C
orporate and government policymakers today argue that the 90 million working
and middle class households in the U.S.—who have been experiencing an historic
decline in their incomes since at least 1980—are themselves directly responsible
for that stagnation and decline. Today’s growing income inequality exists,
it is argued, because those households lack the necessary skills and education
to ensure adequate income growth for themselves and their families in the
new competitive global economy. The lack of skills and education is the
fundamental origin and cause of inequality. The victim is thus the cause
and not the consequence; the mugged the mugger.
The true origins of inequality—which lie in coordinated corporate and government
policies of the past three decades—are ignored:
-
the wholesale dismantling and offshoring of the U.S. manufacturing base
-
free trade-driven job loss and wage reduction -
massive tax evasion, offshore tax sheltering, fraud, and fundamental tax
shifting -
restructuring of job markets in the U.S. resulting in the widespread demise
of unions, balkanization of what little remains of collective bargaining,
and the replacement of tens of millions of permanent full-time jobs with
lower paid part-time, temporary, and contract work -
dismantling traditional pension and health benefit plans, retirement and
healthcare cost-shifting from corporations to workers, and the annual raiding
of the social security trust fund by politicians -
gutting minimum wage, overtime, and various forms of disability pay -
countless similar policies of lesser quantitative, but no less qualitatively
important, impact
The net consequence of the corporate-government policies over the past
quarter century has been (as was shown in Parts 1 and 2 ) the relative
shift of more than a trillion dollars every year from 90 million middle/working
class households to the wealthiest 10 percent and to corporations through
which the income and wealth of this 10 percent largely pass.
Bush & Co. Discover Inequality
T
he fact of growing income inequality in the U.S. has become so undeniable
that even George W. Bush this past January 2007 was provoked by journalists
to admit, in one of his frequent slips of the tongue, that “income inequality
is real. It has been rising for more than 25 years.” But for Bush the acknowledgement
is tactical and not a matter of grave national or moral concern. As a recent
Wall Street Journal
article, aptly entitled “Bush Reorients Rhetoric, Acknowledges
Income Gap,” pointed out: “Top White House economic officials still don’t
consider today’s inequality—the growing share of income going to those
at the top—an inherently bad thing; they believe it simply reflects the
rising rewards accruing to society’s most skilled and productive members.”
The growing income gap for Bush raises the opportunity to find new ways
to cleverly turn the growing concern over income inequality into the service
of his pro-wealthy/pro-corporate legislative agenda, such as token funding
increases for worker “Trade Adjustment Assistance” that might help blunt
growing protectionist sentiment in Congress and opposition to Bush’s trade
plans (which reduce jobs and income). Or it could help firm up support
for new tax breaks for the self-employed to buy health insurance (further
shifting health-care costs to workers), or ensure financial institutions
can continue to rip-off college students with high cost education loans
(converting income from students’ families to excess profits for those
institutions). Bush can then appear to be addressing the problem of the
growing income gap, while actually continuing to promote measures that
contribute to the growth of that gap.
The Official Explanation
T
he core message of Bush and company on income inequality is that the skilled
and educated are, by definition, the most productive and therefore the
most worthy of a growing share of national income. As Bush’s chair of the
Council of Economic Advisers, Stanford University economist Ed Lazear,
put it: “Most of the inequality reflects an increase in returns to investing
in skills.” Or as Federal Reserve Board Chair Ben Bernanke echoed in a
recent address to a U.S. Chamber of Commerce meeting: “The degree of inequality
in economic outcomes has increased for at least three decades…. Education
is the single greatest source of the long-term increase in inequality.”
Like Bush, Bernanke also made it clear in his speech that his concern about
growing income inequality was really secondary; the primary concern was
that it might unleash anti-free trade protectionist sentiment that could
inhibit continued, unfettered corporate offshore investing and job relocation
(read: “free trade”) which is a major cause behind income inequality.
The nonsensical argument that income gains are due to personal productivity
has its roots in 19th century neoclassical economic ideology. That ideology
maintained that income inequalities were the direct outcome of one’s relative
contribution to production and national income. Nothing else mattered so
far as one’s share of national income was concerned. If you got rich it
was because you contributed more—i.e., were more productive. If you weren’t
rich it was because you didn’t. But in the last analysis this was just
an identity statement wrapped in circular reasoning—not scientifically
proven fact or theory.
The notion that one’s share of income was the sole consequence of one’s
contribution to productivity eventually made its way to conservative think
tanks and elite academic institutions in the U.S., around the late 1970s-early
1980s. There it was refined, polished, and re-packaged for conservative
policymakers intent on promoting a shifting of tax burdens and expanding
corporate trade, accelerating deregulation of entire industries, assisting
de-unionization, and the like.
An alternative explanation of the relationship between education, productivity,
and relative income is that 90 million households (and 108 million non-supervisory
workers in them) have been politically cut out of sharing in the 70 percent
productivity gains since 1980. Not due to inadequate skills and education,
but conscious policies adopted and implemented since 1980 by government
and corporate America designed to shift those gains to the wealthiest households
and corporations.
For example, it is a fact that from 1947 to the mid- 1970s annual incomes
of middle and working class households rose roughly equal to the 3-4 percent
annual productivity gains in the U.S. economy over that same period. But
since 1980 the roughly similar gains in productivity have all gone to CEOs,
senior management, owners of capital incomes; have been funneled into offshore
tax havens, allocated to offshore corporate investment projects, channeled
into bloated corporate retained earnings accounts; or squirreled away in
corporate coffers in foreign subsidiaries where they remain un-repatriated
in order to avoid U.S. taxation. Middle and working class families have
been largely cut out of sharing the gains. This has been especially true
since Bush took office in 2001.
While the above view holds center stage, less sophisticated explanations
of the causes of income inequality—and its solutions—have also entered
public debate from the near and far right of the political-economic spectrum.
Representatives of the far right—conservative think tank spokespersons,
Wall St. Journal
editorialists, and cable news media pundits—assume typically
one of three basic positions: either outright denial of any existence of
an income gap; selective citation of the most conservative government data
to lower the magnitude of the gap; or else that globalism and other mysterious
market forces beyond the control of any individual (CEO), organization
(corporation), or country (U.S.) are the root cause of growing income inequality.
Typical of this far right perspective are the views of Cato Institute economist
Alan Reynolds, who attacks the IRS data and conclusions of mainstream economists
Thomas Picketty and Emmanual Saez (reviewed in Part 1). The work of Picketty
and Saez shows, in particular, the extreme shift of income to the wealthiest
1 percent households since the late 1970s. But Reynolds attempts to deny
outright the overwhelming evidence of the income shift. He simply redefines
the IRS data by adding categories of additional income to workers’ share
and by removing income from the share of the wealthy. He then uses the
most conservative governmental data source, the Census Bureau, to flatten
out the relative share of income of the wealthiest income groups. Having
massaged the facts to his satisfaction, Reynolds then concludes there is
“no clear trend toward increased inequality after 1988 in the distribution
of disposable income, consumption, wages, or wealth.” Growing income inequality
is only a delusion, suffered in the minds of workers and “politically correct
economists.”
A less extreme conservative perspective is provided by David Brooks, past
columnist for the
Wall St. Journal
and now business editorialist for the
New York Times
. Brooks argues, for example, that “wages and benefits have
made up roughly the same share of GDP for 50 years.” What he conveniently
leaves out, however, is his inclusion of CEO and senior management salaries,
bonuses, special pensions, and other compensation in his definition of
wages and benefits. His definition also includes a major proportion of
income by self-employed proprietors. CEO and senior management total compensation
has soared to record levels in recent decades, especially since 2001, and
proprietors’ income has risen significantly as well. These inclusions bloat
his definition of wages and benefits, and make it appear as if the 108
million non-supervisory workers have been doing quite well when in fact
the opposite has been the case.
Brooks takes aim at the view that free trade and offshoring of jobs (replaced
by lower paying jobs in the U.S.) are contributing to growing income inequality.
“Offshore outsourcing is not decimating employment,” he argues, and cites
the U.S. Department of Labor statistic that offshoring is responsible for
only 1.9 percent of layoffs. But the Department of Labor limits offshoring
employment loss to jobs that corporations themselves openly admit have
been eliminated and sent offshore. The vast number of jobs lost to offshoring
are never reported by corporations. They simply reduce jobs in the U.S.
operations while expanding investment and jobs offshore and deny any linkage
between the two. Labor Department data never pick up the actual numbers.
Brooks also denies that massive de-unionization in the U.S. economy has
contributed to the growing income gap. He maintains that “declining unionization
has not been the driving force behind inequality,” citing studies by academics
that union decline has resulted in no more than 20 percent of the rise
in inequality. But 20 percent of a trillion dollar annual income shift
is no small amount. That’s at minimum $200 billion saved every year by
corporate America that would have been paid in wages were it not for the
decline in union membership levels from 22 percent of the workforce in
1980 to about 7 percent in the private sector today. De-unionization is
not the whole story behind the trillion dollar annual income shift. But
it is a significant part of that story. It explains why the average hourly
wages of the typical middle/working class head wage earner (when excluding
the salaries of middle and upper management) has declined in real terms
over the past two decades and why incomes for tens of millions have not
grown.
The perspective represented by Brooks also includes a head nod to the official
view that education and skills are the source of income gains and that
growing income inequality is the consequence of the lack of the same. Brooks
actually argues that education and rising skills and training are reducing
inequality. It’s just that there isn’t enough of it going on. To Brooks,
the “market is not broken.” What is needed is “a second generation of human
capital policies.”
Enter Center Stage Right
M
oving from far right to center there are more viewpoints that acknowledge
instead of deny the existence of today’s growing inequality. Rather than
arguing that improving education and skills has reduced inequality, as
Brooks does, this center perspective argues that it can reduce inequality.
They then focus on education and skills as the solution instead of trying
to debate the cause. Official government spokespersons like Ben Bernanke,
Ed Lazear, and Henry Paulson (U.S. Treasury secretary) are representative
of this education as solution perspective. Included in this camp are various
ex-Clinton administration officials, like ex-Secretary of Labor (now an
academic), Robert Reich and a host of centrist journalists like
New York
Times
columnist Tom Friedman and others.
Their message is simple: the income gap is real. Tens of millions of U.S.
workers are experiencing declining income because they cannot keep up with
those more skilled and educated. But let’s not waste effort debating the
magnitude of that gap or discussing its origins in policies of recent decades.
Let’s focus on how improving skills and education can solve the problem.
Education and skills are simultaneously both cause and therefore solution
to inequality.
Slightly left of center on the debate spectrum lie the views of liberal
New York Time
s columnists and feature writers like Anna Bernasek, Eduardo
Porter, and Paul Krugman. All three recently discovered the work of Picketty
and Saez. To their credit, they have reported these economists’ path-breaking
findings instead of just repeating the limited data on income inequality
from the U.S. Department of Commerce, the Federal Reserve, and the Congressional
Budget Office sources.
Unlike other official center, right, and far right perspectives, Krugman
rejects the argument that insufficient education and skills are the primary
cause of, and therefore only solution to, the problem of income inequality.
He points out, correctly, that the data record shows unequivocally that
“being highly educated was no guarantee of sharing in the benefits of economic
growth.” He notes “there’s a persistent myth, perpetuated by economics
who should know better…that rising inequality in the U.S. is mainly a matter
of a rising gap between those with a lot of education and those without
it.” He further notes the failed desperate efforts by the center-right
“to find some number, any number, to support claims that increasing inequality
is just a matter of a rising payoff to education and skill.” Moreover,
it’s not a broad class of knowledge workers who are responsible for the
rising income inequality, but the rise of a narrow wealthy oligarchy—a
tiny elite who are driving income in their direction as a result of their
preferential position of power in the current system.
Unfortunately, Krugman fails to take the next step and identify the transmission
mechanisms—i.e., corporate policies and practices—that enable the shift
in income and the growing inequality gap in favor of that very same oligarchy.
He acknowledges government policies play a role in that transmission somehow.
He even briefly acknowledges the role of political parties, Democrat and
Republican alike. But the fundamental, quantitative connections between
government policies and growing inequality are never made. The policy bridge
is never crossed.
Doing so would inevitably have led him to consider the contributing role
of government tax and trade policies that have encouraged for three decades
now the dismantling of the manufacturing base in the U.S.
The Ideology of Income Inequality
A
characteristic of all ideology is to take an obvious truth and turn it
on its head. A favored technique of ideology is to blame the victim for
their condition. Another is to project fundamental causes and origins to
mysterious, undefined forces beyond the understanding or control (and therefore
solution) of mere mortals. Favorite among the latter is to blame the “market”
for the problem. It is the faceless market, in other words, that is responsible
for the growing inequality. Since no one, no policy, no country can control
the market, little in effect can be done. The same goes for that opaque,
supra-representation of the market called globalization.
The various perspectives and positions in the current discussion and debate
on income inequality today were presented not simply to show what others
think about the subject, but to show that discussion is aimed at deflecting
debate to politically neutral and safe subjects like education, skills,
and training instead of addressing the root causes and origins of inequality
that lie in the policies promoted by corporate America and government allies,
legislative and executive.
Z
Jack Rasmus is author of
The War At Home: The Corporate Offensive From
Ronald Reagan To George W. Bush
, 2006 (www.kyklosproductions.com).