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Saturday, February 22, 2014

Inequality for All: The Rich Get Richer, the Rest of Us Don’t!

Just recently, I saw the documentary film, "Inequality For All."  At first viewing, I think it's easy to miss quite a bit; I will probably take the time to view it again.  It's not the greatest documentary ever made, but it's mixture of statistics, history, personal biographical material and, of course, the interviews with featured guests makes it, in my mind, of poignant interest.

But I'm not writing today as a film critic.  I'm much more interested in some salient economic and political points made by the film.   I'll mention some of them in brief before I get to the main subject of today's Blog.

1)    70% of the economy is consumer-driven, which means that a lack of consumer spending right now is hurting our recovery from the Great Recession.  That lack of spending is, of course, the result of  several forces, including the flat-lining of middle class wages since the 1970s, the loss of jobs that began even before the crash and Recession, loss of jobs to globalization, decline of union membership and influence, use of technology that replaces the need for some types of workers, reduced tax rates for the rich.  All of this, and more, has resulted in the squeezing of the middle class and something close to devastation for the poor.  No wonder consumer spending is down.  What's worse, it may stay that way for a while.
2)    Growth in the economy is affected by a growing inequality of income and wealth.  Research from the International Monetary Fund suggests that the widening disparity since the 1980s might shorten economic recovery by as much as a third, says a NY Times article.  The IMF concluded that reducing inequality and bolstering growth, in the long run, might be "two sides of the same coin." 
3)    The profit motive has taken over to the extent that industrialists seem to think that low wages are the key to greater profits, and thus they have moved jobs and businesses to countries where the labor force will accept minimal wages, and in this country have consorted with Right-wing politicians to destroy union existence and influence in the hopes of getting non-union workers to accept low wages without a fight.  They have had great success, as the recent vote at the Volkswagen plant in Tennessee attests.
4)    Income inequality continues to increase exponentially.  Although the richest in this country took a hit during the worst of the Great Recession, they have managed to rebound quite nicely, earning a larger and larger share of overall income.  The 1% earns about one-sixth of all the income, and the top 10% take in about half of all the income in the U.S.  The top 1% now hold a larger share of overall wealth than the bottom 90% !  The statistics put forth in the documentary stress the  widening inequality gap in a way that can only distress those of us in the middle class.  We are facing not only a job crisis and a personal debt crisis, we are facing an inequality crisis which threatens our very existence as a leading nation.
5)    A whole series of "things that matter" are discussed.  Education is at the top of the list because it is so intertwined with access to jobs of the future.  The minimum wage matters because a hike in line with inflation over the last 30 years would help many people advance beyond poverty level and reduce the burden on government in picking up those who are barely holding on or who have just sunk into poverty.  Values matter, because the growth of a plutocracy dedicated to extraction of wealth from the economy is detrimental to most of society, except for the very few at the very top of the wealth ladder.  Democracy matters because the people are the real strength of democracy and of the economy.  If apathy or indifference reign, then an oligarchy will surely be the result, and we will all be dancing to the tune played by the top .1%!

Of all the interviews conducted in the documentary, I was most taken with that done with a millionaire pillow company CEO who happens to have made a fortune as an early investor in Amazon.com.  His name is Nick Hanauer, and he acknowledges that he earns 1,000 times what the average wage-earner does. A few more biographical facts about him: he has managed, founded or financed over 30 companies, including Amazon.com, Aquantive, Inc.(sold to Microsoft for $6.4 billion), Insitu Group (purchased by Boeing for $400 million), Seattle Bank and the Pacific Coast Feather Company (makes pillows!).  The aggregate market value of these companies amounted to tens of billions of dollars (for more about Nick Hanauer, consult his website at nick-hanauer.com).  He makes some points that require serious consideration, in my opinion.

1)    "When employers stop thinking about employees as costs to cut, but instead as customers, they see it is in their self-interest to raise the minimum wage. We need to change their concept of self-interest."

    One of his points is that the inability of consumers to purchase goods means that businesses suffer the loss of customers - a fundamental law of capitalism.  That's why, he says, that "the widening wealth gap in our economy presents an economic challenge: rising inequality creates a death spiral of falling demand that ultimately takes everyone down." 
    He also points out that the rich and the filthy rich are not going to rescue the economy by their own consumption of products, even if that consumption is somewhat conspicuous.  He says the problem comes down to this: "My annual earnings equal about 1,000 times the U.S. median wage, but I don't consume 1,000 times more pillows than the average American.  Even the richest among us only need one or two pillows to rest their heads at night."  (He does admit in an article he wrote that the rich do spend a lot more than the average family, but claims that the only truly expensive line item in his own budget is a private airplane, manufactured in France and filled with fuel from the Middle East).  He says it's just crazy to believe that any of this is more beneficial to our economy than hiring teachers or police officers or investing in our infrastructure.  It is interesting that in his article he references Henry Ford as one who knew well how important it was to pay his workers a decent wage in order to enable them to buy Ford cars. 

2)   "The most powerful and elegant antidote is sitting right before us: a spike in the minimum wage."

    He realizes that, in the past, calls for minimum wage hikes have come from unions and advocates for the poor.  He believes that businessmen and entrepreneurs ought to be advocating for this as it can only increase consumer demand for products and services.

    He makes the point that if the minimum wage had simply followed U.S. productivity gains since 1968, it would be $21.72 an hour -- three times what it is now.  And, we can't even get this Congress to legislate a raise to $10.10 per hour!

    Knowing that Congress would never consider a raise to over $20 per hour, he settles on $15 as an appropriate figure.  Why?  Because, he says, "studies by the Economic Policy Institute show that a $15 minimum wage would directly affect 51 million workers and indirectly benefit an additional 30 million.  That's 81 million people, or about 64% of the workforce and their families, who would be more able to buy cars, clothing and food from our nation's businesses." 

    This all goes contrary to conventional economic orthodoxy, preached by certain business leaders, and by conservatives, that raising the minimum wage to such an extent would make jobs scarcer because businesses couldn't afford to hire at a higher amount.   Economists David Card and Alan Krueger show, contrary to that bit of propaganda, that increases in the minimum wage increase employment!  "In 60 percent of the states that raised the minimum wage during periods of high unemployment, job growth was faster than the national average." 

    It's pretty simple really: workers who earn more, spend more, helping businesses to grow by meeting the increase in product demand.

3)   "A big increase in the minimum wage would substantially reduce government intervention and dependency on public assistance programs."

    One of the reasons Hanauer advocates for the $15 per hour minimum wage is that he believes it would make many low-income families less dependent on government programs.  He makes the case that "no one earning the current minimum wage of about $15,000 per year can aspire to live decently, much less raise a family."  How true, and what he doesn't say is that this one fact also leads to a multiple job scenario that so many people, single mothers especially, resort to in order to supplement their income.  But that's another story.

    "Almost all workers subsisting on ...low earnings need a panoply of taxpayer-supported benefits, including the earned income credit, food stamps, Medicaid or housing subsidies.  According to the Congressional Budget Office, the federal government spent $316 billion on programs designed to help the poor in 2012.  The CBO report (also) shows that the federal government gives about $8,800 in annual assistance to the lowest-income households but only $4,000 to households earning $35,500, which would be about the level of earnings of a worker making $15 an hour."

    A decent minimum wage is not a panacea for every ill we face, but it sure looks like this particular entrepreneur thinks it would go a long way toward helping the poor and those on the brink of poverty, as well as the businesses that need more customers, and the middle class which will expand outward as millions climb out of poverty.  The ripple effect could be tremendous, as well.  Schools could benefit as fewer children come to school hungry, and as new property owners pay school taxes more teachers and more resources come into play; perhaps more young people could aspire to attend college; perhaps other young people could afford to upgrade their skills in trade-centered training centers and schools; perhaps parents might be freed up from a second or third job and become more active in advocating for their children.  We need this change right now!

4)   "The conventional wisdom that the rich and businesses are our nation's 'job creators' is false."

    It's refreshing to hear a millionaire entrepreneur admit that this mantra is not true.  So, it must follow that the line we get from so many conservative politicians is equally untrue: that raising taxes on the rich will adversely affect job creation.  Hanauer admits that without entrepreneurs and investors, you can't have a dynamic and growing capitalist economy.   But, he says, "It’s equally true that without consumers, you can't have entrepreneurs and investors.  And the more we have happy customers with lots of disposable income, the better our businesses will do."
   
    Hanauer also admits that he himself has never been a job creator.  He has started businesses based  on good ideas and he has initially hired hundreds of people.  But he reminds us again that if no one can afford to buy what he has to sell, the business and those jobs will soon evaporate.  What does lead to more employment - thus to job creation - is the "virtuous cycle" set in motion by consumers that allows companies "to survive and thrive and (enables) business owners to hire."  He claims that the middle-class consumer is more of a job creator than he has ever been or will be.  Now, that's a pretty hefty statement coming from a millionaire businessman. 

    It turns the conventional wisdom (mantra) upside down, and puts the emphasis on all of us as the job creators.  Without consumers buying products and services on an on-going demand basis, you don't have any jobs to create.  Maybe that's why the richest 1% are sitting on more than 2 trillion dollars - there isn't enough demand from consumers for their products and services, because there isn't enough money in the pockets of those consumers like you and me.
    He concludes: "We've had it backward for the last 30 years.  Rich businesspeople like me don't create jobs.  Middle-class consumers do, and when they thrive, U.S. businesses grow and profit."

5)    "We must raise taxes on the rich to reward the true job creators."

    Now this is where it gets really dicey for the Right-wing and the Chamber of Commerce.  Hanauer boldly proclaims that we should raise taxes on the rich to levels that once existed in order to put purchasing power back into the hands of the middle class which will spur growth for all.  He reminds us to remember that "capitalists without customers are out of business."  He wants to shift the burden of taxation from the 99% to the top 1% as the "surest and best way to get our consumer-based economy rolling again."
   
     He cites some figures that certainly are provocative.  "Since 1980, the share of the nation's income for fat cats like me in the top 0.1% has increased a shocking 400%, while the share for the bottom 50% of Americans has declined 33%.  At the same time, effective tax rates on the super-wealthy fell to 16.6% in 2007 from 42% at the peak of U.S. productivity in the early 1960s, and about 30% during the expansion of the 1990s.  In my case, that means that this year (2011), I paid an 11% rate on an eight-figure income."  We know that Mitt Romney didn't pay much more than that - about 14%; and Warren Buffet indicated that he paid at a lesser rate than anyone on his office staff!

    What's the point?  Well, simply stated, it takes money to run a government, and it takes money to invest in a broad middle-class growth that makes for consumers that spend on goods and services, and it takes money to keep our nation secure.  If the true job-creators are the middle-class, and if demand for more goods and services is to happen, and if our nation is to be secure, and moreover, fulfill all of its other obligations under our Constitution,  the middle class cannot be expected to carry the burden of producing tax revenue to pay for all those obligations.  The rich must pay their fair share, or we shall see our economy decline and our middle class shrink.  I forgot -- the latter is already happening; the former has not yet happened!

    Hanauer makes this statement:  "Significant tax increases on the about $1.5 trillion in collective income of those of us in the top 1% could create hundreds of billions of dollars to invest in our economy, rather than letting it pile up in a few bank accounts like a huge clot in our nation's economic circulatory system."  As he does in the movie, he reveals the fact that he does not even know where his money is or what it's doing.  He depends on others to invest it and keep it producing more money through a wide-ranging portfolio that is invested in a myriad of financial products including hedge funds.  But he does know that it is not working for the economy; it's working for him and his company.  That's what the rich are doing.  They are taking their tax earnings (from not paying their fair share) and investing that money for themselves so they can have even more money.  It's not working to produce jobs or growth; it's working to produce income upon which the rich pay only a maximum of 15% on investment income.  The rich are clogging the economic arteries and making it more difficult for us all to get ahead.

    So Hanauer asks us to consider one simple thing we could do immediately: a "puny" 3% surtax on incomes above $1 million.  He says it would be enough to maintain and expand unemployment insurance, while also enabling us to invest in rebuilding schools and infrastructure..  And even then, taxes on the rich would remain historically low and their incomes would be astronomically high.  That's just a short-term fix; he still advocates a return to much higher rates over the long-term for the richest 1%!

Nick Hanauer makes reference in passing to one more item that I think should get people thinking a bit.  The current $7.25 minimum wage forces taxpayers to subsidize stores like Wal Mart, and other large employers.  How?  Well, because Wal Mart and others pay minimum wage with very few benefits for their employees, the federal government ends up covering medical care, food stamps, housing subsidies because these working-poor families cannot survive on these low wages and lack of benefits.  Costco doesn't operate that way; how come Wal Mart gets away with it?  Because, as usual, the American middle class and the working poor tend to forget what they do when they shop at these stores.  They feed the monster who steals from them to make their profits. 

Perhaps one of the most important things to come out of this documentary is the fact that it is not just a film; it is a call to action: a motion picture designed to "put people into action," and to "engage ordinary people to advocate for pro-middle class policies in all 50 state capitals," as one commentator put it.  Kristina vanden Heuvel, in her article on the film, suggests "Reich concludes his Berkeley course on wealth and poverty by stressing the power of his students -- and all citizens -- to make change.  Free and fair markets don't just happen; governments elected by voters, set the rules by which the economic system works.  For all of Washington's gridlock...it is still up to the American people to stand up and fight to make the market work better -- not just for some, but for all." 

I would add: it's time to stop shopping at retailers and other businesses that take both your spending money and your tax money and use it to exploit both the economic system and the tax system, diminishing your own ability to earn a decent wage.  Don't shop at Wal Mart and see how long it takes them to change their policies.  In politics, it is imperative that we stop voting for politicians who have exploitation on their minds; who exploit the middle class to favor the rich and to increase their extraction of your money and mine out of the tax code and the regulations that they write for their benefit.  Likewise, don't vote for those politicians who defend the status quo and support the concept that the rich must be protected and coddled in order not to offend or disrupt their role as "job creators." 

Nick Hanauer comments: "When the American middle class defends a tax system in which the lion's share of benefits accrues to the richest, all in the name of job creation, all that happens is that the rich get richer." The rest of us then must help pay for the rich and their cronies, the politicians, but we get poorer, as has happened for the last 30 years.  "Inequality For Now" says we must stand up and advocate for the middle class and the working poor and begin to make the common-sense rules that should govern our economy.  We cannot continue under the rule-making of the 1% because they do not believe that any rules should apply to them and their insatiable appetite for our money.