do not want them to approve Fast Track authority. These “trade” agreements are too important and too far reaching to be approved quickly and quietly.

Business groups are pushing hard for Fast Track consideration in Congress. They are supporters of the treaties, which are widely viewed as very favorable to corporate interests. The growing resistance to Fast Track authority is fueled in large part by:

Secrecy on the negotiations and agreement provisions, which breeds suspicion;
Concern that they benefit multi-national corporations at the expense of others; and
Growing data on the damaging impacts of 20 years with the North American Free Trade Agreement (NAFTA), on which these treaties are modeled.

The indirect effects of the past and these possible new “trade” agreements on the balance of power in employer-employee relations and in our political system, as well as on economic inequality, may be more significant than the direct effects, such as job losses. The TPP and the TAFTA, based on what is known about them, will likely benefit corporations and investors, while hurting US workers and citizens. Moreover, if approved, these treaties will be very difficult to change, as the consent of all the parties is required. At the least, a full discussion of their provisions, based on full disclosure, is warranted.

FULL POST: Action in Congress on requiring Fast Track consideration of trade treaties is likely to happen soon. President Obama would like to have Fast Track authority, formally known as Trade Promotion Authority, for two broad “trade” agreements that are scheduled for Congressional action this year: the Trans-Pacific Partnership (TPP) with a dozen Pacific Rim countries and the Trans-Atlantic Free Trade Agreement (TAFTA) [1] with the European Union (EU). (I put trade in quotes because these “trade” agreements, like NAFTA, go well beyond trade issues and cover a broad range of legal and regulatory issues. The provisions for reducing trade barriers and increasing trade are only a small part of the agreements.)

Fast Track authority requires that Congress consider and act on a treaty in a short timeframe with no amendments or changes allowed and with no filibustering. Fast Track authority was first used in 1974 and has been used on a number of occasions since then.

I urge you to email, call, write, and, if you can, meet with your member of Congress and your Senators and tell them you do not want them to approve Fast Track authority. [2] These “trade” agreements are too important and too far reaching to be approved quickly and quietly. Full disclosure and debate of the provisions of “trade” agreements is what democracy requires.

The Democratic and Republican leaders of the Senate Finance Committee, along with the Republican chairman of the House Ways and Means Committee, have reportedly reached an agreement on a Fast Track authority bill, although they have not yet released its details. The argument for Fast Track consideration of trade treaties is that it means other countries will be more likely to make concessions and reach agreement on the treaty if they are confident that the US Congress can’t change it.

Business groups, including the US Chamber of Commerce and the Business Roundtable, are pushing hard for Fast Track consideration in Congress. They are supporters of the treaties, which are widely viewed as very favorable to corporate interests, [3] and are presumably worried that debate in Congress and the public on the treaties would reduce their chances for approval.

There is significant opposition to granting Fast Track authority in Congress and outside of it. Nearly 200 members of the US House, mostly Democrats but some Republicans, have signed letters strongly questioning the granting of Fast Track authority for these treaties. [4]

The growing resistance to Fast Track authority for these new “trade” agreements in Congress and the public is fueled in large part by:

Secrecy on the negotiations and agreement provisions, which breeds suspicion;
Concern that they benefit multi-national corporations at the expense of local businesses, workers and citizens, and national sovereignty; and
Growing data on the damaging impacts of 20 years with the North American Free Trade Agreement (NAFTA), on which these treaties are modeled.

Both treaties are being negotiated in great secrecy. For the TPP, the Obama administration has deemed the negotiations classified information, restricting Congressional access to documents and banning discussion of the negotiations and treaty provisions with the press or the public. [5] In 2013, Senator Elizabeth Warren opposed the confirmation of the US Trade Representative because he refused to share any of TPP’s provisions. She noted the important need for transparency and public debate on the treaty. [6]

These treaties are seen by many advocates for health, labor, safety, environmental, and financial industry standards and regulations as a masquerade for a corporate power grab, designed to weaken regulation and run roughshod over workers’ and citizens’ interests. [7] These “trade” agreements would enable multi-national corporations to operate with weakened oversight by national governments, free of nations’ court systems, and with reduced consumer and citizen protections. Corporations would become supra-national entities and would answer only to a separate system of rules and courts, administered by new international tribunals. In essence, an international system, parallel to the United Nations system of international governance for nations, would be created for international governance of corporations – a United Multi-national Corporations system, if you will. (More on this in a subsequent post.)

The same claims are being made for these two trade treaties that were made for NAFTA: they will promote economic growth, reduce trade deficits or increase trade surpluses, and increase jobs. The actual experience with NAFTA is that it has done none of these things, which is probably the best indicator of the likely effects of these new trade treaties. And the TPP has specifically been described as NAFTA on steroids. (More on this in a subsequent post.)

The indirect effects of the past and these possible new “trade” agreements on the balance of power in employer-employee relations and in our political system, as well as on economic inequality, may be more significant than the direct effects, such as job losses. The corporations and investors who have been the winners in this globalization of trade and commerce can invest their winnings (i.e., profits) in campaign contributions, lobbying, and political strategies that ensure they are the victors in next round of “trade” agreements. [8]

Although President Obama recently described growing economic inequality in the US as a major issue, NAFTA has increased inequality and the new trade treaties are likely to as well. NAFTA and other recent “trade” agreements have provided benefits to corporations and investors globally, while hurting workers and the middle class in the US, and sometimes hurting workers in other countries. The TPP and the TAFTA, based on what is known about them, will similarly benefit corporations and investors, while hurting US workers and citizens. Moreover, if approved, these treaties will be very difficult to change, as the consent of all the parties is required. At the least, a full discussion of their provisions, based on full disclosure, is warranted.

[1] Also known as the Trans-Atlantic Trade and Investment Partnership.

[2] 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.

[3] For more information see my previous posts, “Trade” Agreement Supersizes Corporate Power, 9/10/13, (https://lippittpolicyandpolitics.org/2013/09/10/trade-agreement-supersizes-corporate-power/) and “Trade” Agreements & Corporate Power, 9/13/13 (https://lippittpolicyandpolitics.org/2013/09/13/trade-agreements-corporate-power/).

[4] Politi, J., 12/13/13, “US Senate deal sets up fierce trade battle,” Financial Times

[5] Carter, Z., 12/8/13, , “Obama faces backlash over new corporate powers in secret trade deal,” The Huffington Post

[6] Loth, R., 12/21/13, “Take trade agreement off fast track,” The Boston Globe

[7] Todhunter, C., 10/4/13, “The US-EU Transatlantic Free Trade Agreement (TAFTA): Big business corporate power grab,” Global Research (http://www.globalresearch.ca/the-us-eu-transatlantic-free-trade-agreement-tafta-big-business-corporate-power-grab/5352885)

[8] Folbre, N., 8/5/13, “The free-trade blues,” The New York Times

GOOD NEWS FROM THE GRASSROOTS

ABSTRACT: The dysfunction in Washington is discouraging. However, there is good news from the grassroots. Every day people are standing up and taking action when government policies and corporate practices are favoring special interests over the interests of the average citizen and worker.

Workers at Wal-Mart and in the fast food industry are taking action to improve their wages and working conditions. On the day after Thanksgiving, protest rallies were held at roughly 1,500 Wal-Mart stores around the country, about a third of their stores. On December 5^th, fast food workers went on strike for a day and were joined by supporters at rallies in roughly 200 cities across the country. They are asking for more full-time jobs, more regular schedules, better pay and benefits, and to stop retaliating against workers who speak out or participate in strikes. They want to ensure they do not have to rely on government assistance to make ends meet.

Efforts to increase the minimum wage are occurring at the federal, state, and local levels, driven by strong grassroots support and activity. In 13 states, the minimum wage increased on January 1, 2014. A number of jurisdictions passed laws in 2013 mandating current or future increases. A push is underway to increase the federal minimum wage from $7.25 per hour to perhaps $10.10, as President Obama has proposed. Analyses indicate that this could lift about 5 million people out of poverty. It would grow the economy by $22 billion and 85,000 jobs because the increased income would be spent in the local economy. Polls show that over 70% of the public, including a strong majority of Republicans, support increasing the minimum wage.

FULL POST: As we enter the New Year, the dysfunction in Washington is discouraging. However, there is good news from the grassroots. Every day people are standing up and taking action when government policies and corporate practices are favoring special interests over the interests of the average citizen and worker. Examples include the following:

Workers at Wal-Mart and in the fast food industry are taking action to improve their wages and working conditions. (See below for more information.)
Efforts to increase the minimum wage are occurring at the federal, state, and local levels, driven by strong grassroots support and activity. (See below for more information.)
State efforts to require the labeling of food containing genetically modified organisms (GMOs) are gaining traction.
State and local efforts in opposition to fracking are gaining momentum.
In North Carolina, grassroots protests are occurring every week at the capitol, known as Moral Mondays protests, to oppose policies that hurt the middle and working class.
Teachers, parents, and other supporters of public education are protesting the top-down, corporate-style “reform” and privatization of our schools.
Communities are supporting home owners and fighting back against foreclosures with eminent domain takings of homes that financial corporations are trying to foreclose on.

Wal-Mart workers: On the day after Thanksgiving, so-called “Black Friday,” protest rallies were held at roughly 1,500 Wal-Mart stores around the country, about a third of their stores. The protesters were striking Wal-Mart employees and their supporters, who have been organizing under the banner of OUR Walmart (Organization United for Respect at Walmart). The first strike occurred in Los Angeles in October 2012 and the movement has been growing ever since. OUR Walmart is asking the corporation for more full-time jobs, more regular schedules, better pay and benefits, and to stop retaliating against workers who speak out or participate in strikes. [1] Ultimately, their goal is to ensure that Walmart associates do not have to rely on government assistance, such as food stamps and subsidized health insurance, to support their families. Multiple studies have found that the average Wal-Mart employee receives $2,000 – $3,000 per year in government assistance. Nationwide, that means taxpayers are supporting Wal-Mart employees to the tune of $3 – $4 billion annually. [2] (In 2012, Wal-Mart had $444 billion in revenue and profits of $26.6 billion.)

Fast food workers: On December 5^th, fast food workers went on strike for a day and were joined by supporters at rallies in roughly 200 cities across the country. These protests for better wages, targeting $15 per hour, began about a year ago and have been gaining momentum. They target McDonald’s, Burger King, Wendy’s, Yum Brands (which owns Kentucky Fried Chicken [KFC], Taco Bell, and Pizza Hut), and others. [3] (See my previous post, Pay for Workers in the Fast-Food Industry, 9/8/13, https://lippittpolicyandpolitics.org/2013/09/08/updates-on-posts-on-low-pay-for-fast-food-workers-pesticides-and-bees-detroit/ for more information on the affordability of worker pay raises.) Low wage fast food workers are estimated to receive $7 billion a year in government assistance to help them make ends meet.

The minimum wage: These efforts to improve wages and working conditions for low wage workers are also reflected in efforts to increase the minimum wage. In 13 states, the minimum wage increased on January 1, 2014. A number of jurisdictions passed laws in 2013 mandating current or future increases, including California ($9/hour), Connecticut ($8.70), New Jersey ($8.25/hour), New York ($8/hour), Rhode Island ($8/hour), two counties in Maryland ($11.50/hour), the city of Seatac in Washington state ($15/hour), and the District of Columbia ($11.50/hour). [4] A push is underway to increase the federal minimum wage from $7.25 per hour to perhaps $10.10, as President Obama has proposed. Analyses indicate that this could lift about 5 million people out of poverty. It would grow the economy by $22 billion and 85,000 jobs because the increased income would be spent in the local economy. [5] Numerous other efforts to raise the minimum wage are underway in states and communities across the country. Polls show that over 70% of the public, including a strong majority of Republicans, support increasing the minimum wage. (If the minimum wage had kept up with inflation since 1968, it would be $10.50 not $7.25. If it had kept up with productivity gains, it would be over $15 and perhaps close to $22.) (See my previous posts, Lack of Good Jobs is Our Most Urgent Problem, 10/30/13, https://lippittpolicyandpolitics.org/2013/10/29/lack-of-good-jobs-is-our-most-urgent-problem/, and Labor Day and the Middle Class, 9/2/13, https://lippittpolicyandpolitics.org/2013/09/02/labor-day-and-the-middle-class/, for more information.)

There is also a growing effort to institute a “living wage” of $15 per hour. The fast food workers and low wage retail workers, and the unions supporting them, are the core of this effort, along with Kshama Sawant, a Seattle City Council member. The 15Now Campaign (http://15now.org) is also supported by newly elected Seattle mayor, Ed Murray. [6]

I’ll provide more information on these and other promising grassroots activity in future posts.

[1] Berfield, S., 11/29/13, “On Black Friday, strikes and counter strikes at Wal-Mart’s stores,” Bloomberg Businessweek

[2] Mitchell, S., 6/7/13, “New data show how big chains free ride on taxpayers at the expense of responsible small businesses,” Institute for Local Self-Reliance (http://www.ilsr.org/chains-walmart-foods-free-ride-taxpayers-expense-responsible-small-businesses/)

[3] Choi, C., & Hananel, S., 12/6/13, “Fast-food workers, advocates rally in US cities for more pay,” The Boston Globe from the Associated Press

[4] Davidson, P., 12/30/13, “13 states raising pay for minimum-wage workers,” USA Today

[5] Berman, J., 1/2/14, “A $10.10 minimum wage could lift 5 million out of poverty,” The Huffington Post

[6] Queally, J., 1/3/14, “The fight for $15: Campaign for Living Wage readies national push,” Common Dreams (http://www.commondreams.org/headline/2014/01/03)

THOUGHTS ON SOCIAL AND ECONOMIC JUSTICE

FULL POST: Social and economic justice have been in the news lately. Here are some quotes from Nelson Mandela, the Pope, and President Obama that appeared in the news over the last week.

Nelson Mandela [1]

“Overcoming poverty is not a task of charity, it is an act of justice. Like Slavery and Apartheid, poverty is not natural. It is man-made and it can be overcome and eradicated by the actions of human beings. Sometimes it falls on a generation to be great. YOU can be that great generation. Let your greatness blossom.”

“Gandhi rejects the Adam Smith notion of human nature as motivated by self-interest and brute needs and returns us to our spiritual dimension with its impulses for nonviolence, justice and equality. He exposes the fallacy of the claim that everyone can be rich and successful provided they work hard. He points to the millions who work themselves to the bone and still remain hungry.”

Pope Francis [2]

“… some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system. Meanwhile, the excluded are still waiting. … Almost without being aware of it, we end up being incapable of feeling compassion at the outcry of the poor … as though all this were someone else’s responsibility and not our own. … In the meantime all those lives stunted for lack of opportunity seem a mere spectacle; they fail to move us.”

“How can it be that it is not a news item when an elderly homeless person dies of exposure, but it is news when the stock market loses two points? This is a case of exclusion. Can we continue to stand by when food is thrown away while people are starving? This is a case of inequality. Today everything comes under the laws of competition and the survival of the fittest, where the powerful feed upon the powerless. As a consequence, masses of people find themselves excluded and marginalized: without work, without possibilities, without any means of escape.”

“While the earnings of a minority are growing exponentially, so too is the gap separating the majority from the prosperity enjoyed by those happy few. This imbalance is the result of ideologies which defend the absolute autonomy of the marketplace and financial speculation. Consequently, they reject the right of states, charged with vigilance for the common good, to exercise any form of control. A new tyranny is thus born, invisible and often virtual, which unilaterally and relentlessly imposes its own laws and rules. … To all this we can add widespread corruption and self-serving tax evasion, which have taken on worldwide dimensions. The thirst for power and possessions knows no limits. In this system, which tends to devour everything which stands in the way of increased profits, whatever is fragile, like the environment, is defenseless before the interests of a deified market … Behind this attitude lurks a rejection of ethics and a rejection of God.”

President Obama

President Obama spoke about the issue of growing income equality, saying “dangerous and growing inequality and lack of upward mobility … has jeopardized middle-class America’s basic bargain — that if you work hard, you have a chance to get ahead. I believe this is the defining challenge of our time. … I am convinced that the decisions we make on these issues over the next few years will determine whether or not our children will grow up in an America where opportunity is real. … The problem is that alongside increased inequality, we’ve seen diminished levels of upward mobility in recent years. … The idea that so many children are born into poverty in the wealthiest nation on Earth is heartbreaking enough. But the idea that a child may never be able to escape that poverty because she lacks a decent education or health care, or a community that views her future as their own, that should offend all of us and it should compel us to action. We are a better country than this. … we can make a difference on this. In fact, that’s our generation’s task — to rebuild America’s economic and civic foundation to continue the expansion of opportunity for this generation and the next generation.” [3]

These thoughts have particular resonance for me during this holiday season. Perhaps they do for you as well.

[1] Common Dreams, 12/7/13, “Mandela quotes that won’t be in the corporate media obituaries,” http://www.commondreams.org/headline/2013/12/06-0

[2] Pope Francis, 11/24/13, “Evangelii Gaudium,” as published in The Washington Post

[3] President Obama, 12/4/13, “Remarks by the President on Economic Mobility,” http://www.whitehouse.gov/the-press-office/2013/12/04/remarks-president-economic-mobility

US CAPITALISM IS OUT OF CONTROL

ABSTRACT: Of all the developed countries, the United States has the most unequal distribution of income and wealth. 1928 and 2007 were the peak years for income and wealth inequality in the US. In the periods leading up to these two peaks, the wealthy invested and speculated in financial markets. Speculative bubbles were created. The middle class saw their incomes stagnate. This led to economic instability, the Great Depression of the 1930s, and the Great Recession of 2008.

So where should we look for an example of greater economic stability and equality? The answer is the United States after World War II from 1946 to 1978. So what do we need to do to return to greater economic stability and equality? We need to keep and encourage the creation of jobs that pay middle class wages and have benefits.

We need to change the rules of our economy so the gains of economic growth are more widely shared. Capitalism needs rules, otherwise it runs out of control. A well-functioning democracy can create and enforce appropriate rules (laws and regulations). But if the democratic process of electing officials and making laws and regulations is corrupted by money and lobbying from wealthy capitalists and their corporations, the appropriate rules won’t be in place and capitalism can run out of control.

Currently, the huge amounts of money being spent by wealthy capitalists and their corporations on elections and lobbying are determining the rules of our economy. Americans are losing faith in our democracy, which is our most precious gift and our most important legacy for future generations. What the powerful moneyed interests would like, is for us all to get so cynical about politics and government that we basically give up. But if we’re mobilized, if we’re energized, if we take citizenship to mean not simply voting, paying taxes, and showing up for jury duty, but actually participating actively and knowledgeably, we can make our democracy – and capitalism – work.

FULL POST: Of all the developed countries, the United States has the most unequal distribution of income and wealth. 1928 and 2007 were the peak years for income and wealth inequality in the US. [1] What happened a year after 1928? The Great Crash. And what happened a year after 2007? Another financial system crash. The parallels are breathtaking if you look at them carefully. [2]

In the periods leading up to these two peaks, the wealthy invested and speculated in financial markets. Both times, speculative bubbles were created. In both periods, the middle class saw their incomes stagnate, so they went deeper and deeper into debt to maintain their living standard, creating a debt bubble. These bubbles and the undermining of the middle class led to economic instability, the Great Depression of the 1930s, and the Great Recession of 2008.

Today, many in the middle class are one crisis away from being poor. If they lose a job, have a health crisis, or have a serious accident, they can find themselves suddenly in need of public assistance, which may be unemployment benefits, food stamps or food pantries, or subsidized health insurance from Medicaid. They may find themselves deep in debt and at risk of losing their home.

We seem to be close to the point where the middle class doesn’t have the purchasing power to keep the economy going and where the majority of people feel like the economic and political systems are rigged against them. There may be a tipping point, where the degree of inequality and economic insecurity actually threaten our economy, our society, and our democracy.

So where should we look for an example of greater economic stability and equality? The answer is the United States in the decades after World War II. From 1946 to 1978, the economy doubled in size, everybody’s income doubled, and inequality was low. Although the top income tax rate was as high as 91% and was never below 70%, we had greater annual economic growth than we’ve had since. With today’s top tax rate under 40%, anybody who says that we have to reduce taxes to foster economic growth, simply doesn’t know our own history.

So what do we need to do to return to greater economic stability and equality? We need to keep and encourage the creation of jobs that pay middle class wages and have benefits. We need to increase the minimum wage and we need to include labor standards in our trade treaties. We need to give workers and the middle class the voice and power to stand up to the wealthy and ensure that our economy works for all people, not just for the 1% at the top. We need to change the rules of our economy so the gains of economic growth are more widely shared. (For more detail see my post of 10/29/13 at https://lippittpolicyandpolitics.org/2013/10/29/lack-of-good-jobs-is-our-most-urgent-problem/. )

The rules of our economy are largely set by the federal government. Capitalism needs rules, otherwise it runs out of control, resulting in financial collapses; air and water that are harmful; cars that are unsafe; drugs and food are tainted; industrial accidents where oil wells blow out, chemical plants explode, and trains crash and burn; and so forth.

A well-functioning democracy can create and enforce appropriate rules (laws and regulations) that balance public safety (including environmental safety) and corporate profitability. But if the democratic process of electing officials and making laws and regulations is corrupted by money and lobbying from wealthy capitalists and their corporations, the appropriate rules won’t be in place and capitalism can run out of control.

Currently, the huge amounts of money being spent by wealthy capitalists and their corporations on elections and lobbying are determining the rules of our economy. They are using their economic power to gain political power. They are using this political power to entrench and enrich themselves economically and politically by obtaining laws and regulations that are tilted to benefit their self-interest. This is not a matter of partisan politics; both Democratic and Republican politicians and policy makers receive the money and do the bidding of these powerful economic elites.

Examples of laws and regulations that are tilted to favor capitalist interests include individual and corporate tax laws; bankruptcy laws; antitrust laws and enforcement; intellectual property laws on copyrights, patents, and trademarks; health and safety laws; campaign finance laws; laws and regulations for the financial industry; and priorities for government spending.

Americans are losing faith in our democracy, which is our most precious gift and our most important legacy for future generations. We are losing faith in equal opportunity and upward mobility as practical realities, and we’re feeling real anxiety over our lack of economic security.

Americans need to understand what’s at stake and push good people in government to do the right thing. If we don’t, eventually the moneyed interests will win because they are persistent and there won’t be anybody who can speak loudly enough to be heard over the bullhorn of their money.

What the powerful moneyed interests would like, is for us all to get so cynical about politics and government that we basically give up and say, “Okay, you want our democracy? Take it.” Then they win everything. But if we’re mobilized, if we’re energized, if we take citizenship to mean not simply voting, paying taxes, and showing up for jury duty, but actually participating actively and knowledgeably, we can make our democracy – and capitalism – work.

We can do it if we understand the nature of the problem. Time and again, in the early 1900s and again in the 1930s, for example, we have saved capitalism from its own excesses. We made sure that rules were in place to make capitalism work as it should: as an engine of prosperity for everyone and with a brake on the excesses of greed and power, as well as on the money that can otherwise corrupt our democratic process.

I encourage you to watch, listen to, or read the transcript of Bill Moyers’ show with Bob Reich (http://billmoyers.com/episode/full-show-inequality-for-all/). And I encourage you to go see Bob Reich’s movie, Inequality for All. It’s entertaining and informative. You can see the trailer for the movie, get lots more information, and find opportunities to take action at http://inequalityforall.com/.

[1] The latest data appear to show that inequality was even greater in 2012 than 2007 as the great majority of the benefits of our weak economic recovery are going to the richest people. For more detail, see my post of 9/27/13 at https://lippittpolicyandpolitics.org/2013/09/27/whats-up-with-the-economic-recovery/.

[2] Moyers, B., with Reich, R., 9/20/13, “Inequality for all,” http://billmoyers.com/episode/full-show-inequality-for-all/ (This post is a summary of this Bill Moyers show. You can view, listen to, or read the transcript of it at the link provided.)

LACK OF GOOD JOBS IS OUR MOST URGENT PROBLEM

ABSTRACT: The most urgent problem facing the US right now is a lack of jobs, especially jobs that pay middle class wages and provide benefits. Unemployment is high and long-term. The jobs being created during our 4 year old economic recovery are disproportionately low-wage, low skill jobs.

Fast food workers are emblematic of the low wage, low skill jobs being created. The typical fast food worker makes $8.69 per hour. As a result, over half of fast food workers rely on public, taxpayer funded benefits to make ends meet. The cost to taxpayers is estimated to be $7 billion per year. Meanwhile, the fast food corporations make billions of dollars in profits and pay tens of millions of dollars to their senior executives. Workers at Walmart, the largest employer in the US, are in a similar situation. These very profitable corporations can afford to raise their workers’ wages to $15 an hour – a wage they could live on without public assistance. In the meantime, taxpayers are subsidizing these corporations.

It used to be that unions and government provided workers with a voice and the power to balance that of the large employers. Today, that voice and power are largely gone. Therefore, wages, benefits, and job security have been eroding. Starting in the late 1970s, the historic link between growth in the economy and productivity on the one hand, and growth in workers’ wages on the other hand, was severed. We undid or failed to adopt rules for our economy that ensure the gains of economic and productivity growth are widely and fairly distributed.

The failure of our policy makers in Washington to focus on creating jobs, let alone good jobs, and on spurring economic growth is the clear and tragic result of the ascendancy of politics over rational policy making.

FULL POST: The most urgent problem facing the US right now is a lack of jobs, especially jobs that pay middle class wages and provide benefits. Unemployment is high and long-term – since 2010 roughly 40% of those unemployed and actively looking for work have been unemployed for more than 6 months. This is triple the rate of long-term unemployment in the period from 2000 – 2007. [1]

The official unemployment rate is 7.2% based on those who are actively looking for a job. It would be significantly higher, well over 10%, if those who have given up looking were included. And higher still if the under-employed were included – those working part-time who would like to be working full-time and those who are working at jobs for which they are over-qualified.

The jobs being created during our 4 year old economic recovery are disproportionately low-wage, low skill jobs. (See post of 9/27/13 for more detail.) High unemployment and low wage jobs are key factors in our slow economic recovery (consumers’ lack purchasing power), in the government’s budget deficit (reduced tax revenues), and in growing inequality (95% of the economic gains during the recovery have gone to the richest 1%). As a result, income and wealth inequality have increased to levels not seen since the 1920s.

Fast food workers are emblematic of the low wage, low skill jobs being created. The typical fast food worker makes $8.69 per hour. Two-thirds of them are adults, most of them bring home at least half of the family’s income, and a quarter of them have children. Only 13% get health insurance through their employers.

As a result, over half of fast food workers rely on public, taxpayer funded benefits to make ends meet. The cost to taxpayers is estimated to be $7 billion per year; much of it is for health care, but also food assistance and other economic supports. [2] You can watch a 2 minute video about this, which includes a recording of the McDonald’s help line telling a 10-year employee with 2 children to access food stamps and Medicaid, at
http://lowpayisnotok.org/mcvideo/?utm_campaign=LowPay&utm_medium=email&utm_source=mcvideo-r.

Meanwhile, the fast food corporations make billions of dollars in profits and pay tens of millions of dollars to their senior executives. For example, McDonald’s has 700,000 employees. They are estimated to get $1.2 billion a year in taxpayer funded benefits. McDonald’s is very profitable, making $5.5 billion a year and paying its CEO $13.8 million. It has just purchased a $35 million luxury jet for its executives, which costs at least $2,400 an hour to operate.

Workers at Walmart, the largest employer in the US, are in a similar situation. They make an average of $8.80 an hour. When General Motors was the largest employer in the 1950s, it paid its workers about $50 to $60 an hour (adjusted for inflation). As with the fast food workers, we taxpayers are supporting Walmart workers with multiple types of public assistance. [3]

These big, profitable corporations operate with a business model that uses low paid and part-time workers, typically without benefits, who are, therefore, unable to afford the necessities of life. This leaves taxpayers to pick up the tab for the public benefits they need. These very profitable corporations can afford to raise their workers’ wages to $15 an hour (see post of 9/8/13 for more detail) – a wage they could live on without public assistance. In the meantime, taxpayers are subsidizing these corporations.

Nationally, the typical workers’ wages, adjusted for inflation, have barely increased over the last 30 years. (See post of 9/2/13 for more detail.) The typical male worker in 1978 was making around $48,000 (adjusted for inflation), while the average person in the top 1% earned $390,000. By 2010, the typical male workers’ pay had gone down, while the person in the 1% had their pay more than double. Today, the richest 400 Americans have more wealth than the bottom half of the country, 150 million people, combined.

It used to be that unions and government provided workers with a voice and the power to balance that of the large employers. Today, that voice and power are largely gone. Therefore, wages, benefits, and job security have been eroding. Workers are not even receiving the benefits of their increased productivity. As a result, we are losing the middle class, equal opportunity, and upward mobility. This is undermining our economy and our democracy.

In the first 4 years of the current recovery, the richest 1% of Americans took home 95% of the income gains. In stark contrast, between 1946 and 1978, as the economy doubled in size, everyone’s income doubled as well.

Starting in the late 1970s, the historic link between growth in the economy and productivity on the one hand, and growth in workers’ wages on the other hand, was severed. Income gains started going to the richest Americans and people in the middle, the typical worker, saw their wages stagnate. Part of the problem is that we didn’t adapt to globalization and technological change. We didn’t change public policies. We didn’t change the rules of our economy to continue to provide opportunity, upward mobility, and ensure that economic and productivity growth were broadly shared. We could have done so, but we didn’t. [4]

Among other things, we let the minimum wage fall behind inflation. If it had kept up with inflation, the national minimum wage would be $10.40 today instead of $7.25. If productivity improvement was included, it would be at least $15 an hour. We deregulated the financial system, both domestically and internationally, favoring investors and corporations over workers. And we didn’t include labor standards in trade treaties. Meanwhile, we cut tax rates on high incomes and wealth substantially.

If we had a democracy that was working for the people, the average citizen and worker would have the voice and power to see that their interests and the greater good were served. Instead, we undid or failed to adopt rules for our economy that ensure the gains of economic and productivity growth are widely and fairly distributed – without sacrificing efficiency or innovation. The failure of our policy makers in Washington to focus on creating jobs, let alone good jobs, and on spurring economic growth is the clear and tragic result of the ascendancy of politics over rational policy making. This failure may put their political careers at risk because every poll shows that the public is much more concerned about jobs and the economy than any other issue, including the deficit.

[1] Woolhouse, M., 10/22/13, “Long search finally ends,” The Boston Globe

[2] Johnston, K., 10/16/13, “Public aid crucial to fastfood workers,” The Boston Globe

[3] Moyers, B. with Reich, R., 9/20/13, “Inequality for all,” http://billmoyers.com/episode/full-show-inequality-for-all/

[4] Moyers, B. with Reich, R., 9/20/13, see above

WHAT’S UP WITH THE ECONOMIC RECOVERY?

ABSTRACT: According to economists, our economy has been in a recovery for 4 years. However, most people’s income and wealth are down. Inequality of both income and wealth are up. The stock market and corporate profits are up, but unemployment and under-employment are high, and the poverty rate and economic insecurity are up.

Government policy does affect all of these. The policy changes that occurred after the Great Depression reduced income and wealth inequality until the 1970s and addressed many of these economic issues as well. However, the federal government’s actions since the collapse in 2008 have rescued the big financial corporations and the wealthy, but not the economy that all the rest of us live in.

Income insecurity and high levels of inequality are undermining the values of American democracy and belief in the American Dream, equal opportunity, and a merit based society. They are seen as unfair and as fostering a plutocracy instead of a democracy. It seems that the privileges of wealth (including for the children of the wealthy) are closing the door on opportunity in America for many.

FULL POST: According to economists, our economy has been in a recovery for 4 years; the Great Recession officially ended in June 2009. However, most people’s income and wealth are down; they have not recovered to their pre-recession levels. Inequality of both income and wealth are up because the income and wealth of the rich have recovered much more quickly than those of middle and lower income households. The stock market and corporate profits are up – stocks have more than doubled in value and have reached new record highs.

Average household income (adjusted for inflation) is $3,400 below what it was in December 2007, before the Great Recession. It is currently at $52,100, up $1,400 from its low point in August 2011 but recovering very slowly. [1]

Income inequality is up dramatically. The income gap between the richest 1% (incomes above $394,000) and the other 99% is the widest it’s been since 1927. During the 4 years of the recovery, the top 1% have seen their incomes grow by 31% while the 99% have seen their incomes grow by only 0.4%. In other words, the richest 1% of Americans have recovered almost all their income losses from the Great Recession, while all the rest of us have barely started to recover. This is a continuation of the trend of the last 20 years, where the top 1% have gotten two-thirds of all the growth in incomes. [2] A similar picture is seen if one looks at the top 10%, who now have over half of all income, a higher level than at any time since 1917 when record keeping began. (See posts of 9/2/13 and 11/13/11 for more information.)

Government policy does affect income inequality. The policy changes that occurred “after the Great Depression during the New Deal … reduced income concentration until the 1970s [and addressed many other economic issues as well]. … The policy changes [after] the Great Recession … are not negligible but are modest … Therefore, it seems unlikely that US income concentration will fall much in the coming years.” [3] Government policy also affects the recovery more broadly. See posts of 9/13/12, 5/15/12, and 3/31/12 for more information.

The picture is similar when household wealth is studied. In the financial collapse, $16 trillion of household wealth was lost. While $14.7 trillion of that has now been regained – 91% of the loss – the wealthy have regained most if not all of their wealth while the average household has regained only 45% of its wealth. In the 4 years of the recovery, two-thirds of recovered wealth has been in the value of stocks, which are at record highs. However, 80% of stocks are owned by the wealthiest 10% of households. Home values, which are the biggest component of middle and lower-income households’ wealth, are still 30% below their peak values. The average household wealth of $540,000 is roughly $100,000 below its peak. [4][5]

The poverty rate is up – to 15%, meaning 46.5 million people are living at or below the poverty line (yearly income of $23,492 for a family of four). This is 2.5 percentage points or 20% higher than in 2007, before the Great Recession, meaning that 7.8 million people have fallen into poverty in the last 5 years. [6]

Unemployment is high, although it has been declining. Furthermore, many of those who are working are under-employed – working part-time when they would like to be full-time or working at jobs that don’t require the training and experience they have. Many workers who lost a job but have a new one, are earning much less than they were. So far in 2013, 61% of new jobs have been in low-wage industries and 77% have been part-time. [7] (See post of 9/2/13 for more information.)

Many people – over a third of the working age population – have simply dropped out of the job market because jobs, especially good jobs with good wages are hard to find. Only 59% of the working age population is employed. [8] Despite workers’ significant increases in productivity (75% over the last 30 years), workers’ wages have only increased by 5% over those 30 years. The rewards of their increased productivity have instead gone to corporate profits and executives’ pay.

Economic insecurity is up. Four out of five adults in the US will experience economic insecurity in their lifetimes, Economic insecurity is defined as experiencing unemployment, relying on government assistance for at least a year, or having income below one and a half times the poverty line. [9]

The federal government’s actions since the collapse in 2008, which was due to reckless behavior by the big financial corporations, have rescued the big financial corporations and the wealthy, but not the economy that all the rest of us live in. The policies that have contributed to this included bailouts and low interest loans for the financial corporations and tax policies that over 30 years have dramatically reduced the taxes paid by corporations and the wealthy. Meanwhile, the value of the minimum wage has been significantly reduced by inflation. Cuts in government spending have resulted in lost jobs in both the public and private sectors. [10]

Studies have shown that the top personal income tax rate could return to the level it was in 1980 (70% instead of today’s 39.6%) without any negative effects on the overall economy. (See post of 12/29/12 for more information.) History also shows that corporate tax rates, which are at a 60 year low, can also be increased significantly without harmful effects. [11]

In summary, stock prices, corporate profits, poverty, and inequality of income and wealth are up. Income and wealth for the typical American household are still down from what they were before the Great Recession, despite 4 years of “recovery”. Economic insecurity is up, social mobility is down, and unemployment and under-employment are both high.

Income insecurity and high levels of inequality are undermining the values of American democracy and belief in the American Dream, equal opportunity, and a merit based society. [12] This is having a demoralizing effect on Americans and building resentment of what is increasingly seen as unfair domination of economic and political life by the wealthy, in other words as fostering a plutocracy [13] instead of a democracy. It seems that the privileges of wealth (including for the children of the wealthy) are closing the door on opportunity in America for many.

[1] Pear, R., 8/22/13, “Median income up, but below 2009 levels,” The Boston Globe (from The New York Times)

[2] Saez, E., 9/3/13, “Striking it richer: The evolution of top incomes in the United States,” University of California, Berkeley, Department of Economics (http://elsa.berkeley.edu/~saez/saez-UStopincomes-2012.pdf)

[3] Saez, E., 9/3/13, see above, p. 1

[4] Federal Reserve Bank of St. Louis, May 2013, “How Much Household Wealth Has Been Recovered?” Section of 2012 Annual Report, pages 14-15 (http://www.stlouisfed.org/publications/ar/2012/pdfs/ar12_complete.pdf)

[5] Associated Press, 5/31/13, “Report paints darker picture of US wealth,” The Boston Globe

[6] US Census Bureau, 9/17/13, “Income, poverty and health insurance coverage in the United States: 2012”

[7] Wiseman, P., 8/5/13, “Most new jobs in July were low paying, part time,” The Boston Globe (from the Associated Press)

[8] Hightower, J., June 2013, “How bad is the jobs crisis?” The Hightower Lowdown

[9] Yen, H., 7/29/13, “Data show widening future struggle for Americans,” The Boston Globe (from the Associated Press)

[10] Eskow, R., 9/11/13, “Recovery for the Rich, Recession for the Rest,” Campaign for America’s Future, http://ourfuture.org/20130911/recovery-for-the-rich-recession-for-the-rest

[11] Eskow, R., 9/11/13, see above

[12] Krugman, P., 9/12/13, “Rich man’s recovery,” The New York Times

[13] A plutocracy is a society ruled and dominated by the small minority of the wealthiest citizens. Wikipedia (http://en.wikipedia.org/wiki/Plutocracy)

GOVERNMENT AUSTERITY DEBUNKED

ABSTRACT: The argument for government austerity was largely built on two economic theories, both of which have been debunked recently by academia and reality. First was the theory that if government debt exceeded 90% of economic activity, then economic growth would be sharply lower. The second was that cutting spending in a depressed economy would create jobs.

The study the first was based on was dramatically discredited when an error was discovered in the Excel spreadsheet used to calculate its findings. Furthermore, the link highlighted between government debt and slow economic growth does not indicate that government debt causes slow growth; it could just as likely be the reverse.

The second theory was based on another academic study that was refuted by a 2010 study by the International Monetary Fund, which used better data. And finally, real life experiences in the US and Europe have not borne out what the austerity advocates predicted or promised.

Despite this debunking of the rationales for austerity, there hasn’t been any change in policies or political rhetoric in the US. The US austerity movement appears to be driven by small government ideologues who are using the economic crisis as an opportunity to push for cuts in social programs they’ve always opposed. There also appears to be an issue of class hiding behind austerity advocacy. While the years since the Great Depression and of austerity policies in Washington have been hard on the middle and lower classes, for the well off they’ve been pretty good. So, perhaps it shouldn’t be a surprise that the wealthy and political elites keep pushing austerity policies despite the lack of support from theory or reality.

FULL POST: The argument for government austerity – reducing the deficit by cutting spending and perhaps raising taxes – was largely built on two economic theories, both of which have been debunked recently by academia and reality. First was the theory that if government debt exceeded 90% of economic activity (measured by gross domestic product [GDP]), then economic growth would be sharply lower. The second was that cutting spending in a depressed economy would create jobs.

The first, on the danger of government debt, was based on a 2010 study by two Harvard economists, Reinhart and Rogoff, “Growth in a Time of Debt.” Despite significant controversy about it, its finding of a tipping point for reduced economic growth when government debt hit 90% of GDP was presented as fact by politicians and media arguing for the need for austerity. [1]

This study was dramatically discredited when an error was discovered by Thomas Herndon, a Ph.D. student at the University of Massachusetts, Amherst, in the Excel spreadsheet Reinhart and Rogoff used to calculate their findings. An error in one of their formulas had excluded data from Canada, New Zealand, and Australia, all of which had experienced strong economic growth in periods of high government debt. [2] (Reinhart and Rogoff have acknowledged the error.) This explained why other researchers, using similar data, hadn’t been able to replicate their findings. As Reinhart and Rogoff’s work was scrutinized, it was also criticized for omitting data and using questionable statistical procedures.

Furthermore, the link they highlighted between government debt and slow economic growth does not indicate that government debt causes slow growth; it could just as likely be the reverse, that slow growth leads to higher government debt. Indeed, the latter is clearly what happened in Japan in the early 1990s when government debt grew after the economy collapsed. [3]

The second theory, that cutting spending in a depressed economy would create jobs, was based on another academic study. It was refuted by a 2010 study by the International Monetary Fund (IMF), which used better data. The IMF study found that austerity reduced job growth instead of accelerating it as the original study and austerity promoters claimed. [4]

Finally, real life experiences in the US and Europe have not borne out what the austerity advocates predicted or promised. In the US, government debt and a bit of stimulus did not produce high interest rates and a shrinking economy. Most recently, the austerity measures adopted in March – namely the sequester’s budget cuts – are clearly causing jobs to be cut, with no signs of resultant job creation. Meanwhile, most of Europe is in recession despite consistent application of the austerity medicine for the last four years.

Despite this debunking of the rationales for austerity, there hasn’t been any change in policies or political rhetoric in the US, and little in Europe. This suggests that the austerity movement is not based on research and reality, but on ideology.

The US austerity movement appears to be driven by small government ideologues, given that the push for budget cuts continues unabated. These ideologues are using the economic crisis as an opportunity to push for cuts in social programs they’ve always opposed. They’ve seized on the austerity theories from academia as justification for their actions, and aren’t letting go of them even when they have been soundly discredited. [5]

There also appears to be an issue of class hiding behind austerity advocacy. The wealthy in the US regard the deficit as the most important problem we face and favor solving it by cutting spending on health care and Social Security. The middle and lower classes, although they see the deficit as a problem, view unemployment as a more important problem and want to see spending on health care and Social Security increase. [6] Given the political power of the wealthy elites, it’s not surprising to see policy bending to their preferences. While the years since the Great Depression and of austerity policies in Washington have been hard on the middle and lower classes (high unemployment, incomes that aren’t keeping up with inflation, home values that haven’t recovered to 2008 levels), for the well off they’ve been pretty good (incomes growing faster than inflation, corporate profits and stock prices surging). So, perhaps it shouldn’t be a surprise that the wealthy and political elites keep pushing austerity policies despite the lack of support from theory or reality.

[1] Krugman, P., 4/18/13, “The Excel depression,” The New York Times

[2] Roose, K., 4/18/13, “Meet the 28-year-old grad student who just shook the global austerity movement,” Daily Intelligencer

[3] Krugman, P., 4/18/12, see above

[4] Krugman, P., 5/3/13, “Playing whack-a-mole with expansionary austerity,” The New York Times

[5] Editorial, 5/5/13, “Blame ideologues, not economists for failed ‘austerity’ policies,” The Boston Globe

[6] Krugman, P., 4/15/13, “The 1 percent’s solution,” The New York Times

FIXING THE SEQUESTER’S BUDGET CUTS

ABSTRACT: The impacts of the $85 billion, 5% across the board budget cuts that went into effect on March 1^st (known as the Sequester) are being felt. The cuts to air traffic controllers caused flight delays, so Congress acted with rarely seen speed to provide funding for them.

However, other impacts of the sequester, which are having far more significant effects on people’s lives than having a flight delayed, are being ignored by Congress. It is estimated that almost 60,000 young children will lose or receive reduced Head Start and Early Head Start services. Grants for child care subsidies have been cut, which will undermine the ability of parents to work and the school readiness of an estimated 28,000 children. The estimated impacts of other cuts include: lost nutrition benefits for 600,000 mothers and their young children, reduced K-12 education supports for 1.2 million disadvantaged children, fewer meals for tens of thousands of seniors, and 4,000 fewer AmeriCorps and VISTA volunteers. Unemployment benefits, vouchers for rental housing assistance, and health care funding have also been cut.

I urge you to email, write, or call your representatives in Congress and the President to say that it’s nice to fix the sequester’s impact on flight delays, but it’s much more important to fix the significant, negative impacts the sequester is having on people’s daily lives, on our children and their education from birth onward, on seniors’ ability to live independently, and on the ability of low income families and the unemployed to make ends meet.

FULL POST: The impacts of the $85 billion, 5% across the board budget cuts that went into effect on March 1^st (known as the Sequester) are being felt. As you’ve probably heard, the cuts to air traffic controllers caused flight delays. So Congress acted with rarely seen speed and in just two days passed a bill that shifts money from airport improvement projects to provide funding for the controllers. The meat industry, the Pentagon, and the Homeland Security and Justice Departments also got some relief from the sequester’s cuts in the bill. [1]

However, other impacts of the sequester, which are having far more significant effects on people’s lives than having a flight delayed, are being ignored by Congress. Here are some examples: [2][3]

Early childhood care and education:
- Head Start and Early Head Start, which provide families in poverty with school readiness enrichment for children under 5 and other support, are cutting services. Some are closing early and some are shutting down for 2 – 3 weeks. Others are laying off staff and serving fewer children, with some conducting lotteries to determine which children will be asked to leave. This is potentially harmful to children’s brain development, which is likely to negatively affect their success in school and their ability to be productive workers in the future. Nationally, it is estimated that almost 60,000 young children will lose or receive reduced services.
- Grants to the states for child care subsidies have been cut. Therefore, states will offer less help to low income families to pay for child care. This will undermine the ability of parents to work and the school readiness of an estimated 28,000 children.
Nutrition for mothers and their young children: It is estimated that 600,000 low income mothers and their young children will lose nutrition benefits. This could do long-term harm to the health and school readiness of these children.
K-12 Education: School teachers, aides, and literacy and remedial specialists are being laid off. In particular, the Title I program that provides funding to schools serving high numbers of low income families has been cut by $726 million, which is estimated to affect 1.2 million disadvantaged students and 10,000 school staff members.
Unemployment benefits: The federal government advised states to cut their unemployment benefits to the long-term unemployed by 10.7% in the first week of April or make larger percentage cuts later. In California, for example, where unemployment is 9.6%, 400,000 long-term unemployed workers, whose average weekly check is $297, will receive a cut of $52 a week.
Housing: Vouchers for rental assistance are being cut. Some recently issued vouchers are being rescinded and some subsidized tenants are being asked to pay more toward their rent. Waiting lists and times (measured in years in many places) for housing assistance are growing. Tens of thousands of families will be affected.
Services for seniors: Transportation services for seniors are being cut and some senior centers are being closed. Meals on Wheels will deliver hundreds of thousands fewer meals for tens of thousands of seniors.
Health care: Local clinics, the most convenient and cost-effective places to get health care, are cutting services, forcing patients to travel longer distance to access more expensive services at hospitals. Hospitals and health care organizations will lose $11 billion this year. Non-profit hospitals that serve large Medicare populations will be disproportionately affected.
Community service: 4,000 of 80,000 AmeriCorps and VISTA volunteers will be cut.

The impacts of the sequester’s cuts to social and human service programs are difficult to quantify and describe because they are in numerous programs and grants, and are happening differently in each state, in each city, and in each agency and program as these entities struggle to implement the cuts with the least harm possible.

Meanwhile, Congress, including prominent deficit hawks, is insisting that the military spend almost half a billion dollars on tanks that the Pentagon doesn’t want to save 700 jobs at a General Dynamics plant in Ohio. General Dynamics, by the way, spent $11 million on lobbying last year. [4]

I urge you to email, write, or call your representatives in Congress and the President to say that it’s nice to fix the sequester’s impact on flight delays, but it’s much more important to fix the significant, negative impacts the sequester is having on people’s daily lives, on our children and their education from birth onward, on seniors’ ability to live independently, and on the ability of low income families and the unemployed to make ends meet.

[1] Grant, D., 4/16/13, “Before members rush for airports, Congress ends sequester flight delays,” The Christian Science Monitor

[2] Zero to Three, 4/26/13 and 4/8/13, “The sequester’s pain: Air travelers get relief, little kids not so much,” and “When babies share the burden – How the sequester is affecting young children,” Baby Policy Blog of Zero to Three

[3] Coalition on Human Needs, April, 2013, “Sequester impact factsheets,” http://www.chn.org/background/save-state-fact-sheets/

[4] Lardner, R., 4/29/13, “Army says no to tanks, but Congress insists,” Associated Press in Daily Times Chronicle

CUTTING SPENDING TO REDUCE THE DEFICIT Part 2

ABSTRACT: Medicare and Medicaid do present significant funding challenges. This is because they reflect the costs of our health care system, which spends 2 ½ times what other advanced economies spend on average – and our health outcomes are worse. Obamacare takes initial steps to make our whole health care system more cost effective. One proposal to save money in Medicare is to raise the age at which one is eligible for coverage from 65 to say 67. This would save only $13 billion per year over 10 years and would only shift the cost for health insurance somewhere else.

Cuts to Medicaid mean that fewer low income individuals, primarily low income children and seniors, would have health insurance.

It is unfair and unnecessary to cut services and benefits for low income families and seniors when other options for reducing the deficit are available.

FULL POST: Medicare and Medicaid do present significant funding challenges. This is because they reflect the costs of our health care system, which spends over $7,500 per person per year. This is 2 ½ times what other advanced economies spend on average – and our health outcomes are worse. (See post of 12/9/11 for more details.)

The real issue is the need to make our whole health care system more cost effective. Obamacare takes initial steps to do just that. It includes cuts in payments to Medicare health insurers and health care providers of $700 billion, requiring them to be more efficient, but not cutting any benefits to seniors. Nonetheless, during the 2012 campaigns, Republicans attacked this as a cut to Medicare, despite the fact that their Vice Presidential candidate, Paul Ryan, the chairman of the House Budget Committee, had included these cuts in his budget the previous two years. Ironically, Republicans have also taken steps to eliminate the cost control board created by Obamacare that is charged with limiting the growth of Medicare spending. [1]

President Obama has continued his efforts to reduce Medicare costs by proposing giving Medicare the right to negotiate with drug makers for lower prices. [2] The Veterans Administration and large health insurers already do this and save significant amounts of money, but President Bush’s Medicare drug benefit prohibited Medicare from doing so, providing a windfall to the pharmaceutical corporations.

Another proposal to save money in Medicare is to raise the age at which one is eligible for coverage from 65 to say 67 and increase premiums for high income recipients. The Congressional Budget Office reviewed these proposals and concluded that they would save only $13 billion per year over 10 years. Moreover, increasing the eligibility age would only shift the cost for health insurance somewhere else and would leave some people without health insurance.

Cuts to Medicaid mean that fewer low income individuals would have health insurance or that their benefits would be cut. Medicaid beneficiaries are primarily low income children and seniors, with Medicaid paying for many seniors’ nursing home care. An expansion of Medicaid is an essential part of reducing the number of Americans without health insurance under Obamacare.

It is unfair and unnecessary to cut services and benefits for low income families and seniors when other options for reducing the deficit are available. Despite our riches, the US is less generous in its benefits for seniors and low income families than other countries with advanced economies. Surely, we can find the will and a way to maintain, if not improve, our benefits for these members of our society.

[1] New York Times editorial, 11/18/12, “A bad idea resurfaces,” The New York Times

[2] Krugman, P., 12/3/12,“The GOP’s big budget mumble,” The New York Times

CAMPAIGN FUNDRAISING: THE PERFECT STORM

ABSTRACT: The unprecedented spending and the unprecedented secrecy in the current election campaigns are creating the perfect storm and it’s battering our democracy. They are the result of three factors: 1) great concentration of wealth, 2) unlimited campaign contributions, and 3) secrecy through weakly regulated non-profit organizations. Non-profit organizations don’t have to report contributors and are spending tens of millions of dollars on political activity. These non-profit organizations have accounted for two-thirds of the outside spending to-date – close to $100 million. The Internal Revenue Service has, so far, failed to exercise its oversight responsibilities. Corporations, in particular, like the secrecy.

The DISCLOSE Act in Congress would require disclosure of contributors of over $10,000 by all organizations. Senate Republicans have filibustered it (including a watered down version) multiple times. We need to demand that our elected officials require disclosure of campaign contributors. And we need a Constitutional Amendment that will reverse the Citizens United decision and allow limitations on contributions to political campaigns. Otherwise, the voices of we the people are drowned out by the purchased – not free but purchased – speech of wealthy individuals and corporations.

FULL POST: The unprecedented spending in the current election campaigns and the unprecedented secrecy about who’s contributing to the campaigns are creating the perfect storm and it’s battering our democracy. As Supreme Court Justice Louis Brandeis said, “we can have a democracy or we can have great wealth in the hands of a comparatively few, but we cannot have both.” This perfect storm is the result of three factors:

The greatest concentration of wealth in more than a century,
Unlimited campaign contributions (thanks to the Supreme Court’s Citizens United decision that allows unlimited spending by corporations, unions, and other groups), and
Secrecy for many of the contributors, especially corporations, through weakly regulated non-profit organizations. [1]

In addition to the Super PACs, which have to disclose contributors, there arenon-profit trade associations (such as the US Chamber of Commerce) and non-profit “social welfare” organizations [501(c)(4)s] that don’t have to report contributors. Politics is not supposed to be the primary purpose of these organizations. However, the US Chamber of Commerce is spending tens of millions of dollars on political activity, while refusing to disclose its contributors. Republican strategist Karl Rove’s Crossroads GPS, for example, is a 501(c)(4) that is raising and spending tens of millions of dollars on political activity in close alliance with his Super PAC, while refusing to disclose its contributors. [2]

So far in the 2012 election, these non-profit organizations have accounted for two-thirds of the outside spending – close to $100 million spent primarily on advertising. Back in 2010, they spent $130 million, outspending Super PACs 3-to-2. The Internal Revenue Service has, so far, failed to exercise its oversight responsibilities for these non-profit entities. It has no clear test for what constitutes excessive political activity and these tax-exempt groups are permitted to raise and spend money before being officially reviewed and approved. The tax exempt status of Karl Rove’s Crossroads GPS is still pending more than two years after being created and after having spent tens of millions back in the 2010 elections. [3]

Corporations, in particular, like the secrecy these non-profit groups provide. For example, insurance giant Aetna secretly gave $3 million to a non-profit running ads attacking Obama’s health care plan, while publicly supporting the President. Not a single Fortune 500 company has been reported as contributing to a Super PAC, but they are giving millions to non-profit organizations where their contributions can be kept secret. [4]

At the time of the Citizens United decision, eight of the nine justices made it clear that transparency on contributions for political activity was important and that it was Congress’s responsibility to require appropriate disclosure. The DISCLOSE Act in Congress would require disclosure of contributors of over $10,000 by all organizations, Super PACs, trade associations, unions, and 501(c)(4)s. However, Senate Republicans have filibustered it (including a watered down version) multiple times. Many of the Republicans filibustering the DISCLOSE Act previously supported disclosure, including Senator McCain and Senate Minority Leader McConnell, and 14 Republicans who supported it just a couple of years ago. [5] “[T]he essence of free speech, and democracy, is openness and accountability. … but Republican leaders remain adamantly opposed, and for an obvious reason. Republicans raise far more secret money than the Democrats and have far more to hide.” [6]

We the people are going to have to weather this perfect storm as best we can in this election. And then we will need to demand that our elected officials require disclosure of campaign contributors so we know who is trying to influence our elections. Ultimately, we need a Constitutional Amendment that will reverse the Citizens United decision and allow limitations on contributions to political campaigns. Otherwise, the voices of we the people are drowned out by the purchased – not free but purchased – speech of wealthy individuals and corporations who have amounts of money that far exceed that of everyone else.

[1] Reich, R., 7/13/12, “The selling of American democracy: The perfect Storm,” RobertReich.org

[2] Roberts, C., & Roberts, S.V., 7/18/12, “Shine a light on political donations,” Daily Times Chronicle

[3] McIntire, M., & Confessore, N., 7/7/12, “Corporate money funneled to nonprofits with an agenda,” The New York Times

[4] Moyers, B., & Winship, M., 7/17/12, “Presto! The DISCLOSE Act disappears,” Moyers & Company

[5] Moyers & Winship, 7/17/12, see above

[6] Roberts & Roberts, 7/18/12, see above

THE ROLE OF LABOR UNIONS

Here’s issue #37 of my Policy and Politics Newsletter, written 6/28/12. Labor unions have been in the news quite a bit lately. This issue focuses on the role of unions in our society and economy.

Labor unions allow workers to approach employers as a group to discuss working conditions, pay, benefits, and other workplace issues. This affects the balance of power between workers and employers.

If you as an individual employee approach your employer about any of these issues, for example, receiving paid sick days if you currently had none, where does the balance of power lie? With the employer, of course. But if workers as a group approach the employer about such issues the balance of power is quite different.

Pay is probably the first item that comes to mind when thinking about employer – employee issues. There is lots of evidence that when employees are members of unions and bargain collectively on pay, they average 10 – 30% higher pay after controlling for other important variables. [1]

Employee pay is ultimately about how the profits of a business are divvied up among front-line or on-the-floor workers, senior executives and managers, and owners (which may be senior executives or stockholders). The balance of power among these groups affects how the rewards of the business are split. If workers participate in the discussion as a group, i.e., as members of a union, the result will be different, as indicated by hard evidence, common sense, and economic theory. Highly visible examples of this have been the negotiations between professional athletes and team owners in basketball most recently, but also in football, baseball, and hockey.

Therefore, it’s not surprising that as union membership in the private sector has dropped dramatically (from 34%in 1954 to 7% today [2]), income inequality has widened. Senior executives and stockholders have gotten much richer, while the rest of us have barely maintained our standard of living. The share of profits going to workers’ pay is the smallest it’s been since tracking began in 1947. [3]

This has not just increased in income inequality, but has undermined the middle class broadly. Union members’ pay and benefits used to set a standard in many sectors of the economy and to some extent for the economy as a whole. Non-union workers would receive similar compensation because there was competition in the job market, so companies with non-union workforces had to pay competitively to attract good workers. As union membership has declined, this is less of a factor in the job market and therefore there is downward pressure on wages and benefits.

The erosion in benefits has been very visible. Fewer and fewer workers have company managed pension plans, which were standard for union workers. And workers are paying more and more for their health care. Reductions in job security and increasing use of part-time workers are also partially the result of decreased union membership. Other issues that unions over the years have had an impact on are the length of the work week, overtime rules, availability of paid vacation and sick time, safety in the workplace (there are an estimated 58,000 workplace related deaths each year [4]), the minimum wage, unemployment and workplace injury compensation, how layoffs are handled, unfair or arbitrary actions by supervisors, and discrimination in hiring, pay, and promotions in the workplace.

Without or with weakened unions, union and non-union employees have less power and employers have more power. As a result, workers are likely to receive less pay, fewer benefits, and experience less desirable working conditions.

The next issue of the newsletter will address the reasons for the decline in private sector union membership.

[1] Wikipedia, retrieved 4/23/12, “Labor unions in theUS,” en.wikipedia.org/wiki/Labor_unions_in_the_Unitede_States

[2] Bureau of LaborStatistics,US Dept. of Labor, 1/27/12, “Union members – 2011”

[3] Reich, R., 3/2/12, “Bye bye American pie: The challenge of the productivity revolution,” retrieved on 3/3/12 from www.commondreams.org/view/2012/03/02-6

[4] Nader, R., 3/30/12, “If big labor would fight millions would join them on the ramparts,” retrieved at http://www.commondreams.org/view/2012/03/30-5

HOUSEHOLD INCOME: GROWING INEQUALITY

Here’s issue #4 of my Policy and Politics newsletter, written 11/13/11. One piece of the debate on how to reduce the deficit is whether the well-off should pay more. Here’s some context.

Household income in the United States has become significantly more unequal over the last 30 years. Income for wealthy households has grown faster than for others, and the wealthiest households, the 1% of households with the highest incomes, have experienced by far the greatest increases. The increases in incomes between 1979 and 2007, adjusted for inflation and taxes, are as follows: [1]

The richest 1% of households had their average incomes increase by 275% – in other words they almost quadrupled. Their average annual wage income is $713,000 (not including income from investments). [2]
The next 19% of the population with the highest incomes saw household incomes grow by 65%. Their annual incomes are now over $112,500.
The 60% of households in the middle had their incomes grow by just under 40%. Their annual incomes are between $27,000 and $112,500.
The poorest 20% experienced income growth of about 18%. Their annual incomes are under $27,000.

In summary, the 1% richest got much richer – the equivalent of a 5% raise on top of inflation every year. The middle got about a 1% raise each year on top of inflation and the poor got about a half of a percent raise each year.

As a result, the top 20% of households now has more income than the other 80% of households combined – 53% of the total income of all households. [3] The top 1% receives 23.5% of total income, up from 8.9% in 1976. A similar pattern is evident in wealth: the top 1% now has 35% of the total wealth in America, up from 18% in the late 1970s. [4]

This is due to a variety of factors including:

Growing executive compensation (CEOs now receive 300 times the typical workers’ wage, while in the 1970s it was 40 times)
An increased share of income that is received from investments, including capital gains and dividends
The equalizing effect of federal taxes is smaller
The composition of government revenues shifted from progressive income taxes to unprogressive payroll taxes, sales taxes, and gambling revenue
Federal benefit payments are doing less to even the income distribution due to growing amounts going to seniors that are without regard to income

The overall result is that the middle class does not have sufficient income and purchasing power to maintain its lifestyle and support full employment in theUSeconomy. And the poorest 20% of households struggle to survive on incomes of under $27,000.

[1] Congressional Budget Office, Oct. 2011, “Trends in the Distribution of Household Income between 1979 and 2007”

[2] Reich, Robert, 9/4/11, “The Limping Middle Class,” The New York Times

[3] Reich, Robert, 9/30/11, “America Faces a Jobs Depression,” The Guardian

[4] Reich, Robert, 10/16/11, “The Rise of the Regressive Right and the Reawakening of America,” Robert Reich’s blog