The Great Wealth Robbery
February 17, 2013
Two important events took place this week. One was President Obama’s call for a higher minimum wage, which got a lot of attention. The other was a new report which showed just how much of our nation’s wealth continues to be hijacked by the wealthiest among us.
That didn’t get much attention.
There’s a Great Robbery underway, although most of its perpetrators don’t see themselves as robbers. Instead they’re sustained by delusions that protect them from facing the consequences of their own actions.
Heads I Win …
An updated report from economist Emmanuel Saez details the loss of income suffered by 99 percent of Americans, and the parallel gains made by the wealthiest among us. Its most startling finding may be this: The top 1 percent has captured 121 percent of the increases in income since the worst of the financial crisis, while the rest of the country has continued to fall behind.
If you thought the rich recovered from the crisis just fine but everybody else got the short end of the stick, relax: You’re not crazy. And since the financial crisis was caused by members of the 1 percent – not all of them, of course, just the ones we spent so much to rescue – it’s understandable if the injustice still rankles you.
You rescued them. Now they’re drinking your milkshake.
Tails You Lose
But this wealth shift is not a new phenomenon. As Saez notes in his paper, “After decades of stability … the top decile share has increased dramatically over the last twenty-five years.” In fact, the top 10 percent’s share of our national income is higher than it’s been since 1917 - and maybe longer. (The figures don’t go back any farther than that.)
Although it began during the Reagan years, to a certain extent this wealth shift has been a bipartisan phenomenon. During the Clinton boom years (more of a bubble, actually; Dean Baker has the details) the top 1 percent saw their real income grow by 98.7 percent, while the other 99 saw a smaller increase of 20.3 percent. They lost more during the recession that followed – a little over 30 percent, as opposed to 6.5 percent for everyone else – but more than made up the difference again during the Bush years.
The same thing happened during the Great Recession: The top 1 percent lost more during the initial shock, but they’re rapidly making up the difference now. Government policy’s been designed to help them. (Meanwhile, underwater homeowners still don’t have the help they need.)
The disparities are even greater when you include capital gains. (Saez uses pre-tax income for his figures. Given the generous tax breaks for capital gains and the many loopholes used by the wealthy,the after-tax differences could be even greater.) There’s even economic injustice at the top. Gains for the one percent have far outstripped those of the top five and top ten percent.
As the old song says: Them that has, gets.
If you can remember the sixties you weren’t there … or can’t afford to remember
The minimum wage has been falling since 1968. As John Schmitt notes in his paper, “The Minimum Wage Is Too Damn Low,” “By all of the most commonly used benchmarks – inflation, average wages, and productivity – the minimum wage is now far below its historical level.”
It’s currently $7.25. What would it have been if it had been tied to a commonly-used benchmark? Schmitt ran the numbers:
Consumer Price Index (CPI-I): $10.52
Current CPI methodology (CPI-U-RS): $9.22
As a percentage of average production worker’s earnings: $10.01
And if it had been tied to productivity gains the minimum wage would be $21.72 today. But that cream was skimmed off at the top.
There’s a myth in this country that enormous wealth doesn’t come from anywhere or anyone, that it’s self-creating and self-sustaining, thriving on pure oxygen like an epiphyte or a garden fairy. In reality, highly concentrated wealth is caused by actions – human actions with human consequences.
Saez: “A number of factors may help explain this increase in inequality, not only underlying technological changes but also the retreat of institutions developed during the New Deal and World War II – such as progressive tax policies, powerful unions, corporate provision of health and retirement benefits, and changing social norms regarding pay inequality.”
Wealth inequity is created whenever an employer lowers his employees’ wages, replaces a full-time worker with several part-timers, busts a union, cuts corners on workplace safety, or pays a lobbyist to change the rules.
It’s created whenever a job is shipped overseas, and when investments are shifted from job-producing industries to the non-productive financial sector. It’s created when GE outsources its manufacturing operation and gets into the banking (read, “gambling with taxpayers’ money”) business. Or when AIG stops insuring risk and starts betting on it.
And the process isn’t slowing down. In fact, it seems to be accelerating.
As Saez says, “We need to decide as a society whether this increase in income inequality is efficient and acceptable and, if not, what mix of institutional and tax reforms should be developed to counter it.”
President Obama’s proposal is modest, and there’s no reason not to enact it immediately. For those who believe that businesses “can’t afford” to pay higher wages, some key facts:
Most low-wage workers work for large corporations, not Mom-and-Pop businesses.
A Data Brief from the National Employment Law Project finds that 66 percent of low-wage employees work for companies with more than 100 employees. A handful of very large corporations collectively employ nearly 8 million low-wage employees.
There’s no evidence minimum wage increases mean fewer jobs.
Opponents say a higher minimum wage means fewer jobs. But the official U.S. unemployment rate in 1968, when the real minimum wage was highest, was 3.6 percent. Today it’s 7.8 percent – and the unofficial numbers are even worse. At the state level, the Fiscal Policy Institute recently concluded that “states with minimum wages above the federal level have had faster small business and retail job growth.”
Ninety-two percent of the 50 largest low‐wage employers in the country were profitable last year.
As the NELP notes, big corporations more than recovered from the recession: 75 percent are collecting more revenue, 63 percent are earning higher profits, and 73 percent have higher cash holdings than they did before the crisis.
Bringing It All Back Home
The real “job creators” aren’t the ultra-wealthy. If they could create jobs with all their added wealth, they would have done it already. The real job creators are working people with jobs.
They don’t invest their money in hedge funds or stash it in offshore accounts. They spend it: on food, transportation, their kids’ education, maybe a night at the movies … And then other people get jobs making those things possible.
We have a working model to follow: The USA in the 35 years after World War II. As Paul Krugman says, “To the extent that people say the economics is confusing or uncertain, that’s overwhelmingly because people want it to be.” We know how to do this.
Raising the minimum wage is a start. A maximum wage would help, too, by reducing CEOs’ incentives to emphasize quarterly gains over long-term growth and leaving more to be shared with employees.
We also need a national strategy for regaining the more reasonable distribution of income this country had in the 1950s. We need to ensure that the door of opportunity, which is closing every day for millions of young people, is opened again. And we need to ask the wealthiest to really pay their fair share – at something closer to the top tax rates of the 1950’s or 1960’s. (Elvis Presley’s manager “Colonel” Tom Parker once said “I consider it my patriotic duty to keep Elvis in the ninety percent tax bracket.”)
Most of all, we need to educate those around us so they understand what’s happening. That includes the well-intentioned well-to-do, who might do more to end the problem if they knew it existed. After all, you can’t stop a robbery until you know it’s happening.