New Gilded Age
The comedian Chris Rock once said, “If poor people knew how rich rich people are, there would be riots in the streets.” Populist revolts throughout the world may not count as street riots, but they do reflect disenchantment with not just our government but also liberal democracy itself. In the past two decades, growth rates in the United States have fallen to half of what they were in the middle of the 20th century. The share of income accruing to the top 1 percent has nearly doubled since the 1970s, while the share of income going to all workers has fallen by nearly 10 percent. These are the marks of our new Gilded Age. It’s tempting to blame impersonal market forces such as globalization and automation for widening inequality. But the true villain would be familiar to anyone who lived through the previous one: market (that is, monopoly) power. The great monopolies of that period — Rockefeller’s Standard Oil, the sugar trust, the financial and railroad interests — used their power to corrupt the economy and politics. Market power both reduces growth and increases inequality. Recognizing this, leaders put into place antitrust and worker protection laws.
Today, market power takes new forms, but the solution is the same: antimonopoly laws and laws protecting workers, but updated for the problems of the 21st century. The era of “supply-side economics” championed by Ronald Reagan and Margaret Thatcher — which called for tax cuts, deregulation and narrow antitrust enforcement — explains a lot of our current predicament. The key assumption of that era was that markets work best when the government focuses exclusively on enforcing contract and property rights. This theory turned out to be wrong — not because it celebrates the market but because it misunderstands it. Two centuries earlier, Adam Smith pointed out that the easiest way for businesses to earn profits is not by slashing costs and innovating but by agreeing among themselves not to compete — to exert market power to raise prices or lower wages. This sort of agreement is now illegal, but businesses have nevertheless found new and creative ways to achieve monopoly profits, while antitrust enforcers have fallen behind.
To revive economic growth and restore equality, we need to update the solutions first developed a century ago. Then, the focus was on breaking up monopolies, prohibiting cartels and blocking mergers. These laws helped advance broadly shared prosperity, but owners of capital devised strategies to evade them. These strategies must be addressed with new regulatory approaches. Institutional investors need to be blocked from further expansion and forced to restructure. They should be allowed to own shares of no more than one company per industry, or to own no more than a small portion of every company — say, 1 percent — if they want to remain fully diversified. Antitrust authorities should target firms that use mergers to seize control of labor markets. Farm equipment dealers in a town should be allowed to merge only if mechanics and other employees will have a range of employment options after the merger. It is possible that some of the country’s biggest employers, like Amazon, the Compass Group food service company and Walmart, need to be broken up.
America was built on capitalism. But capitalism requires competition, with its ever-present risk of financial reversal. Many large corporations have thus rejected capitalism in favor of an alliance with powerful government to protect their market share and profitability. Obviously, the larger and richer the corporation, the more influence it can exercise. Smaller companies just can’t compete in that game. And too often, Big Business uses its clout not only to minimize the regulations to which its particular industry is subject, but also to enact regulations that will disadvantage smaller competitors. In modern America, though, corporate-government collusion has taken on another dimension. The progressive march of the last century has achieved much of its objective: It has shifted power to the administrative state and away from the citizen and the legislature, it has made state government a federal functionary, and it has marginalized the citizen. This has left Big Business with outsized influence and an incentive to curry favor with the elite opinion stream — mainstream media, Hollywood, and academia. It’s no wonder that politicians — even many of the most conservative Republicans — shun the ideological word “capitalism” in favor of the non-ideological, ambiguous “free market” descriptor. It’s hard to describe oneself as a capitalist when participating in these schemes. Corporate executives who embrace America’s founding principles largely decline to use their businesses as a policy sledgehammer on matters that don’t affect the bottom-line. But the big guys revel in their wide-ranging clout. The answer? Congress must deconstruct the administrative state, returning state functions to the states. It must restore the prominence of the citizen in federal and state government. And citizens must push back against corporate hyper-activism and demand that politicians once again defend capitalism – and the principles that built American greatness.
What changed was the economy. Since the 1980s the wages and economic prospects of the typical American worker have stagnated. Two-thirds now live paycheck to paycheck, and those paychecks have grown less secure. Good-paying jobs have disappeared from vast stretches of the land. Despite the official low unemployment rate, millions continue to work part-time who want steady jobs or they’re too discouraged to look for work. When I was Secretary of Labor in the 1990s, I frequently visited the Rust Belt, Midwest, and South, where blue-collar workers told me they were working harder than ever but getting nowhere. Meanwhile, all the economy’s gains have gone to the richest ten percent, mostly the top 1 percent. Wealthy individuals and big corporations have, in turn, invested some of those gains into politics. As a result, big money now calls the shots in Washington—obtaining subsidies, tax breaks, tax loopholes (even Trump promised to close the “carried interest” loophole, yet it remains), and bailouts. The near meltdown of Wall Street in 2008 precipitated a recession that cost millions their jobs, homes, and savings. But the Street got bailed out and not a single Wall Street executive went to jail. The experience traumatized America. In the two years leading up to the 2016 election, I revisited many of the places I had visited when I was labor secretary. People still complained of getting nowhere, but now they also told me the system was “rigged” against them.
Into this expanding void came Trump’s racism and xenophobia—focusing the cumulative economic rage on scapegoats that had nothing to do with its causes. It was hardly the first time in history a demagogue has used this playbook. If America doesn’t respond to the calamity that’s befallen the working class, we’ll have Trumps as far as the eye can see. A few Democrats are getting the message—pushing ambitious ideas like government-guaranteed full employment, single-payer health care, industry-wide collective bargaining, and a universal basic income. But none has yet offered a way to finance these things, such as a progressive tax on wealth. Nor have they offered a credible way to get big money out of politics. Even if “Citizens United” isn’t overruled, big money’s influence could be limited with generous public financing of elections, full disclosure of the source of all campaign contributions, and a clampdown on the revolving door between business and government. Trump isn’t the cause of what’s happened to America. He’s the consequence—the product of years of stagnant wages and big money’s corruption of our democracy. If they really want to stop Trump and prevent future Trumps, Democrats will need to address these causes of Trump’s rise.
Let me conclude these political updates on the Gilded Age with these thoughts. A typical argument from pure free-market advocates would have us believe tax cuts at the very top can trickle down to workers since it’s the rich who provide the jobs. There’s some merit to that rationale, but it’s a rather narrow-minded focus. The income of top earners relative to the rest of the population is like a bell curve as it relates to a healthy economy. The proper balance would see the highest earners doing very well & landing somewhere near the top of the bell curve. But when the wealthy horde a disproportionate share of the wealth & income, much like we see in our modern Gilded Age of today, the pendulum has swung wildly beyond the high points of that bell curve & actually becomes a drag on the economy. Without much more robust economic growth, there’s only so much income to go around, so when we see the mega-wealthy outearn common working people by enormous amounts, & mega-corporations dominate smaller competitors, it actually acts to suppress the ability for working people & small businesses to succeed. Plus well-to-do business owners do even better when more customers can afford to buy their products, so a system of shared growth spreading the wealth around wouldn’t be negatively impacting the top earners.
Sometimes when they let their guard down & become honest for a change, there are those within the GOP who’ll tell the truth about the shortfalls in their tax bill: the-republican-party-is-exposing-its-own-policy-making-screw-ups & also trump-gop-tax-law-poll-republican-voters. Perhaps had the tax bill been better thought out, more targeted & carried stipulations, something sparking a bottoms-up effect rather than resorting to trickle down, we might be seeing better wage growth by now. If we want the real truth on the effects of the tax cuts, political updates like this republican-tax-cut-workers.html are likely closer to the truth, with some excerpts here:
So far, Donald Trump and his allies in Congress have achieved one and only one major legislative victory: passing a large tax cut, mainly aimed at corporations and business owners. The tax cut’s proponents promised that it would lead to a dramatic acceleration of economic growth and produce big gains in wages; they hoped that it would also yield big political dividends for the midterm elections. So how’s it going? Politically, the tax cut is a damp squib: Most voters saythey haven’t seen any boost to their paychecks, and Republicans are barely talking about the law in their political campaigns. But what about the economics? You might be tempted to say that it’s too early to tell. After all, the law has been in effect for only a few months, and we got our first look at post-tax-cut economic growth only last week. But here’s the thing: To deliver on its backers’ promises, the tax cut would have to produce a huge surge in business investment — not in the long run, not five or 10 years from now, but more or less right away. And there’s no sign that anything like that is happening.
Let’s talk about the economics here. Anything that increases the budget deficit should, other things being the same, lead to higher overall spending and a short-run bump in the economy (although there’s no indication of such a bump in the first-quarter numbers, which were underwhelming). But if you want to boost overall spending, you don’t have to give huge tax breaks to corporations. You could do lots of other things instead — say, spend money on fixing America’s crumbling infrastructure, an issue on which Trump keeps promising a plan but never delivers. Furthermore, any short-term boost will probably be quickly squelched by the Federal Reserve, which believes that we’re at full employment and which is gradually raising interest rates to keep the economy from overheating. You can argue that the Fed is wrong, but the case for easier monetary policy has nothing to do with the Trump tax cut.
No, the case for a corporate tax cut is the claim that in the long run it will raise wages. How is that supposed to work? It never made sense to believe that corporations would immediately share their tax-cut bounty with workers, and they haven’t. Any news organizations that let themselves be bamboozled by cherry-picked stories of firms announcing worker bonuses after the tax bill passed should be ashamed of their credulity. The real logic behind corporate tax cuts is that they’re supposed to lead to higher investment. This investment, in turn, would gradually increase the stock of capital, simultaneously driving down the pretax rate of return on investment and pushing up wages. There are two questions about this supposed process. One is how much wages will rise in the long run. Most independent estimates predict only modest gains; the Trump administration’s wildly optimistic predictions aren’t just out of the ballpark, they’re in another universe. Still, to be fair, that’s not a question on which the data have had time to speak. But the other, equally important question is, how long is the long run?
Is it just too soon to expect results? Are businesses getting ready to ramp up investment, so that we’ll see them laying out the big bucks in the near future? Not according to a survey by the Federal Reserve Bank of Atlanta. A vast majority of businesses say either that the tax law has had no effect on their investment plans, or that they are planning only a modest increase. In short, the effects of the Trump tax cut are already looking like the effects of the Brownback tax cut in Kansas, the Bush tax cut and every other much-hyped tax cut of the past three decades: big talk, big promises, but no results aside from a swollen budget deficit. You might think that the G.O.P. would eventually learn something from this experience, realize that tax cuts aren’t magical, and come up with some different ideas. But I guess it’s difficult for a man to understand something when his campaign contributions depend on his not understanding it.
Jobs Report
The headline story on jobs is the unemployment rate dipping under 4%: non-farm-payrolls-april-2018. But that’s not the big problem. We’re still seeing disappointing wage growth & participation rates. See this link on wages lack-of-wage-acceleration-is-main-surprise-in-jobs-report-economists-say & also consider for whatever reason, nearly 100 million American adults are not in the labor force. Just to make an exaggerated & perhaps ridiculous point, we also saw the black unemployment rate fall to a record low-level 6.6%. Even before the Gilded Age there was a long period of black slavery in America, which was not a choice no matter what Trump’s misguided buddy Kanye West says: kanye-west-slavery-choice. I’d bet the black unemployment rate during the slave days was close to 0%, but does that mean they were living under splendid economic conditions? So the bottom line is low unemployment rates don’t tell the whole story, since people currently have jobs but they’re not necessarily good jobs.
Various Economic Articles
We now have a new paper from economist Robert J. Gordon of Northwestern University that seeks to answer a great puzzle of our time: “Why has economic growth slowed when innovation appears to be accelerating?” In the process, Gordon illuminates a dispute between the Trump administration (which thinks growth can be increased) and its critics (who are dubious). The “real” economy that we experience directly and the one defined by statistics are strikingly different. The first seems awash with innovation, from smartphones to driverless cars. And yet, the statistical economy is lackluster. From 1970 to 2006, U.S. economic growth averaged 3.2 percent a year; from 2006 and 2016, growth averaged 1.4 percent, reports Gordon. That’s a huge decline. It matters, as Gordon says, because faster growth generates more tax revenue to “address the nation’s problems, including faltering education, aging infrastructure, and the looming shortfall in funding for Social Security and Medicare.” Not to mention immense budget deficits.
The truth is that we’ve been trying to improve schools for decades with, at best, modest success. Or take the drain of prime-age men from the job market. The main problem, argues Gordon, “reflects in large part the loss of stable middle-income employment opportunities.” The result has been fewer marriages, more drug use and more suicides, writes Gordon. None of this is easily altered. Among 20 advanced countries, the United States has the second-lowest labor-force participation rate of prime-age men. Only Italy is lower. We seem to have entered a new economic era — one defined more by the limits on our economic power than by its promises. The explosion of new technologies seems to have fooled us into thinking that a burst of innovation will magically restore our economic vitality. On the evidence, this is a mirage.
On other economic issues, we see Americans losing their health insurance poll-uninsured-rate-is-climbing & also republican-health-care-sabotage-has-mostly-hurt-republicans. Then we see this next article dem-house-candidate-releases-video-showing-lack-of-background-checks-at-gun exposing the ridiculous, disgraceful & deadly loophole of no background checks at gun shows. Then Rubin offers us this conclusion from the link trumps-flakiness-is-destroying-americas-credibility:
Ultimate U.S. policy seems to depend on which foreign leader or senior adviser can present arguments that simultaneously appeal to Trump’s ego (e.g., Never before has anyone ever gotten X), help him save face after extravagant promises or contradictory pronouncements, and assist him in packaging the accomplishment as catnip for his base. If Trump were convinced that President Barack Obama was a protectionist who was wrecking trade opportunities, Trump would gladly stick with NAFTA, reengage in the Trans-Pacific Partnership and let tariffs go by the wayside — all the while claiming his actions show what putting “America first” can get you. With a president this flaky and this ignorant, it’s nearly impossible to tell what he is bent on carrying out. What is clear is that Trump doesn’t think anything he says is binding. The grave downside of this is that no one can make a deal with someone whose word is meaningless and, moreover, our enemies tend to be unconvinced when we finally do settle on a bottom line.
GOP Fails with the Midterms Coming
In articles related to the coming midterms, scandals are making the outlook even more ominous for the GOP’s chances: gop-faces-midterm-disaster-as-mueller-rosenstein-cohen-bombshells-explode. Many in the GOP are fed up with Trump but dare not admit it: many-gop-politicians-dislike-trump-theyre-terrified-to-admit-it. And now we see with some GOP candidates, being a criminal is no big deal: crimes-are-no-longer-a-disqualification-for-republican-candidates. This one is quite revolting Donald-Trump-owns-the-Republican-Party-so-candidates-are-scrambling-to-be-mini-Trumps, showing how crazy GOP candidates & their base have become (only Trump & his echo could have steered the party so far off the rails). If Paul Ryan is retiring anyway, might I suggest he show enough backbone to call out Trump’s boneheaded comments, rather than going after the House Chaplain. And please try to rein in those nutty far-right radical colleagues before you leave, as you’re letting them stomp all over the rule of law: paul-ryans-unintended-hilarity.
A True American Hero (and not only because he was captured)
To wrap things up, here’s some words of wisdom from our elder statesman on ways we can become more civil with higher character, & make DC work again on behalf of the American people, as seen in these excerpts from john-mccain-makes-an-appeal-for-civility-and-humility:
Arizona Sen. John McCain, who is dealing with the effects of brain cancer, released an excerpt of his forthcoming memoir, The Restless Wave, that gives some of his philosophy on how to do it — and obliquely criticizes President Trump. The sometimes-cantankerous former presidential candidate and prisoner of war points out that he hasn’t at times lived up to his own standard, as he has “disagreed, sometimes too heatedly, with all of” the six presidents he has served alongside. But, he writes, humility is key. He defines it as “the self-knowledge that you possess as much inherent dignity as anyone else, and not one bit more.” He adds, “Among its other virtues, humility makes for more productive politics. If it vanishes entirely, we will tear our society apart.”
He points out that a big reason for gridlock in Washington is partisanship more broadly. “We are secluding ourselves in ideological ghettos,” McCain writes. “We have our own news sources. We exchange ideas mostly or exclusively with people who agree with us, and troll those who don’t. Increasingly, we have our own facts to reinforce our convictions and any empirical evidence that disputes them is branded as ‘fake.’ That’s a social trend that is going to be very hard to turn around.” Trump, his White House team and supporters have routinely dismissed the news media as “fake news.” At one point early in the Trump administration, White House counselor Kellyanne Conway coined the phrase “alternative facts” when faced with evidence that Trump’s inauguration crowd was not the largest ever.
McCain, though, does not solely blame Trump, his staff or even other politicians for the political climate in the country. He also blames voters. “Paradoxically,” McCain writes, “voters who detest Washington, because all we do is argue and never get anything done frequently vote for candidates who are the most adamant in their assurances that they will never ever compromise with those bastards in the other party.” He notes that if individual voters are not like that, if they lament the lack of civility, the lack of compromise, then they must do something about it. “Because I guarantee you,” McCain notes, “voters on the Far Right and Far Left are. If you want politics to be more civil, if you want Congress to argue less and get more done, then show up. Represent. Play as big a role in the mundane activities of politics as the zealots do. It’s important.” He ticks through several political reforms that could make things better, namely getting rid of the practice of gerrymandering and a more open campaign finance system that gets dark money — money that can’t be traced back to a donor — out of politics.
But it’s going to take more than that, McCain notes: “As always, more important than any political reforms is the discernment of voters. Here’s my unsolicited advice to the American voter: If a candidate for Congress pledges to ride his white horse to Washington and lay waste to all the scoundrels living off your taxes, to never work or socialize or compromise with any of them, and then somehow get them to bow to your will and the superiority of your ideas, don’t vote for that guy. It sounds exciting, but it’s an empty boast and a commitment to more gridlock.”
Support, instead, candidates who want to get things done: “Yes, I’d rather have a few more problem solvers than purists in Washington. Their zeal may be commendable, but not, as it usually happens, terribly productive.”
More broadly, he writes, Americans need to realize that people of other parties can be good people: “We need to recover some perspective about how much someone’s politics is a testament to their character. When did politics become the principal or only attribute we use to judge people? Republicans and Democrats can be good neighbors, loving parents, loyal Americans, decent human beings. I don’t remember another time in my life when so many Americans considered someone’s partisan affiliation a test of whether that person was entitled to their respect.”
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