RECENT EXAMPLES OF A RIGGED ECONOMIC SYSTEM

Here are some recent examples of how our rigged economic system favors wealthy individuals and big corporations.

In the CARES Act, the $2.2 trillion coronavirus pandemic response, Republican Senators slipped in a tax break that will give each of 43,000 wealthy business owners a $1.6 million tax cut, on average. Hedge fund investors and owners of real estate businesses (including President Trump and his family) will receive the great majority of this tax cut windfall. [1]

Overall, the CARES Act provides $135 billion in tax cuts for the richest 1% of Americans. This is money that could have been used to provide aid to workers who lost their jobs or to buy personal protective equipment for front-line workers.

Moreover, the Trump Administration and Republicans in Congress are considering a variety of additional tax cuts for investors and businesses for the next pandemic relief bill. [2] Supposedly, these tax cuts will stimulate the economy and help it return to normal, but what they really do is make the rich richer. And while Trump and the Republicans claim that there should be no more spending on unemployment and payments to individuals because we’ve spent enough, tax cuts are simply spending before the fact of revenue collection rather than after the fact. Conceptually, there is no difference, other than who gets the money.

Perhaps the ultimate indication of how rigged our economic system is, is that the wealth of billionaires in the U.S. increased almost $600 billion or 20% between March 18 and June 17 as the pandemic crushed the lives and livelihoods of mainstream Americans. The 643 U.S. billionaires, who are overwhelmingly white males, saw their aggregate wealth increase from $2.9 trillion to $3.5 trillion, an increase of about $1 billion a piece, on average. [3] [4]

Meanwhile, working and middle-class households lost $6.5 trillion in wealth and over 45 million Americans applied for unemployment insurance. The 643 billionaires’ increase in wealth was twice as much as what the federal government spent on the one-time stimulus checks that went to 150 million Americans.

The billionaires and other wealthy individuals have used their incredible wealth to gain extraordinary influence over our politics and policy making. This led to the tax cuts in the CARES Act, in the 2017 Tax Act, and on numerous other occasions. As a result, the taxes paid by these billionaires decreased by 79% as a percentage of their wealth from 1980 to 2018. [5]

As another indicator of a rigged economic system, as the pandemic hit in early 2020 only the richest 20% of U.S. households had regained the same level of wealth that they had had prior to the Great Recession of 2008. The other 80% of households were still struggling with the economic hangover of the 2008 financial industry crash. The 400 wealthiest billionaires, on the other hand, recovered their wealth in three years and in ten years had increased their wealth by over 80%.

On the corporate front, corporations are rewarding their investors, i.e., shareholders, while laying off their workers. For example, Caterpillar closed three facilities in late March and two weeks later made a $500 million distribution to shareholders. Levi Strauss announced on April 7th that it would stop paying workers and furloughed about 4,000 over the following month. Nonetheless, it paid $32 million to shareholders in April. Stanley Black & Decker announced furloughs and layoffs on April 2nd, but within two weeks issued a $106 million dividend to shareholders. [6]

You may recall that in August 2019 the chief executives of 181 companies from the Business Roundtable released a statement announcing that companies should deliver value to customers, workers, and suppliers, as well as shareholders. To-date, three of the executives who signed that statement – ones from Caterpillar, Stanley Black & Decker, and Steelcase – have furloughed workers while paying dividends to shareholders.

In our rigged economic system, the capitalists in government bailout capitalists (i.e., business owners and investors), not workers, home owners, parents, students, schools, states and cities, our social services, or our so-called safety net. Even small businesses get left behind as wealthy investors and corporations are taken care of first and foremost. This was evident in the 2008 bailout after the collapse of the financial and mortgage sectors and it’s evident again in the response to this pandemic.

I urge you to contact your U.S. Representative and Senators and to tell them that pandemic relief should go to workers, middle-class and low-income households, and small businesses. Not only is this what would be fair and democratic, this would support our economy because two-thirds of economic activity is consumer purchases. If consumers can buy, they will keep the economy going and create demand for the goods and services businesses produce. Bailouts to corporations and investors will make them wealthier but will do little to keep the economy going and very little to help the mainstream residents of America.

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

[1]      Stein, J., 4/14/20, “Tax change in coronavirus package overwhelmingly benefits millionaires, congressional body finds,” The Washington Post

[2]      Tankersley, J., 5/6/20, “Trump considers tax-cut proposal for new bill,” The New York Times

[3]      McCarthy, N., 6/22/20, “U.S. billionaire wealth surged since the start of the pandemic,” Forbes

[4]      Americans for Tax Fairness, 6/18/20, “3 months into COVID-19 pandemic: Billionaires boom as middle class implodes,” (https://americansfortaxfairness.org/issue/3-months-covid-19-pandemic-billionaires-boom-middle-class-implodes/)

[5]      Collins, C., 5/11/20, “Billionaires are getting even richer from the pandemic. Enough is enough,” CNN Business (https://www.cnn.com/2020/04/28/perspectives/inequality-coronavirus-billionaires/index.html)

[6]      Whoriskey, P., 5/6/20, “Amid layoffs, investors reap dividends,” The Boston Globe from The Washington Post

EFFECTS OF RACISM Part 2

The murder of George Floyd, a black man, by a white police officer kneeling on his neck for nine minutes (while three other officers facilitated the killing) has put the racism of U.S. society in the forefront. The attention to racism is going beyond this specific episode and is including the underlying, long-term racism of the U.S. economy, our society, and the policies, funding, and practices of federal, state, and local governments. (See my previous post here for more background.)

The effects of racism – of racial prejudice and discrimination – on black people today are broad and pervasive. They are the aggregation of current policies, practices, and characteristics of the U.S. economy and society, as well as the cumulative effects of 400 years of racism. I can’t do justice to all the effects in a couple of posts (Even long ones. My apologies.), but I will start by highlighting some of them. Some, particularly the better-known ones, I will just mention and for some I will present more detail. They are presented in no particular order, in part because they are all intertwined and the relative importance or severity of them is difficult, if not impossible, to determine. (See my previous post for effects in Education and Health and health care.)

Some of the detrimental effects of racism on black people that are evident today include:

Economic inequality

  • The median income for black households is only 60% of that of white households ($37,000 vs. $60,000).
  • Median wealth (assets minus liabilities) for black households is only 8% of that of white households ($11,000 vs. $134,000).
  • Most Blacks were excluded from many of the benefits of the New Deal legislation of the 1930s, including the minimum wage, union membership, and participation in Social Security. Much of this was corrected in the 1960s and 1970s, but the loss of 30 to 40 years of these economic benefits is a big contributor to today’s economic inequality. (See more detail in this previous post.)
  • One-third of low-income black households (incomes under $30,000) do not have a bank account (versus one-ninth of low-income white households). This means they must rely on check cashing services and payday lenders for financial transactions, which involve high fees and often usurious interest rates. This made it difficult (or expensive) for them to get their coronavirus relief checks, for example. [1]

Housing (See my previous post for an overview of government policies and practices that led to housing segregation and low levels of black home ownership.)

  • The effects of federal government and bank redlining are still discernible in the segregation patterns of our cities. Black people disproportionately live in areas with high concentrations of low-income households, poor air quality, and low social capital. These neighborhood characteristics are strongly linked to a whole range of negative life outcomes, including lower educational attainment, more unemployment and lower-wage jobs, shorter life spans, higher stress, and worse health and health care. On the other hand, the (white) suburbs created wealth for their residents and provided strong social capital and healthy, low-stress environments. [2] For example, in the post-World War II period, homes in the suburbs, which typically excluded Blacks, were purchased by whites for around $15,000. Those homes are now worth hundreds of thousands of dollars, a substantial increase in wealth that was denied to Blacks.
  • The home ownership rate for black households is over 30 percentage points lower than for white households. This home ownership gap has increased from just over 20% to over 30% during the last 40 years. It had been relatively stable at just over 20% for the previous 30 years. Given that equity in a home is the primary source of wealth for middle-class and working families in the U.S., the lower rate of home ownership among black households is a significant contributor to racial economic inequality, as well as other unequal outcomes. Equity in one’s home is frequently used to pay for college for children or to cover a short-term financial setback such as the loss of a job or a medical emergency. It is also a key source of retirement savings and inheritance for children. The lack of the economic security that home equity provides also is presumably linked to the higher levels of stress that black people experience.
  • Today, in 2020, interest rates on mortgage loans for black home buyers tend to be higher than for whites because the Federal Housing Finance Agency requires that mortgage interest rates be adjusted based on the borrower’s credit score, down payment, and mortgage type. These adjustments may double the interest rate on a mortgage loan and disproportionately harm black borrowers, either by pricing them out of the market or making the cost of home ownership significantly higher. These mortgage rate adjustments are a dysfunctional and discriminatory holdover from the early 2000s and could and should be changed. [3]

Criminal justice (The pervasive racism of the U.S. criminal justice system – from policing to prosecution and sentencing – that has led to mass incarceration of black males is well known, so I won’t go into it here. I have written about it previously here and here.)

  • Lynching is not a federal crime. Although bills to make it a crime have been introduced in Congress multiple times, no bill has ever been passed and become law.
  • Black people are 23% of those shot and killed by police but are only 13% of the population. Recently released statistics show that in 2019, 69% of the people subject to stop-and-frisk by police in Boston were Black, although Blacks are only 25% of the population. [4]
  • The police (and others) tend to presume that black people, particularly black men and boys, are dangerous and criminals. Being stopped for driving while black is a frequent experience for Blacks, especially if driving a nice car or in a white neighborhood. Former Massachusetts Governor Deval Patrick experienced this while he was Governor, riding in an official car. [5] This racial profiling also occurs when shopping while black, walking down the street in a white neighborhood while black, and on and on. In May 2020, a tall, (6’ 8”) black man, a home owner in Newton, MA, an upper-middle class, largely white, Boston suburb, was walking to the supermarket with his wife when four police cruisers descended them. One of the five officers drew his gun. When asked for identification, the black man knew better than to reach into his pocket – a motion police officers in other situations claimed they found threatening and a reason to shoot. He told the officers that his wallet was in his back pocket and let them retrieve it. [6]

Voting

  • Republicans have been leading efforts for decades to make it harder or impossible for black people to vote – stealing an essential democratic right they were supposedly given after the Civil War. Multiple states have enacted laws that make it harder to register to vote and harder to vote through onerous voter ID requirements. States have also imposed what are effectively poll taxes, reduced the number of polling places in black neighborhoods, and reduced the hours for voting (including early voting that many blacks took advantage of, in part because it can be difficult for them to get to the polls on a work day). All these disproportionately harm black voters. In addition, states have purged lists of registered voters in ways that, again, disproportionately remove black voters. States have banned convicted criminals from voting, sometimes for life, which again disproportionately affects black voters. Finally, the boundaries of voting districts, especially for the U.S. House of Representatives and state legislatures, have been manipulated (i.e., gerrymandered) to reduce the impact of black voters.

The documentation of the detrimental effects of racism is not new. For example, the 1968 Kerner Commission Report on the “race riots” of the 1960s, stated that “Segregation and poverty have created in the racial ghetto a destructive environment totally unknown to most of white Americans. … White institutions created it, white institutions maintain it, and white society condones it.” It noted that not only had the racism of white society created this situation, but that the (white) public and policy makers were apathetic to the issue of black poverty. The Report recommended large-scale government programs to undo segregation and build wealth for black communities. Obviously, the Report was largely ignored. [7]

As one Boston Globe columnist recently wrote of the racism in the U.S., “I’ve spent years calling the system broken, but it wasn’t. This system was designed to dehumanize and exploit Black folk and other people of color.” [8] As former Massachusetts Governor Deval Patrick, who is black noted, “For America, where freedom was the point from the start, only equality, opportunity and fair play make freedom possible.” [9] He probably should have clarified this by saying freedom for ALL or for black people.

It is long past time to address the racism that has persisted in the U.S. for the 140 years since the Civil War and indeed for the last 400 years since black slaves were first brought to America. We need to reform our police and criminal justice system, our housing policies and practices, and all the factors that lead to economic, environmental, and social injustice.

We need to have a serious discussion about reparations – remedies for the enduring harm that past and current policies and practices have caused to Blacks in the U.S. More on this in a future post.

I encourage each and every one of us to think long and hard about how we can contribute to the effort to end racism in our society and to erase its enduring scars. I’d appreciate your comments and questions on this post, including about:

  • Other policies and practices that need to be remedied,
  • Steps we should take to change policies and practices, and
  • How we should tackle the question of reparations for the enduring, cumulative harm that racism has done to Blacks in the U.S.

Thank you for your comments with reactions, suggestions, and questions. This is a discussion we need to have – and to turn into action.

[1]      Guzman, L., & Ryberg, R., 6/11/20, “The majority of low-income Hispanic and Black households have little-to-no bank access, complicating access to COVID relief funds,” National Research Center on Hispanic Children and Families (https://www.hispanicresearchcenter.org/research-resources/the-majority-of-low-income-hispanic-and-black-households-have-little-to-no-bank-access-complicating-access-to-covid-relief-funds/)

[2]      Baradaran, M., 6/17/20, “No justice. No peace. Underlying the nationwide protests for black lives is the racial wealth gap,” The American Prospect (https://prospect.org/civil-rights/no-justice-no-peace-fix-the-racial-wealth-gap/)

[3]      Levitin, A.J., 6/17/20, “How to start closing the racial wealth gap,” The American Prospect (https://prospect.org/economy/how-to-start-closing-the-racial-wealth-gap/)

[4]      Osterheldt, J., 6/17/20, “An oppression that should have been so clear,” The Boston Globe

[5]      Patrick, D., 6/16/20, “America is awakening to what it means to be Black. Will we also awaken to what it means to be American?” (https://medium.com/@DevalPatrick/america-is-awakening-to-what-it-means-to-be-black-3eb938969f7f)

[6]      Krueger, H., 6/6/20, “A walk to the grocery store, interrupted,” The Boston Globe

[7]      Baradaran, M, 6/17/20, see above

[8]      Osterheldt, J., 6/17/20, see above

[9]      Patrick, D., 6/16/20, see above

EFFECTS OF RACISM Part 1

The murder of George Floyd, a black man, by a white police officer kneeling on his neck for nine minutes (while three other officers facilitated the killing) has brought the racism of U.S. society to the forefront. The attention to racism is going beyond this specific episode and is including the underlying, long-term racism of the U.S. economy, our society, and the policies, funding, and practices of federal, state, and local governments. (See my previous post here for more background.)

The effects of racism, of racial prejudice and discrimination, on black people today are broad and pervasive. They are the aggregation of current policies, practices, and characteristics of the U.S. economy and society, as well as the cumulative effects of 400 years of racism. I can’t do justice to all the effects in a couple of posts, but I will start by highlighting some of them. Some, particularly the better-known ones, I will just mention and others I will present in more detail. They are in no particular order, in part because they are all intertwined and the relative importance or severity of them is difficult, if not impossible, to determine.

Some of the detrimental effects of racism on black people evident today include:

Education

  • Black students, on average, attend K-12 schools of lower quality (e.g., less experienced and qualified teachers, less funding, lower quality materials and facilities) than white students. Housing segregation has been widely acknowledged for decades as the driver of racially unequal access to a good K-12 education. This is a result, in large part, of the fact that funding for K-12 schools comes primarily from local property taxes. As a result:
    • Black students have less success in our K-12 school systems than white students. Notably, their graduation rates are lower.
    • After their K-12 education, black students attend and succeed at lower rates in higher education than their white peers.
  • Good, development-nurturing early care and education (aka child care) is generally less accessible for black families and children than for white ones. Except for the federal Head Start program, good quality early care and education (ECE) is unaffordable and often not conveniently located for black families. The Head Start program, which targets children in families below the federal poverty line (about $22,000 in annual income for a family of three, which could be a single parent with two young children), only receives enough funding to serve about half of the eligible 3 and 4 year olds and about one in ten of the eligible infants and toddlers.

Health and health care

  • Black people have a shorter life expectancy than whites: 75.5 years versus 79.1 years.
  • Black mothers experience higher pregnancy-related maternal mortality rates than whites: 4.1 vs. 1.3 deaths per 10,000 live births. This difference persists even after adjusting for potentially related factors such as age, education, and income.
  • Black infants experience higher mortality rates than whites: 109 versus 47 deaths per 10,000 live births.
  • The coronavirus pandemic has highlighted the inequities in health and health care for black Americans. Black people in the U.S. have had somewhere between 33% and 40% of COVID-19 cases despite being only 13% of the population. Their cases tend to be more severe and the black death rate is over twice that of whites (62 vs. 26 per 100,000). (See previous posts on the disproportionate impact on Blacks and the reasons for this.)
  • Research has found that respiratory conditions (including asthma) that make one more vulnerable to COVID-19 are more common among people with long-term exposure to air pollution and that a small increase in exposure to fine particulate air pollution — tiny particles in the air — leads to a significant increase in the COVID-19 death rate. Low-income and densely populated areas (whose residents are disproportionately black) have higher levels of air pollution due to higher levels of vehicular exhaust, emissions from buildings’ heating systems, and emissions from power generation and industrial facilities.
  • Hospitals that serve primarily white people have 60% higher per patient funding ($8,325) than ones that serve the highest proportions of black people ($5,197). The primarily white-serving hospitals had nearly twice as much capital spending (e.g., for new equipment and modernization) as the hospitals with the most black patients. The white-serving hospitals had more specialty services, better nurse-to-patient ratios, fewer safety hazards, and lower readmission rates. [1]
  • Black people have less access to health care, both based on the locations of services and due to lack of insurance. In addition, they receive lower quality and biased care when they receive health services. For example, a 2003 National Academy of Sciences report, “Unequal Treatment: Confronting Racial and Ethnic Disparities in Health Care” examined 480 studies and found that for every medical intervention black people received poorer-quality care than white people, even when income and insurance were equal. [2] Medical decisions, diagnoses, and treatments have been found to be racially biased with worse outcomes for black patients than white ones.
  • The high levels of stress that black people experience due to racism, economic insecurity, and other factors have been linked, for both children and adults, to chronic health problems (e.g., asthma, obesity, high blood pressure, heart disease, and diabetes) and mental / behavioral health problems (e.g., behavior and anxiety disorders and substance abuse). The stresses of what are referred to as adverse childhood experiences (e.g., child abuse or neglect, violence in the home or neighborhood, parents’ mental health problems) have been found to contribute to a higher prevalence years later of chronic adult health conditions such as high blood pressure, heart disease, diabetes, obesity, and anxiety disorders. The stresses of economic insecurity, neighborhood and household violence, and racism, collectively sometimes referred to as allostatic load, have been linked to higher rates of negative health outcomes, including shorter lifespans and more low birthweight babies. For example, the prevalence of diabetes is 66% higher among Blacks than whites and elevated blood pressure is 49% higher. Blacks have more chronic health conditions even when researchers compare them with whites with similar levels of education and income.
    • Examples of stressors that black people deal with regularly include being presumed to be dangerous or a criminal and being presumed to be in a non-professional or subservient role. For example, black people are often presumed to be staff in a hotel, restaurant, store, or golf club, rather than a customer. Or, as former Massachusetts Governor Patrick stated, “Like every other Black trial lawyer I know, I have been mistaken for a defendant awaiting trial” when arriving in a courthouse or courtroom to argue a case. [3] These types of role misidentification are commonplace. Almost every black person – if not every black person – can cite multiple times when this has happened to them. This requires them to control their anger, frustration, and sometimes their fear time after time after time. This takes a toll on one’s stress level, happiness, and well-being.
    • Black parents routinely feel anxious when their sons and daughters are not in their home because they know of the dangers that discrimination and prejudice present when they are out in public. Black parents know they must have “the talk” with their children, especially their sons, where they tell them that regardless of the situation or provocation they must stay calm, keep their hands visible, and avoid confrontation, particularly with police officers.
  • Because they are concentrated in low-income neighborhoods, black people often live in food deserts, where access to affordable, good quality food is difficult. Supermarkets are typically not located in those neighborhoods, so a long trip, often on public transportation, is required to reach them.

In my next post, I will provide an overview of the detrimental effects of racism on black people in terms of economic inequality, housing, criminal justice, and voting. I welcome your comments with reactions, thoughts, and questions relative to this post and the larger issue of racism in the U.S.

[1]      Dayen, D., 6/19/20, “Unsanitized: Structural racism and the coronavirus crisis,” The American Prospect (https://prospect.org/coronavirus/unsanitized-structural-racism-and-the-coronavirus-crisis/)

[2]      Villarosa, L., 4/29/20, “ ‘A terrible price’: The deadly racial disparities of Covid-19 in America,” The New York Times Magazine (https://www.nytimes.com/2020/04/29/magazine/racial-disparities-covid-19.html)

[3]      Patrick, D., 6/16/20, “America is awakening to what it means to be Black. Will we also awaken to what it means to be American?” (https://medium.com/@DevalPatrick/america-is-awakening-to-what-it-means-to-be-black-3eb938969f7f)

RACISM IN HOUSING HAS BEEN EXPLICIT GOVERNMENT POLICY

The murder of George Floyd, a black man, by a white police officer kneeling on his neck for nine minutes (while three other officers facilitated the killing) has brought the racism of U.S. society to the forefront. The attention to racism has gone beyond this specific episode and has included the underlying, long-term racism of policies, practices, and funding of federal, state, and local governments. (See my previous post for more background.)

Throughout U.S. society, a powerful element of racism is discrimination in housing and the segregation that it has produced. The conventional wisdom in the U.S., including in legal circles and the courts, is that racial housing segregation is de facto, i.e., the result of private practices and personal preferences and not the result of government policies and laws. This belief has led courts to declare that governments have no responsibility to address segregation and its negative effects, other than perhaps in our public schools.

The truth is that housing segregation is clearly the result of government policies and practices throughout the last 140 years, including ones that persist to this day. The legal term for effects that are direct or intentional results of actions is de jure. Therefore, racial housing desegregation in the U.S. is de jure. If legally acknowledged as such, it is a violation of our Constitution, specifically the Fifth, Thirteenth, and Fifteenth Amendments, and of the Bill of Rights. Acknowledgement of this would mean that our governments have an obligation to respond to housing segregation and the harm that it has caused. The definitive case for this is made by Richard Rothstein in his book The Color of Law: A forgotten history of how our government segregated America. [1]

The Color of Law describes in detail the government policies and practices at the local, state, and federal levels that promoted and enforced racial segregation in housing, and even forced the segregation of communities that had been integrated. Some of this dates from the late 1800s and some still exists today. Furthermore, many discriminatory private policies and practices have been supported by the action (or inaction) of government entities, such as the police, the courts, and various government agencies and regulators.

I apologize for the length of this post, but I felt it was important to give a good sense of the breadth and depth of the government policies and practices behind the racism in housing. Skim by reading the bolded portions if your time is limited. Policies and practices that contributed to housing segregation include:

  • In the late 1800s, Jim Crow laws and explicit, enforced segregation became the way of life in the South after the 1878 removal of federal troops that had been protecting blacks and implementing Reconstruction. The discrimination and segregation of the South proceeded to spread throughout the country. For example, in the early 1900s, blacks were systematically expelled from Montana, where they had previously thrived. In 1890, there were blacks in all 56 counties in Montana. By 1930, there were none in eleven counties and few left in the others. In the state capital of Helena, there were 420 blacks in 1910, but only 131 in 1930 and 45 in 1970.
  • Beginning in 1910 and continuing to today, zoning restrictions have been widely and intentionally used to segregate housing, sometimes explicitly and sometimes by banning multiple family housing or requiring large lot sizes (which make property very expensive). These latter types of zoning laws exist quite widely today. In 1910, Baltimore was the first city to adopt an explicitly segregationist zoning law. It prohibited blacks from buying homes on blocks where whites were the majority and vice versa. Implementing the zoning ordinance proved difficult because many areas of the city were quite integrated at the time. West Palm Beach adopted a racial zoning ordinance in 1929 and maintained it until 1960. Kansas City and Norfolk, VA, maintained racist zoning practices until at least 1987. Racist zoning ordinances effectively prevented blacks from moving to the suburbs and, in many cases, effectively prevented them from buying homes, forcing them to rent their homes.
  • In the 1920s, restrictions written into in home ownership deeds prohibiting the selling of a home to a black person spread throughout the country and in some cases persisted into the 1970s. Governments at the local, state, and federal levels promoted and enforced these restrictive covenants. State courts upheld them. In 1948, the U.S. Supreme Court ruled that these covenants were private agreements and therefore not unconstitutional. However, it ruled that they represented discrimination that was illegal for the government to be a party to. Therefore, the power and resources of the government, including law enforcement and the courts, should not be used to enforce them. Shockingly, the FHA and other federal agencies, in complicity with state and local governments, effectively ignored this Supreme Court ruling for at least another decade. It wasn’t until 1972 that a federal court ruled that these covenants were illegal as a violation of the Fair Housing Act of 1968.
  • In the 1930s, the Federal Housing Authority (FHA) was created to promote home ownership, including by insuring home mortgage loans. Mortgage loans were newly available to middle class borrowers and insurance against default by the borrower made banks much more willing to make these loans. This insurance was, for all practical purposes, required by banks for mortgage loans. However, the FHA generally refused to insure mortgage loans for blacks, and definitely would not do so if the home being purchased was in a white neighborhood. Furthermore, the FHA would not insure a mortgage for a white person if the home was in a neighborhood where blacks were present. The FHA explicitly stated in its Underwriting Manual that segregated neighborhoods were preferable because segregated schools made neighborhoods more stable and desirable. (See pages 65 – 66 in The Color of Law.)
  • Up until 1962, the FHA also supported financing for developers building whites-only subdivisions in suburbia. It wasn’t until 1962, when President Kennedy issued an executive order banning the use of federal funds to support racial discrimination in housing, that the FHA stopped supporting subdivisions by developers who refused to sell homes to blacks.
  • As mortgage loans proliferated in the 1930s, federal bank regulators allowed banks to deny mortgages to blacks, as well as to whites buying in an integrated neighborhood. State regulated insurance companies that issued mortgages had similar policies. Federal bank regulators also allowed banks to “redline” areas and refuse to make mortgage loans for the purchase of any home within those areas, which were typically neighborhoods where blacks lived. This practice continued at least into the 1980s.
  • Starting in the 1940s, public housing was built. Initially, it was primarily for working- and lower-middle-class white families and was not heavily subsidized. In the late 1940s, as whites increasingly purchased homes in the suburbs and public housing became more available to blacks, most public housing was explicitly segregated until the 1970s and developments for whites were typically better built and built in nicer areas. By the 1960s, urban public housing had mostly poor, black residents and, by government policy, was built almost exclusively in black neighborhoods.
  • In the late 1940s, black World War II veterans were denied the government-guaranteed mortgages for purchasing homes that white veterans used in great numbers to buy suburban homes.
  • Beginning in the late 1940s, violence against blacks trying to move into white neighborhoods was not uncommon. However, law enforcement at the local, state, and federal levels rarely responded to these incidents until the 1980s. The proportion of these incidents where charges were filed against perpetrators grew from only 25% in 1985-6 to 75% in 1990, when roughly 100 such incidents occurred.
  • Numerous studies in the 1960s and 1970s found that blacks paid higher effective property tax rates on their homes than whites. This was typically accomplished by assessing black-owned properties at a high value compared to market value, while white-owned properties were assessed at a low comparative value. A 1973 study of ten cities by the U.S. Department of Housing and Urban Development found systematic under-assessment in white middle-class neighborhoods and over-assessment in black neighborhoods. In Baltimore, it found an effective property tax rate 9 times higher for blacks than for whites; in Philadelphia it was 6 times higher and in Chicago it was twice as high. A 1979 analysis of Chicago property taxes found the effective rate for blacks to be 6 times that for whites.
  • In the early 2000s, federal bank regulators failed to stop banks from providing subprime mortgages disproportionately to black customers – at two to three times the rate of white customers. Subprime mortgages were mortgage loans with onerous provisions or deceptive presentation that made it likely that the borrower would be unable to meet the terms the loan. Defaults on these subprime mortgages were a key factor in the 2008 financial collapse and the resultant foreclosures represented a huge loss of wealth for blacks in the U.S. Moreover, many of the blacks who received these predatory, subprime mortgages qualified for regular mortgages but were steered to these subprime mortgages typically because the mortgage broker made more money on them.

These policies, and others, both reinforced racially segregated housing where it existed and imposed segregation in places where it hadn’t previously existed. “In 1973, the U.S. Civil Rights Commission concluded that the ‘housing industry, aided and abetted by the Government, must bear the primary responsibility for the legacy of segregated housing. … Government and private industry came together to create a system of residential segregation.’” (page 75)

My next post will summarize effects on black people of housing and other discrimination that are evident today. I’ll also ask you to share your thoughts on how we should address racism in the U.S.

[1]      Rothstein, R., 2017, The Color of Law: A forgotten history of how our government segregated America, W. W. Norton & Co., Inc., NY, NY.

RACISM IS AND HAS BEEN EXPLICIT GOVERNMENT POLICY

The murder of George Floyd, a black man, by a white police officer kneeling on his neck for nine minutes (while three other officers aided and abetted the act) has brought the racism of U.S. society to the forefront. The discussion it has spurred is going beyond this specific episode and has embraced the broader themes of racism in police personnel, training, and practices. In addition, the overall racism of U.S. society is being confronted, including the underlying, long-term racism of policies, funding, and practices of federal, state, and local governments.

For several years, the U.S. has been experiencing a simmering discussion about the racist practices and results of our criminal justice system. They typically start with police, or sometimes school disciplinary practices, and extend through prosecutors, courts, and prisons. (I’ve posted about the need for criminal justice reform, in large part because of embedded racism, here and here.)

Some of the racism in criminal justice is the result of public policies – laws defining crimes and penalties for them. Drug laws with much stiffer penalties for crack cocaine (typically used by blacks) than powdered cocaine (typically used by whites) are one clear example. Mandatory sentencing laws and three strikes laws are others. The racism of laws is exacerbated by their implementation, i.e., the practices of police, prosecutors, and courts. For example, blacks have been much more likely to be arrested and prosecuted for marijuana possession than whites, although good research has found no significant difference in use of marijuana (or other illegal drugs) between blacks and whites. Criminal justice system outcomes are different by race in part because whites can afford and have access to better legal representation.

I’ve previously posted on other topics related to racism that are embedded in laws, policies, and practices of governments at all levels, including:

  • The need for a political revolution to restore democracy and overcome economic inequality and other effects of hardcore capitalism as described in Ben Fountain’s book, Beautiful Country Burn Again: Democracy, rebellion, and revolution. [1] The book is based on his reporting on the 2016 presidential campaign. It now looks prescient in its analysis and title. Although this argument didn’t focus on racism, race was certainly an underlying theme. (link)
  • The racism of the Supreme Court in overturning the Voting Rights Act in 2013 (as analyzed in Fountain’s book). (link)
  • The largely racially motivated voter suppression and gerrymandering that has exploded since the Supreme Court decision overturning the Voting Rights Act in 2013.
  • The disparate impact of the coronavirus pandemic on people of color. (here and here)

Underlying all of this, and a powerful element of racism throughout U.S. society, is racism in housing and the segregation that it has produced. Housing segregation has been widely acknowledged for decades as the driver of racially unequal access to education in K-12 schools, which are largely funded by local property taxes. It is also a major driver of economic inequality, the unequal impact of the coronavirus, and many disparities in health and mental health conditions and in access to health care services. Housing segregation is, of course, also linked to the racial biases in law enforcement.

The conventional wisdom in the U.S., including in legal circles and the courts, is that housing segregation is de facto, i.e., the result of private practices and personal preferences, but not the result of government policies and laws. This belief has led courts to declare that because racial housing segregation is de facto, governments have no responsibility to address it and its negative effects, other than perhaps in our public K-12 schools.

The truth is that housing segregation is clearly the result of government actions of the whole 20th century, including policies and practices that persist to this day. The legal term for effects that are intentional results of explicit policies and laws is de jure. Therefore, racial housing desegregation in the U.S. is de jure segregation. If housing segregation is legally acknowledged to be de jure, it is a violation of our Constitution, specifically the Fifth, Thirteenth, and Fifteenth Amendments, and of the Bill of Rights. This acknowledgement would mean that our governments have an obligation to respond to the harms caused by housing segregation. The definitive case for this is made by Richard Rothstein in his book The Color of Law: A forgotten history of how our government segregated America. [2] I will summarize the book in my next post.

An important but less direct way that housing segregation has been created and maintained is by keeping the incomes and wealth of black households low so that they cannot afford to buy homes in white areas. Long after the end of the sharecropping system, which was indentured servitude that was barely distinguishable from slavery, many public policies have kept blacks poor.

In the 1930s, President Franklin Roosevelt needed the votes of southern Democrats to pass New Deal legislation. To get their votes, the Fair Labor Standards Act (FLSA) of 1938 and other legislation that benefited workers excluded industries in which blacks were the predominant workers, such as agriculture and domestic services. Therefore, these occupations and many blacks didn’t receive the benefits of the minimum wage, participation in labor unions, or coverage from Social Security. Furthermore, many of the New Deal’s employment programs rarely employed blacks or restricted them to lower paying jobs. The minimum wage and some, but not all, of the other protections and benefits of the FLSA were finally given to most farm and domestic workers in the 1960s and 1970s.

From the 1930s to the 1960s, blacks who worked in unionized jobs were often in segregated unions, which typically had lower pay and represented less skilled jobs. Federal agencies continued to recognize segregated unions until President Kennedy ended the practice in 1962. In 1964, the National Labor Relations Board finally refused to certify whites-only unions and it was another decade before blacks were admitted to construction trade unions. Even then, their lack of seniority in the union meant that it would be many years before their incomes were comparable to white union members’ earnings.

Although many of the racist policies and practices that were once allowed and facilitated by governments are no longer in place, their effects have never been remedied and their discriminatory results endure. Economic inequality is one of their enduring legacies. In 2017, the median income for white households was about $60,000, while it was roughly $37,000 for black households – only 60% as much. Median white household wealth (assets minus liabilities) was about $134,000 versus $11,000 for black households – only 8% as much. Given that equity in a home is the primary source of wealth for middle-class households in the U.S., housing discrimination and segregation have been big contributors to racial economic inequality.

It is long past time to address the racial discrimination that has persisted in the U.S. over the last 140 years since Reconstruction of the South was abandoned and indeed over the last 400 years since black slaves were first brought to America. We need to reform our police and criminal justice system, our housing policies and practices, and so much more.

We need to have a serious discussion about reparations – remedies for the enduring harm that past and current policies and practices have caused to blacks in the U.S. I encourage each and every one of us to think long and hard about how we can contribute to the effort to end racism in our society and to erase its enduring scars.

[1]      Fountain, B., 2018, Beautiful Country Burn Again: Democracy, rebellion, and revolution, HarperCollins Publishers, NY, NY.

[2]      Rothstein, R., 2017, The Color of Law: A forgotten history of how our government segregated America, W. W. Norton & Co., Inc., NY, NY.

WHY THE CORONA VIRUS HITS PEOPLE OF COLOR HARDER THAN WHITES

The corona virus pandemic has highlighted critical issues in the U.S. economy and society that have led to unnecessary hardship, suffering, and deaths. The infection and death rates have been higher among people of color than among whites. In addition, low-income households and people living in densely populated areas are at higher risk for COVID-19 than others. These three risk factors occur concurrently for many, resulting in a particularly high-risk population. [1] (See my previous post for more detail.)

There are multiple factors that lead to the corona virus hitting people of color harder than whites. It is important to recognize and acknowledge that these disparities are not linked to individual decisions and behaviors, but to longstanding characteristics of the social and physical environments they live in in the U.S. These social determinants of health, as they are called, are most often driven by public policies and spending patterns, as well as by institutional racism. [2]

One of the reasons for the elevated death rate among people of color, low-income households, and people living in densely populated areas is that COVID-19 is especially dangerous to people with underlying health problems, particularly respiratory conditions, given that the virus typically attacks the lungs. Chronic health problems, including asthma, are higher among these at-risk populations. Research has found that respiratory conditions that make one vulnerable to the virus are more likely among people with long-term exposure to air pollution and that a small increase in exposure to fine particulate air pollution — tiny particles in the air — leads to a significant increase in the COVID-19 death rate. Low-income and densely populated areas (whose residents are disproportionately people of color) have higher levels of air pollution due to higher levels of vehicular exhaust, emissions from buildings’ heating systems, and emissions from power generation and industrial plants. Coincidentally, less than two weeks after the research on air pollution and COVID-19 was released, the Trump administration declined to impose stricter controls on the lung-harming particulate pollution that the researchers identified as hazardous.

People of color and low-income households typically live in densely populated areas where they have more face-to-face contact with other people, which makes exposure to the virus more likely. Multi-family housing, crowded living conditions (i.e., many people for the size of the dwelling unit), and more crowded streets and stores increase contact and exposure. Non-white and low-income people are also more likely to rely on public transportation and to work in essential front-line jobs (such caregiving, public transportation, grocery store work, or delivery jobs), which put them in close contact with other people. [3] One dramatic recent example of a high exposure-risk job is work in meat processing facilities, where infection rates have been very high and where workers are primarily people of color.

Research has documented that chronic health conditions are linked to the high levels of stress that people of color experience, including the stress of discrimination and what are referred to as adverse childhood experiences (ACEs). ACEs have been found to contribute to a higher prevalence of chronic adult health conditions such as high blood pressure, heart disease, diabetes, obesity, and anxiety disorders. In addition, the stresses of economic insecurity, neighborhood and household violence, and discrimination, collectively sometimes referred to as allostatic load, have been linked to higher rates of chronic health conditions. Not surprisingly, then, people of color and those in low-income households have higher rates of these chronic health conditions. This puts them at higher risk for infection, serious illness, and death from the corona virus. For example, the prevalence of diabetes is 66% higher among Blacks than whites and elevated blood pressure is 49% higher. People of color have more chronic health conditions even when researchers compare them with whites with similar levels of education and income.

Finally, people of color and low-income households are at high risk because they have less access to health care, both based on the locations of services and due to lack of insurance. In addition, they receive lower quality and biased care when they receive health services, adding to their risk. For example, a 2003 National Academy of Sciences report, “Unequal Treatment: Confronting Racial and Ethnic Disparities in Health Care” documented bias in the medical system. It examined 480 studies and found that for every medical intervention Black people and other people of color received poorer-quality care than white people, even when income and insurance were equal. [4]

All of these factors contribute to COVID-19’s higher infection rate, greater severity of illness, and higher death rate for people of color. This makes it extremely important to have good data on race and ethnicity for COVID-19 tests and patients in order to effectively target testing, response, and treatment. These data are needed for our society as a whole to effectively control the spread of the virus and develop effective treatment. Because these data were not being captured, a group of U.S. Senators and the American Medical Association both sent letters to senior federal officials at the Department of Health and Human Services underscoring the importance of capturing data on race and ethnicity in all COVID-19 response activities.

I hope we will learn lessons from this COVID-19 pandemic and address the issues and risks faced by people of color, low-income households, and those living in densely populated areas. These lessons should include the need to address inequality and racism to make our economy and society fairer and to help our country live up to its ideal of equal opportunity. This would make access to life (literally), liberty, and the pursuit of happiness available to all Americans, both in good times and in the face of the inevitable, next pandemic. To do so, we will need to implement effective long-term fixes for the critical issues of racism and inequality in the U.S., which have been laid bare by this pandemic.

[1]      Ryan, A., & Lazar, K., 5/10/20, “Disparities drive up coronavirus death rates,” The Boston Globe

[2]      Villarosa, L., 4/29/20, “ ‘A terrible price’: The deadly racial disparities of Covid-19 in America,” The New York Times Magazine (https://www.nytimes.com/2020/04/29/magazine/racial-disparities-covid-19.html)

[3]      Osterheldt, J., 4/11/20, “With virus, racism is underlying ill,” The Boston Globe

[4]      Villarosa, L., 4/29/20, see above

CORONA VIRUS PANDEMIC HIGHLIGHTS RACISM AND INEQUALITY IN U.S.

The corona virus pandemic has highlighted critical issues in the U.S. economy and society that have led to unnecessary hardship, suffering, and deaths. These include racism and economic inequality. Despite limited data on COVID-19 by race and ethnicity (because some jurisdictions have not been collecting or reporting these data), clear patterns emerge.

The infection and death rates have been higher among people of color than among Whites. In addition, low-income households and people living in densely populated areas are at higher risk for COVID-19 than others. These three risk factors occur concurrently for many, resulting in a particularly high-risk population. The infection rate for these populations is likely to be understated because there has probably been less testing among them than among well-off, White populations who typically have better access to health care. People of color also have more severe cases when they get the virus. One study of COVID-19 patients, where 18% of the patients were Black, found that 33% of the severe cases were with a Black patient.

The death rate for these at-risk populations may well be understated as well. Research has found that the national 2020 death rate has been significantly higher than usual after adjusting for the known COVID-19 deaths. This almost certainly means there have been COVID-19 deaths that were not recognized as being caused by the virus. These unrecognized COVID-19 deaths are likely to be disproportionately among these at-risk populations because of their reduced access to health care and virus testing.

At the state level, analyses at various points in time in April and May of 2020 have found significantly higher death rates for Blacks (60% to 370% higher than their presence in the overall population): [1]

  • Wisconsin: 33% of deaths were Blacks, who make up 7% of the population
  • Michigan: 40% of deaths were Blacks, who make up 14% of the population
  • Louisiana: 70% of deaths were Blacks, who make up 33% of the population
  • Mississippi: 61% of deaths were Blacks, who make up 38% of the population

Similarly, Chicago and New York City have death rates of minorities that are roughly twice the rate of their presence in the population.

Rates of COVID-19 infections are also significantly higher for Blacks and Latinos than for Whites: [2]

  • Nationally, based on limited data, 33% of people with COVID-19 infections were Black, while they are only 13% of the population.
  • In Massachusetts,
    • 18% of people with COVID-19 infections were Black, while they are only 9% of the population.
    • 23% of people with COVID-19 infections were Latino, while they are only 12% of the population.
  • In Boston, 40% of people with COVID-19 infections were Black, while they are only 25% of the population.

Researchers in Massachusetts have also looked at the density of population and poverty based on the zip codes of COVID-19 patients’ addresses, along with data on race and ethnicity. They found that death rates were: [3]

  • 40% higher in cities or towns with the highest proportions of people of color versus those with the lowest proportions.
  • 14% higher in cities or towns with the highest population densities versus those with the lowest densities.
  • 9% higher in cities or towns with the highest poverty rates versus those with the lowest rates.

Native Americans, especially the Navajo Nation, have been extremely hard hit by the pandemic. The Navajos have experienced an infection rate higher than any U.S. state, with over 4,000 cases and over 140 deaths as-of May 17. As with other low-income communities, this reflects a lack of public infrastructure, including a lack of access to health care, shortages of protective equipment and supplies, and in some places a lack of water and/or sewer systems. [4]

There are multiple factors that lead to the higher coronavirus infection and death rates among people of color, low-income households, and people living in densely populated areas. It is important to recognize and acknowledge that these disparities are not linked to individual decisions and behaviors, but to long standing characteristics of their social and physical environments. These social determinants of health, as they are called, are most often driven by public policies and spending patterns, as well as by institutional racism. [5]

My next post will review the reasons for the disproportionate impact of COVID-19 on people of color, low-income households, and people living in densely populated areas.

[1]      Villarosa, L., 4/29/20, “ ‘A terrible price’: The deadly racial disparities of Covid-19 in America,” The New York Times Magazine (https://www.nytimes.com/2020/04/29/magazine/racial-disparities-covid-19.html)

[2]      Osterheldt, J., 4/11/20, “With virus, racism is underlying ill,” The Boston Globe

[3]      Ryan, A., & Lazar, K., 5/10/20, “Disparities drive up coronavirus death rates,” The Boston Globe

[4]      Goodluck, K., 5/21/20, “Every corner of the Navajo Nation has been hit by COVID-19,” Mother Jones (https://www.motherjones.com/politics/2020/05/every-corner-of-the-navajo-nation-has-been-hit-by-covid-19/)

[5]      Villarosa, L., 4/29/20, see above

CORONA VIRUS PANDEMIC HIGHLIGHTS WEAKNESS OF PUBLIC INFRASTRUCTURE

The corona virus pandemic has highlighted critical issues in the U.S. economy and society that have led to unnecessary hardship, suffering, and deaths. These include the neglect of public infrastructure that led to the inability of governments to respond effectively to a pandemic.

Although the Trump administration’s disorganized and incompetent response to the pandemic (aided and abetted by some in Congress) bears significant responsibility for the high death rate in the U.S. (as documented in this previous post), the long-term neglect of public agencies and capacities shares some of the blame.  [1]

For forty years the U.S. has been neglecting, weakening, and, in some cases, literally dismantling public infrastructure, including government agencies, programs, and capabilities. Much of this has been done because of tax cuts and reductions in government revenue. (By the way, these have disproportionately benefited wealthy individuals and corporations.) When a politician tells you he can cut taxes without harming the services government provides, remind him that there’s no such thing as a free lunch; this pandemic has painfully shown this to be true.

At both the federal and state levels, bipartisan neglect of investments in government infrastructure, typically with Republicans leading the way but with many Democrats jumping on board, is now painfully obvious. Often the people who use the government’s safety net infrastructure are our poor and vulnerable residents who have the least political influence. Now, middle-class Americans are discovering the shortcomings and challenges of these programs, which include unemployment insurance. One particular area of weakness is information technology, where investments in updating and enhancing computer systems has been sorely lacking. It’s important to note that other wealthy countries are not experiencing the same breakdowns of government systems. [2]

A successful response to a disease threat requires not only treatment capacity (personnel and equipment), but the ability to identify individuals who have contracted it, track them and their contacts, and quarantine those individuals to contain, slow, and eventually stop the spread of the disease.

The U.S., theoretically, learned all of this from the 2014 Ebola outbreak. However, the Trump administration ignored the response plan prepared by the Obama administration. It disbanded or weakened the agencies needed to respond. So, in the face of the current pandemic, these lessons learned were ignored. (See more here.) The lack of investment in pandemic preparedness has left the U.S. with an insufficient supply of ventilators, protective masks, and other medical supplies. It also lacks a plan to obtain these supplies, a trigger to initiate a pandemic response, and the capacity to implement testing, tracking, and containment of a deadly disease.

The threat of a deadly virus shouldn’t have come as any surprise. Bill Gates (the Microsoft billionaire) did a TED Talk in 2015 entitled, “The next outbreak? We’re not ready,” in which he states that the biggest threat of mass deaths is not war or terrorism – it’s a virus. Gates states that the U.S. needs to treat pandemic preparedness the same way we treat military readiness: we need to have people, equipment, and plans in place and ready to go at a moment’s notice.

Other warnings were ignored as well. In the fall of 2019, a government exercise revealed that the U.S. was woefully unprepared for a pandemic. In January 2020, U.S. intelligence agencies’ warnings that a pandemic was on its way went unheeded. Also in January, a medical mask manufacturer in Texas contacted senior federal government officials and offered to increase production of masks but was ignored. [3] The country – and the world – later scrambled to address serious shortages of these masks.

In addition to providing a direct response to the disease, public infrastructure is critical to supporting society and the economy in the wake of a pandemic. An essential response to the economic shutdown is to provide unemployment benefits. However, the state unemployment systems that deliver these benefits are a case study example of public sector systems and agencies that have been under-invested in and allowed to decay. State unemployment agencies have been completely overwhelmed and unable to deliver benefits, despite the availability of funding for emergency benefits. Applicants in states across the country report an inability to get a response from their state unemployment agencies. [4] An important factor has been old computer systems that are unable to support the workload and respond to changed eligibility requirements and benefits.

Similarly, the Small Business Administration has been overwhelmed by requests for emergency relief. Its staff and technology have been unable to process applications, let alone get money out the door. The Internal Revenue Service is struggling to get stimulus checks to people due to years of cuts that have resulted in reduced staffing and antiquated computer systems. It has had problems identifying recipients and delivering checks accurately. The people most in need are likely to be the last ones to actually get checks.

The neglect of public investment has left our economy less resilient and our public and private, physical and social infrastructure less able to respond to a crisis, such as this corona virus pandemic. Basic democratic institutions and capabilities, such as holding safe and fair elections and delivering the mail, have been undermined.

In the response to this pandemic, as with the 2008 financial industry implosion, the government has stepped in to bail out corporations (and their wealthy executives and investors) first and foremost, providing them the protections of socialism for their losses in bad times, after having let them take the out-sized profits of capitalism in the good times.

However, despite the public bailout of the private sector, the private sector has let workers go by the millions, leaving them to depend on the public sector for a safety net of unemployment benefits, food and housing subsidies, public health insurance, and other essentials. The pandemic has shown that a capitalistic economy and society built on catering to the rich and their large corporations (a plutocracy), promising (falsely) that some of the riches will trickle down to the masses, is literally willing to sacrifice the lives of its elders and others vulnerable to disease for the sake of the wealth of its plutocrats. [5]

I hope we will learn some lessons from and implement long-term fixes for the critical issues in the U.S. economy and society laid bare by the pandemic. These lessons include the need to invest in public infrastructure (such as pandemic preparedness), address inequality and racism in our economy and society, and provide an effective safety net.

In my next post I’ll explore how the pandemic is exposing the underlying racism in U.S. society and the devastating effects it’s having on Blacks, Latinos, Native Americans, and immigrants.

[1]      Hanauer, N., 4/14/20, “Our uniquely American virus,” The American Prospect (https://prospect.org/coronavirus/our-uniquely-american-virus/)

[2]      Cohen, M. A., 4/12/20, “Decades of neglect in basic services now exposed,” The Boston Globe

[3]      Davis, A. C., 5/10/20, “HHS turned down offer to manufacture N95 masks,” The Boston Globe

[4]      Cohen, M. A., 4/12/20, see above

[5]      Hanauer, N., 4/14/20, see above

CORONA VIRUS PANDEMIC HIGHLIGHTS ILLS OF U.S. ECONOMY AND SOCIETY

The corona virus pandemic has highlighted critical issues in the U.S. economy and society that have led to unnecessary hardship, suffering, and deaths. These include the economic inequality, insecurity, and instability of plutocratic economics, where the playing field is tilted in favor of wealthy corporations and individuals and workers struggle to survive, in some cases literally, with this pandemic.

The neglect of public infrastructure is another such issue highlighted by the pandemic, including the inability of the government to respond effectively to the crisis and the weakened safety net that is now literally leaving people at risk of dying. The pervasive racism of U.S. society has been highlighted by the disproportional rate at which Blacks, Latinos, and Native Americans have gotten ill with COVID-19 and have died from it.

Although the Trump administration’s disorganized and incompetent response to the pandemic (aided and abetted by some in Congress) bears significant responsibility for the high death rate in the U.S. (as documented in this previous post), the larger context is important and provides many lessons that should be learned.

The pandemic has highlighted the value of and risks to front-line workers who meet essential needs, such as providing food, transportation, and care services. They typically receive low pay and often limited benefits (such as paid sick leave and health insurance). They are disproportionately people of color. They interact with the public and therefore are disproportionately likely to be exposed to the virus. Increasing numbers of them are part-time or contract workers who have little if any job security and typically no benefits, including not being covered by unemployment insurance.

Over the last 40 years, safety, health, and economic protections for workers have been undermined. This includes the weakening of the Occupational Safety and Health Administration and more recently the Consumer Financial Protection Bureau (see previous posts on this here and here). Unions, which provide important protections to workers, and the ability to unionize have been weakened. This has resulted in stagnant wages, deteriorating working conditions, and increased economic insecurity for the middle- and lower-income households.

One result has been the highest level of economic inequality in the U.S. in one hundred years. Over 40% of households don’t have $400 for an emergency expense, let alone the savings to support months of self-quarantine. Furthermore, over 40% of full-time workers get no paid sick time. And, given the employer-based health insurance system, a worker (and often his or her family) has no health insurance once he or she loses a job – as over 20 million Americans have by early May 2020. [1] (By the way, the Trump administration has refused to allow these workers to enroll in health insurance through the Affordable Care Act’s insurance marketplaces.)

Plutocratic economics’ beliefs that the private sector is the best solution for all of society’s needs and that bigger businesses are better have led to policies that have benefited the private sector and corporate shareholders and executives over everyone else and over the greater public good. Examples include corporate-friendly trade treaties, the failure to enforce antitrust laws, and the relaxation of corporate regulation, or perhaps more accurately, the skewing of it to benefit large, often multi-national corporations.

Plutocratic economics have resulted in near-monopolistic corporations in everything from the food industry to medical equipment suppliers and medicine manufacturers. The pandemic has highlighted the lack of capacity in the U.S. to produce important goods, including reliance on China for medical supplies needed to respond to a pandemic, such as medical masks and ventilators. It has also highlighted dependence on a few huge corporations and their plants for key food items, such as meat.

In the health care industry, forty years of deregulation, lack of antitrust enforcement, and increasing numbers of for-profit entities have led to, among other things, mergers and closures of hospitals in search of greater profits. This has left the U.S. with some of the lowest numbers of both doctors and hospital beds per capita among countries with advanced economies. This is particularly surprising given that the U.S. spends almost twice as much per capita on health care as other wealthy nations. (The U.S. also has notably worse health outcomes than these other countries, even in good times.) Many localities now have a single provider of hospital services and many rural communities have no local hospital services. (See this previous post for more detail.)

Another example of the failure of this privatized, for-profit health care industry, is that the federal government’s plan to produce thousands of ventilators for pandemic preparedness collapsed in 2012 when the government’s contracted supplier was purchased by a large manufacturer that shut the supplier because it didn’t produce sufficient profit.

Another industry where the vulnerability of our dependence on large, dominant corporations has been exposed is meat processing. The presence of a few dominant meat processors and weak regulation has created the conditions for the inability to supply meat that we are now experiencing. The spread of COVID-19 in the huge processing plants is forcing them to shut down. Fourteen major slaughterhouses, each of which may process 10,000 animals a day, have had to close at least temporarily. The huge Smithfield Foods pork processing plant in South Dakota, which had to close, produces about 4% of the country’s supply of pork. [2]

In pork processing, after decades of mergers that receive little or no antitrust scrutiny, the four largest corporations control at least 70% of the market. This is bad for producers and consumers. Pig farmers often face a single local purchaser for their pigs, leaving them vulnerable to monopolistic business practices. Furthermore, U.S. Department of Agriculture (USDA) regulation favors large slaughterhouses over small ones. The USDA inspection regime for large slaughterhouses has been relaxed to the point that most health and safety inspections are self-performed. The regulation of speed on production lines has been rescinded and workers now report they must move so fast that they can’t stop to cover their faces if they cough or sneeze. In addition, it means they are working shoulder to shoulder, conditions that make it impossible to stop the transmission of disease, such as COVID-19. In the beef market similar concentration has occurred. As a result, the large slaughterhouses are now making a profit of about $550 per cow, while the ranchers make only about $25.

My next posts will discuss the neglect of public infrastructure and the pervasive racism in the U.S. and how they have been exposed by this pandemic.

[1]      Hanauer, N., 4/14/20, “Our uniquely American virus,” The American Prospect (https://prospect.org/coronavirus/our-uniquely-american-virus/)

[2]      Knox, R., 5/4/20, “Monopolies in meat: Endangering workers, farmers, and consumers,” The American Prospect (https://prospect.org/economy/meat-monopolies-endanger-workers-farmers-consumers/)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

THE PROOF IN THE PUDDING OF TRUMP’S CORONA VIRUS RESPONSE

Although President Trump and his administration have not been wrong about everything they have said and done, they’ve been wrong about most things. The ultimate proof is in the results. Although final results aren’t in yet, of course, the results as-of late April are pretty damning: [1]

  • 4% of the world’s population is in the U.S. (330 million)
  • 33% of the world’s COVID-19 cases are in the U.S. (929,000)
  • 25% of the world’s COVID-19 fatalities are in the U.S. (52,500)
  • The U.S. death rate is 50 times that of Australia and New Zealand (see details below)

I could stop right here, but as long as I’ve started, here are some facts to back up the laying of the blame for these statistics at the feet of Trump and his administration.

In 2018, the Trump administration dissolved the office of pandemic preparedness in the National Security Council and cut funding for the Centers for Disease Control and Prevention (CDC). Those groups would have been the leaders in responding to the pandemic, using a plan (that the Trump administration ignored) prepared after the Ebola crisis in 2014. Trump had been briefed by outgoing Obama administration officials about the plan and its importance, but obviously ignored the briefing and the plan. [2]

If the pandemic response plan had been followed, the federal government would have started getting equipment to doctors in late January or February (rather than late March and April), given that by mid-January intelligence reports were warning of a likely pandemic. On January 18, Health and Human Services Secretary Azar warned Trump of the threat of the corona virus outbreak in Wuhan, China, which had begun in December 2019. As U.S. diplomats were being evacuated from Wuhan, cases of the virus were confirmed in South Korea and the U.S. (on Jan. 22).

The week of January 20th, South Korea began mass production of test kits for the virus and the World Health Organization (WHO) declared a global health emergency, while Trump did nothing. When China locked down Hubei Province (where Wuhan is located), Trump banned entry of foreigners from China but did nothing else.

By February, there were fourteen COVID-19 cases in the U.S. but few test kits for it – and the initial ones from the CDC proved faulty. Trump was actively downplaying the threat, saying things like, “We pretty much shut it down.”

On Feb. 25, the CDC announced that daily life could be seriously disrupted. It noted that containment was not in place, nor was the testing needed to effectively execute it. Meanwhile, Trump called the emerging crisis a hoax by Democrats. With 100 cases in the U.S., Trump declined to declare a national emergency. Testing in South Korea was ramping up 40 times faster than in the U.S.

Trump didn’t declare a national emergency until March 13th, when there were 1,645 cases in 47 states. [3] Even then, Trump did not take the steps needed to ensure the availability of sufficient test kits and of the equipment needed by hospitals and front-line workers.

In late April, even the military – the defenders of our country – can’t get enough COVID test kits. It is testing 7,000 troops a day and hopes to be able to test 60,000 a day by June – over eight times as many as it can test now. This would allow it to test all military personnel by some time this summer in order to ensure their readiness to fight.

Trump’s daily press briefings are more misinformation than information because he doesn’t attend corona virus task force meetings and doesn’t prepare for the press briefings. The official in charge of the agency working on vaccine development has been fired, apparently for political reasons, and there’s regular speculation on whether Trump will fire the other experts in the federal government who correct his press briefing statements. Trump appears to be detached from reality, indifferent to the suffering, and focused on the well-being of his ego and on his political popularity rather than the well-being of the American public and managing a public health crisis.

In case you’ve been wondering, the course of the pandemic is different with different leadership. In Australia (AU), with a conservative Prime Minister (PM) and states with significant power as in the U.S., there are just a handful of new cases a day, down from hundreds in March, while there are 25,000 – 30,000 new cases a day (and growing) in the U.S. The situation is the same in New Zealand (NZ) with a progressive Prime Minister.

In both Australia and New Zealand, partisanship has been put aside, experts and data are driving the response, and coordination and collaboration are the operating principles. Leaders in both countries responded to their country’s first case (1/25 in AU and 2/28 in NZ) with strong action and clear warnings. In Australia, the PM labeled the outbreak a pandemic on Feb. 27, two weeks before the WHO did and two weeks before the declaration of a national emergency in the U.S. He formed a national taskforce of federal and state leaders who worked together to build hospital capacity and guide the response. In New Zealand, the PM ordered a total lockdown less than one month after the first case. [4]

The results:

  • Australia (population 25 million): first case Jan. 25
    • 6,670 cases (27 per 100,000 people), <1% daily rate of new cases
    • 78 deaths (0.3 per 100,000 people)
  • New Zealand (population 5 million): first case Feb. 28
    • 1,456 cases (29 per 100,000 people), <1% daily rate of new cases
    • 17 deaths (0.3 per 100,000 people)
  • United States (population 330 million): first case Jan. 22
    • 929,000 cases (282 per 100,000 people), 3.5% daily rate of new cases
    • 52,500 deaths (15.9 per 100,000 people)

Leadership does make a difference. The U.S. would better off if Trump would simply get out of the way and let others lead – and had done so three months ago. His “leadership” has done startling harm. Given that the death rate in the U.S. is 50 times that of Australia or New Zealand, it seems safe to say that Trump’s lack of leadership has led to tens of thousands of unnecessary deaths.

[1]      Cohen, M., 4/26/20, “Say it loud, say it clear: Donald Trump needs to resign,” The Boston Globe

[2]      Reich, R., 4/16/20, “Trump’s failed coronavirus response,” The American Prospect (https://prospect.org/coronavirus/trumps-failed-coronavirus-response/)

[3]      Trump Administration, 3/13/20, “Proclamation on Declaring a National Emergency Concerning the Novel Coronavirus Disease (COVID-19) Outbreak,” (https://www.whitehouse.gov/presidential-actions/proclamation-declaring-national-emergency-concerning-novel-coronavirus-disease-covid-19-outbreak/)

[4]      Cave, D., 4/26/20, “Australia and New Zealand pave the way for virus eradication,” The Boston Globe from the New York Times

THE TRUMP ADMINISTRATION’S SWAMP OF CORRUPTION Part 2

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

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

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

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

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

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

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

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

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

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

THE TRUMP ADMINISTRATION’S SWAMP OF CORRUPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

BIG BUSINESS HAS FAILED US IN THE PANDEMIC

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

REMEDIES FOR THREATS TO OUR ELECTIONS

My previous post highlighted threats to our election and voting systems. There are remedies for these threats, including the new and exacerbated ones due to the corona virus pandemic.

Surprisingly, there are lessons about cybersecurity that we should learn from Estonia. As a former state within the Soviet Union, it has decades of experience with Russian propaganda. It also has over a decade of experience dealing with Russian cyberattacks. In 2007, Russian hackers executed the first politically motivated cyberattack against a nation, bringing down much of Estonia’s Internet. They disabled government, newspaper, and bank websites. In response, Estonia built a Cyber Defense League based on a small staff and budget ($300,000) and a network of hundreds of volunteers. The volunteers do public education and plan simulated cyberattacks to test the government’s response. Estonia also has an ambassador at-large for cyber diplomacy and a federal Information System Authority that includes a cyber emergency response team. [1]

Estonia’s national government offers free cybersecurity trainings and screenings to candidates and political parties. In the lead-up to each election, it holds a hackathon where security experts try to break into the country’s election systems. Any vulnerabilities and the steps taken to fix them are publicly reported. The State Electoral Office has a working group that meets daily during elections to monitor the media and identify disinformation campaigns.

When Estonia joined NATO in 2004, it proposed hosting a center for cyber defense. Initially, NATO members were cool to the idea, but after Russia’s attack on Estonia in 2007, NATO agreed to create the NATO Cooperative Cyber Defense Center of Excellence housed in Tallinn, Estonia. It now hosts the largest cyber defense exercise in the world with over 1,200 participants from nearly 30 countries. In April 2019, the exercise’s scenario involved a coordinated cyberattack during a national election that affected vital services and also sought to manipulate public perception of the election results.

Estonia has become the model for countries working to counter Russian (and other) electronic meddling. It has developed cybersecurity expertise and a secure on-line voting system (over 40% of Estonians vote on-line). It requires high school students to take a 35-hour course on media and manipulation.

A key underlying element of Estonia’s preparedness for election meddling is broad public understanding that cybersecurity requires eternal vigilance, a sense of urgency, and a unity of purpose that leads to coordination among public agencies and private entities. These elements have, unfortunately, been lacking in the U.S. due to the lack of urgency from the Trump administration and Republicans in Congress about meddling in our elections.

To address cybersecurity and the other threats to our elections, and to ensure that everyone can vote safely and securely the U.S. needs to do the following: [2]

  • Establish an overarching national strategy on election security that coordinates efforts by governments, the private sector, academia, and the public,
  • Replace paperless voting machines with ones that have a paper backup and audit trail,
  • Expand alternative voting opportunities such as early voting and mail-in voting,
  • Enhance the ease of voter registration (e.g., on-line and same day registration) and the security of voter registration databases,
  • Provide federal funding to states to enhance voting systems and election-related security,
  • Increase oversight of and security requirements for vendors of voting systems,
  • Establish national standards for voting machines, registration databases, and voting procedures (e.g., post-election audits to verify the accuracy of results) to ensure that every eligible voter can vote safely and securely, and
  • Enhance the monitoring and response to misinformation and foreign attempts to influence our elections.

I urge you to contact your state election agency, often the Secretary of State, as well as your local, state, and national elected officials to encourage them to enhance the security and user-friendliness of our voting and election systems and procedures.

We need to make it as easy and as secure as possible for every citizen to vote!

[1]      Bryant, C. C., 2/4/20, “Cybersecurity 2020: What Estonia knows about thwarting Russians,” The Christian Science Monitor (https://www.csmonitor.com/World/Europe/2020/0204/Cybersecurity-2020-What-Estonia-knows-about-thwarting-Russians)

[2]      Brennan Center for Justice, retrieved 3/20/20, “Defend our elections,” (https://www.brennancenter.org/issues/defend-our-elections)

HEIGHTENED THREATS TO OUR ELECTIONS

Our election and voting systems were facing serious challenges before the corona virus pandemic hit; it has added new challenges and exacerbated old ones. Although the final federal election isn’t until November, state and local elections are occurring (or getting postponed) now, including primaries for the federal election.

The need to postpone elections or adjust procedures for them due to the pandemic highlight the need for effective voter communication and the threat of misinformation. Voters need to know about changes in the date of an election or the location of a polling place, e.g. to move it out of a senior living facility. Voters also need to know about changes in voting procedures such as expansions of early voting and absentee / mail-in voting.

Changes in election dates and procedures provide fertile ground for misinformation that could suppress voting or manipulate it for partisan or other purposes. The pandemic also provides opportunities for divisive misinformation aimed at stirring up social unrest and manipulating election outcomes. Such misinformation can also be used to undermine trust in government and our elections. [1]

One election strategy for addressing the challenge of keeping a safe social distance from others to limit the spread of the virus would be to conduct as much voting as possible by mail. For state or localities that have the capacity, mail-in ballots could be sent to every registered voter. In other places, absentee voting could be expanded to include anyone who would prefer to vote by mail. The options for requesting an absentee ballot should be expanded to include mail, on-line or email, phone, and in-person requests.

Before the corona virus hit, our voting systems and elections were vulnerable to operational glitches and ill-intentioned manipulation. Most states use electronic voting systems that are at least a decade old and prone to malfunction. Their software is old and doesn’t have up-to-date protections from hacking. Many states have voter registration databases that are similarly antiquated and vulnerable to hacking. Finally, poor design of ballots in some states leads to voter confusion and errors in voting. [2]

Issues with our voting and election systems are of particular concern given Russian cyber attacks on the 2016 U.S. election. Russian hackers probed election networks in all 50 states, breached at least one state voter registration database, attacked local election boards, got into at least two Florida counties’ computer networks, and infected the computers at a voting technology company. Russians hacked into the Clinton campaign’s email system and two units of the Democratic National Committee, stealing hundreds of thousands of documents and emails. These purloined documents then were leaked at multiple times, frequently when the timing had particular benefit for the Trump campaign. [3]

In addition, Russian entities engaged in extensive election-related misinformation campaigns in 2016. Probably most notably, the Internet Research Agency (IRA), a Russian government-linked organization, reached over 100 million Americans via social media using a budget of over $1 million a month. Through 470 Facebook accounts and 3,814 Twitter accounts, the IRA reached over 127 million people.

The goal of the Russian social media campaign was to sow political discord in the U.S. and to build doubts about American democracy by undermining trust in our political institutions, including the validity of our elections. It used hot-button topics such as race, immigration, and religion to inflame political polarization and heighten fear and confusion. Russia seeks to undermine and delegitimize Western democracies in general, both to boost its own international prestige and to discourage democratic aspirations at home. It hopes to exacerbate divisions within the U.S. and also to fracture NATO and other international alliances.

The U.S. Justice Department’s Mueller investigation of Russian interference in the 2016 election led to the indictment of 25 Russian individuals and three Russian organizations. They had infiltrated individual, public, and private computers and networks, including voting lists and banking systems.

Although a federal information clearinghouse for election infrastructure has been created and $380 million was provided to states for election security, most cyber experts believe our election infrastructure is quite vulnerable. In January 2019, the U.S. Director of National Security warned that Russia was looking at opportunities to advance its interests in our 2020 elections and that it would use social media to weaken our democratic institutions, influence U.S. policies, and undermine U.S. alliances and partnerships.

My next post will outline steps we should take to ensure the accessibility and security of voting for all citizens.

[1]      Weiser, W. R., & Feldman, M., 3/16/20, “How to protect the 2020 vote from the coronavirus,” Brennan Center for Justice (https://www.brennancenter.org/our-work/policy-solutions/how-protect-2020-vote-coronavirus)

[2]      Brennan Center for Justice, retrieved 3/20/20, “Election security,” (https://www.brennancenter.org/issues/defend-our-elections/election-security)

[3]      Bryant, C. C., 5/14/19, “Amid growing concerns about 2020, a primer on Russian election interference,” The Christian Science Monitor (https://www.csmonitor.com/USA/Politics/2019/0514/Amid-growing-concerns-about-2020-a-primer-on-Russian-election-interference)

WORKERS’ PAY NOT GROWING AND INEQUALITY STILL HIGH

Despite what President Trump said in his State of the Union speech, workers’ pay is still not growing. While the January 2020 monthly data on the dollar amount of earnings showed an increase from a year earlier, when adjusted for inflation and fringe benefits, workers’ overall compensation has declined.

The detailed quarterly data released in December 2019 showed that the dollar amount of average wages had increased 6.8% over the last three years, but that total compensation had declined after adjusting for inflation and fringe benefits. Over the three-year period from 2016 to 2019, the average dollar amount of wages (i.e., “nominal” wages) had increased from $22.83 to $24.38 per hour (i.e., $45,660 to $48,760 per year).

After adjusting for inflation (i.e., the decline in the purchasing power of a dollar), “real” wages had increased only 0.4% over the three years from 2016 to 2019. [1]

Total compensation (including fringe benefits such as health insurance, retirement contributions, and bonuses) declined 0.2% over the three years. The inflation-adjusted value of fringe benefits declined 1.7%. Since fringe benefits are almost one-third of total compensation, their decline wiped out the small increase in wages.

Meanwhile, income inequality continues to grow as compensation for high income individuals grows substantially while the average workers’ compensation is declining.

For workers with the lowest 10% of wages, increases in the minimum wage have boosted pay. Between 2013 and 2019, 26 states and D.C. (but not the federal government) have increased their minimum wages. This led to wage growth of 17.6% over this six-year period for low-wage workers in these areas, as compared to only 9.3% growth in states that did not increase their minimum wages. [2]

The black-white wage gap is growing and is substantially larger now than it was in 2000. After adjusting for differences in education, age, and other relevant worker characteristics, the black-white wage gap as-of 2019 is 14.9%, up from 10.2% in 2000. (The gap is 26.5% without the adjustment for worker characteristics.) Meanwhile, the Hispanic-white wage gap narrowed to 10.8% in 2019, down from 12.3% in 2000 (adjusted for worker characteristics). [3]

The gender pay gap is still substantial. A woman earns 77 cents for each $1 a man earns: a 23% gap after adjusting for differences in education, age, and other relevant worker characteristics. (The gap is 15% without the adjustment for worker characteristics.) The gender wage gap narrowed slightly from 2000 to 2019.

The defining features of the U.S. labor market over the last 40 years have been slow growth in wages and rising inequality, despite steady increases in worker productivity. The median hourly wage is $19.33, less than $40,000 a year. (The median wage is the point in the distribution of wages where half of workers get less and half of workers get more. The average wage is higher than the median wage because of the very high wages at the top of the distribution.)

The slow growth of wages, despite growing productivity, cannot be explained by education levels, increases in fringe benefits, or factors other than the decreasing clout of workers and the increasing power of employers and corporate executives. This is the result of policy decisions, largely by the federal government, that have reduced the power of workers, mainly by making it harder to organize unions and more difficult for unions to bargain collectively on behalf of workers. [4]

[1]      Salkever, D., 3/1/20, “Blue collar bust,” The Boston Globe

[2]      Gould, E., 2/20/20, “State of working America wages 2019,” Economic Policy Institute (https://www.epi.org/publication/swa-wages-2019/)

[3]      Gould, E., 2/27/20, “Black-white wage gaps are worse today than in 2000,” Economic Policy Institute (https://www.epi.org/blog/black-white-wage-gaps-are-worse-today-than-in-2000/)

[4]      Gould, E., 2/20/20, see above

THE LEGACY OF WARREN’S RUN FOR PRESIDENT

As a policy wonk and someone who believes governments have an important role to play in addressing issues in our economy and society, I’m disappointed to see Sen. Elizabeth Warren drop out of the Democratic presidential race. Her highlighting of the work we need to do on social and economic justice will have a lasting legacy.

Warren has more clearly and specifically laid out a progressive vision for this country than anyone since President Franklin D. Roosevelt. She spelled out not only what that vision looked like but how to achieve it. She focused attention on the role of government, who it is supposed to work for in a democracy, and how those with wealth and power have undermined the basic principles and promise of our democracy. [1]

The detailed roadmap Warren put forth of how to solve problems in our society and economy, and to return to government of, by, and for the people will, fortunately, long outlive her presidential campaign. In February 2019, she put forth the first of her numerous plans to address our problems with a proposal to make affordable, high quality child care available for all children under school age. And she put forth her proposal for a wealth tax on ultra-millionaires as the way to pay for it and a number of her other plans.

Warren next presented a plan to break up and regulate the Big Tech corporations that are engaging in monopolistic practices and abusing the personal information they gather from all of us. She followed this up with a proposal to reverse decades of racist housing policies implemented by governments at all levels along with private sector lenders and the real estate industry. She followed up with plans to tackle the cost of higher education and student debt, a detailed plan to pay for health care for all, and policies to lessen the influence of big corporations and wealthy individuals in our policy making process.

Warren’s meticulous policy proposals set the agenda for the Democratic race for the presidential nomination. Hopefully, they will set the agenda for the final presidential race and future policy debates in Congress and governments at all levels.

Her proposals and arguments on the campaign trail hammered home the message that America’s problems are not inevitable but are the results of choices reflected in government policies. Warren highlighted how these decisions have been driven by the power of wealthy individuals and corporations, and how they have put their profits, power, and personal gain ahead of the common good.

Warren’s abilities as a storyteller made our problems and her solutions resonate with many Americans, as she wove her personal life story and America’s history into a clear, understandable, and persuasive narrative.

In keeping with her message that government needs to better serve the broad public, she raised the majority of her campaign’s $92 million (which, sadly, is necessary to run a competitive campaign these days) from small donors giving $200 or less. She refused to hold big ticket fundraisers where attendees make contributions in the thousands of dollars. She received more than half of her fundraising total from women, which is highly unusual if not unprecedented. This all demonstrated, as Sen. Sanders has as well, that a viable presidential campaign can be run without relying on large sums of money from wealthy individuals (who have vested, special interests). [2]

Warren has changed the way many Americans view our society and economy. Many people have learned about a wealth tax and the racial wealth gap for the first time, for example.

I believe she has changed the course of our country. Only time will tell how quickly and extensively her vision will affect the policies of our governments and the characteristics of our economy and society.

[1]      Voght, K., 3/5/20, “What Elizabeth Warren taught us,” Mother Jones (https://www.motherjones.com/politics/2020/03/what-elizabeth-warren-taught-us/)

[2]      Hasan, I., & Monnay, T., 3/5/20, “Low on cash and delegates, Warren ends her White House bid,” OpenSecrets.org, Center for Responsive Politics (https://www.opensecrets.org/news/2020/03/warren-ends-her-bid/)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

UNDER-TAXED CORPORATIONS AND WAYS TO MAKE THEIR TAXES FAIRER

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CORPORATE LOBBYING AND WHAT THEY GET FOR IT

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

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

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

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

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

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

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

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

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

HOW CORPORATIONS MANIPULATE PUBLIC POLICY

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

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

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

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

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

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

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

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

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

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

NO BENEFITS FOR WORKERS FROM THE 2017 TAX CUT ACT DESPITE THE PR

The actual effects versus the claimed effects of the Tax Cuts and Jobs Act (TCJA) are becoming clearer all the time. (The TCJA is the December 2017 tax cut bill rushed into law by Republicans in Congress and President Trump.) A previous post provided a summary of what the TCJA did, the promises made about its effects, and the actual effects of the law. My last post reviewed the largely failed provisions that were supposed to tax the profits of multinational corporations more fairly.

Promised benefits for workers have failed to materialize and claims that the Tax Cuts and Jobs Act resulted in bonuses and wage increases for workers are unfounded. When President Trump signed the TCJA in December 2017, he stated that corporations would give “billions and billions of dollars away to their workers.” This has not happened.

Over the last two years, there has been no increase in workers’ compensation that can be attributed to the TCJA. In the short-term, to support the President and the rationale for the TCJA, some large corporations asserted that the bonuses they gave to workers in late 2017 were due to the TCJA. These bonuses were largely a public relations stunt. A few of those employers, such as AT&T and Walmart, engaged in major publicity around giving workers bonuses and then quietly laid off thousands of workers shortly thereafter.

The TCJA did incentivize the shifting of one-time bonuses from 2018 into 2017. Because expenses recorded in 2017 reduced 2017 profits when the tax rate was higher than it would be in 2018, it was advantageous to book as many expenses as possible in 2017. The value of the deduction of expenses, including the bonuses, from profits was more valuable under the 35% tax rate in place in 2017 than it would be in 2018 when the tax rate would only be 21%. In other words, it was cheaper for the corporations to pay the bonuses in 2017 than it would have been to pay them in 2018. Moreover, the TCJA provided a perverse incentive for the bonuses to be only a one-time occurrence, because in 2018 and beyond there would be increased incentives to maximize profits because of the reduced tax rate, which might not stay at that low level forever.

Nonetheless, bonuses accounted for only 2.7% of workers compensation in 2017, only a slight increase from 2.5% in 2016. Furthermore, this was a one-time blip as bonuses have declined since then.

If the TCJA were to have long-term or permanent effects on pay and the number of jobs, they would only be realized over a period of months or years, not immediately upon passage of the law, because making the necessary investments takes time. For the TCJA’s cut in the corporate tax rate to create a long-term, permanent increase in workers’ pay, corporations would need to use their tax savings for investments in improved equipment, worker skills training, or other steps that would improve workers’ productivity. To permanently increase the number of jobs, corporations would need to invest in increased production capacity. [1] Therefore, any compensation increases or growth in the number of jobs announced in late 2017 and early 2018 that were claimed to be results of the TCJA were public relations (PR) stunts, not effects of the TCJA.

Furthermore, corporate profits and cash reserves were high before the enactment of the TCJA, so corporations already had the resources needed to increase workers’ compensation or expand production if they wanted to. They weren’t increasing workers’ compensation or the number of jobs before the TCJA and they haven’t done so afterwards.

As background, corporate profits had risen dramatically from 5% of Gross Domestic Product (GDP, the total output of the U.S. economy) in 1990 to 9% in 2019, after having been largely in the range of 5% to 7% from 1952 to 1990. Furthermore, corporate taxes have been falling since the 1950s, so corporations have been keeping more of their profits. Taxes on corporate profits were 5% of GDP in 1952 and fell to 4% from the late 1950s to the late 1960s. They fell further to 3% of GDP from 1970 to 1980, and then to roughly 2% of GDP from 1982 until 2017. [2]

The bottom line is that the Tax Cuts and Jobs Act of 2017 has delivered none of the promised benefits for workers and low- and middle-income households, but has delivered much greater benefits than were promised (or admitted to) to wealthy individuals and to large, particularly multi-national, corporations. Increases in workers’ compensation that have occurred since the passage of the TCJA are ones that economic analysis indicates would have occurred anyway. Business investment and economic growth have not increased as promised. The promise of more fairly taxing multi-national corporations’ profits to increase tax revenue and discourage the shifting of profits and jobs overseas has been undermined. The multi-national corporations’ lobbying campaign got rules and regulations written for the implementation of the TCJA that significantly reduced the expected taxes on their profits. (See my previous post for more details on this.)

The truth about the Tax Cuts and Jobs Act is that despite the promises and public relations announcements that said otherwise, it has been a huge windfall for wealthy corporations and individuals, and of little or no benefit to workers. Historical experience and economic analysis indicated this would be the result in advance of TCJA’s enactment. The claims of benefits trickling down to workers from tax cuts for corporations and wealthy individuals had been convincingly rebutted. Nonetheless, proponents of the TCJA used this claim to argue for its tax cuts.

I believe many of the people who supported and voted for the TCJA knew what its actual effects would be. They lied about it because admitting that they wanted to enrich their political supporters and big campaign donors would have been unseemly and a political liability.

[1]      Corser, M., Bivens, J., & Blair, H., Dec. 2019, “Still terrible at two: The Trump tax act delivered big benefits to the rich and corporations but nearly none to working families,” The Center for Popular Democracy and the Economic Policy Institute (https://www.epi.org/files/uploads/20191211_Trump-Tax-Bill-R6.pdf)

[2]      Corser, M., Bivens, J., & Blair, H., Dec. 2019, see above

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

LIES ABOUT THE 2017 TAX CUT ARE NOW CLEAR

The effects of the December 2017 tax cut bill, the Tax Cuts and Jobs Act (TCJA), rammed through by Republicans in Congress and President Trump, are now quite clear. I’ll provide a summary of what it did, note the promises that were made about its effects, and then review its actual effects.

The 2017 Tax Cuts and Jobs Act, among other things:

  • Permanently cut the corporate tax rate from 35% to 21% (the lowest level since 1939)
  • Repealed the 20% corporate alternative minimum tax (which had required profitable corporations to pay at least some taxes on their profits)
  • Allowed up to $63,000 of pass-through business profits to go untaxed to help small businesses (supposedly). (These are profits from businesses that are not taxed because they are passed through to and taxed on an individual’s tax return.)
  • Provided significant tax benefits to corporations for investments in facilities and equipment, as well as for borrowing money
  • Adjusted the taxation of multinational corporations to more fairly tax their profits, for example, by increasing taxes on profits shifted to overseas entities and by incentivizing corporations to repatriate trillions of dollars of profits previously stashed overseas
  • Doubled the size of an estate that is exempt from taxation from $5 million to $10 million per person
  • Repealed the requirement of the Affordable Care Act (aka Obama Care) that individuals have health insurance or pay a tax to support the health care system
  • Made changes in the personal income tax system that are generally neutral for most taxpayers, although several of the tax reduction provisions are scheduled to expire in 2025

The supporters of the TCJA, including Members of Congress, the President, corporate executives, and wealthy shareholders all promised that it would:

  • Provide a sizable tax cut for workers and middle-income people, while increasing taxes on high-income people
  • Increase wages and workers’ incomes by $4,000 a year
  • Increase business investment, and hence worker productivity, the number of jobs, and economic growth in the U.S.
  • Limit the increase in the federal government’s deficit to $150 billion a year
  • Discourage the shifting of corporate profits and jobs overseas through new taxes, while also increasing tax revenue by giving corporations an incentive to bring up to $4 trillion of profits stashed overseas back to the U.S. by reducing the taxes they would have to pay on those profits. (More on this topic in my next post.)

The actual effects of the TCJA have been: [1]

  • No discernable wage increase due to the TCJA. In fact, wage growth appears to have slowed in 2019.
  • Clear failure to increase business investment; no increase in 2018 and a significant decline in the first 9 months of 2019. When the TCJA was enacted in 2017, year-over-year investment growth was at 5.4%. However, it has been dropping sharply and was only 1.3% in the third quarter of 2019 (the latest data available). [2]
  • Larger than projected decline in federal corporate tax revenue, which was expected to be $96 billion a year (roughly a 26% tax cut). As a result, the deficit is increasing by about $30 billion a year more than the $150 billion a year that was promised. The deficit is projected to increase to over $1 trillion a year in 2020.

    The latest information suggests that the decline in revenue and the increase in the deficit may be even larger. (More on this in my next post.) The Congressional Budget Office now estimates that the deficit (including interest payments) will be an average of $230 billion a year higher over the next 10 years due to the TCJA and $310 billion a year higher in 2028.

    The federal government’s revenue from corporate taxes had already been declining as a portion of total federal tax revenue, largely due to corporate tax evasion and avoidance. The trend of declining tax revenue from corporations has been accelerated by the TCJA, which cut corporate taxes by about 26% or $96 billion a year. The corporate tax cut has primarily benefited corporate shareholders, at least in the short run; the 10% wealthiest households own roughly 80% of corporate shares and, therefore, these already wealthy households are the primary beneficiaries of the corporate tax cuts. [3]

  • Business profit pass-through tax exemption, supposedly targeted at small businesses, has largely benefited millionaires, which isn’t what most people think of when they think of a small businessperson. This shouldn’t have been a surprise to anyone, as 49% of pass-through income appears on the tax returns of the richest 1% of taxpayers.
  • Increase in income and wealth inequality along both class and racial lines. Rich corporate executives and wealthy shareholders have been enriched at the expense of workers. White households are 67% of taxpayers but are estimated to receive 80% of the TCJA’s benefits, and most of this will go to the 5% of households with the highest incomes, i.e., over $243,000 a year. The average tax cut for a Black household has been $840, but $2,020 for a White household. For families with incomes under $25,000, the average tax cut has been about $40.

    In 2018, the 5% of individuals with the highest incomes received nearly 50% of the TCJA’s benefits. After the individual tax cuts expire in 2025, the 1% of households with the highest incomes will receive 83% of the benefits of the TCJA.

  • A bigger tax cut for foreign investors than for low- and middle-income households in the U.S. Foreign investors, as a group, will receive an estimated $38 billion tax cut from the TCJA in 2020, while the 20% poorest households in the U.S., as a group, will receive an estimated $2 billion.

The bottom line is that the Tax Cuts and Jobs Act of 2017 has delivered none of the promised benefits to workers and low- and middle-income households, but has delivered much greater benefits than were promised (or admitted to) to large, particularly multi-national, corporations and to wealthy individuals. Economic benefits for workers and low- and middle-income households have not materialized and there is no reason to expect them to. Business investment and economic growth have not increased as promised. The promise of more fairly taxing multi-national corporations’ profits to increase tax revenue and discourage the shifting of profits and jobs overseas have not lived up to the promises made, and the most recent findings indicate that this failure has been more dramatic than was initially realized. (More on this topic in my next post.)

The loss of revenue for the federal government is significantly larger than was projected and, therefore, the increase in the federal budget deficit is much greater than what was promised.

[1]      Corser, M., Bivens, J., & Blair, H., Dec. 2019, “Still terrible at two: The Trump tax act delivered big benefits to the rich and corporations but nearly none to working families,” The Center for Popular Democracy and the Economic Policy Institute (https://www.epi.org/files/uploads/20191211_Trump-Tax-Bill-R6.pdf)

[2]      Blair, H., 12/17/19, “On its second anniversary, the TCJA has cut taxes for corporations, but nothing has trickled down,” Economic Policy Institute (https://www.epi.org/blog/on-its-second-anniversary-the-tcja-has-cut-taxes-for-corporations-but-nothing-has-trickled-down/)

[3]      Corser, M., Bivens, J., & Blair, H., Dec. 2019, see above

YEAR-END REFLECTIONS ON DEMOCRACY AND THE PROGRESSIVE MOVEMENT

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CHARITARIANISM VERSUS PHILANTHROPY

At this time of year, when charity, giving, and philanthropy are receiving lots of attention, it’s appropriate to reflect on their roles, goals, and philosophies. Often, charity and philanthropy are lumped together and not differentiated, but, technically, there is a difference.

Simply put, charity is about the receiver and philanthropy, narrowly defined, is about the giver. Charity is about helping people – reducing hardship and suffering, making other people’s lives better. Philanthropy, narrowly defined, is about the donor feeling good for having done something meritorious, perhaps relieving guilt, and receiving credit, publicity, and acknowledgement for having done a good deed. Lawrence Berenson, a wealthy financier, has been promoting “charitarian” behavior as opposed to philanthropic behavior. [1]

With this perspective, it isn’t hard to see some philanthropy as self-serving, such as when donors give large amounts of money to well-established, already wealthy institutions to have their names on buildings, professorships, or other high visibility items. A current example is the attention that’s now focused on the philanthropy of the Sackler family. They are the owners of Purdue Pharma and the aggressive, unethical purveyors of Oxycontin. Their drug and their actions were huge contributors to the opioid crisis. Tufts University recently announced that it would remove the Sackler name from several facilities given the taint on how the Sacklers made the money used for their donations. The Sackler family has responded by threatening a lawsuit.

An underlying requirement for high-profile, large-scale philanthropy is great wealth in the hands of individuals. Therefore, it is inextricably linked to high levels of economic inequality. [2] This was true of the great industrial fortunes of the Gilded Age at the turn of the 20th century and is true of the large fortunes created in the last few decades from financial investing and speculation, as well as from high technology companies. The large fortunes of today (e.g., Gates, Bezos, Zuckerberg, Buffet, Waltons, etc.) are larger than those of the Gilded Age and have relatively young, living owners.

In both the Gilded Age and today, philanthropy has been viewed simultaneously as a social good and a social menace. The high levels of economic inequality required for large-scale philanthropy are linked to inequality in political power, as important decision-making that has significant effects on the public and society is in the private hands of a few very wealthy individuals (i.e., how to use, including in philanthropic ways, great personal wealth). This is profoundly undemocratic. [3] Large-scale philanthropy, whether directly from individuals or through foundations, is largely lacking in public transparency and accountability; the public is not involved and has no say or oversight. [4] Berenson, the promoter of charitarianism, is a founding member of Patriotic Millionaires, which is promoting discussions of solutions to political and economic inequality in the U.S. (You can watch a 28 minute YouTube interview of him on these topics here.)

By some measures, today’s philanthropy is broader than in the past; tens of thousands of new foundations have been created in the last 30 years. Both today and in the Gilded Age, the philanthropy of the wealthy has often been done through foundations. However, this recent surge in foundation creation is in part stimulated by tax avoidance because by putting money into a foundation the owner can claim it as a charitable deduction and significantly reduce income taxes. [5]

Foundation-based philanthropy can be very inefficient. Many foundations have high overhead expenses, such as nice office space and large staff expenses for running the foundation. In part, this reflects the Internal Revenue Service (IRS) requirement that for foundations’ to be tax-exempt they must spend 5% of their assets (i.e., total value) each year. In addition to donations, this required spending can include operational expenses, such as the costs of office space and staff. Furthermore, there are many examples, particularly among smaller foundations, where many of a foundation’s employees are family members or friends who are paid very nice salaries or where the foundation funds other self-serving activities. Recently, a Donald Trump foundation emerged as a prominent example of this. New York State recently ordered it to pay fines and be shut down because of its inappropriate and self-serving spending. Moreover, many small foundations, for example a family foundation that wants to help address a health issue that afflicted a family member, give their money to another foundation that actually does research or provides medical care for that health issue. Therefore, the amount of money that actually goes to doing social good is reduced by multiple iterations of foundations’ overhead expenses. [6]

A fast-growing vehicle for philanthropy that has entered the mainstream only recently is the donor-advised fund (DAF). A DAF is like a miniature foundation; an individual gives money to a personal account typically setup and managed at a community foundation or an investment manager such as Fidelity, Schwab, or Vanguard. The donor can take an immediate tax deduction for the money put into the DAF but can designate the non-profit organizations to receive the money over time. [7]

Fidelity Charitable, a donor-advised fund manager, received over $9 billion in 2018, nearly triple the amount received by the largest traditional charity, United Way Worldwide. There is no required time window for the money in DAFs to be distributed to charities (such as the requirement that foundations spend 5% of their assets annually). Critics of DAFs note that this means that billions of dollars are sitting in these DAFs that otherwise would be going directly to help those in need if DAFs didn’t exist. Moreover, the DAF managers are making money on management fees; this means they have a disincentive to see the DAF monies donated. The managers also spend significant sums on promoting and marketing the use of DAFs because they make money on them. In other words, they promote these pseudo-charities in ways that real charities don’t or can’t promote themselves.

For over a century, large-scale philanthropy and foundations have had significant effects on public policies and programs. For example, the Gates Foundation had a major influence on the development of the Common Core educational standards. In 2008 and 2009, the Gates Foundation made large grants to the association of the states’ K-12 education commissioners and to the National Governors Association to build (buy?) their political support for the Common Core standards and to facilitate their development. Subsequently, adoption of the Common Core Standards has been incentivized by federal education funding. They were adopted by 42 states (although 4 states subsequently dropped them). [8]

Philanthropy today is more policy-oriented and politically aggressive than it has been in the past. This is both fueling and being driven by the current extreme partisanship in our society linked to political parties and extreme ideologies. It is also both a contributor to and a result of the decline in the effectiveness, respect for, and resources available to our public sector. This clearly has had a negative effect on our democracy and reflects the social menace aspect of large-scale philanthropy and the inequality related to it. Some scholars have made the case that there is a cause and effect link between increased political philanthropy and decreased civic engagement by citizens.

To promote charitarianism as opposed to philanthropy (narrowly defined) and to ensure that philanthropy’s potential for doing good wins out over its potential to be a social menace, oversight is needed to:

  • Ensure that foundations and donor-advised funds are focused on doing social good rather than being self-serving and that their focus is on benefiting the receivers (i.e., helping people and making the world a better place) and not on benefiting the givers (directly or indirectly)
  • Require greater public accountability and transparency, including public input and democratic decision-making
  • Ensure that foundations and donor-advised funds are not simply a vehicle for tax avoidance by the well-off

Without oversight, philanthropy can be a self-serving, self-perpetuating capitalistic enterprise as opposed to a charitarian one. To make philanthropy more charitarian, the inextricable link between philanthropy and economic inequality must be acknowledged and understood. Policies and regulations should be put in place to ensure that charity and a focus on the receivers take precedence over the self-interests and desires for recognition and acclaim of the givers.

[1]      Heffner, A., 11/3/19, “Charitarian patriotism,” The American Prospect (https://prospect.org/power/charitarian-patriotism-lawrence-benenson/)

[2]      Cohen, R. M., 9/21/16, “Q&A: Pulling back the curtain on education philanthropy,” The American Prospect (https://prospect.org/education/q-a-pulling-back-curtain-education-philanthropy/)

[3]      Soskis, B., 8/22/17, “Gift horse or Trojan Horse?” The American Prospect (This is a review of the book The Givers: Wealth, Power, and Philanthropy in a New Gilded Age by David Callahan.) (https://prospect.org/labor/gift-horse-trojan-horse/)

[4]      Soskis, B., 8/22/17, see above

[5]      Heffner, A., 11/3/19, see above

[6]      Heffner, A., 11/3/19, see above

[7]      Preston, C., 10/28/16, “Is Wall Street taking over charity?” The American Prospect (https://prospect.org/economy/wall-street-taking-charity/)

[8]      Cohen, R. M., 9/21/16, see above

VULTURE CAPITALISTS ARE IN OUR HEALTH CARE SYSTEM!

Private equity financiers (I described them as “vulture capitalists” in a previous post) have done extensive damage to individual firms (e.g., Toys R Us and Sears) and whole industries (e.g., food supermarkets and local newspapers). (See this previous post for more detail.) Private equity investing (i.e., “vulture capitalism”) is financial manipulation used to extract profits from companies without regard to the health or survival of the companies, or the welfare of their workers, customers, and communities. Vulture capitalism fails to produce benefits for anyone other than the rich private equity financiers.

Vulture capitalists, driven by profits and greed and nothing else, have taken a truly scary step: they are invading our health care system. The main focus has been on smaller community and rural hospitals.

Perhaps the most dramatic case to-date is the closing of Hahnemann Hospital by its private equity owner. The hospital was a 171-year-old institution in central Philadelphia that primarily served low-income patients of color. It closed in September 2019, 18 months after it was bought by a private equity vulture capitalist who apparently was only interested in harvesting some short-term cash and then closing it to sell the valuable downtown real estate to a developer. The land’s redevelopment will presumably further the gentrification of the area. [1]

Even without the entry of private equity money into the hospital industry, the industry has been consolidating, resulting in growing concentration and monopolistic power as has happened in so many industries in the U.S. in recent years. (See this previous post on the growth of monopolistic power in the U.S. economy.) By 2016, 90% of hospital markets were deemed to be highly concentrated. Nonetheless, in 2017, 115 more mergers and acquisitions were announced. Hospital executives tell antitrust regulators that their mergers and acquisitions will improve quality and increase efficiency (as executives do in other industries).

The result has been increased concentration and reduced competition. Even if costs do decline, consumers do not benefit from lower prices or reduced health insurance premiums. Increased concentration and monopolistic power allow hospitals to increase their profits by negotiating higher prices with health insurers. There is some evidence that with increased concentration health outcomes are worse and the quality of care is more inconsistent. [2]

The pattern of the vulture capitalists in the hospital industry is just like their mode of operation in other industries: buy hospitals using lots of borrowed money (i.e., a leverage buyout) and then make the hospitals pay off the loan and interest. Often the hospital’s real estate or facilities are sold to a separate entity (usually controlled by or affiliated with the vulture capitalist) and then leased back to the hospital, requiring it to pay rent. In addition, the private equity firm often takes large dividend payments and significant management or monitoring fees from the hospitals. (These actions are routine in private equity deals.)

Typically, these vulture capitalists plan to take their profits in 3 to 5 years and then sell off the hospitals or put them into bankruptcy. Rarely is there any commitment to making investments in technology, workers’ skills, or quality. Moreover, the costs the vulture capitalists load onto the hospitals (i.e., debt, rent, and other payments) often require them to cut costs elsewhere, such as through staff reductions or pay cuts, and the termination of services that aren’t the most profitable ones.

One somewhat unique feature of private equity firms’ purchases in the hospital industry is that the hospitals are usually small ones often in geographically dispersed areas. This means the mergers and acquisitions often fall under the radar of antitrust regulators. In some cases, the vulture capitalists will buy a bigger hospital first and then add several smaller ones.

When a private equity firm closes a whole hospital or specific services of a hospital, it can create real hardship for patients in the area. If the hospital, let alone a group of hospitals, is in a rural area, the result may be that hospital services are simply not available to residents without traveling substantial distances. For example, in 1996, the private equity firm Forstmann Little & Co. began building a portfolio of dozens of hospitals. In 2016, amid a series of restructurings and sales, it created Quorum Health Corp. that consisted of 38 small, mostly rural hospitals, 84% of which were the sole provider of acute-care hospital services in their areas. Quorum was saddled with roughly $1 billion in loans to repay. In the next three years, Quorum closed or sold 11 of these rural hospitals, often leaving area residents with no or limited access to acute medical care. [3]

The private equity industry’s model of vulture capitalism, where profits supersede any consideration of the well-being of companies’ workers, customers, communities, or the economy as a whole, might arguably be okay in retail businesses for non-essential goods, but in essential businesses vulture capitalism should not be allowed. It reduces the financial stability and resiliency of companies so they don’t have the resources to invest in innovation or quality and often are so financially stressed that they cannot survive.

In health care, this literally becomes a matter of life and death. The rules that govern our financial system must be changed to rein in the private equity industry and prevent its vulture capitalism from doing serious harm to individuals, communities, and our economy.

[1]      Applebaum, E., 10/7/19, “How private equity makes you sicker,” The American Prospect (https://prospect.org/health/how-private-equity-makes-you-sicker/)

[2]      Applebaum, E., 10/7/19, see above

[3]      Applebaum, E., 10/7/19, see above

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MEDICARE’S PROBLEMATIC PRIVATE OPTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A MIXED PUBLIC-PRIVATE HEALTH INSURANCE MARKET DOESN’T WORK

A serious debate about changing the U.S. health care system to a universal single-payer system, e.g., Medicare for All, is occurring. Some opponents of a single-payer system, who do want to expand access to health insurance, support a mixed system with both private health insurers and a public health insurance option, often referred to simply as a “public option.”

Unfortunately, the mixed public-private health insurance market some are proposing won’t achieve the efficiencies and quality of a single-payer system. It also won’t achieve universal coverage without substantial public expenditures. If universal coverage were achieved under such a mixed market, the government’s costs would be similar to or greater than those of a single-payer system but without its benefits of efficiency and quality.

There are three core problems with including private health insurers in our health care system (see this previous post for more details):

  • The private insurers will fragment the pool of insured people undermining the basic theory and efficiency of insurance – having a large pool of insurees with mixed risk profiles. Furthermore, the private insurers will work to enroll healthier people who are cheaper to serve, therefore maximizing profits, and leaving or dumping the higher cost, less healthy people in the public health plan. This and the ability of some, usually healthier people, to opt out if insurance isn’t mandated, further undermines the basis of an efficient insurance system with a large pool of people with mixed risks.
  • Private insurers have no financial incentive to maintain the long-term health of their enrollees because people change insurers frequently, for example when they change jobs. Therefore, private insurers do not have a long-term relationship with enrollees. Furthermore, profit not quality of care is the driving force for private insurers, so if denying coverage for services or providing low quality services produces more profit, that is what will happen.
  • Private health insurers spend a large portion of premiums (roughly 25%) on overhead, i.e., non-care expenses. This costs an estimated $570 billion a year and represents money that won’t be used to pay for health care services.

In a mixed market system, the presence of multiple payers (i.e., insurers) in the market means that the complexities of billing and administrative paperwork will not be eliminated as they would be with a single-payer system. Potential administrative and overhead cost savings will not be realized; they are estimated at $220 billion per year for insurers’ overhead expenses and $350 billion per year for the administrative costs of providers who have to deal with multiple sets of rules, regulations, co-pays, and forms. [1]

A single-payer system is the only way to both improve quality and control costs, as Dr. Donald Berwick (the former head of the Centers for Medicare and Medicaid Services (CMS), the federal agency that oversees those public health insurance programs) has stated. An example he cites to illustrate this point is an action he took when he was the head of CMS in 2010-2011. Data were showing that senior care facilities were using drugs to sedate patients whose behavior was challenging at times, rather than taking the time and energy to handle their behavior more appropriately. Given that Medicare and Medicaid pay for much of the care these facilities provide, he had the leverage to tell the facilities’ managers that they should address this problem or that he would develop regulations to deal with it. The result was that the facility managers reduced drug use and costs, while providing better care to their patients. Berwick could do this because he had the leverage as the primary payer (although not quite the only or single payer) for these services. [2]

The bottom line is that a mixed public-private health care system with multiple private insurers won’t work efficiently because:

  • Administrative and overhead costs will remain high,
  • The pool of people being insured will be fragmented and the private insurers will game the system to serve healthier people and maximize their profits, and
  • Improvements in quality will not occur because private insurers have no long-term incentive to keep enrollees healthy.

I urge you to study the policy proposals for our health care system; pay attention to the facts and ignore the scare tactics. If you do this and reflect on your experiences with our current health care system, I will be surprised if you don’t end up supporting a single-payer system. The transition to a single-payer system will not be easy and there will be bumps in the road.

The health care and related industries will lobby strenuously against it, but in the end a single-payer health care system will provide better health care and health outcomes for Americans and will save us all a lot of money. Remember that every other wealthy country in the world has a single-payer health care system and for half the per person cost of the U.S. system, they get better health outcomes, including everything from longevity to birth outcomes.

A mixed public-private health insurance market exists today under Medicare. An examination of it is very instructive in terms of how a mixed system would be likely to work if extended to those under Medicare’s eligibility age of 65, so I will summarize it in my next post.

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

[2]      Ready, T., 9/20/16, “Donald Berwick calls for ‘moral’ approach to healthcare,” Health Leaders Media (http://www.healthleadersmedia.com/quality/qa-donald-berwick-calls-moral-approach-healthcare) See in particular page 3 of the article.

MEDICARE FOR ALL: ONE WAY TO PAY FOR IT

The main critique of Medicare for All has been that it’s too expensive and that we can’t afford it. Or that the only way to pay for it would be a big tax increase on the middle class. My previous post discussed the big picture in the health care debate – should comprehensive health care be available and affordable for everyone or should it be left to the private market where people buy whatever they can afford. It also documented the consensus that Medicare for All would provide significant savings and reviewed the typically ignored costs of not having universal, comprehensive health care.

To counter criticism that Medicare for All is unaffordable, Senator Warren recently released a detailed proposal for how she would pay for Medicare for All and its estimated cost of $59 trillion over ten years. She identifies $7.5 trillion in savings to offset part of the cost and then identifies $52 trillion in revenue to pay for the remaining costs. The revenue would come from the following: [1] [2]

  • $31 trillion that is already being paid by the federal, state, and local governments for health care.
  • $9 trillion from a fee that employers would pay per employee instead of paying for a portion of employees’ health insurance. This is projected to SAVE employers $200 billion over ten years.
  • $3 trillion from a 3% annual tax on individuals’ wealth of over $1 billion and the annual collection of a tax on the increase in the value of investments (i.e., a capital gains tax).
  • $2.9 trillion from closing corporate tax loopholes on the earnings of multinational corporations and from reducing accelerated write-offs of equipment purchases.
  • $2.3 trillion from improved enforcement of existing tax laws by enhancing the IRS’s enforcement capacity and effectiveness.
  • $1.4 trillion from increased income taxes paid on the roughly $4 trillion increase in workers’ take-home pay because they would no longer have money deducted from their paychecks for the health insurance premiums of their employers’ health plan or for health savings accounts.
  • $900 billion from a financial transaction tax of 0.1% on sales of stocks, bonds, and other financial instruments (that’s a sales tax of $1 on every $1,000) and a fee on too-big-too-fail banks to reflect the risk they present to our economy.
  • $800 billion from eliminating the Defense Department’s Overseas Contingency Operations fund, which is basically a slush fund for military spending that was originally meant to be short-term funding for unanticipated expenses of wars in the Middle East.
  • $400 billion from immigration reform that allows undocumented workers to work legally and therefore pay taxes on their earnings.

Warren’s plan projects that over ten years about $11 trillion would go back into people’s pockets because they would no longer be paying the $20,000 per year the average family pays for private insurance premiums, co-pays, and deductibles. If insurance premiums are viewed as a mandatory expense that is essentially a tax, this would represent the largest tax cut in American history for low and middle-income households. [3]

The Warren plan projects savings of $7.5 trillion over ten years from:

  • Reducing payments to service providers to save $2.9 trillion.
  • Cutting administrative spending by $1.8 trillion, reducing it from the current 12% of private insurers’ premiums to 2.3%, which is what Medicare spends on administrative costs.
  • Saving $1.7 trillion on drug prices by negotiating prices and setting a price ceiling for each drug that is 110% of an international index. If a drug company won’t negotiate a price under that ceiling, the plan calls for revoking the drug’s patent and licensing other manufacturers to make the drug or having the government manufacture it directly.
  • Restraining the growth in health care costs to the rate of growth of the economy to save $1.1 trillion, setting an overall health care budget cap, if necessary.

These projected savings do not include likely savings from the benefits of broad implementation of preventive care or stronger enforcement of antitrust laws. Virtually every part of our health care system has become highly concentrated, which increases costs due to monopolistic power. For example, hospitals in 90% of metropolitan markets are highly concentrated due to the 1,667 hospital mergers that have occurred over the past 20 years.

Now that Sen. Warren has put out a detail proposal for paying for Medicare for All, opponents of Medicare for All will quibble over the specific estimates and whether these revenue sources are the best way to pay for Medicare for All. They may also shift their criticism to other aspects of the transition to Medicare for All. The transition will be complex because Medicare for All is a major restructuring of our health insurance system.

Warren proposes a four-year transition period in two steps. First, soon after she becomes President, everyone would be allowed to buy into Medicare and it would be free for anyone under 18 or with an income below twice the poverty line (about $51,000 for a family of four). Second, three years later, Warren would push legislation that would complete the transition to Medicare for All and eliminate private insurance except for very special situations. [4]

The bottom line is clear: Medicare for All can be paid for, it will lead to significant savings in health care, and most Americans will be better off both health care-wise and financially. Everyone who’s honestly analyzed Medicare for All acknowledges that there will be significant savings from reduced administrative and non-care overhead costs, as well as from cost controls and long-term health benefits due to increased preventive care and reduced barriers to accessing care when needed. As Dr. Donald Berwick, the former administrator of Medicare and Medicaid has said, based on his extensive experience, only a single-payer system can both improve quality and control costs.

Therefore, Medicare for All is a realistic policy option. After all, all the other developed countries in the world have some version of a national health care system that covers everyone, controls costs, and enhances quality. We can do this too!

Medicare for All will improve access to care for many Americans, reduce costs for almost all Americans, and increase people’s choices of doctors, hospitals, and other providers for everyone who now faces restrictions from their private insurers.

My next post will summarize the reasons why a single payer system is necessary for efficiency and quality, and why having a private insurer option undermines the overall health care system.

[1]      Warren, E., 11/1/19, “Ending the stranglehold of health care costs on American families,” Team Warren (https://medium.com/@teamwarren/ending-the-stranglehold-of-health-care-costs-on-american-families-bf8286b13086)

[2]      Dayen, D., 11/1/19, “Warren’s Medicare for All plan includes no new taxes on the middle class,” The American Prospect (https://prospect.org/health/warrens-medicare-for-all-plan-includes-no-new-taxes-on-the-middle-class/)

[3]      Dayen, D., 10/22/19, “The Medicare for All cost debate is extremely dishonest,” The American Prospect (https://prospect.org/politics/medicare-for-all-cost-debate-is-extremely-dishonest/)

[4]      Bidgood, J., 11/16/19, “Warren outlines phased path to Medicare goal,” The Boston Globe

THE REAL HEALTH CARE ISSUES FOR THE PRESIDENTIAL RACE

The mainstream media and their moderators of the Democratic debates have been focused on creating conflict and controversy among the Democratic candidates over their health care proposals. They, and some of the candidates, continually pit Medicare for All against alternative vehicles to provide health insurance to more Americans. They focus on Medicare for All’s costs and who will pay them as opposed to its benefits and savings. They typically ignore the issues of quality and efficiency.

Moreover, the mainstream media, their debate moderators, and some of the candidates miss the big point:

Democrats are talking about health care policies that would:

  • Expand coverage to more Americans,
  • Ensure coverage of a broad set of services, and
  • Reduce out-of-pocket costs for consumers such as co-pays and deductibles.

Meanwhile, Republicans in Congress and the White House are trying to:

  • Reduce the number of Americans who have health insurance by limiting access under the Affordable Care Act (aka Obama Care) and limiting the number of low-income people covered by Medicaid,
  • Limit the range of services that are covered,
  • Increase the number of people in insurance plans with high out-of-pocket costs, such as co-pays and deductibles,
  • Cut $845 billion from Medicare over the next ten years, and
  • Expand the privatization of Medicare by increasing the number of people in private Medicare Advantage plans, even though these plans cost the government more than traditional Medicare, have more restrictions on access to doctors and hospitals, and make it harder to access care, particularly expensive care, when one gets sick. [1]

Despite these major differences between the parties, the media and the debates have been deep in the weeds of policy details, focused on the cost of Medicare for All and how to pay for it. Because Medicare for All is a major restructuring of our health insurance system, there will be major differences between how health care is paid for today and how it would be paid for under Medicare for All. And there would be significant transition issues.

The alternatives to Medicare for All that some of the Democratic candidates support would also be expensive government programs, but no one seems to discuss that. If these alternatives were to cover anywhere near the number of people Medicare for All would cover, their costs would be similar to those for Medicare for All, if not higher, due to the inevitable inefficiencies in a system of multiple, competing, for-profit health insurers. Senator Warren has put forth the most detailed proposal on health care of any of the candidates. I will summarize it in my next post.

Medicare for All will generate significant cost savings. The overall and per patient costs in the U.S. are very high by international standards – almost 18% of our overall economy and more than $10,000 per person per year compared to 7% to 8% of the overall economy in other countries. Even a study by a right-wing think tank estimated that Medicare for All would save $2 trillion over ten years. The Congressional Budget Office recently estimated that a proposal in Congress to have Medicare negotiate prices for just 25 drugs would save $345 billion over ten years. This estimate implies that the savings from the bargaining power of Medicare for All on all health care spending would save far more than $2 trillion over ten years. [2]

Medicare for All would also improve health outcomes, an issue that has been largely ignored by the media and in the debates. From an international perspective, not only are our health care costs very high, but our outcomes are poor.

Also largely ignored by the media and in the debates are the costs of NOT having universal, affordable health insurance:

  • 5 million people without health insurance for all of 2018 and another 63 million who are under-insured (i.e., have plans with high out-of-pocket costs that are likely to cause financial hardship if a covered individual gets seriously ill or injured).
  • Medical costs lead 530,000 people to file for bankruptcy each year. Between 2013 and 2016, the most frequent reason families filed for bankruptcy was health care costs, even though over 90% of Americans had health insurance.
  • 57 million people had trouble paying their medical bills in 2018.
  • Tens of thousands of people die unnecessarily each year due to lack of access to health care.
  • 44% of people didn’t go to the doctor when they were sick or injured due to cost.
  • 37 million adults didn’t fill a prescription in 2018 because of cost.
  • 36 million people skipped a recommended treatment, test, or follow-up because of cost.
  • 34% of cancer patients had to borrow money from family or friends to pay for care.

Roughly a third of the $3.6 trillion spent annually on health care in the U.S. (i.e., $1.2 trillion) goes for expenses other than actual, direct health care services. These include costs such as administrative paper shuffling, advertising, profits, executive compensation, and nice office space for insurance companies, as well as more than $500 million a year spent on 2,500 lobbyists. In Canada, these administrative overhead costs are about a third of what they are here. The U.S. system with multiple payers, multiple forms, multiple sets of rules, and complicated billing spends 12% of overall costs on billing-related administrative expenses, while Medicare spends only 2% on these costs. [3]

A study recently published in the Journal of the American Medical Association (JAMA) finds that 20% – 25% of our current health care system spending, about $760 billion per year, is waste, which it analyzes in detail. The largest category of waste is the $266 billion per year in administrative costs. Changing to a single-payer system, such as Medicare for All, would largely eliminate the great and wasteful complexity of the multiple payment and reporting requirements of the various private payers. [4] [5]

The second largest category of waste, over $230 billion per year, is prices that are higher than they would be with more competitive markets or the price controls that are common in other countries, particularly on drug prices. A single-payer, Medicare for All-type system maximizes the ability to negotiate prices with providers for services, drugs, and medical equipment.

If identified strategies for reducing waste were implemented, the savings of $200 – $300 billion per year would pay for health insurance for the 27.5 million people (8.5% of the population) who lacked health insurance for all of 2018 [6] – even if our current high costs remain unchanged.

In my next post, I will summarize Senator Elizabeth Warren’s proposal for Medicare for All, including how the federal government would pay for it and the savings for middle and low-income households, for employers, and in the health care system as a whole.

[1]      Johnson, J., 10/3/19, “Warnings of ‘stealth privatization’ effort as Trump signs Executive Order expanding Medicare Advantage plans,” Common Dreams (https://www.commondreams.org/news/2019/10/03/warnings-stealth-privatization-effort-trump-signs-executive-order-expanding-medicare)

[2]      Dayen, D., 10/22/19, “The Medicare for All cost debate is extremely dishonest,” The American Prospect (https://prospect.org/politics/medicare-for-all-cost-debate-is-extremely-dishonest/)

[3]      Hightower, J., July 2019, “Here’s the straight skinny on Medicare for All,” The Hightower Lowdown (https://hightowerlowdown.org/article/heres-the-straight-skinny-on-medicare-for-all/)

[4]      Shrank, W.H., Rogstad, T.L., & Parekh, N., 10/7/19, “Waste in the US health care system,” Journal of the American Medical Association, (https://jamanetwork.com/journals/jama/article-abstract/2752664)

[5]      Frakt, A., 10/7/19, “The huge waste in the U.S. health system,” The New York Times

[6]      Census Bureau, Nov. 2019, “Health Insurance Coverage in the United States: 2018,” https://www.census.gov/content/dam/Census/library/publications/2019/demo/p60-267.pdf)

LOBBYING: HOW TO WEAKEN ITS INORDINATE INFLUENCE

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

LOBBYING: HOW THE WEALTHY WIELD POWER

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

LOBBYING: A KEY PIECE OF PLUTOCRATS’ POWER

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

THE WEALTHY PAY A LOWER TAX RATE THAN YOU DO

It’s now official: the 400 wealthiest Americans pay taxes at a lower rate than everyone else, thanks to tax cuts, loopholes, and lax enforcement. For the first time in history, wealthy Americans’ federal, state, and local taxes are a lower percentage of their incomes, 23%, than anyone else.

The portion of income paid in taxes by the wealthy has plummeted over the last 70 years, contributing substantially to growing income and wealth inequality. In the 1950s, wealthy Americans paid 70% of their incomes in taxes. This dropped to 47% in 1980 and then was cut in half, to 23%, by 2018. Meanwhile, middle-income households’ tax burden increased, rising from 20% to 30% and then falling back to about 25%. Low-income households experienced the largest proportional increase in their tax burden, which rose from under 20% to roughly 25%.

This animated graph dramatically illustrates how the effective tax rates experienced by all households, from the lowest income households on the left to the 400 wealthiest households on the right, have shifted from 1950 to 2018 for the aggregated total of federal, state, and local taxes. [1]

Not only have tax rates on the wealthy been cut and loopholes added, but tax enforcement has been weakened. Driven by Republicans in Congress, the enforcement budget of the Internal Revenue Service (IRS) has been cut by 25% (adjusted for inflation) since 2010.

Since 2010, the auditing of high-income taxpayers has declined sharply, although the audit rate for taxpayers with under $100,000 of income has remained roughly the same. In 2015, 34.7% of taxpayers with over $10 million of income were audited; in 2018, 6.7% were audited – an 80% decline. For taxpayers with between $1 million and $5 million in income, audit rates fell from 8.4% to 2.2% – a 74% decline. This reduction in audits is happening at the same time as tax avoidance schemes used by the rich, such as using overseas accounts and business entities, are proliferating. Partnerships, which are typically used by high-income individuals such as lawyers and investment managers, had an audit rate in 2017 of only 0.2%, half of what it was in 2015. [2]

Audits of low-income households that are poor enough to claim the earned income tax credit [3] account for 39% of all IRS audits. The IRS claims this is because auditing the poor is quick and easy; it can often be done by mail and by lower level employees. The IRS says this is the most efficient use of limited enforcement resources and that it can’t increase audits of higher-income taxpayers until it has the money to hire more skilled employees and have them devote the time required to do more complex audits. [4] However, audits of low-income tax returns can only yield small amounts of additional taxes when mistakes or problems are uncovered. Audits of high-income returns, on the other hand, can yield millions of dollars of additional taxes and may reveal illegal tax avoidance that has been going on for years.

The share of income paid in taxes by the wealthy has declined because politicians have cut every tax that falls more heavily on those who are well-off: income tax rates on high incomes have been cut by more than half, taxes on income from investments (i.e., wealth) have been cut, and the estate tax has been dramatically cut. The justification for this has been the supply side plutocratic economics theory that the economy as a whole, and even tax revenue, would benefit. This has been proven wrong. The wealthy – and only the wealthy – have benefited. Incomes for workers and the middle class have been stagnant since 1980 and the growth of the economy has been disappointingly slow. The American economy hasn’t done well when inequality is extremely high and rising, and tax rates on the rich are low and falling. [5]

Raising income tax rates on very high incomes, implementing a small, annual wealth tax, and increasing taxes on large estates would increase the fairness of our taxes and begin to slow or reverse growing income and wealth inequality. Moreover, this would provide the public sector with the revenue needed to make critical public investments that will actually spur economic growth.

I encourage you to contact your elected officials and candidates for office to tell them you are outraged that the wealthy pay taxes at a lower rate than you do. Tell them that it’s crystal clear that income and wealth inequality are the result of policy choices made by elected policy makers. Ask them what they will do to reduce income and wealth inequality, and to make the American tax system fair again.

[1]      Leonhardt, D., 10/6/19, “The rich really do pay lower taxes than you,” New York Times

[2]      Fleischer, V., 9/26/19, “Create a more progressive tax policy,” The American Prospect (https://prospect.org/day-one-agenda/create-a-more-progressive-tax-policy/)

[3]      The earned income tax credit provides its greatest benefit of $6,400 to families with three or more children and incomes under $19,000. The benefit is then phased out at higher incomes and goes to zero at an income of $49,000 for a family with 3 or more children and at lower levels for smaller families.

[4]      Kiel, P., 10/2/19, “IRS: Sorry, but it’s just easier and cheaper to audit the poor,” Pro Publica (https://www.propublica.org/article/irs-sorry-but-its-just-easier-and-cheaper-to-audit-the-poor)

[5]      Leonhardt, D., 10/6/19, see above

REVITALIZING DEMOCRACY TO END PLUTOCRATIC ECONOMICS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

HOW TO REIN IN MONOPOLISTIC BUSINESSES

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MONOPOLISTIC COMPANIES HARM THE ECONOMY AND DEMOCRACY

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[7]      Shambaugh, J., Nunn, R., Breitwieser, A., & Liu, P., 6/16/18, “The state of competition and dynamism: Facts about concentration , start-ups, and related policies,” Brookings (https://www.brookings.edu/research/the-state-of-competition-and-dynamism-facts-about-concentration-start-ups-and-related-policies/)

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

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

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

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

PROGRESSIVE POLICIES TO REVERSE PLUTOCRATIC ECONOMICS AND ITS FAILURES

Forty years of plutocratic economics has produced a high level of economic inequality and numerous business sectors dominated by a monopoly or near monopolies. This has undermined democracy in our economy and in our political institutions.

A high level of economic inequality is bad for the economy. The Organisation for Economic Cooperation and Development (OECD), an international organization of 36 economically developed countries, estimates the U.S. lost almost 5% in economic growth over the period from 2000 to 2015 ($1 trillion a year in a $20 trillion economy) due to its high level of inequality. Part of this loss is due to limited access to education for people with lower incomes, which wastes human capital and reduces the productivity of the workforce. [1] In addition, our high level of inequality has undermined the consumer spending that is close to 70% of our economy because workers and the middle class simply have less money to spend.

There are multiple policy changes that are needed to reverse the failed plutocratic economic policies (see more information in previous posts here and here) that have been put in place over the last four decades and their effects. Some of them directly address the high levels of economic inequality in incomes and wealth that have been created. Others address the underlying issues that have allowed the plutocrats to amass wealth and power. Both are needed to reinvigorate our democracy and its commitment to equal opportunity, fairness, and the ability of all to pursue life, liberty, and happiness.

Policy changes that would directly address the dramatically increased and increasing economic inequality include: [2]

  • Increasing incomes of workers and the middle class by raising the minimum wage and strengthening unionization
  • Increasing spending on public education and making it equitable so all students are prepared to be productive members of society and the workforce
  • Raising taxes, partly by eliminating loopholes, on wealthy individuals and businesses
  • Raising the estate tax (which was meant to prevent wealth from accumulating and being passed down from generation to generation thereby creating a plutocracy [3])
  • Requiring the payment of a tax on the gain in value of appreciated property when it is passed on to heirs
  • Implementing a wealth tax

Policy changes that would address underlying issues that have enriched and empowered plutocrats include: [4] [5] [6]

  • Building progressive, grassroots, inclusive, and broad-based participation in our democratic policy making and elections, including through reforming campaign financing
  • Strengthening business and financial industry regulation, including strong anti-trust enforcement that limits the size and power, both economically and politically, of businesses (my next post will provide more detail on this important policy)
  • Reforming trade policies to protect workers and the environment and reduce the power of multi-national corporations over nations’ sovereignty
  • Updating labor laws for the gig economy, including clarifying standards for who is deemed an employee vs. an individual contractor
  • Strengthening regulation of public utilities from electric power to phones to airlines and of services that are essential to everyday life such as the Internet and financial services (which is what the Consumer Financial Protection Bureau was created to do but has been undermined in carrying out)
  • Stopping privatization of assets and functions best managed by democratic public entities, such as roads, bridges, basic education, prisons, health insurance, and public assistance programs
  • Building a robust system of public banking and mortgage finance perhaps through the U.S. Postal Service (which used to provide basic banking services)
  • Creating publicly owned, mixed-income, highly desirable social housing (as is widely done in Europe especially Austria) as opposed to the poorly performing privatized or public-private partnership subsidized housing we now have
  • Regulating the flow of capital and valuation of currency to reduce financial manipulation, speculation, and tax avoidance
  • Adding employees to corporate boards of directors

These are some of the key policy changes needed to reverse plutocratic economics and support workers and the middle class. I urge you to listen to and ask candidates running for public office which of these policies they support.

[1]      Ingraham, C., 7/25/19, “The richest 1 percent now owns more of the country’s wealth than at any time in the past 50 years,” The Washington Post

[2]      Reich, R., 7/9/19, “The four biggest conservative lies about inequality,” The American Prospect (https://prospect.org/article/four-biggest-conservative-lies-about-inequality)

[3]      Collins, C., & Hoxie, J., October 2018, “Billionaire Bonanza 2018: Inherited Wealth Dynasties of the United States,” Institute for Policy Studies (https://inequality.org/wp-content/uploads/2018/11/Billionaire-Bonanza-2018-Report-October-2018.pdf)

[4]      Sabeel Rahman, K., Summer 2019, “The moral vision after neoliberalism,” Democracy Journal (https://democracyjournal.org/magazine/53/the-moral-vision-after-neoliberalism/)

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

[6]      Warren, E., 6/4/19, “A plan for economic patriotism,” Office of Senator Elizabeth Warren (https://medium.com/@teamwarren/a-plan-for-economic-patriotism-13b879f4cfc7)

PLUTOCRATIC ECONOMICS HAS FAILED WORKERS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

DEREGULATION HAS FAILED

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

THE PLUTOCRATS’ ECONOMIC CON

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

DRUG COMPANY PRICE GOUGING: THE INSULIN CASE

A quintessential case of price gouging by drug companies, with serious and sometimes fatal consequences, is that of insulin. Roughly 30 million Americans have diabetes, a chronic disease where the body’s mechanism for controlling blood sugar levels isn’t working properly. About 7 million of them must take multiple doses of insulin daily to control blood sugar. Those with Type 1 diabetes, formerly referred to as early-onset or juvenile diabetes, suffer from a pancreas that doesn’t produced adequate amounts of natural insulin so they must use three to four 20-milliliter vials of manufactured insulin a month (or other equivalent forms of insulin). Failure to use insulin regularly to control blood sugar levels can be fatal or have serious long-term impacts on health, including on vision and mobility.

Insulin is a 100-year-old drug whose three developers at the University of Toronto in 1922 sold their patent rights to the University for $1 apiece. They thought this would guarantee affordable access to those needing it in perpetuity. They sold manufacturing and distribution rights to Lilly in the U.S. and Nordisk in Europe. After a year, competitors were free to enter the market.

Today, three big pharmaceutical corporations make the worldwide supply of insulin: Lilly, Novo Nordisk, and Sanofi. Their prices for insulin have skyrocketed, tripling from 2007 to 2017, resulting in their making billions of dollars in profits from their insulin sales.

The U.S. market has 15% of global insulin users but generates 50% of worldwide revenue because prices here are so much higher than they are elsewhere. [1] For example, vials of insulin that sell for close to $300 in the U.S. sell for $30 in Canada.

Insulin for a Type 1 diabetic costs about $1,300 a month in the U.S. Because the U.S. does not regulate drug prices as other countries do, insulin’s manufacturers have increased U.S. prices dramatically in recent years. For example, a 20-milliliter vial of insulin that cost $175 fifteen years ago costs $1,487 today, eight and a half times as much. Because Medicare, the U.S. health insurance for seniors, is prohibited by law from negotiating drug prices (a gift to the industry from friendly Congress people and a friendly President), Medicare spending on insulin grew from $1.4 billion in 2007 to $13.3 billion in 2017. While some of this increase is due to increased numbers of patients using it, per patient Medicare spending on insulin increased 358% from $862 to $3,949. Out-of-pocket spending by Medicare patients themselves also increased, going from $236 million to $968 million. [2]

Estimates of the cost to produce a vial of insulin range from $2.28 to $6.16 depending on the version of insulin and other factors, [3] so the $300 retail cost represents a huge mark-up and huge profits for the drug makers. Until the 1970s, the price of insulin stayed relatively low. In the 1940s the U.S. Department of Justice leveled small anti-trust fines on entities in the Lilly supply chain, indicating the U.S. regulators would intervene if prices were jacked up. [4]

Starting in the late 1970s, changes in politics and laws created increased opportunities for drug makers to profit from the exclusive rights granted by patents on drugs and to effectively extend the longevity of patent protections by tweaking a drug or its delivery mechanism. This set the stage for the pharmaceutical industry to become the most profitable industry in America. For example, Sanofi filed for 74 different patents on its version of insulin, which meant that it could go 37 years without any competition. As of 2014, the three big insulin makers held 19 active patents on their insulin products.

Often the new, patented versions of insulin provide limited benefits to patients, despite their significantly higher prices. However, aggressive marketing campaigns and partnerships with improved delivery devices lead to prescriptions for the new more expensive, and more profitable, products.

A study published in the Internal Medicine edition of the Journal of the American Medical Association found that one in four insulin users (26%) in the U.S. had rationed their insulin use due to high costs; in other high-income countries the rate was only 6.5%. [5] Diabetics who couldn’t afford their insulin have died when they tried to do without or to ration their supply. Many others have endured financial hardships that have required them to use retirement savings, move to cheaper housing, sell possessions, or limit purchases of food and other drugs.

Even for individuals with health insurance, the high price of insulin is problematic because of increased co-payments for drugs and because deductibles they must pay before insurance coverage kicks in have, on average, quadrupled over the last 10 years.

The grassroots organizers of the #insulin4all campaign are working to change U.S. policies and make insulin affordable. Their campaign may prove to be the spark that leads to regulation and negotiation of all drug prices in the U.S. Advocacy is increasing in energy and urgency because diabetics are literally fighting for their lives as insulin makers jack up the price and they don’t see government standing up for them.

The issue of drug prices and particularly insulin prices is, finally, getting increased attention. Congress is holding hearings on insulin prices. Federal and state legislation is being considered. Colorado has passed legislation capping co-payments for insulin. Some advocates have called for nationalizing the insulin market and public manufacturing of generic drugs, including insulin.

I urge you to contact your state and federal elected representatives and to ask them to pass legislation to control the price of insulin and stop price gouging by the drug industry.

[1]      Shure, N., 6/24/19, “The insulin racket,” The American Prospect (https://prospect.org/article/insulin-racket)

[2]      Silverman, E., 6/22/19, “Insulin rationing high in US, survey finds,” The Boston Globe

[3]      Silverman, E., 6/22/19, see above

[4]      Shure, N., 6/24/19, see above

[5]      Silverman, E., 6/22/19, see above

THE U.S. SHOULD HAVE A WEALTH TAX SAY THE WEALTHY

A group of wealthy Americans who would be taxed by a wealth tax have written a letter supporting such as tax. It is a very persuasive letter explaining their reasoning. Here is a summary of it.

They call on all the presidential candidates (making it clear they are not endorsing any candidate) to support a modest wealth tax on people like them – the 19 signers of the letter who are among the richest 1/10 of 1% of Americans. By increasing taxes on the one-out-of-a-thousand wealthiest households, or about 75,000 families, our country could address many important challenges that it is facing and would, thereby, provide millions of Americans a better life and a better shot at the American dream.

They state that the U.S. has a moral, ethical, and economic responsibility to tax wealth more heavily. They note that middle income Americans already pay a wealth tax on their primary form of wealth, namely the property taxes they pay on their homes. A broader wealth tax would ask the richest Americans to pay a similar wealth tax on the primary sources of their wealth, namely stocks, bonds, and other financial investments.

The letter notes that a moderate tax on so few people raises so much money (about $300 billion a year) because the wealthiest Americans have extremely high levels of wealth. These 75,000 households have as much wealth as the least wealthy 90% of Americans. In other words, these 75,000 families have as much combined wealth as that of the 67,500,000 families with the least wealth.

The letter highlights six key reasons the signers support a wealth tax, which could do all of the following:

  • Tackle the climate crisis: The wealth tax revenue could be used to invest in accelerating innovation and implementation of a clean-energy, low-carbon economy. A wealth tax would mean that those who have benefited the most from our economic system would be helping to pay for fixing one of its most devastating flaws.
  • Strengthen our economy: The revenue could be used to invest in aging infrastructure, child care, education, and easing student debt. This would increase productivity, entrepreneurship, and homeownership, thereby promoting broad-based economic growth and prosperity. Wealth tax revenue could support innovation and job creation, strengthening our economy in ways that would benefit everyone.
  • Improve health: High economic inequality is linked to disparities in health outcomes and longevity; the wealthiest individuals have a life expectancy 15 years longer than the poorest individuals. The wealth tax revenue could be used to invest in addressing major public health challenges such as cardiovascular disease and opioid addiction.
  • Increase fairness: A wealth tax would help close the gap between the low effective tax rates paid by the wealthy and those paid by everyone else. The wealthiest 1/10 of 1% of Americans are estimated to pay 3.2% of their wealth in taxes annually, while the bottom 99% pay an estimated 7.2%. The letter states that “Taxing extraordinary wealth should be a greater priority than taxing hard work. The most fortunate should contribute more.” (p. 4)
  • Strengthen freedom and democracy: The growing concentration of wealth undermines the stability and integrity of our democracy. High levels of economic inequality have tended to concentrate political power and lead to plutocratic governments in other countries. In the U.S., major policies seldom become law without the support of wealthy interests, leading to division, dissatisfaction, and distrust of democratic institutions among the public. The wealthy signers of the letter state that “We believe instituting a wealth tax would lead to political, social, and economic stability, strengthening and safeguarding America’s democratic freedoms.” (p. 4)
  • Reflect patriotic duty: It is the patriotic duty of every American to contribute what they can to the success of the country. The letter states that the richest Americans should be proud to pay a bit more to strengthen America’s future; it’s the least they can do for the country they love.

The letter discusses the arguments against a wealth tax and concludes that they are often overstated and are mostly technical, implementation details.

The signers of the letter conclude by noting that while a wealth tax does not further their narrow economic interests, it is in their interests as Americans. Due to the strong rationale for a moderate wealth tax, they join the majority of Americans in supporting it and call on all the presidential candidates to do so as well. (For more information on a wealth tax and the rationale for it, see this previous post.)

PROGRESSIVE POLICIES #1: UNIVERSAL CHILD CARE AND EARLY LEARNING

Access to affordable, high quality early care and education (ECE) for children under school age is essential for allowing parents to be productive members of the workforce and for putting young children, especially those from families facing economic or other challenges, on a trajectory for success. Therefore, providing universal ECE is an important progressive policy priority.

For 65% of children under age six, all parents are working. The lack of affordable ECE means that some parents can’t afford to work, reducing the labor force participation of parents – a loss to our economy. In addition, reduced productivity due to employees’ inadequate or undependable ECE costs businesses billions of dollars a year because of absenteeism and other impacts on parents’ ability to work productively.

Low-income families spend, on average, over 17% of their incomes for ECE. The federal government’s benchmark for affordability is that ECE should cost no more than 7% of income. With two or more children, ECE often costs more than a parent can earn. Therefore, it can make economic sense for a parent to drop out of the workforce and care for the children.

Because providers of ECE must make their services affordable for parents, in many cases they cannot afford to provide high quality services. In particular, they cannot afford to pay ECE teachers enough to consistently attract and retain top notch staff. ECE teachers are paid much less than what they would make in other positions, for example as a public school teacher. Despite the push to have ECE teachers have a Bachelor’s degree, as public-school teachers do, their pay is about half that of public school teachers.

ECE teachers make less than $24,000 on average; pay so low that roughly half of them require public assistance, such as Food Stamps, to make ends meet. Therefore, turnover is high – which does not provide the stability of consistent relationships that children need or the quality of services that an experienced, stable workforce can deliver.

Investments in young children and their families can produce a high return on investment (ROI) – up to $17 for every dollar spent – according to numerous studies. High quality ECE for children, coupled with support for low-income parents, reduces the need for special education and grade retention in schools, reduces high school dropout rates and involvement with the criminal justice system, and increases children’s educational attainment and their future earnings. More recent studies have identified long-term improvements in health and mental health, as well as benefits for the next generation of children. These more recently identified outcomes have not yet been factored into the ROI calculations; they will undoubtedly increase the ROI for investments in young children and their families, probably substantially above the 17 to 1 return calculated by the Perry Preschool Study.

Current federal ECE programs serve only a fraction of eligible children because funding is limited. Head Start serves fewer than 50% of eligible 3 and 4 year olds (i.e., those in families below the poverty line, which is only $21,000 for a family of three that not infrequently consists of a single parent with two young children). Early Head Start, for families with a child from birth to three, serves fewer than 10% of those eligible. Finally, the Child Care and Development Fund, which subsidizes ECE for all other families, serves only about 16% of the eligible families (1 in 6).

Senator (and presidential candidate) Elizabeth Warren has made a detailed policy proposal for universally accessible ECE. Her Universal Child Care and Early Learning plan would:

  • Provide universal access to locally run ECE in centers, homes, or other settings so every family can choose the ECE it would prefer and every child has the opportunity to reach his or her full potential.
  • Ensure affordability by providing ECE free to families below twice the poverty line (about $51,500 for a family of 4) and on a sliding fee basis to other families so no family pays more than 7% of its income for ECE.
  • Guarantee high quality services, including comprehensive support for children’s growth and development, such as health, dental, and other services to ensure a safe, nurturing early childhood experience.
  • Compensate ECE teachers at the same level as public school teachers and provide them with professional development opportunities, which will improve quality and reduce turnover.

An independent economic analysis estimates that such a program of universal, affordable, high quality ECE would cost about $70 billion per year. Senator Warren proposes paying for this with a wealth tax that would generate $275 billion per year. (See my previous post for more details and options on how to pay for progressive policies like this one.)

Universal, affordable ECE would increase labor force participation and productivity, thereby stimulating economic growth and increasing tax revenue. Therefore, universal ECE would, at least in part, pay for itself in the short-term, and over the long-term the return on investment due to improved outcomes for the children would more than pay for this investment in our young children and their families.

CAN THE U.S. AFFORD PROGRESSIVE POLICIES?

Many in Congress and the Trump Administration, along with many in the media and many pundits, assert that the U.S. can’t afford the progressive policies being proposed by some Democrats in Congress and some of the Democratic presidential candidates.

This is a matter of priorities not affordability. For example, in 2017, Congress and the Trump Administration were able to afford $150 billion a year in tax cuts primarily for wealthy individuals and corporations. They also propose spending over $700 billion in 2020 on the military and foreign wars, a $34 billion increase from 2019. And the country has had no problem spending hundreds of billions of dollars building prisons and paying for a huge increase in the number of people in prison.

To fund her progressive policy proposals, Senator (and candidate for president) Elizabeth Warren has proposed a wealth tax on American citizens with over $50 million in wealth. It would generate about $275 billion per year to spend on progressive programs. (See my previous post for details and background on her proposed wealth tax.)

A recent report called the Poor People’s Moral Budget puts forth a vision for a set of progressive polices for the U.S. including ways to pay for them. [1] Their definition of “poor people” includes low-income households up to twice the federal poverty line or “one emergency away from being poor.” This includes 43.5% of the U.S. population or 140 million people. Many of these people are on the edge of being middle class and many of them were middle class before the loss of a good job, a health care emergency, or some other crisis pushed them over the edge and into economic hardship.

The Poor People’s Moral Budget identifies three categories of policy changes that could provide the federal government with the funds to pay for progressive policies:

  • $886 billion a year from fairer taxes on wealthy individuals, businesses, and the financial industry (see detail below),
  • $350 billion a year in cuts to military spending (see detail below), and
  • Billions of dollars in savings from reducing incarceration and other sources.

The proposals for fairer taxes on wealthy individuals would bring in an estimated $628 billion per year:

  • An annual wealth tax: $275 billion per year. (This is the same as Sen. Warren’s proposal. See my previous post for details.)
  • Increase the income tax rate on income (e.g., dividends and interest) and gains from assets (e.g., stocks and bonds) so they are taxed at the same rate as income from work: $150 billion per year.
  • Apply the capital gains tax to the increased value of assets prior to any transfer, such as through a gift or inheritance: $78 billion per year.
  • Impose a 5.5% income tax surtax on income above $500,000 per person: $50 billion per year.
  • Increase the inheritance tax by closing loopholes and applying it on inheritances of over $3.5 million per person (instead of the current $11 million per person): $40 billion per year.
  • Increase the income tax rate on income over $10 million to 70% (which is what it was in the 1970s and before): $35 billion per year.

The proposals for fairer taxes on businesses would bring in an estimated $170 billion per year:

  • Restore the corporate tax rate to 35% (instead of 21%) as it was before the 2017 tax cut law: $130 billion per year.
  • Repeal the 2017 tax cut that provides individuals with a 20% deduction for income from un-incorporated businesses: $39 billion per year. (More than 80% of this tax cut goes to the richest 5% of individuals, such as hedge fund managers and partners in law firms.)
  • Repeal tax breaks for fossil fuel companies: $1 billion per year.

The proposals for fairer taxes on the financial industry would bring in an estimated $88 billion per year:

  • Place a small “sales” tax on financial transactions ($1 for every $1,000 of value): $78 billion per year. (This would discourage speculative, short-term trading, which is destabilizing to financial markets and has no productive value for the economy. See my earlier post for more details.)
  • Place a small tax on big banks ($1.50 for every $1,000 of liabilities): $10 billion per year. (This would discourage risky investments and reduce the likelihood that banks fail and must be bailed out.)

The proposals for cutting military spending would save $350 billion per year and cut military spending roughly in half. The savings in military spending include:

  • Close 480 of the 800 overseas military bases in 90 countries: $90 billion per year. (The U.S. would still have four times as many overseas bases as all other countries combined.)
  • End the foreign wars the U.S. is currently fighting: $66 billion per year.
  • Reduce purchases of weapons that are obsolete, ineffective, or unneeded: $58 billion per year.
  • Eliminate nuclear weapons and delivery systems, and cancel planned upgrades: $43 billion per year. (This would be a huge step toward eliminating the threat of nuclear war and allow the U.S. to join the 70 countries that have signed the U.N. ban on nuclear weapons.)
  • A variety of other cuts and improvements in efficiency: $93 billion per year.

These new revenues and spending cuts would allow the federal government to spend over $1,250 billion per year (roughly one-third of the current federal budget) on progressive policies that would increase opportunity and fairness in our society. The new progressive policies would create jobs, strengthen our economy, address climate change, rebuild infrastructure, invest in education and human capital, and provide other short-term and long-term benefits.

With progressive policies in place, the rising tide of a growing economy would once again lift up all people as it did in the 1950s, 1960s, and 1970s. The middle class would be revived and re-invigorated.

Future posts will discuss some of the specific progressive policies that could be implemented with the $1.25 trillion in annual funding made available by the changes in revenue and spending policies identified above.

[1]      Barnes, S.G., Koshgarian, L., & Siddique, A., June 2019, “Poor people’s moral budget: Everybody has the right to live,” Poor People’s Campaign, Institute for Policy Studies, and Kairos Center (https://www.poorpeoplescampaign.org/budget/)

SHOULD THE U.S. HAVE A WEALTH TAX?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

FUTURE SUPREME COURT CASES WILL TELL A TALE

The following upcoming Supreme Court cases should be watched to see if the “conservative” majority continues to make partisan or ideologically-driven decisions that reflect judicial activism (i.e., they disregard precedents and established law): (See my previous post on why the “conservative” justices are really radical, right-wing activists.)

  • Department of Commerce vs. New York State, where the Court will decide whether to prohibit the addition to the 2020 Census of a question on citizenship status. The Constitution mandates a census to count all people living in the U.S. The Census Bureau itself (which is part of the Department of Commerce) estimates that adding a citizenship question would mean that 5.8% of households with a non-citizen would not respond to the Census, resulting in 6.5 million people not being counted.

    An acknowledged undercount (due to a citizenship question or anything else) would violate the intent of the Constitution. Furthermore, the undercounting of households with a non-citizen, who disproportionately live in states and districts represented by Democrats, will result in billions of dollars of reduced federal financial assistance to those areas due to funding allocations based on population. It might also result in Democratic leaning states losing seats in the U.S. House of Representatives and the loss of Democratic leaning seats in state legislatures.

    A citizenship question has been added to the Census 1) in violation of the law for modifying the Census, 2) over the objections of experienced Census Bureau employees and six former directors of the Bureau under both Democratic and Republican presidents, and 3) based on a rationale that has been lied about by Commerce Secretary Ross and other Trump Administration officials. [1]

    A recently uncovered 2015 report by a Republican redistricting strategist, Thomas Hofeller, concluded that a citizenship question would provide data to facilitate drawing political districts that would benefit Republicans. Hofeller also suggested using the rationale for the question that the Trump Administration has put forward: that the question would help protect minority voters under the Voting Right Act. The Justice Department letter to the Commerce Department requesting the addition of a citizenship question, uses, word-for-word, a paragraph from Hofeller, despite denials from the Justice and the Commerce Departments that they were aware of Hofeller’s work. [2]

    Therefore, if the Court rules that a citizenship question can be included on the Census, the decision will reek of partisanship.

  • Rucho vs. Common Cause and Benisek vs. Lamone are cases where the Court will rule on the constitutionality of partisan gerrymandering of congressional districts to benefit Republicans in North Carolina and Democrats in Maryland. [3] Although these two cases reflect gerrymandering by each party, the bulk of and the most extreme partisan gerrymandering that is in place today has been done to benefit Republicans. (See my previous posts on gerrymandering here and here.)

    If the Court refuses to ban extreme partisan gerrymandering, the decision will clearly benefit Republicans and, therefore, appear to be partisan.

  • The Court has decided to rule on three cases involving employment discrimination against gay, lesbian, bisexual, or transgendered (LGBT) individuals. Courts, including the Supreme Court, have ruled since the 1980s that the Civil Rights Act of 1964’s prohibition on discrimination based on sex protected LGBT people from discrimination in employment, housing, and public accommodations. The Equal Employment Opportunity Commission, which enforces non-discrimination in the workplace, has interpreted the Civil Rights Act to apply to sexual orientation and gender identity. Protection for LGBT people in federal law is important because 30 states do not have laws protecting them from discrimination. Many in the LGBT community are concerned that the Supreme Court will overturn these precedents in its rulings on these cases. It is even possible that its rulings in these cases could undermine protections for women. [4]

    If the Supreme Court’s rulings in these cases overturn protections for LGBT individuals, the Court’s decisions will be viewed by many as radical, right-wing ideological and partisan decisions by activist justices.

  • Although no case is expected to reach the Supreme Court for a while, anti-abortion activists in Alabama and a number of other states clearly intend to engender a Supreme Court case that will give the Court an opportunity to reverse the Roe vs. Wade decision guaranteeing women the right to terminate a pregnancy. Anti-abortion activists are pushing these laws now because they believe the current “conservative” Supreme Court justices will overturn the settled law and precedent that Roe vs. Wade represents and that has been in place for over 45 years.

    A Supreme Court ruling overturning Roe vs. Wade will be viewed by many as a radical, right-wing ideological and partisan decision of judicial activism.

If the Court makes radical, right-wing, partisan, activist decisions in some or all of these cases, Congressional action to reverse them is possible, with the possible exception of the inclusion of a citizenship question on the 2020 Census. Even there, Congress could ameliorate the effects of the inclusion of the question. (See my previous post on reversing the effects of Supreme Court decisions.)

These Supreme Court cases will be closely watched. A series of radical, right-wing, partisan, activist decisions will, unfortunately, continue to undermine the faith of the public that the Supreme Court – and our court system in general – is impartial and non-partisan. They would also undermine a foundational element of our democracy: its system of supposedly independent checks and balances.

[1]      Liptak, A., 4/15/19, “The Supreme Court will soon consider whether the Census will include a citizenship question,” The New York Times

[2]      Wang, H. L., 5/30/19, “GOP redistricting strategist played role in push for Census citizenship question,” National Public Radio (https://www.npr.org/2019/05/30/728232221/gop-redistricting-strategist-played-role-in-push-for-census-citizenship-question)

[3]      Stohr, G., & Robinson, K., 3/26/19, “Supreme Court Justices question suits over partisan gerrymandering,” Bloomberg Law (https://www.bloomberg.com/news/articles/2019-03-26/top-court-justices-question-suits-over-partisan-gerrymandering)

[4]      Arana, G., 5/22/19, “Does the Civil Rights Act protect gay employees? The Court will decide,” The American Prospect (https://prospect.org/article/does-civil-rights-act-protect-gay-employees-court-will-decide)

REVERSING SUPREME COURT DECISIONS

Congress could reverse the effects of many of the Supreme Court’s decisions by changing relevant laws. Many of the Court’s 5 to 4 rulings by the “conservative” justices (who I argue in a previous post would be more accurately described as radical, right-wing, activists justices) are politically or ideologically driven. Congressional action to reverse them is possible and in many cases would restore long-standing precedents and established law that the “conservative” justices have chosen to ignore or overturn.

One prominent example of a Supreme Court ruling that congressional action could reverse is the Court’s decision that gutted the effectiveness of the Voting Rights Act. (See my previous post on this case here.) By updating the criteria for determining which local jurisdictions are subject to federal oversight, Congress could reinstitute federal review of states’ election practices. The proposed Voting Rights Advancement Act in Congress would accomplish this. [1]

As another example, Congress could reverse recent Supreme Court decisions that allow businesses to force harmed consumers and workers to settle their claims in a privatized arbitration system that overwhelmingly favors business interests. These Court decisions selectively interpret legal language or fabricate legal reasoning to allow a business to require consumers and workers to sign mandatory arbitration agreements that prohibit them from suing the business if they are injured or harmed. For example, the Court has read into the Federal Arbitration Act, which says nothing about class action lawsuits, that a corporation can require a consumer to sign away his or her right to join a class action lawsuit. [2] Congress could pass a law that establishes a right for consumers and workers to sue a business if they are harmed.

Additional examples of legislatively correctible Supreme Court decisions where established law and/or precedent have been ignored or overturned include:

  • Congress could pass a law reinstituting long-standing anti-trust laws that the Court has overturned. The Court’s decisions have changed anti-trust laws to:
    • 1) allow price fixing between manufacturers and distributors, and
    • 2) define a theoretical promise of short-term consumer price reduction as the sole criterion for deciding whether to permit corporate mergers and aggregations of marketplace power.
  • Congress could reverse the Court’s overturning of executive branch agency regulations, which the “conservative” justices did by developing a rationale for ignoring a 35-year-old precedent that had been repeatedly cited as established law. The Court has rejected agency regulations based on its own re-interpretation of underlying laws, rather than deferring to agencies’ expertise and interpretation of the law as had been the precedent. This effectively shifts regulatory power from executive branch agencies with long-standing experience and expertise to the five right-wing, male justices of the Supreme Court. Congress could pass a law prohibiting the courts from overturning a regulation if it is based on a permissible interpretation of the underlying law (which was the old precedent).
  • Congress could reverse the Supreme Court’s dramatic weakening of protections from discrimination based on race, age, religion, sexual orientation, and gender-identity. In race and age discrimination cases, the Court has ruled, contrary to precedent, that discrimination must be proven to be the sole cause of negative treatment. It has defined the term “supervisor” so narrowly that almost no one can be found guilty of sexually or racially harassing a subordinate. It has ruled that an employer or business owner can, based on his or her personal religious beliefs, eliminate coverage for birth control from an employer-sponsored health insurance plan. [3] Congress could pass laws defining the term “supervisor” and the standard for a finding of discrimination. It could also pass a law requiring all employer health insurance to meet the standards of the Affordable Care Act (Obama Care), which would mean including coverage for contraception.

Congressional action to overturn these and other Supreme Court decisions is not only possible, and would not only reverse bad legal precedents and harmful effects, but would send a message that power resides with Congress, not with five, unelected “conservative” men. Even if legislation to reverse these decisions can only be passed by the House, doing so would be beneficial. It would highlight the harm and lack of impartiality behind these politically or ideologically driven decisions, as well as the “conservative” justices’ ignoring of precedents and established law. House passage of such laws might temper future decisions by the Court and highlight important issues for future hearings on the confirmation of Supreme Court justices.

My next post will identify some upcoming Supreme Court decisions that should be closely watched to see if the trend of politically or ideologically driven decisions continues.

[1]      Millhiser, I., 2/13/19, “Not so Supreme? Congress actually has a lot of power, mostly unused, to rein in the Roberts Court by clarifying the intent of the law,” The American Prospect (https://prospect.org/article/not-so-supreme)

[2]      Millhiser, I., 2/13/19, see above

[3]      Millhiser, I., 2/13/19, see above

THE NOT CONSERVATIVE AND NOT IMPARTIAL SUPREME COURT

“Conservative” is not the right term to use to describe the Supreme Court Justices who have been the “conservative” majority in many 5 to 4 decisions going back to at least 2000. This applies in particular to the current five “conservative” justices who will be the deciding majority in many future decisions.

Chief Justice Roberts and Justices Alito, Gorsuch, Kavanaugh, and Thomas are probably better described as “radical, right-wing” justices. They could also be described as Republicans, small government ideologues, corporatists (supporters of large corporations and businesses), and/or plutocrats (supporters of the wealthy elites). Predecessors Rehnquist and Scalia also fit this mold; Kennedy, Souter, and O’Connor were a little harder to categorize.

These “conservative” justices are frequently making decisions that are not impartial decisions based on the law – despite their claims at confirmation hearings that they are just umpires calling balls and strikes based on the law (or some variation on this theme). One expert commentator states that “many of the Roberts Court’s decisions are so poorly reasoned that they appear to be straight-up dishonest.” (p. 52) [1] Despite nominees’ statements at confirmation hearings they respect precedents and established law (or something to that effect), their decisions frequently do not do so.

The “conservative” justices are also not strict constitutionalists – committed to following the original intent of those who wrote the Constitution and the Bill of Rights – despite their claims to be. Trying to apply laws and principles written back in the late 1700s to today’s world without interpretation and adjustment is ridiculous on the face of it, even if they did consistently try to do this (which they don’t). For example, corporations barely existed in the 1700s and they were nothing like the huge, multi-national corporations we have today. Also, the guns that existed then took many seconds, if not a minute or so to reload, while today we have guns that fire multiple bullets per second. Not to mention transportation and electronic communications that today happen at speeds that couldn’t have even been imagined in the 1700s, let alone the ability to store and have ready access to information on the scale we do today. Even if the relevant intent of those constitutional authors could be determined, there is no reason, over 200 years later, to give such deified status to their pronouncements.

And the “conservative” justices have sometimes made decisions that simply contradict reality, as in their decision to effectively overturn the Voting Rights Act. (See my previous post on that decision here.)

The Supreme Court, in the years since the Bush vs. Gore decision in 2000, has frequently ruled in ways that serve Republican partisan purposes, without apparent concern about overturning settled law or precedents, or violating their own stated principles. [2] In Bush vs. Gore, the Supreme Court ordered Florida to stop recounting ballots in the presidential election, when the recount might have shifted the victory from Republican George W. Bush to Democrat Al Gore. It overruled Florida’s Supreme Court and election officials despite the “conservative” justices’ frequently stated belief in “states’ rights,” which means that the states have the power to conduct their business, such as elections, without interference from federal authorities.

Other Supreme Court decisions that have clearly benefited Republican partisan interests and that were 5 to 4 decisions include: [3]

  • Janus in 2018, which ruled that workers in a unionized workplace do not have to pay union dues even though the union is still required to represent and advocate for them in collective bargaining and in grievances. This is expected to result in a drop in union membership and in the financial resources available to unions. The Justices were well aware that unions register and mobilize more voters, particularly minorities, than any other organizations and that these voters tend to support Democratic candidates.
  • Shelby County in 2013, which effectively overturned the Voting Rights Act and allowed Republican state governments and election officials to make it difficult for minorities, low-income citizens, and other Democratic-leaning voters to register and vote. (See my previous post on this decision here.) Without this decision and the voter suppression it allowed, Democrat Stacey Abrams and not Republican Brian Kemp would almost certainly have been elected Governor of Georgia in 2018, for example.
  • Citizens United in 2010, which, along with other rulings, allows corporations and wealthy individuals to spend unlimited sums of money in our elections. This money clearly works to the benefit of Republicans and, in general, those who support the power and political influence of corporations and wealthy individuals in our political system and policy making.
  • Vieth vs. Jubelirer in 2004, which ruled that gerrymandering of electoral districts to favor one party over the other is not unconstitutional. The great majority of such gerrymandering, and by far the most extreme partisan gerrymandering, has been done to favor Republicans. Absent partisan gerrymandering, Democrats would likely have 15 to 20 more seats in the U.S. House. (See my previous posts on gerrymandering here and here.)

Congress could act in all these cases (as well as others) to reverse the effects of the Supreme Court’s decisions by clarifying the legislative intent and goals of underlying laws. One clear example is the Court’s decision that gutted the effectiveness of the Voting Rights Act. This decision is considered by some to be one of the mostly egregiously reasoned cases of the Roberts court. (See my previous post on this case here.) Congress could reinstitute the Voting Rights Act’s control over states’ election practices by updating the criteria for identifying jurisdictions that would be subject to federal oversight. The proposed Voting Rights Advancement Act in Congress would do this. [4]

Congressional action to reverse these politically or ideologically driven decisions is not only possible, and would not only reverse harmful effects and overturn bad legal precedents, but would also send a message that power resides with the people and Congress, not with five, unelected “conservative” men. Even if legislation to reverse these decisions or their effects can only be passed by the House, it could potentially temper future Supreme Court decisions. At the least, it would highlight the harm and lack of impartiality behind these decisions.

A subsequent post will identify other Supreme Court decisions where congressional action could negate the effects of the Court’s rulings. Another future post will identify future Supreme Court decisions that should be closely watched to see if the partisan, rather than impartial, decision making continues.

[1]      Millhiser, I., 2/13/19, “Not so Supreme? Congress actually has a lot of power, mostly unused, to rein in the Roberts Court by clarifying the intent of the law,” The American Prospect (https://prospect.org/article/not-so-supreme)

[2]      Kuttner, R., 5/15/19, “Over to you, John Roberts,” The American Prospect Today (https://prospect.org/blog/on-tap)

[3]      Meyerson, H., 4/23/19, “The GOP Justices: Republicans first, white guys second, Constitutionalists third,” The American Prospect Today (https://prospect.org/blog/on-tap?page=1)

[4]      Millhiser, A., 2/13/19, see above

ON-GOING RUSSIAN ELECTION INTERFERENCE MUST BE STOPPED

Since the release of the Mueller report, the focus has been on obstruction of justice by and possible impeachment of President Trump. The report’s documentation of Russian election interference has gotten little attention. Concomitantly, there has been little attention to the need to protect our future elections from on-going Russian meddling.

Based on the Mueller team’s finding of “sweeping and systematic” interference by Russia in the 2016 presidential campaign, it indicted 25 Russians. Russian operatives used every major social media platform, and used them extensively, to spread false information, exacerbate social divisions, and influence the election.

The Mueller report spells out in detail the blatant and illegal efforts by Russia to affect the 2016 presidential election specifically to benefit Donald Trump and to undermine Hillary Clinton. It presents substantial evidence “that the Russian government perceived it would benefit from a Trump presidency and worked to secure that outcome, and that the [Trump] Campaign expected it would benefit electorally from information stolen and released through Russian efforts.” [1] [2]

Highlights from a much longer list of events related to Russian interference in the election include the following: [3]

  • September 2015: The FBI warns the Democratic National Committee (DNC) that at least one of its computers has been hacked by Russians.
  • June 2016: The Washington Post and others report that hackers working for the Russian government have stolen DNC emails and other information. Wikileaks announces that it has Clinton and DNC emails and documents. It begins publishing them in July.
  • July 2016: Russian intelligence agency hackers target Hillary Clinton’s home office.
  • October 2016: The Department of Homeland Security and the Office of National Intelligence on Election Security officially state that the U.S. intelligence community is “confident that the Russian Government directed the recent compromises of emails from U.S. persons and institutions” and are behind the releases of stolen documents by Wikileaks and DCLeaks. DCLeaks is later identified as a front for Russian military intelligence.
  • Late November and December 2016: Various media outlets report that the CIA has determined that Russia’s goal in interfering with the election wasn’t just to undermine confidence in the election and the U.S. government, but was also to support Trump and hurt Clinton. They also report that this intelligence has been shared with Congress.
  • Late December 2016: President Obama issues an executive order naming six Russians who took part in the presidential election hacking and imposing sanctions on Russia.
  • June 2017: A Department of Homeland Security official testifies before the Senate that hackers linked to the Russian government targeted voting systems in up to 21 states and compromised at least one email account at an American voting machine company. Although no evidence of effects on vote counting were found, voter information may have been accessed.
  • July 2018: The Justice Department, as part of Mueller’s investigation, indicts 12 members of Russian intelligence for persistent efforts to hack emails and computer networks associated with the Democratic Party.
  • September 2018: Facebook announces that more than 3,000 ads posted between June 2015 and May 2017 had undisclosed links to Russia. CNN reports that these ads targeted voters in Michigan and Wisconsin, two states Trump won narrowly and that were key to his victory.

In January 2017, the Office of the Director of National Intelligence issued an Intelligence Community Assessment entitled, “Assessing Russian activities and intentions in recent US elections.” [4] It states that it is a “declassified version of a highly classified assessment; its conclusions are identical to those in the highly classified assessment.” It concludes that Russian interference in the 2016 presidential election was the most recent example of Russia’s longstanding efforts to undermine US democracy but represented a significant escalation of their efforts.

It finds with “high confidence” that Russian President Putin ordered the efforts with goals of aiding Trump and hurting Clinton. It also concludes with “high confidence” that Russian military intelligence was behind the release of hacked information. It states that “Russian intelligence obtained and maintained access to elements of multiple US state or local electoral boards. … We assess Moscow will apply lessons learned from its Putin-ordered campaign aimed at the US presidential election to future influence efforts.” (p. iii)

The Trump campaign was happy to accept the help of the Russians, apparently without actively conspiring (i.e., colluding) with them. It nonetheless engaged in a variety of contacts with Russian agents and did not report offers of help from them to the FBI or others. Members of the Trump campaign and family, including the President himself, lied to the FBI and others on multiple occasions about their contacts with Russians.

To respond to the evidence of on-going Russian attempts to influence our elections, the House and the Senate should continue the investigation and identify remedies. Based on their findings, they should formulate legislation and allocate resources to ensure the integrity of our future elections.

One would think that any American president and any Members of Congress, regardless of party or ideology, would support a thorough investigation of Russian interference to determine how to block future threats to our elections, and ultimately our national sovereignty and security. The Republican-controlled Senate and the formerly Republican-controlled House have refused to do so. The Republicans in Congress have abandoned their oath of office and American democracy in the interests of their re-election and political power.

President Trump, as the Mueller report spells out in detail, has repeatedly tried to terminate, limit, or impede the investigation of Russian interference in our elections. Trump’s actions make it clear that his concern is not for American democracy, but reflects three things: [5]

  • Acknowledgement of Russian meddling on his behalf undermines the credibility of his election in 2016,
  • On-going Russian efforts benefit his presidency, and
  • Russia’s activities improve his likelihood of re-election in 2020.

Former President Ronald Reagan, who branded Russia the “evil empire” and worked assiduously to win the Cold War with Russia, must be turning over in his grave to see his Republican party failing to protect America’s elections from Russian interference.

Despite President Trump’s resistance to an investigation, the FBI, intelligence agencies, and the Department of Homeland Security have made their task forces on election interference permanent. The FBI recently moved 40 agents and analysts to its Foreign Influence Task Force. [6] However, without leadership from the President, and the cross-agency coordination and support that would provide, the efforts by these agencies will be less effective.

I urge you to contact your U.S. Representative and your Senators and urge them to take action to protect our elections from meddling by Russia or other foreign actors.

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

[1]      Cole, D., 4/23/19, “An indictment in all but name,” The New York Review of Books (https://www.nybooks.com/articles/2019/05/23/robert-mueller-report-trump-indictment/)

[2]      Mueller, R. S., III, May 2019, “Report on the Investigation into Russian Interference in the 2016 Presidential Election,” U.S. Department of Justice (www.justice.gov/storage/report.pdf)

[3]      CNN, 4/18/19, “2016 presidential campaign hacking fast facts,” CNN Library

[4]      Office of the Director of National Intelligence, January 2017, “Intelligence Community Assessment: Assessing Russian activities and intentions in recent US elections,” (https://assets.documentcloud.org/documents/3719492/Read-the-declassified-report-on-Russian.pdf)

[5]      Cole, D., 4/23/19, see above

[6]      Barnes, J. E., & Goldman, A., 4/26/19, “F.B.I. warns of Russian interference in 2020 race and boosts counterintelligence operations,” The New York Times

WHO WAS BAILED OUT AFTER THE 2008 FINANCIAL CRASH?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

U.S. CAPITALISM KILLS COMPETITION

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

WHY WE NEED EFFECTIVE GOVERNMENT REGULATION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

PRIVATE WEALTH IS MADE ON PUBLIC INVESTMENTS

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

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

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

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

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

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

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

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

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

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

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

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

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

[4]      Karma, R., 3/6/19, see above

RACISM ON THE SUPREME COURT?

On June 25, 2013, the U.S. Supreme Court ruled, in a 5 to 4 decision, that key provisions of the Voting Rights Act (VRA) were unconstitutional. The case was formally known as Shelby County, Alabama v. Eric H. Holder, Jr., Attorney General. Chief Justice Roberts wrote for the majority (which included Justices Scalia, Kennedy, Thomas, and Alito) that “Our country has changed” and claimed that it had done so so dramatically since the initial passage of the VRA in 1965 that the VRA was now not only unneeded but unconstitutional.

This decision was shocking to many, in part because the Act had been reauthorized in 2006 by overwhelming majorities in Congress and signed into law without controversy by President George W. Bush. The Congressional vote, with Republicans in control of both the House and the Senate, was 390 to 33 in the House and 98 to 0 in the Senate in favor of reauthorizing, i.e., extending, the Voting Rights Act.

The over 15,000 pages of evidence compiled by Congress in its review of the VRA in 2006 indicated that it was still badly needed. The Chair of the House Judiciary Committee, Republican Representative James Sensenbrenner of Wisconsin, a conservative, noted that evidence had been “assembled to show the need for the reauthorization of the Voting Rights Act” and that it documented “the extensive record of continued abuse” of voting rights. [1]

This extensive evidence clearly established that the country hadn’t changed much since the VRA’s enactment in 1965 with respect to efforts to impede voting by Blacks in some areas, particularly the South. It documented relentless efforts in some states to counter the effects of the VRA. The on-going nature of these efforts was confirmed by actions taken almost immediately after the Court’s ruling overturning the VRA. (See some specifics below.)

The Supreme Court in effect ruled that Congress had acted irrationally in 2006 in reauthorizing the VRA. Chief Justice Roberts’ and his colleagues’ decision was based on their version of reality, which was in contradiction to the evidence amassed by Congress. Roberts probably wouldn’t have been persuaded by any evidence, given that he had worked zealously in 1981, when he was at the Justice Department, to roll back the protections of the VRA.

At best, the Court’s decision was a failure of empathy or a triumph of ideology, but more likely it reflected racism.

Justice Scalia, in the oral arguments leading to the decision, described the VRA as being a “perpetuation of racial entitlement” and stated that he didn’t believe any legislator would vote to end such an entitlement once society had adopted it. Therefore, it was up to the Court to declare it unconstitutional, because this was the only way to end this racial entitlement. [2] Why the right to vote, which is a core principle of our democracy, would be considered a “racial entitlement” is hard to understand except from the perspective of racism.

The irony here, of course, is that the racial entitlement that exists in U.S. society is the entitlement of Whites. For most of the two hundred years of its existence, there were all White elected officials, police forces, corporate executives, judges and juries, as well as schools, colleges, and teachers, to list a few examples. And while our country has begun to change in this regard, there still is a long way to go to achieve anything close to equity.

What occurred after the elimination of the protections of the VRA has made it clear how virulent efforts to suppress voting, particularly of Blacks, are today. Within two hours after the Supreme Court issued its decision on the VRA, Texas took steps to reinstitute its strict photo ID law, which had previously been struck down by a federal court. The day after the decision, North Carolina amended a pending bill to make its voter ID law stricter and added other provisions eliminating or restricting opportunities to vote that targeted minority voters. Changes in voting procedures in other states, which had previously been blocked by the federal government under the VRA, were quickly implemented.

After years of litigation, federal courts have forced the reversal of the actions of Texas and North Carolina because their changes in voting laws were found to be intentionally racially discriminatory. However, in the intervening years, the discriminatory provisions were in effect. Overall, federal courts have now ruled that at least 10 of the new, state restrictions on voting were illegal.

In the five years since the Supreme Court’s overturning of the VRA, nearly 1,000 polling places have been closed, many of them in predominantly Black areas. Access to early voting has been cut, voters have been purged from the lists of eligible voters, and requirements to show a voter ID or provide proof of citizenship have been implemented. [3] Nine states had been subject on a statewide basis to VRA oversight of changes in voting procedures (Alabama, Alaska, Arizona, Georgia, Louisiana, Mississippi, South Carolina, Texas, and Virginia). In every one of them at least one of the above five impediments to voting has been implemented (the average was 2.3 impediments). Eight of the 9 moved or eliminated polling places and 8 of 9 implemented new voter ID requirements. Four of these impediments to voting were implemented in each of two other states, where only parts of the states had been subject to the VRA (Florida and North Carolina).

Clearly, the Supreme Court majority was in error when they concluded that the country had changed and the protections of the VRA were not only no longer needed, but had risen to the level of being unconstitutional oversight of states’ elections by the federal government. Given that the Court is extremely unlikely to reverse itself, it is up to Congress to pass a new VRA that will fill the gaps in the protection of voting rights created by the Court’s decision.

I urge you to contact your U.S. Representative and Senators to ask them to support a new Voting Rights Act. Our democracy should be encouraging and supporting voting by all eligible voters, and not allowing states or local jurisdictions to implement impediments to voting – especially when those impediments have disproportionate effects on Black Americans.

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

[1]      Fountain, B., 2018, Beautiful Country Burn Again, HarperCollins Publishers, NY, NY. Quotations from page 406.

[2]      Fountain, B., 2018, see above. Quotation from page 409.

[3]      U.S. Commission on Civil Rights, 2018, “An assessment of minority voting rights access in the U.S.: 2018 statutory report.” (https://www.usccr.gov/pubs/2018/Minority_Voting_Access_2018.pdf)

EFFECTS OF THE 2017 CORPORATE TAX CUTS

There are new data on the effects of the federal tax cuts enacted in December 2017 by the Tax Cuts and Jobs Act (TCJA). They are not what their Republican proponents promised. They promised that corporations would use their big tax cuts to create new jobs, hire new workers, and improve workers’ pay and benefits. And they promised the tax cuts would pay for themselves and not increase the federal debt. (See this previous post for some background information.)

The tax cuts did dramatically increase profits for corporations. Corporate profits for the biggest 500 corporations (the S&P 500) grew by almost 21% in 2018. At the six biggest U.S. banks, profits grew almost 30% to a record $120 billion. [1] AT&T projects profits will be up $3 billion in 2018 and Amazon doubled its profits to $11.2 billion.

So, what did corporations do with their record profits?

Corporations have rewarded shareholders, first and foremost. In 2018, they spent $1 trillion buying up their own shares of stock and paid out $500 billion in dividends to shareholders. Both figures are records. Because of foreign ownership of stock in US corporations and of corporations or subsidiaries in the US, a third of the money spent on stock buybacks and dividends goes to foreign nationals. Because this money doesn’t get spent in the US economy, the tax cuts probably made America poorer, not richer. [2] US corporations also spent a record $400 billion on cash acquisitions of other companies, which doesn’t add to the economy or benefit workers.  [3]

Stock buybacks boost a stock’s prices, rewarding shareholders (not workers) and corporate executives, whose pay is almost always tied to the price of the stock. Senators Sanders and Schumer have proposed a law that would ban stock buybacks for any corporation that pays workers less than $15 per hour. [4]

Stock buybacks were illegal until 1982, which is roughly (and probably not wholly coincidentally) the same time wages stopped rising for most Americans. Before then, a bigger share of corporate profits was used to increase workers’ wages, rewarding them for their increased productivity. [5]

Given that the great bulk of the corporate tax cuts have been passed through to stockholders via dividends and stock buybacks, and given that 84% of stocks are owned by the wealthiest 10% of the population, the other 90% of residents will see little if any benefit from the corporate tax cuts. Therefore, these corporate tax cuts contribute to growing income and wealth inequality.

The creation of new jobs and the growth in wages have been modest. There certainly hasn’t been the boom in the economy or wages that Trump and the Republicans claimed would happen. Moreover, the largest corporations, which benefited the most from the tax cuts, have NOT been creating jobs or boosting workers’ wages.

The 1,000 largest public corporations in the U.S. have CUT nearly 140,000 jobs since the passage of the tax cut law. For example, General Motors recently announced plans to close several plants and cut 15,000 jobs, despite receiving a roughly $500 million benefit from the tax cuts.

AT&T cut over 10,000 jobs in 2018 and is closing three U.S. call centers, despite an estimated $3 billion annual increase in profits due to the tax cut. Although AT&T’s CEO had promised to create jobs and bolster its workforce with the benefits of the tax cuts, AT&T has only paid a one-time, $1,000 bonus to its employees at a cost of $200 million, which is only 7% of one year’s increase in profits. Meanwhile, three-quarters of its overall 2018 profits were spent on dividends and stock buybacks that benefit shareholders, including executives, and not its workforce. [6]

For the Wall Street financial corporations, profits for the first half of 2018 were up 11% at $13.7 billion, after rising 42% in 2017. The average salary in these firms jumped 13% to $422,500. Jobs in the financial industry account for less then 5% of private sector jobs in New York City, but 21% of private sector wages. [7] Wages for these highly-paid workers are rising, but not for most workers.

Due to the tax cut, federal tax revenue on corporate income plunged $130 billion (45%) from 2017 to 2018, from $290 billion to $160 billion. [8] Furthermore, Amazon, for example, paid no federal income taxes for the second year in a row despite having profits of $17 billion over those two years. [9]

The federal deficit is increasing and is estimated to be $830 billion for 2018 and to climb to $1,000 billion next year (i.e., $1 trillion) and remain at that level for subsequent years. The annual deficit had been declining under President Obama both in terms of dollars ($585 billion in 2016) and as a portion of the overall economy (i.e., 3.1% percent of Gross Domestic Product [GDP]). Under President Trump, it has jumped in dollars ($830 billion) and to 4.0% percent of GDP. [10] So, clearly the tax cuts are not paying for themselves.

Moreover, the increase in the federal deficit and the cost of interest on the growing federal debt will result in future cuts to government programs or increases in other taxes. These cuts or increases are much more likely to fall on the less wealthy 90% of the population.

Therefore, it’s a near certainty that the great majority of Americans will be worse off due to the Trump and Republican corporate tax cuts of 2017.

[1]      Levitt, H., & Abelson, M., 1/16/19, “It’s official: Wall Street topped $100 billion in profit,” The Wall Street Journal

[2]      Krugman, P., 1/1/19, “The Trump tax cut: Even worse than you’ve heard,” The New York Times

[3]      Wursthorn, M., 12/16/18, “The rocky stock market stills pays dividends to investors,” The Wall Street Journal

[4]      Inequality Weekly newsletter, 2/18/19, Inequality.org (https://inequality.org/resources/inequality-weekly/)

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

[6]      Johnson, J., 1/7/19, “After promising more jobs from Trump tax cut, report shows AT&T has ‘done just the opposite’ by slashing over 10,000 jobs in 2018,” Common Dreams (https://www.commondreams.org/news/2019/01/07/after-promising-more-jobs-trump-tax-cuts-report-shows-att-has-done-just-opposite)

[7]      Talking Points, 9/18/18, “Wall Street salaries at highest level since 2008,” The Boston Globe

[8]      Krugman, P., 1/1/19, see above

[9]      Inequality Weekly newsletter, 2/18/19, see above

[10]     Amadeo, K., 2/12/19, “US budget deficit by year, compared to GDP, debt increase, and events,” The Balance (https://www.thebalance.com/us-deficit-by-year-3306306)

THE DEPARTMENT OF DEFENSE’S MASSIVE FINANCIAL FRAUD

The Department of Defense (DOD) has been engaging in massive financial fraud for years. It has inflated its expenditures and budget requests repeatedly while stashing hundreds of billions of dollars into hidden slush funds.

In 1990, Congress passed and President George H. W. Bush signed into law the Chief Financial Officers Act. It requires 24 federal agencies to submit to annual audits – something every publicly-owned, private, for-profit corporation and every not-for-profit organization are required to do.

Only one of the 24 agencies has failed to comply with the requirement for an annual audit: the Department of Defense. It has only had one audit conducted and it failed the audit miserably. The private firms that were hired to perform the audit concluded that DOD’s financial records were so deficient and full of errors and irregularities that a reliable audit was impossible to perform.

The unsuccessful audit identified at least $21 TRILLION in financial transactions at DOD since 1999 that can’t be traced, documented, or explained. The DOD has the largest discretionary budget in the federal government, $716 billion in 2019, representing 54% of all appropriations. So, the financial problems uncovered and its failure to perform annual audits are extremely significant.

The attempted audit documented that the DOD’s leaders and accountants have been falsifying accounting records for decades. This has been done to deliberately mislead Congress (and the public) and to justify ever increasing budgets, regardless of actual need. The DOD was found to be literally making up numbers and financial transactions in its reports to Congress. [1] It’s important to note that higher DOD budgets mean more money for military contractors, including Boeing, Lockheed Martin, Raytheon, BAE Systems, Northrop Grumman, and General Dynamics.

One of DOD’s strategies was that rather than returning the money to the Treasury, as is required by law, when it didn’t spend all the money in its annual budget, it would create phony transactions to shift the money to a slush fund where it could hide the money and keep it.

Another DOD strategy was to create phony figures to cover up accounting errors and mismanagement. These made it look like its financial reports were accurate and that spending was in alignment with appropriations in the budget. These figures are referred to as “plugs” because they plug holes in DOD’s financial reporting. For example, in the 2015 Army’s budget alone, $6.5 trillion of plugs were found; a truly astonishing figure given the Army’s budget for the year was $122 billion.

DOD also frequently shifts money from the purposes officially authorized in its budget to other uses. Sometimes money is shifted multiple times making the ultimate use of the funds virtually untraceable.

Part of the reason for the 1990 Chief Financial Officers Act and its requirement for annual audits was that whistle-blowers in the 1980s had exposed wildly inflated DOD spending. Cost over-runs on weapons, enormous amounts of waste (such as $1,200 mugs [2]), financial mismanagement, and out-right fraud were evident at DOD then as they are today. The 1980s whistle-blowers estimated that DOD had accumulated roughly $50 billion in a slush fund by not returning unspent funds to the Treasury. However, this story line goes back at least to 1968 when another whistle-blower, A. Ernest Fitzgerald, testified before Congress and Senator Proxmire about cost overruns at DOD. He was demoted and his position eliminated as a result. In 1973, he was reinstated by order of the Civil Service Commission, but DOD marginalized him. In 1981, he was a founder of the organization that became the Project on Government Oversight (POGO), a private government watchdog that helps other whistle-blowers share information without having to be publicly identified. [3]

On September 10, 2001, Donald Rumsfeld, President G.W. Bush’s Secretary of Defense, held a press conference and made the startling announcement that “According to some estimates we cannot track $2.3 trillion in [DOD] transactions.” [4] This amount was over seven times the total DOD budget of $313 billion for 2001. No other Secretary of Defense, before or after Rumsfeld, has been anywhere near this forthright about DOD’s accounting shenanigans. Unfortunately, the attention this revelation was due got completely overshadowed and lost due to the terrorist attack the next day on the World Trade Centers in New York.

The Office of the Inspector General (OIG) within DOD has criticized DOD’s accounting practices for years but has never advocated for punitive action against DOD accountants or anyone else. After the recent increased attention to the problems highlighted by the unsuccessful audit, OIG began removing previous reports from its website. In addition, while OIG audit reports have always been made available on-line and in full, a recent report on the Navy’s 2017 financial statement was heavily redacted when it was made publicly available. Despite requests from the media and Congress for an unredacted version of the report, OIG has refused to release one. A Freedom of Information Act (FOIA) request by The Nation magazine for the unredacted version is currently pending. [5]

The scale and consistency of DOD’s financial manipulation and misreporting make it clear that this has been an intentional strategy to mislead Congress and pad its budget year after year after year. If this happened in the private sector (think Enron) people would be fired and prosecuted; and companies would go out of business.

If we want to make government more efficient and to save money by reducing waste and fraud, there’s more money and efficiency to be found at DOD than all other federal agencies combined. We need members of Congress now and a future President to demand that DOD clean-up its finances. They will need to counter the huge and powerful bureaucracy that is the DOD and the power of the military contractors (and their campaign contributions and lobbyists). They will have to overcome the sacrosanct nature of DOD spending and the political dogma that anyone who criticizes DOD spending is weak on defense and unpatriotic. Of course, nothing could be further from the truth. Having an efficient, effective, well-managed DOD is what being strong on defense is really all about.

[1]      Lindorff, D., 11/27/18, “Exclusive: The Pentagon’s massive accounting fraud exposed,” The Nation (https://www.thenation.com/article/pentagon-audit-budget-fraud/)

[2]      Gelardi, C., Week of 12/3/18, “A mugs’ game,” The Nation

[3]      Sandomir, R., 2/14/19 “A. Ernest Fitzgerald, exposer of waste at the Pentagon, dies at 92” The New York Times

[4]      As reported in Lindorff, D., 11/27/18, see above

[5]      Lindorff, D., 11/27/18, see above

ARE THE DEMOCRATS’ IDEAS RADICAL?

The mainstream media’s frequent characterization of ideas put forth by Democratic members of Congress and Democratic presidential candidates as “radical” or “far left” or “out of the mainstream” is simply inaccurate. Most of the ideas so labeled are policies that:

  • Have previously been in place in the U.S.,
  • Are broadly supported by the American public,
  • Have been seriously considered in the U.S. in the past, and/or
  • Are widely in place in other wealthy countries.

For example, Representative Ocasio-Cortez’s recent suggestion that the income tax rate on income over $10 million be raised to 70% was called “insane.” In addition, it was stated that it would kill our economy.

However, in the 1950s, the top income tax rate was over 90% and our economy did just fine. The top tax rate was 70% on income over $216,000 up until 1980 and the economy continued to do well. In the 1980s, President Reagan slashed the top tax rate. The economy didn’t boom as a result, rather the growth and prosperity of the middle class stalled, workers’ wages became stagnant, and income and wealth inequality in the country began to explode. [1]

The 1950s, 60s, and 70s were a 30-year period with top income tax rates of 70% or more, on incomes of roughly $200,000 and up. This period also had strong economic growth, a growing middle class, and increasing equality. Therefore, a proposal to restore such a rate on incomes over $10 million represents a partial return to a policy with a proven track record of success. It is not “radical” or “insane” to say the least.

Ocasio-Cortez’s idea, therefore, is a sensible proposal to address growing inequality and an economy that is working for the rich (and especially the super-rich), but for no one else. What is out of the mainstream is President Trump’s and Congressional Republicans’ 2018 tax cut for the wealthy, given that 43% of voters say they want taxes raised on incomes over $250,000 (not just $10 million) and 60% say they don’t feel millionaires are paying their fair share of taxes. Furthermore, since 2003, the Gallup Poll has annually asked the public whether taxes on the rich were too high, just right, or too low. Every year, 60% to 70% of respondents have said “too low.” Yet, the mainstream media refer to supporters of the tax cut for millionaires as “moderates” and those who propose doing what a clear majority of Americans support as “radicals.” [2] [3]

Polls of the public also indicate that several other proposals reported as “radical” or “out of the mainstream” by the media are supported by majorities of Americans. Proposals for universal health insurance or Medicare for All are called radical, yet 70% of Americans support this, including a majority of Republicans. Proposals for tuition-free public college are called radical, but 79% of Democrats and 41% of Republicans support this.

In the 1950s and 1960s, tuition at public colleges and universities was free or minimal. Universal health insurance has been a topic of serious discussion in the U.S. on and off since President Franklin Roosevelt proposed it in 1944 as part of his Economic Bill of Rights, which included “the right to adequate medical care.” (See this previous post on FDR’s Economic Bill of Rights for more information.) Former Representative John Dingell, who just passed away at age 92, filed a bill, “The United States National Health Insurance Act,” in the U.S. House every session from 1955 to 2013; it would have created a single-payer health care system. [4]

Multiple polls have found that most Americans (including a majority or near-majority of Republicans) support Senator and presidential candidate Elizabeth Warren’s proposal for an annual wealth tax of 2% on wealth above $50 million, rising to 3% on assets over $1 billion. [5] Yet, the mainstream media and most pundits are calling her proposal radical.

We currently have a wealth tax; but it’s only on the main form of middle-class wealth – people’s homes. Homeowners pay a property tax, which is typically used to fund local government and schools. Nonetheless, the suggestion that other forms of wealth, ones that are typically owned by the very wealthy, be taxed at a similar rate is branded as radical.

Internationally, of course, the U.S. is the country that’s out of the mainstream. Most other wealthy nations have higher income tax rates than the U.S., have universal health insurance, and have free or near-free post-secondary education. A number of these countries also have a wealth tax – and more would have one if it were established as an international standard so the wealthy couldn’t so easily hide or shift their wealth to another country to escape a wealth tax. (But that’s a whole other topic for another post.)

Here in the U.S., these and many other policy proposals being put forth by Democrats are being labeled as radical, when they are actually anything but radical. They are supported by majorities of Americans (see this previous post for more information) and, in many cases, have been mainstream ideas for generations. Many of them have been pushed out for the mainstream by radical “conservatives” over the last 20 years, building on efforts that began over 40 years ago.

These ideas and policies – for higher income and wealth taxes, for universal health insurance, and for free public college – are being brought back into the mainstream by these Democratic politicians and their grassroots supporters. The election results of 2016 have brought them new levels of attention. Broad public support for the politicians proposing them, along with probable future election results, appear likely to put them squarely back in the mainstream. Resistance from the mainstream media and some politicians will have to be overcome, but it’s becoming clear who the real radicals are and who’s truly in the mainstream.

[1]      Eagan, M., 1/11/19, “There’s nothing ‘extremist’ about social welfare,” The Boston Globe

[2]      Eagan, M., 1/11/19, see above

[3]      Meyerson, H., 1/24/19, “AOC’s achievement: Making American’s progressive beliefs politically acceptable,” The American Prospect Blog (https://prospect.org/blog/on-tap)

[4]      Nichols, J. 2/8/19, “John Dingell kept the faith, from the New Deal to ‘Medicare for All’,” The Nation (https://www.thenation.com/article/john-dingell-obit-medicare-for-all/)

[5]      Kapur, S., 2/9/19, “Warren starts 2020 bid, vows to end system ‘rigged’ by rich,” Bloomberg (https://www.bloomberg.com/news/articles/2019-02-09/pushing-a-wealth-tax-elizabeth-warren-to-launch-white-house-bid)

CONTROLLING DRUG PRICES

Clearly, we need better regulation of drug prices and the drug industry in the U.S. Unwarranted, steep increases in drugs’ prices and higher prices than in other countries are key indicators of the need for better regulation to lower prices. And, as recent investigations have uncovered, this applies to the generic drug makers as well as the brand name drug makers. It is estimated that if there were a truly free market for prescription drugs in the U.S., they would cost $80 billion instead of $430 billion, an annual savings of $350 billion. (See my previous post for more information.)

Three bills have been introduced in Congress to address the high and rapidly rising costs of prescription drugs in the U.S. They have been introduced in the Senate by Senator Sanders of Vermont and in the House by Representatives Khanna of California and Cummings of Maryland.

First, the Prescription Drug Price Relief Act would terminate patents, ending monopoly rights, for any drug whose price exceeded the median (middle) price among five comparable countries: Canada, the United Kingdom, France, Germany, and Japan. Drug prices in these countries are roughly half of what they are in the U.S., so our drug prices would come down substantially under this law. It is expected that drug companies would lower prices voluntarily if this law is passed; they wouldn’t want to lose their patent protections because, if they did, competition would likely drive prices even lower.

Second, the Medicare Drug Price Negotiation Act would allow Medicare to negotiate the prices it pays for drugs. Given that it spends roughly $100 billion a year on drugs, almost a quarter of all drug purchasing, it has substantial negotiating power. When the Medicare drug benefit was created, the Republicans in control of Congress and President George W. Bush did the pharmaceutical industry a huge favor by prohibiting Medicare from negotiating drug prices and also prohibiting the importation of drugs. The Veterans’ Administration and every private health insurance company, as well as every other country, save substantial amounts of money by negotiating drug prices with the drug manufacturers.

(In a classic case of the revolving door between government and industry, Representative Tauzin, chair of the committee that wrote the Medicare prescription drug law, resigned two months after the bill was signed into law to become the head of the pharmaceutical industry’s trade association at an estimated salary of $2 million. His pay would increase to $11.6 million five years later.)

Third, the Affordable and Safe Prescription Drug Importation Act would allow the importation of drugs from other countries with safety standards comparable to those in the U.S., such as Canada and Germany. This would be a step toward a truly free market, something our business community rhetorically supports, and would significantly reduce drug prices given that prices in these countries are roughly half of what they are in the U.S. The charge by opponents that this would let unsafe drugs into the country rings hollow because many of our drug companies themselves import the drugs they sell or ingredients for them – largely from China.

I urge you to contact your U.S. Representative and Senators to ask them to support these three bills. It is time to reduce the exorbitant profits of the drug makers by reducing the exorbitant prices of the drugs they sell. Furthermore, reducing their high profit margins would reduce the incentive to engage in fraudulent practices to promote additional sales of their drugs.

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.

BAD BEHAVIOR IS PERVASIVE IN THE DRUG INDUSTRY

The bad behavior in the drug industry that has gotten the most attention is price gouging on brand name drugs. However, the bad behavior is more pervasive than just that.

The solution to price gouging on brand name drugs has typically been to wait for their patents to expire and assume that competition from generic drug makers would then drive prices down. The pharmaceutical industry has fought back against this by finding ways to extend their patents, for example by tweaking their drugs or the way they are delivered (e.g., pill, gel, slow-release formulation, etc.). The brand name drug makers have also paid generic drug companies not to release generic versions of their drugs. (See my previous posts on 1/2/18 and 1/13/18 for more detail.)

Recently, it’s come to light that generic drug makers have apparently been engaged in “illegal price-fixing schemes of massive proportion.” [1] An anti-trust lawsuit based on two drugs began in 2016 and has now grown to include 300 drugs and 16 generic drug makers. Consumers, health insurers, hospitals, and taxpayers have been paying illegally set high prices for antibiotics and medications for diabetes, asthma, high blood pressure, arthritis, anxiety, and much more.

The alleged collusion appears to have transformed the generic drug industry from a highly competitive and price-driven business into one where coordinated price increases occur regularly for identical or similar drugs. These price increases occur for no reason (other than greed) and are reminiscent of price hikes by brand name drug makers. However, in the case of generic drugs, claims of high research and development costs are irrelevant and big price increases shouldn’t be possible because they aren’t protected by drug patents.

For example, the cost of insulin, the life-saving drug used to manage diabetes, doubled between 2012 and 2016. Price increases occurred in a near lockstep manner across different manufacturers and different types of insulin. In January 2019, one drug maker’s prices on its insulin products increased by between 4.4% and 5.2%, while another manufacturer, simultaneously, raised its insulin prices by 5.2%. [2] In another example, Albuterol, a decades-old generic asthma medication sold by drug makers Mylan and Sun, saw its price from both manufacturers jump simultaneously from 13 cents a tablet to $4.70. (Price spikes in other generic drugs, such as the EpiPen, were highlighted in previous posts on 9/22/16 and 10/16/16.)

Generic drugs are a $100 billion a year business and represent 90% of all prescriptions. Therefore, the costs of this price fixing are undoubtedly in the billions of dollars. Forty-seven states are now plaintiffs in the expanding civil lawsuit, where new information keeps emerging and defendants are being added. Two former executives of Heritage Pharmaceuticals have pled guilty and are cooperating with prosecutors in a parallel federal criminal case.

On a different front, bad behavior in the marketing of brand name opioids is the target of increasing legal action. Executives of Insys Therapeutics are facing federal charges of racketeering, conspiracy, and mail fraud for their tactics in selling highly addictive fentanyl spray. They are charged with conspiracy to bribe and incentivize doctors, clinicians, pharmacists, and other medical professionals to prescribe the powerful opioid, including to patients who did not need it. Insys employees also contacted insurers, fraudulently claiming to be employees of medical practitioners, to lie about patients’ conditions so the insurer would pay for their fentanyl. Two executives, the former CEO and the head of sales, have pled guilty and are cooperating with prosecutors. Several doctors, a physician’s assistant, a nurse, and a former Insys sales representative (the CEO’s wife) have already been convicted. Insys has agreed to pay $150 million to settle civil and criminal charges. [3]

Purdue Pharma, the maker of OxyContin, misled prescribers and patients about the risk of addiction to OxyContin and worked to blame patients for becoming addicted. It engaged in a sophisticated and extensive marketing campaign that “educated” doctors about undertreatment of pain. It failed to report illegal activity, including blatant over-prescribing of OxyContin that clearly indicated sales in the black market. The company and three executives pled guilty in 2007 to federal charges of fraudulent marketing, with the company paying $600 million in fines.

There are scores of on-going lawsuits by states, local officials, and individuals against Purdue and other opioid makers. The Massachusetts Attorney General’s lawsuit and investigative reporting by the media are publicly revealing evidence against Purdue that was previously kept secret under plea deals engineered by Purdue and its executives. [4]

Learning the full truth about the marketing of opioids by U.S. drug makers still has a long way to go. We know enough to conclude that tens of thousands of lives could have been saved if our drug makers had not engaged in fraudulent practices or if information from earlier court cases had been made public instead of being kept secret under the terms of plea deals. [5] (See previous posts on the opioid crisis and drug makers here, here, here, and here, with a post on solutions here.)

Patients in the U.S. bought $430 billion of prescriptions drugs in 2018 that probably would have cost less than $80 billion in a truly free market, without patents and other constraints. This $350 billion difference is five times what we spend on food stamps, over eight times what the federal government spends on K-12 education and two-thirds of all state and local spending on K-12 education, and over 20 times what the federal government spends on Head Start and child care combined. [6]

Clearly, the prescription drug market in the U.S. is ineffectively regulated. Drug manufacturers have such huge profit margins that there are enormous incentives to use fraudulent methods to increase drug sales. These methods include bribing those who write prescriptions, misrepresenting the safety and effectiveness of drugs, pushing their inappropriate use, and more. This type of inappropriate, aggressive marketing is a major cause of the opioid epidemic and thousands of deaths. Predatory price increases and illegal price fixing by drug manufacturers are costing consumers, health insurers, and others billions of dollars a year that are pure profit for the pharmaceutical industry.

My next post will present steps that can be taken to control drug costs.

[1]      Rowland, C., 12/10/18, “Price-fixing probes on drugs expand,” The Boston Globe from The Washington Post

[2]      Silverman, E., 1/25/19, “Feeling the needle,” The Boston Globe

[3]      Cramer, M., 1/10/19, “Former CEO pleads guilty to conspiracy in fentanyl marketing,” The Boston Globe

[4]      Joseph, A., 1/16/19, “Opioid maker sought to put blame on addicted,” The Boston Globe

[5]      Meier, B., 12/26/18, “Opioid makers are the big winners in lawsuit settlements,” The New York Times

[6]      Baker, D., 1/14/19, “Three Bernie Sanders bills to arrest the highway robbery in the prescription drug market,” The American Prospect (https://prospect.org/article/three-bernie-sanders-bills-arrest-highway-robbery-prescription-drug-market)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ELIMINATING NUCLEAR WEAPONS

Many Americans are concerned that the belligerent and impulsive behavior of President Trump could lead us into war and, in a worst-case scenario, into nuclear war. The President can independently order the launch of nuclear weapons at any time and for any reason. Furthermore, Trump’s announced intention to withdraw from the Intermediate-Range Nuclear Forces Treaty (which has been in force for over 30 years) and to spend $1.7 trillion to update the U.S.’s new nuclear arsenal increase the likelihood of nuclear war.

With these and other factors in mind, the Bulletin of the Atomic Scientists has moved its Doomsday Clock to 2 minutes from midnight (i.e., doomsday). The clock had been at 17 minutes from midnight in 1991 but has been moving closer since then and has moved from 3 minutes away in 2016 to 2 minutes today.

Any nuclear war would have catastrophic consequences for human beings and our planet. Detonation of one-tenth of the 15,000 nuclear weapons that exist (with all but about 1,000 of them in the hands of the U.S. and Russia) would almost certainly kill all humans on the planet via the huge radioactive cloud that would circle the Earth and rain down everywhere.

Even the detonation of a single nuclear weapon would, of course, be locally devastating. Today’s nuclear weapons are up to 100 times more powerful than the two bombs the U.S. dropped on Japan at the end of World War II, each of which destroyed an entire city and killed roughly 100,000 people.

The U.S. should reduce the likelihood of accidentally launching a nuclear weapon, many of which are still on a quick-launch protocol that dates from the Cold War with the Soviet Union. We could change our policies on the initial use of nuclear weapons, re-evaluate missile defense, and strengthen diplomacy. We could also do more to reduce the possible use of a nuclear weapon by terrorists or other countries around the world. The Union of Concerned Scientists has excellent information on all of this on their website.

The most encouraging news on the nuclear weapons front is the Treaty on the Prohibition of Nuclear Weapons (TPNW), which is now in the ratification process around the world. On July 7, 2017, a United Nations conference adopted this Treaty by a vote of 122 countries in favor, one opposed, and one abstention. The conference met for over 40 days in 2017 with all U.N. member countries, along with non-governmental organizations, encouraged to participate.

The Treaty will go into effect 90 days after the 50th country ratifies it. The Treaty includes comprehensive prohibitions on developing, producing, testing, possessing, or threatening to use nuclear weapons. [1] The Treaty’s introduction states that given “the catastrophic humanitarian consequences … from any use of nuclear weapons, … the only way to guarantee … [they] are never used again” is to “eliminate such weapons.” It notes that “any use of nuclear weapons would be contrary to the rules of international law … abhorrent to the principles of humanity and the dictates of public conscience. … Concerned by the slow pace of disarmament … and the waste of economic and human resources on … the production, maintenance and modernization of nuclear weapons” the conference participants agreed that the elimination of nuclear weapons was necessary and appropriate. [2]

The International Campaign to Abolish Nuclear Weapons (ICAN), a coalition of over 500 organizations in over 100 countries and the winner of the 2017 Nobel Peace Prize, is working to get the Treaty ratified. So far, 69 countries have signed it and 19 have ratified it. Once 50 countries ratify it, nuclear weapons will be banned under international law. [3]

The U.S. has not ratified the Treaty, but California, the U.S. Conference of Mayors, and several cities and towns, including Los Angeles and Baltimore, have endorsed it. Raising the issue of unnecessary, expensive, and dangerous nuclear weapons may serve as a vehicle to more broadly address the U.S.’s militarism, which is harmful geopolitically and economically.

I urge you to contact your local, state, and national elected officials and to ask them to endorse the Treaty on the Prohibition of Nuclear Weapons. These weapons serve no rational purpose and their existence is an existential threat to humankind. The costs and dangers of simply having and maintaining them, of terrorists capturing and using a nuclear weapon, and of working with and disposing of the radioactive material involved are not justifiable. A world free of nuclear weapons would be a safer and saner planet to live on.

[1]      United Nations Office for Disarmament Affairs, Retrieved from the Internet on 1/5/19, “Treaty on the prohibition of nuclear weapons” (https://www.un.org/disarmament/wmd/nuclear/tpnw/)

[2]      United Nations Conference to Negotiate a Legally Binding Instrument to Prohibit Nuclear Weapons, Leading Towards their Total Elimination, 7/7/2017, “Treaty on the Prohibition of Nuclear Weapons” (https://www.un.org/disarmament/tpnw/)

[3]      Fihn, B., 11/8/18, “The fate of the earth depends on women,” The Nation (https://www.thenation.com/article/nuclear-prohibition-beatrice-fihn/)

INVESTING IN INFRASTRUCTURE AND A GREEN ECONOMY: THE PROPOSALS

My previous post outlined the need for investing in our infrastructure while simultaneously taking advantage of opportunities to make our economy more environmentally friendly and fairer for workers. Here are overviews of some of the infrastructure investment proposals that various groups have developed to address these issues.

The Democrats have proposed “A Better Deal to Rebuild America” which calls for a $1 trillion federal investment in infrastructure that would create more than 16 million jobs. It would invest in green infrastructure and ensure opportunities for small businesses. It would incorporate strong environmental protections and labor standards. It proposes investing in roads, bridges, rail, and public transit; high-speed internet; schools; airports, ports, and waterways; and water and energy systems.

The infrastructure proposals from the Congressional Progressive Caucus, [1] the Campaign for America’s Future, [2] and Demos [3] have much in common and share similar underlying visions. The Campaign for America’s Future’s proposal is put forth as a “pledge to fight for good jobs, sustainable prosperity, and economic justice.” It incorporates investment in traditional and green infrastructure along with ensuring that workers can form unions to bargain collectively for better wages and benefits. It supports a living wage, affordable health care and child care, and paid family leave, sick and vacation time for workers. It advocates for full employment with particular attention to helping individuals and communities harmed by discrimination, de-industrialization, and privatization.

Demos proposes an economic agenda that addresses issues of race and class, while motivating working people to “engage in the civic life of their communities and our nation.” Its 25 policies mirror the goals of the Campaign for America’s Future’s pledge. They also call for investment in affordable housing and for guaranteed employment for everyone who wants to work, with the federal government as the employer of last resort (as was done during the Great Depression).

In an article in The American Prospect, Jon Rynn recommends considering health care, education, and financial infrastructure as part of the infrastructure investment paradigm. This reflects the inclusion of human capital and public goods, not just physical capital, as important components of overall infrastructure. Universal health insurance, such as Medicare for All, would expand health care infrastructure and support the productivity of human capital. Affordable public college and early care and education (aka child care) are both pieces of educational infrastructure and are investments in the current and future workforce’s human capital. Finally, regulating the financial industry and creating public banks would be ways of strengthening and democratizing financial infrastructure. [4]

A recent addition to the infrastructure proposals being promoted in Congress is the Green New Deal. It isn’t as detailed as the proposals mentioned above; it’s more of a vision statement. It envisions a substantial investment in infrastructure and the green economy. It would transform our economy by decarbonizing it to address climate change, while also making it fairer. [5]

After the October release of the Intergovernmental Panel on Climate Change (IPCC) report that presented ominous data and predictions about global warming, a series of events occurred that have pushed the Green New Deal into the spotlight. After the November election, Representative (and soon-to-be House Speaker) Pelosi announced that she planned to revive the Select Committee on Energy Independence and Global Warming to pursue bipartisan action. However, climate change activists viewed the Committee and a bipartisan approach as likely to continue to be fruitless.

So, the youth-led Sunrise Movement organized a sit-in in Rep. Pelosi’s office, calling for a committee charged with developing a plan to meet the goals deemed essential by the IPCC report. Sunrise approached Representative-elect Ocasio-Cortez, who had campaigned in support of a Green New Deal, and asked her to help publicize the sit-in. She not only agreed to do so and to reach out to other new representatives, but agreed to attend the sit-in. Roughly 200 activists occupied Pelosi’s office on November 13 with significant media attention.

Sunrise, Rep. Ocasio-Cortez, and others in or coming into Congress developed a proposal for a Select Committee on a Green New Deal. By December 10, forty members of Congress had endorsed the proposed committee and an even larger occupation of Pelosi’s office occurred.

While the specifics of a Green New Deal are to be determined, its four core elements are:

  • Decarbonizing the economy
  • Large-scale public infrastructure investment
  • Federally-guaranteed employment for everyone who wants to work
  • A just transition to a green economy with remediation for those most negatively affected by historical discrimination, climate change, and the shift to a green economy

For any infrastructure investment program, the first question usually is, can we afford it? Many people would argue that we can’t afford not to make these investments and that the cost of climate change will be much larger than these costs if we don’t take aggressive steps to green our economy.

To put the suggested costs of roughly $500 billion per year for a significant infrastructure program in perspective, the Works Progress Administration’s budget in the 1930s was roughly 2.2% of Gross Domestic Product (GDP, the size of the overall economy). This would be about $450 billion per year today with U.S. GDP at $20.66 trillion. The tax cuts passed in 2017 cost roughly $200 billion per year. Congress and President G.W. Bush approved, on short notice, a $700 billion bailout of the financial sector after the 2008 crash and, in addition, by March 2009, the Federal Reserve had committed $7.8 trillion, more than 50% of GDP at the time, to rescuing the financial system. So, the answer to whether we can afford the proposed infrastructure investments is YES; we can afford it if we have the public and political will to make the commitment to repairing and modernizing our infrastructure while greening our economy and making it work fairly for the benefit of all.

If Democrats are willing to commit to a Green New Deal (GND), which means standing up for a fair economy and taking aggressive steps to address climate change, they could reap the benefits of the current grassroots energy behind these issues. Some Democrats will resist endorsing a GND, fearing the loss of campaign donations and support from wealthy individuals and corporations. However, not supporting a GND would risk squandering a tremendous opportunity, both politically and to do what’s good for our people, our democracy, our country, and our planet.

I encourage you to communicate with your U.S. Senators and Representative about infrastructure investment and the Green New Deal. Nothing is more likely to persuade them to support a GND than hearing from constituents who care about climate change, well-maintained infrastructure, and an economy that works for everyone. I welcome your comments and feedback on steps you feel are needed to make our economy fairer and more responsive to regular Americans, as well as to tackle global warming and climate change.

[1]      Blair, H., 7/24/18, “‘The People’s Budget’: Analysis of the Congressional Progressive Caucus budget for fiscal year 2019,” Economic Policy Institute (https://www.epi.org/publication/the-peoples-budget-analysis-of-the-congressional-progressive-caucus-budget-for-fiscal-year-2019/)

[2]      Campaign for America’s Future, 2018, “The Pledge” (http://campaignforamericasfuture.org/pledge/)

[3]      Demos, 1/31/18, “Everyone’s economy: 25 policies to lift up working people” (https://www.demos.org/publication/everyones-economy)

[4]      Rynn, J., 6/28/18, “What else we could do with $1.9 trillion,” The American Prospect (https://prospect.org/article/what-else-could-we-do-19-trillion)

[5]      Roberts, D., 12/26/18, “The Green New Deal explained,” Vox (https://www.vox.com/energy-and-environment/2018/12/21/18144138/green-new-deal-alexandria-ocasio-cortez)

INVESTING IN INFRASTRUCTURE AND A GREEN ECONOMY

In previous posts, I’ve noted that with Democrats taking over control of the U.S. House in January, there’s a wide range of issues they might tackle. Even if many of the bills they propose, and hopefully pass, don’t become law (because they aren’t passed by the Senate or are vetoed by President Trump), they will frame the debate going forward and into the 2020 elections. Raising substantive issues will shift the political discussion to meaningful policies to address important problems rather than tweets and meaningless bluster.

Readers’ feedback on the list of topics in a previous post identified infrastructure investment and environmental policy issues as the two top priorities. Coincidentally, these two issues have become linked. They were described in my post as follows:

  • Infrastructure: repair roads and bridges; repair and improve mass transit including railways and airports; provide quality school buildings for all children; repair and enhance water, sewer, and energy systems; provide universal, high speed, affordable Internet access; restore and enhance public parks; provide good jobs with good wages and benefits through work on infrastructure projects.
  • The environment: move forward with the Green New Deal, which supports the development of renewable energy and green jobs while aggressively addressing climate change.

The American Society of Civil Engineers’ (ASCE) 2013 Report Card for America’s Infrastructure gave the U.S. a grade of D+ and estimated that an investment of $3.6 trillion was needed by 2020. No significant improvement has occurred since the report card was issued. (A new report card, which is done every four years, will be out on March 9, 2019.) ASCE describes infrastructure as the backbone of our economy and notes that there’s a significant backlog of maintenance and a pressing need for modernization. The overall grade is a summary of grades in 16 areas from schools to water and waste systems to transportation and energy systems.

Large portions of our deteriorating infrastructure were built in the 1930s under the New Deal’s Works Progress Administration (WPA). The WPA built electricity generation and distribution systems, constructed dams and water distribution systems, restored ecosystems, built national parks, and rescued the Midwest from the Dust Bowl. During World War II, the government built factories that produced military equipment and supplies, which after the war produced consumer goods. After WWII, the government subsidized housing construction and invested in human capital through the GI bill, which subsidized education for veterans. In the 1950s, public money built the Interstate Highway System and our aviation system. [1]

By the late 1960s, public infrastructure investment began to slow and by the 1980s, with privatization, deregulation, cutting taxes, and shrinking government at the top of the political agenda, the decline in infrastructure investment accelerated. The public seems to have quickly forgotten that it was public investments that built the infrastructure everyone takes for granted in their everyday lives.

Today, recognition is growing that our failure to invest in maintaining and modernizing infrastructure is hurting our global competitiveness and inconveniencing our everyday lives. A growing number of voices are noting that infrastructure investment is needed and would be a much better use of public funds than spending $5 billion on a wall to prevent immigration from Mexico or $1.9 trillion over 10 years on tax cuts (largely for wealthy individuals and corporations) as was done in December 2017.

Investing in green industries, particularly clean and renewable energy, thereby addressing climate change, is one component of infrastructure investment. This is also an opportunity to revitalize the U.S. economy and to foster our ability to compete in the growing international market for green technology.

Infrastructure investment can also be a means to address under-employment and inequality. Although overall unemployment figures are low, many people who lost good, blue collar, union jobs to global trade are still earning less and are less secure economically than they used to be. Many recent college graduates are struggling to find good jobs and unemployment is still high for people without college degrees, especially those who are not white. Ensuring that the many jobs created by infrastructure investment are full-time jobs with good wages and benefits would be an important step toward reducing economic inequality and insecurity.

Although President Trump has expressed support for infrastructure investment, his approach would privatize public infrastructure, unfairly enrich private developers, and fail to build much of the infrastructure that’s need. (See my earlier post, Trump’s Infrastructure Plan: A Boondoggle, for more details.) Furthermore, it would not promote the greening of our economy or reducing inequality.

My next post will review some infrastructure investment proposals, including the Green New Deal, which has been getting a lot of attention lately.

[1]      Rynn, J., 6/28/18, “What else we could do with $1.9 trillion,” The American Prospect (https://prospect.org/article/what-else-could-we-do-19-trillion)

THE DOWNSIDE OF PHILANTHROPY

Philanthropy, particularly at this time of year, is typically viewed as the ideal expression of caring for others and contributing to amelioration of social problems. However, philanthropy, particularly when tax-subsidized and done by the super-rich, has a significant downside.

Philanthropy in the U.S. is subsidized for those who itemize deductions on their income tax returns. Deducting charitable donations from taxable income means that the donation costs the donor less than its full amount. For a high-income tax payer paying roughly 40% of income in taxes, the donation only costs 60 cents for every dollar donated. For a lower-income taxpayer paying a 15% tax rate, a donation costs 85 cents for every dollar donated. Furthermore, it’s primarily high-income taxpayers and home owners who itemize deductions. So, both of these factors skew the financial benefits of philanthropy to those with high incomes and provide lower or no benefit to those with lower incomes.

Therefore, our current system of tax-subsidized philanthropy favors the giving preferences of the wealthy over those of low income or poor people. This problem was exacerbated by the 2017 tax cut. It raised the standard deduction for income tax calculation, which means that only the top 10% or so of incomes will still find it worthwhile to itemized deductions. Therefore, our tax system will now subsidize the philanthropy of only the top 10%.

Poor and middle-class people give away as high a percentage of their incomes as the wealthy, which suggests that the tax subsidies for philanthropy are rewarding the wealthy for behavior they would most likely engage in anyway. Charitable activities have occurred for centuries, but we have provided tax benefits for them only for the last 100 years. Therefore, these tax subsidies may well just be a benefit, a pat on the back, for high income people. If this is the case, it makes no sense to give away the tax revenue or to allow the wealthy to avoid paying their fair share in taxes by giving them a tax break for their charitable giving. [1]

Because of the growth of income and wealth inequality, and the huge amounts of money the super-rich can easily afford to give away, increasingly the philanthropic preferences of the wealthy are shaping our society. However, the giving preferences of the wealthy do not reflect the philanthropic preferences of the rest of society. [2]

Rob Reich, the author of “Just Giving,” would prefer to see society pursue democratically identified goals rather than private projects selected by wealthy philanthropists. The big splash that big philanthropy makes, such as Amazon’s Bezos’s recent announcement of a $2 billion commitment to address homelessness and improve early childhood education, distracts us from crafting policy solutions that will systematically address problems and help everyone who is facing a challenge rather than the subset who fall within the purview of a philanthropic project.

When the super-rich decide which institutions to support (e.g., universities, museums, hospitals) and which social problems to tackle (e.g., homelessness in the U.S., hunger and health in poor countries), they are usurping the role of public decision-making and priority setting that should be done by democratically run organizations, particularly governments. [3]

Charitable donations have been increasing since the 2008 recession, exceeding $400 billion for the first time in 2017. However, fewer households are giving, dropping from 66% in 2000 to 55% in 2014. While Giving Tuesday this year set a record with $380 million raised from 4 million individuals (an average of about $100 each), this represents only 0.1% (one tenth of one percent or one thousandth of overall giving).

Non-profit organizations are relying on fewer, larger donations. This means their support is less reliable from year to year and that they may tweak their missions to fit the interests of large donors. Overall, it means the favored institutions, causes, and projects of the wealthy are funded, while others struggle to survive. For example, it may mean that there is one awesome charter school for a hundred or so children, but that quality public education for all gets left behind.

Large-scale philanthropy can cause public organizations, such as public schools, to alter policies and procedures to qualify for philanthropic funding. For example, billionaire Bill Gates’s foundation’s grants for public schools have pushed school systems and states to adopt the Common Core learning standards and to internally subdivide schools into “schools-within-a-school” in accordance with grant requirements.

Super-sized philanthropy can’t replace broad-based public programs and investments that improve overall public well-being. An irony is that the super-rich may oppose public policies that would address issues they tackle through their philanthropy. The most dramatic and recent example is that of Amazon’s Bezos. He announced $2 billion in philanthropy to tackle homelessness and early education, but vehemently opposed, successfully, a per person tax on employment in Seattle to address the growing homelessness there. [4] Seattle’s homelessness problem is exacerbated by escalating housing prices driven in significant part by the need for housing for the growing number of Amazon employees in the Seattle area.

A more equitable and democratic system would stop providing a tax benefit for the philanthropy of the rich and more fairly tax the high incomes and wealth of individuals and corporations. The increased public revenue could be used to broadly and equitably improve societal well-being. For example, if we had increased the minimum wage to keep up with inflation and productivity since the 1960s, if we had reduced executive salaries and shareholder rewards in order to benefit employees, and if we provided affordable, quality health care for all, maybe we wouldn’t need super-sized philanthropy to help people afford a place to live or child care.

Charitable giving is not a bad thing, although giving of one’s time can be as valuable and more rewarding than giving money. However, our current system of tax-subsidized charitable giving and super-sized philanthropy based on great disparities in wealth is not good for democracy nor the best way to maximize social welfare.

[1]      Ortiz, A., 12/2/18, “The price of philanthropy,” The Boston Globe (This article is an interview with Rob Reich, the author of the new book “Just Giving.”)

[2]      Ortiz, A., 12/2/18, see above

[3]      Loth, R., 12/10/18, “We can’t privatize our way out of poverty,” The Boston Globe

[4]      Loth, R., 12/10/18, see above

ELECTION AND ETHICS REFORM

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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