Labor’s Share
Years ago when I was in graduate school, there was another graduate student that I became so close to, we felt comfortable enough to put aside the political correctness of academia and have fierce, robust, and almost violent arguments about what we believed about political economy. We were basically like brothers; two leftist sociologists whose shared sentiment just tended to make the fighting more intense, because there is almost nothing worse than having a heretic in the family.
While we both considered ourselves Marxists, he was a theory hating pure number cruncher, a type of person that we referred to as a “quantoid”. On the other hand, I was in love with theory, and the more French the theory, the better. I considered him to be a vulgar Marxist with a two inch forehead whose knuckles made trails in the snow as he walked. I think that he considered me some sort of species of butterfly.
One happy hour afternoon over cheap carafes of Margaritas and free chips and salsa at the Tres Banditos, we stumbled together into one of those spaces of total clarity that sometimes occur in drinking sessions just before the floor drops out from under. We decided that we needed to collaborate on an analysis and see if a butterfly could soar with a cave man on its back. Being young and stupid graduate students, we naturally chose a very ambitious proposition to test.
Traditional Marxist theory held that as the power of capitalists and capitalism grew, workers would become steadily more impoverished. But in America (especially) as well as the rest of the developed world, the workers had not gotten poorer; they had gotten fatter. Anti-Marxists used this fact as a primary proof that Marx had been entirely wrong. Marxists at this time countered that capitalism was global and that while workers in the economic centers (the so-called First World) were relatively well off, the impoverishment was proceeding rapidly in the Third World. The anti-Marxists that still bothered to address Marxists would respond that this was nonsense; that all countries moving towards capitalism had to go through a development period, which was rather like a peasant who, tearing down his thatched hut and replacing it with a modern suburban split level had to spend some time sleeping in the dirt while the walls were going up. If it looked like billions of peasants were sleeping out in the rain, it was just that they had not yet had enough time to install the walls so that they could hang up their flat panels. So Marx was wrong. Also, he was ugly.
My “Young Vulgarian” Marxist friend insisted that we look specifically at industrial workers in America over time to see whether or not they were being screwed. And what we found turned out to be so interesting that when we presented our paper at a conference, even the tenured professors stayed awake.
We used a cold dry census report called the Annual Survey of Manufactures. This comes out each non-census year; in a census year the data is gathered by the census itself. We looked at decades of data. I found this a pain, because we had to do a lot of this number crunching by hand since computers were not yet very common. (At Tres Banditos, the song on the Jukebox when we dreamed this all up was Addicted to Love).
At my friends insistence, we “dredged” the data for a while to look for correlations. But after doing this for a month, we settled on a single idea. If we looked at industrial production as though it were a pie that labor and capital took slices out of, how big was labor’s share?
What we found first of all was that the American industrial pie grew very very quickly. Wages for workers, measured year over year, went up and this rather rapidly. However, labor’s share of the pie got smaller and smaller every year.
This was clearly shown by the data to my friend’s satisfaction. And as simple as a observation as this was, I found it to tell a very interesting story.
The Left was wrong about workers becoming more impoverished (at least at the time) because no one the in 19th century had any idea how large the capitalist pie would ultimately grow. The Left was right when they said that power in the form of relative control over the pie would gradually move towards the capitalists; it’s just that as labor became more prosperous, it was hard to see this. And the Right, of course, was correct about Marx being ugly.
When our current financial bubble broke, the economic pie suddenly got sharply smaller and incomes declined for workers and for members of the middle class (which you might see in this formulation are really just workers with more assets). We have seen statistic after statistic that says that wealth in the form of total ownership of assets has been moving into the hands of a smaller and smaller group of people. This is not just the rich getting richer. It is the rich getting a larger and larger percentage of a pie which is also getting bigger and bigger. The current economic crisis, however, was so sharp that it didn’t just seriously trim the piece of pie that the workers get. It cut deeply into the part the rich have and it created a political situation where people were quite likely to start looking at the pie itself and how the slices were allocated. This wasn’t simply a case where some kind of proletarian rabble might form and demand revolution. This was a case where the rich might conceivably lose a portion of their actual control of the pie to other parts of the rich. It wasn’t the ripped off workers who demanded quick tax infusions to “save the banks”. It was the rich who did (and this is why it was done so quickly and relatively effortlessly). Of course, the ultimate burden of this passes to the workers who pay most of the taxes.
The reason that economic justice is so hard to talk about is that most people confuse what people are getting year over year (the size of the pie) with how much each group is getting (the cut of the pie). While I think it is a fact that in our history, the struggle between capital and labor moved over time from a struggle over control over percentages of the pie (the fight for socialism) to struggles over wages from the rapidly expanding pie, there is one other thing that tends to confuse things for people.
This is the fact that in our corporate economic structure, the senior managers appear as a sort of worker just like the person who sweeps the floors. So when people talk about why the CEO has such a fat salary, the conversation often turns to the relative value of the CEO to the organization compared to the janitor. This framing of the argument has intensified over the years as we have come to refer to pay as “compensation”, as though all pay is a compensation for some kind of equivalent loss. In this frame, it is true that CEOs and such have been getting increased pay more rapidly than the line worker. But this hides a more significant thing. The CEO is getting a bigger proportion of the pie. The control these people have over the system has been increasing. And of course, the more control they have, the more they can insulate themselves from their own mistakes and transfer the liabilities to those who are weaker; the workers.
To be honest, I don’t really care how much CEOs make as such. People who seem poor to us are living like kings compared to kings 2,000 years ago. The bar of what one should have in life keeps moving. While I think that the word compensation when looked at relative to pay is one of the biggest lies of the last 30 years, I don’t lose any sleep over the idea that there are rich people out there getting richer. What I do think is important is that the rich are getting more and more overall control over the economic pie itself. The risk of impoverishment isn’t so much on the money side as on the political side. The evil isn’t that there are rich people as such but that the powerful continue to make everyone else systematically weaker.
unagidon: With all respect, this is a confused analysis, mingling together a “Marxist” account of capitalism with “populist” concerns about the “fair share” that workers deserve of their product. That’s why the conclusion is so muddled: you “don’t really care” about the compensation of CEOs, or even about the fact of rich people, but you still appear to be concerned that “the powerful” make others “systematically weaker.” If the weakness is systematic — as you’re right to say it is — then you have to care about the compensation and the existence of “rich people” and “CEOs” — who should just call capitalists. The compensation and wealth of the capitalist class and its professional-managerial hirelings derive from their systemic positions in the political economy. No amount of moralism or benevolence is going to change that fact. Over the last forty years, corporate capital has been able to hold down wages and benefits through a variety of means — state action, out-sourcing, aggressive campaigns against unions, the purchasing of the political system, etc. Faced with stagnant wages, workers took on ever more debt; faced with declining profits from consumption, capital moved into ever more arcane and risky forms of capital accumulation — hence, the financialization of capitalism. Again, it’s systemic — the enormous salaries and bonuses are inexorable results of the nature and logic of capitalism.
The only reason the immiseration thesis has been “discredited” is that workers have been able to exercise political power in the state and the workplace (the struggle — struggle, let’s recall, often against immense violence and repression — for democracy, unions, etc.) As they’ve lost power, they’ve lost wages and benefits. Again, systemic. All the populist boilerplate about “fairness” and “outrageous” compensation is a way of not dealing with the system as a system. Sure it’s immoral and unjust and outrageous. But that’s how the deck is stacked. If you don’t like it, get a new system.
I think that the question about whether to be concerned about rich people, which is, to me, a question about the just desserts of labor is different from the question of how the rich come to control the system as such. I know that these are related. But I happen to agree with you about the populist boilerplate. It does not address the fundamental structural problem.
On the other hand, we might ask ourselves why socialism failed. It seems to me that it rested on a fallacious idea of property; that if keeping labor relations intact, were the workers to “own” the means of production, would it not mean that they were no longer exploited since technically they owned the means of their own exploitation?
Regarding the struggle for democracy, unions, etc., it seems to me that at the beginning they were very much about control of the system (or, in the way I have put it above, the question of who controls what percentage of the pie). It evolved into what we have now, which is the question of who gets how much of the pie that is allowed to be available to them. When times are fat, at they were in our last two financial bubbles, it will look to workers and the middle class like their situation is systematically improving. But when the bubble breaks and for perhaps a brief glorious moment the underlying structure is revealed, they may suddenly see that they have been systematically fooled. Maybe.
What I suppose has struck me the most about the discussions that have emerged in this blog recently about the tax legislation is how quickly the conversation seems to come to revolve around “how much is enough”? As though the system could remain intact and become just if the rich (or the non-rich according to some on the right) became less (personally) greedy.
There are no laws of capitalist development. After more than two centuries of sustained effort and ingenious formulations by those on the right, left and center no one can predict more than two days ahead. The greatest failure: no one predicted the rise of fascism.
A plea for healthy skepticism: Social science, or social thought more broadly, has some uses but getting a handle on the future is not one of them and even understanding the present is exceedingly difficult. Disputes about what “really” happened in the past will seldom be completely resolved and then only among specialists. Alleged trends are reversed almost as soon as they are declared to be inevitable.
I recently found an old economics textbook by Robert Heilbroner and thoroughly enjoyed it the quote from the middle ages: “The merchant can scarcely if ever be pleasing to God.”
I wonder what percentage of control of capital is exercised through pension plans, mutual funds and other optional and mandatory programs which workers have access to. Up here in Canada Macleans magazine has run a few frightening articles about the baby boomers retiring. I am not altogether sympathetic to the grade 12 educated GM/Ford/Chrysler factory worker retiring in debt after living above him means for 30 years in a $500,000 house driving a new vehicle and vacationing to Mexico each winter.
Considering the popularity of modern television, I am not all together concerned that the majority of political power is shifting away from the average person.
What caught my attention in this post was your reference to a genuine discussion of ideas between graduate students. Does that sort of thing even go on any more? The grad students that I know are so exhausted from grading, so miserable about their job prospects, and so tired of their dissertations that the last thing they want to do is have an intellectual discussion about anything.
In fact, this was something recently discussed on a blog of reasons not to go to grad school:
http://100rsns.blogspot.com/2010/10/20-few-ideas-are-exchanged.html
“Regarding the struggle for democracy, unions, etc., it seems to me that at the beginning they were very much about control of the system (or, in the way I have put it above, the question of who controls what percentage of the pie”
Were unions about controlling a % of the pie? I always thought they were a way for people with otherwise limited job choice to protect themselves from the most extreme kinds of exploitation. Unions of professional workers, I’m not exactly sure what they’re for, but for blue collars, I never thought it was “how much do we get in relation to the bosses//owners”, but more, “how do I get a living wage and a workplace that won’t kill me”.
I’m a little concerned about the damage corporate wealth and influence is doing to our political process. And it particularly irks me that corporations have so many of the same rights and even constitutional protections of real “persons”, but they don’t seem to pay the same level of taxes as us real people; GE had an effective tax rate of 5.3% in 2008. (And no, I’m not at all jealous of the hard work of corporate persons nor do I want to steal the fruits of the corporate person’s labor.) I just wish they didn’t have a stronger lobbying voice than I do.
Patrick Molloy, I completely agree with you that there are no laws of capitalist development. I am interested in the question of what is really going on in society. I think that people sometimes treat the question “do the rich deserve to be rich” as the same as “do the rich deserve to be in control”. I think these are different questions, but to try to make that point, I have to identify the significance of wealth versus control. Greater wealth may lead to greater influence, of course, but is this the same as control. And if not, what is the nature of this control? It would seem that for people who think that the wealth of the rich is somehow unfairly translating into greater control, the solution to equalize things is to reform the tax system. But if the basis of control of the economy by the rich is not wealth as such, but the actual physical control of larger and larger percentages of the economic pie itself, then a tax reform won’t work. In fact, when the super rich say (as some have been recently) that they would welcome higher taxes, they could pay higher taxes without touching the basis of their increasing control of the economy (while making the rest of us think that things are being evened out).
Adam Marischuk, I have seen arguments that say that because stock ownership by the middle class through retirement plans is almost universal, we are all capitalists now. This to me is a variation of the myth that the stock holders of a company are somehow its “owners” when in fact any accounting text book will explain that holding stock simply gives the owner a piece of the upside of a company’s profits (as determined by the management who actually controls it) and a limited call on the company’s assets should the company ever go under. This ownership myth itself supports the idea (in the States) that Social Security needs to be “privatized” and its funds invested in the stock market as though the government is in competition with its own citizens over the control of their tax funds and handing these over to the control of capital will somehow promote the greater freedom of the masses.
In a situation where capital takes up more and more of the economic pie and the people from whom this power is transferring are less and less able to resist as a group, the only other possible alternative in the total economic picture for them to assert their power as a group is through the government. Note that I say “possible alternative” and that I am not saying that government in this situation supports the people against capital. Capital fights for control of the government as well; the government can be very efficient in moving risks and costs from capital to the general population. The thing that strikes me about the television watching electorate is that so much of our politics in this country is how it tends to pit one powerless group against another over control of a diminishing amount of the economic pie, which capital’s share keeps growing.
Waldemar, I was at the tail end of that glut of students in the Liberal Arts who thought that Liberal Arts had a future. But we could already see even then that the careerists were sweeping the board. By careerists, I mean those students who oriented their activities to the support of the strongest professors. I won’t be naive about what any apprenticeship requires; these people (some were bright, some were not) were doing what was required of them. But as liberal arts become devalued within academia, the professionals are probably going to act differently from those who are doomed to remain amateurs, studying for the love of knowledge.
Irene, I think that the unions started out as trying to control a piece of the pie. Or, if they didn’t, they were seen as doing that by capital, who did not want them to have any say at all. The early labor movement seems to me to have been about socialism. Later, it became as you say “how do I get a living wage and a workplace that won’t kill me”.
One thing that interests me about the modern economy is that as capital takes a larger and larger share of the pie as such, what kinds of opportunities does this present for those who control the capital? For example, the off-shoring of an industry takes an immense amount of free capital; one has to maintain production at home while simultaneously setting up production abroad. In some way it is like maintaining two mortgages at the same time. For this sort of thing to become as common as it has, there has to be a great deal of surplus capital floating around. In the same vein is all the speculation by corporations and banks in the OTC financials market that brought about the last financial bubble. This was capital that was not being put to use in production at all. (This puts to a lie the idea that capital is always going to “invest” money that they don’t have to pay in taxes in things that will stimulate production.) The ability of capital to do these things seems to me to not just be a predilection on their part, but some kind of structural change that allows them to do things that they were never quite able to do before.
“The merchant can scarcely if ever be pleasing to God.” I’ve just finished reading Iris Origo’s wonderful Merchant of Prato, published back in 1957, and this sentiment, quoted by Heilbroner, was very much in her merchant’s mind (Francesco di Marco Datini, xiv cent.) — particularly as he grew older and death loomed. Connected to this is the ranking of social strata in traditional China: 1) scholars (because it is from them that the country’s governors are recruited; 2) farmers (because they produce the wherewithal that keeps society alive and going; 3) artisans, because they also make things, even if things not so vital as what the farmers produce; and 4) merchants, down at the bottom, because they simply trade in what others have produced.
Which is not to say that this ranking ever had much to do with the respective wellbeing of such groupings in real life. And today’s China has an inequality of income than surpasses even that of the US.
Hi, unagidon, I agree with you that there is a class (perhaps “director class” is a better term than “capitalist class” or “managerial class”?) who are (a) taking control of bigger slices of the pie and (b) have largely (although not completely) managed to construct compensation plans that insulate themselves from the vagaries, both of the economy as a whole, and the individual enterprises they direct. I attribute this quite specifically to the increasing ability of members of this class to dominate, intimidate and ignore the governing boards that are supposed to rein them in and ensure that the enterprise is functioning for the good of the stockholders rather than the senior managers. Do you agree that this is at or near the heart of the dysfunction?
I guess, in the best graduate-school spirit, I would say, “So what?” Like you, I care very little how much money a CEO makes. The vast majority of workers in the US don’t suffer from basic deprivation. Many/most of them are homeowners. A lot of them have savings plans.
A primary way that the director class has been able to minimize the pie slice of the workers is by introducing the competition of overseas workers. We may rue this; but there is no solution that I can see.
FWIW – I think many, many people intuit what you’re describing here (at least, what I think you’re describing). My observation is that a lot of folks who think it’s silly to work hard so that someone else can get a bigger piece of the pie, end up starting their own business and become small business owners, thus getting their own little pie all for themselves. I think this is where there Marxis/socialist analysis fails; its fixation on capitalist/labor dichotomy doesn’t address the reality of small business entrepreneurism.
Bravo, Eugene Maccarraher. Unagidon’s post left me feeling that some light had been shed on the subject but that we remain powerless. Your comment chiseled through to a place where analysis makes a difference. (Not that this makes it easy, by any means!)
Unagidon, do you yourself feel that the situation is hopeless, and there are no real ways to stem the tide of progressive inequality? (It’s getting worse in bad economic times of course, because the super-rich insist on maintaining in absolute terms the wealth they have come to expect, so the losses are all taken out of the pockets of everyone else.) We could all “see” the pie metaphor, but where does that leave us?
Dear Rita,
What is possible is always going to depend on what people think is going on. If you don’t care about who has what percentage of the pie and you are on the “Right”, you will probably fight to hold onto your piece of the piece or make it larger and work against redistribution of your piece (especially if you think you are in a zero sum gave with undocumented workers or the lazy undeserving poor). If you are on the “Left” in this case, you will argue that some kind of equitable redistribution of the piece is in order.
If you think that the question of who has what percentage of the pie is more (or most) important and you are on the “Left”, you will probably be looking for some kind of redistribution of proportions through some kind of government action. If you are on the “Right” in this case and think that there is something “natural” about capital getting an ever larger percentage of the pie, then you will oppose anything that reduces capital’s share as an unnatural threat to the natural economy.
The thing that leaves us so confused as a nation is that our politics in general are incoherant. People who are interested in maintaining the status quo, especially during a period of economic confusion (like now) invest a lot in simply muddying the waters, since it is this that keeps the status quo.
Dear Jim,
Your ideas on small business might have once been true, but no longer. In a world dominated by franchises, small business is a way that big business can transfer some of the risks of distribution away from themselves. The small business person is, well, a prole by any other name.
Hi Unagidon,
You write “If you don’t care about who has what percentage of the pie and you are on the “Right”, you will probably fight to hold onto your piece of the piece or make it larger and work against redistribution of your piece (especially if you think you are in a zero sum gave with undocumented workers or the lazy undeserving poor). If you are on the “Left” in this case, you will argue that some kind of equitable redistribution of the piece is in order.”
But if you don’t care who has what percentage, why would you argue for redistribution at all? It seems to me in order to criticize something as inequitable presumes that you care about the fittingness of the proportions.
A UPS Christmas ‘lumper’ ,one who runs the package up the steps, was just hired in Los Angeles at $8.50 an hour..a temp job .. with concurrence of the Teamsters..forget the ‘pie’ slices… some are scrambling to get a handful of the crumbs.
Dear Rita,
I can see that I rushed this piece out too quickly. I apologize to everyone for not being very clear.
If you don’t care about the proportions of the pie held by labor and capital, and you are on the “Right” you will focus on the piece of the pie that you have access to and resist efforts to redistribute that particular piece. And it is here that we see a lot of arguments about what is a just wage, just profit, etc. If you do care about the proportions of the pie held by labor and capital respectively, then the arguments start to be about the “natural-ness” of the economic order that gives control of the economy to one class or the other.
Dear Ed,
Years ago I was a union steward in Chicago in a giant food store chain. The workforce of this chain was about 90 percent part timers. At the last union conference I went to (before the union was busted out), a motion was passed that said that except for those current part time workers who were grandfathered in, the pay of future part time workers would be reduced to a level way below the full timers (we were paid by the hour at parity before) because part timers, were…. part timers and by nature didn’t deserve to get paid the same for the same work that the full timers were doing along side of them. The union, having pitted the part timers against the full timers (most of the stewards happened to be full timers) then swore to defend the existing part timers who had grandfathered salaries from being forced out in favor of new cheaper part timers. The measure passed and there was a massive roll back of wage levels. And of course, most of the grandfathered part timers were then knocked off over the next year.
The appeal in the union was to the workers in the union at that time, not workers who might be in the union later. This is a basic distinction between a workers’ union and a workers’ party. But it was the company that won big that day.
” In a world dominated by franchises, small business is a way that big business can transfer some of the risks of distribution away from themselves. The small business person is, well, a prole by any other name.”
I spend my days in the high tech world. There are hundreds of thousands of start-ups, a certain percentage of which will succeed over a 5-10 year time frame. A few will grow to be big businesses in their own right.
‘Transferring the risks of distribution’ is not some capitalist plot – it’s a genuine need which has created business opportunities for thousdands of entrereneurs, who are stepping into the vacuum to provide a necessary service that allows them to create wealth for themselves and their families, and creates employment opportunities – professional, well-paying employment opportunities – for millions of others.
This is precisely the jobs-growth engine that President Obama is trying to figure out how to stimulate.
I should add – franchising has itself proven to be a lucrative business for many thousands of people. I will grant that fry cooks don’t make a living wage. (Some of them live in area PADS shelters). To my mind, that falls into the ‘rue-it-but-little-or-nothing-to-be-done-about-it’ category.
unagidon –
It’s not clear to me just what you mean by “the pie”. If it doesn’t includ ownerships of shares the corporations nor small businesses, what does it include? Just what the managers control?
Dear Jim,
I think that there is an enduring cultural myth about the small business owner who sort of walks into the virgin economic woods carving out a profitable homestead through the sweat of his brow. But I think that the key to understanding the position of small business in society is to look at how it is financed. I am not sure that people doing start ups are financing these things themselves. If we couple the ones that are financed by others (i.e. these rich capitalists I have been talking about) with those who are in franchises and therefore have to operate according to someone else’s rules, then while we might say that they are self employed and are their own bosses, it’s rather like saying that someone with a large house mortgage is a home owner. I am not talking about potential returns (although the failure rate for small business is massive) but about the kind of control that small business gives the owner in the economy relative to what a wage worker has. I am not seeing much difference,.
Dear Ann,
The “pie” in the paper Labor’s Share was the sum total of outputs from the sample of industrial production. We measured both labor’s percentage of the output each year (falling) and their year over year wage change (rising).
Marx himself points out that capitalism has been the most revolutionary movement in history. Nothing has changed the world so completely and so fast as the capitalist class has; “all that is holy is profaned”, i.e no religious belief, no traditions, not even social graces, can withstand the forces of capital, only the organized working class. The problem isn’t that capitalism is immoral (although it is in many cases) but that capitalism has become obsolete for meeting the needs of modern mass society. Consider that since the crisis of the 1970s, world capitalism has frozen real wages of American workers while demanding they be more productive (the introduction of the computer to the workplace skyrocketed productivity, yet the workers see none of the surplus), requiring the United States to create global demand for production by advancing credit to Americans for housing and education. This is all blowing up now.
It is, in fact, a very bad thing that some people have much more than others – and maybe you ought to lose some sleep over it. Class isn’t merely a category but a social relation like Master and Slave. Consider NYC mayor Mike Bloomberg, estimated to be “worth” $17Billion. If you earned $1million a year, you’d have to work for 17,000 years to make that much – a steady job since the Pleistocene. But of course, Bloomberg’s not that old. His wealth represents a mastery he has over the lives of a great many people. Even if CEO salaries are a drop in the bucket of an industry’s capitalization, like the capstone on the pyramid for which every block was cut and placed, every decision and strategy is designed to maximize that salary; the structure below is designed for its maximization. So it should be alarming that CEOs of industries like health insurance (or anything, really) take home huge bonuses.
Furthermore, I have noticed this meme going around, expressed by unigidon in this way: People who seem poor to us are living like kings compared to kings 2,000 years ago. . This attitude can be summed up as “Let them eat iPods!” It’d be hilarious if it weren’t so disturbing that this idea is gaining traction.
“Furthermore, I have noticed this meme going around, expressed by unagidon in this way: People who seem poor to us are living like kings compared to kings 2,000 years ago. . This attitude can be summed up as “Let them eat iPods!” It’d be hilarious if it weren’t so disturbing that this idea is gaining traction.”
I do have to address this. This meme can be read to say that the poor are not really poor. But what I was trying to say was that in an economic environment of increasing overall wealth, questions like “how poor are people really” are rather fruitless and distract from the more important question of “who owns society”.
But what I was trying to say was that in an economic environment of increasing overall wealth, questions like “how poor are people really” are rather fruitless and distract from the more important question of “who owns society”.
This single sentence will live on, I predict. For, yes, in fact, for Christ’s sake is this what we ought to expect from a publishing Commonweal writer?!?!? This is an outrage.
unagidon really believes that no one in America can truly be labeled “the poor”. You’d have to be mentally ill to end up living on the streets, according to unadigon.
The burden of making myself clear in these posts is entirely mine, and I seem to have been doing a particularly bad job of it here.
Of course there are poor. There are more poor than there have been for a long time. There are millions of unemployed and millions more who are under employed who are hardly even considered any more. The streets are full of “street people” again. States are trying to balance their budgets by cutting back on Medicaid. Empty store fronts and nearly empty office buildings are everywhere.
Now we know that there has been a massive and systematic transfer of assets to the rich from the rest of us over the past decade or two. We know that despite the fact that the country has become richer (even removing the effects of the recent financial bubble), middle class salaries have stagnated. We know that the rich have been “investing” much of their wealth in unproductive financial bubbles and that they have also been investing in things that reduce employment in the United States. (These are the people who supposedly need to keep their capital intact and untaxed so that they can invest and produce jobs.) We know that when the current bubble burst, it appeared that capital was “destroyed” because many in the middle class lost a lot of their paper assets in the form of their real estate. But we also know that the whole thrust of Federal economic stimulus policy has been to create the conditions where the holders of capital will release it (which means that they are still holding it; not that they themselves have lost it). We know that the richest couple of percent of the population is already recovering from the recession. We know that the financial companies that got us into this mess are now handing out the big bonuses again. We know that the burden of unemployment and poverty in this recession are not distributed within the population equally; that if you are Black, you are more likely to be affected than if you are White and if you are a blue collar worker you are more likely to be affected than if you are a white collar employee. We know that the overall tax burden in the United States has been shifted for years to labor from capital. We know that the primary holders (as trustees) of capital, a small number of banks so large that they should simply be called monopolies, have become “too big to fail”, which means that if they do start to fail, we are now required to bail them out with public funds through an increase of public debt that will be repaid by the taxes of those who work. We know, in fact, that there is something structural going on that has nothing whatsoever to do with how hard people are working; what kind of educational choices they made; what kind of mutual funds they put their money in; or how much they can trim their “lifestyles” to become more austere, since consumer greed had little to do with all of this.
Yet we are still talking about how rich is rich and how poor is poor. We are talking about the salaries of the rich and whether the poor should be given beans and cheese to live on. While a smaller proportion of the population controls an ever wider amount of the wealth, our politics is mostly about arguing how we are going to slice up the dwindling piece of the economy that is left for the rest of us. Ironically, the manipulated Right known as the Tea Party is correct when they worry that their assets might go to support those who now have less, because they know that capital is certainly not going to let its own assets be used to help what is now a redundant population who have literally been shit out of the back of society. But we are still locked in discussions about how much the poor deserve and how much the rich deserve like we’re a bunch of idiots dying of thirst while standing next to a massive lake.
Of course there are poor people. But what really angers me is that we still go along thinking that the ever smaller number of people who own an ever larger amount of our national assets; who convert their economic power into political power to capture a government that should be our last line of defense against them to transfer risks and costs away from themselves and to us; that all of this is some kind of natural and just result of the capitalist system and that the rich and the poor are simply getting what they deserve and that it is practically heresy and treason to suggest otherwise. So we keep on spinning our political wheels. This is the outrage.
: We know that the rich have been “investing” much of their wealth in unproductive financial bubbles and that they have also been investing in things that reduce employment in the United States.:”
unagidon –
ISTM that when the super-rich have so much cash that that the only place to put their money is in extremely risky “investments” (derivatives are totally non-productive so I wouldn’t call them investments in any real sense) that there is something fundamentally wrong with the price structure of the whole system? It follows that too high prices can junk the system as well as poor workmanship or incompetent management. (Back to fair prices.)
I keep hoping for a nice neat economic system in which there is a balance of all the elements — materials, work force, capital, etc., etc., etc. If there is anything sure about economics, it seems to me that it’s that ideally these things have to be in balance or the whole thing will spin out of shape, like a badly thrown pot on a potter’s wheel — when things aren’t in fine balance for any reason the whole thing collapses.
Unigidon
The third paragraph of your 12/14 posting is an excellent description of what’s been going on for the past few decades. Everyone who reads this blog should print this out and tape to to the refrigerator, read it every day and understand what their elected representatives are doing to them.
Let me provide a little factual backup. Using CBO inflated adjusted data expressed in 2005 dollars, we can define the ” super rich” as the top .49% of all households (561thousand households), and the middle class as percentiles 20.0 through 90.0 (78 million households-70% of the population). The 2005 annual income of the super rich averaged $2.5 million. The average income of the middle class averaged $69.3 thousand with a range of annual income bounded by a low of $17.9 thousand to a high of $126.3 thousand.
Now let’s go back to 1979 and look at after-tax data. In 1979 when the top marginal tax rate was 70% the average after-tax income of the super rich was $458.8 thousand. In the same year the average after-tax income of the middle class was $45.6 thousand. Note the relationship-10:1.
In 2005, when the top marginal tax rate was 35%, the average after tax income of the super rich increased to $1.7 million, an increase of 273%, while in 2005, the average after-tax income of the middle class was $58.1 thousand, an increase of only 27%. Again, note the relationship. In 1979 the ratio was 10:1, by 2005 it had reached 68:1.
This pattern of disparate after-tax income growth is consistent throughout all income levels. For example the increase in after tax income from 1979 to 2005 for the lowest percentile was 6.3%, for the second quintile it was 15.8%, for the middle quintile it was 21.0%, for the fourth quintile it was 29.5%, yet for the top .01% it was 479.9%. Overall the increase for all groups was 45.3%, but only the top 10% equaled or exceeded that level. The remaining 90% were left behind.
So it should be no surprise that wealth has become increasingly concentrated. The principal cause, in my view, is a perverse tax system. And the principal problem, apart from simple economic justice, is that such concentration has led directly to the economic crisis we are experiencing, and will inevitably lead to another one-assuming that we ever recover from this one, which I seriously doubt given the investment practices of those in whom wealth is now concentrated.
“unagidon really believes that no one in America can truly be labeled “the poor”. You’d have to be mentally ill to end up living on the streets, according to unadigon.”
I don’t believe unagidon has said anything that would make us believe that no one in America can truly be labeled the poor. I just think he trying to talk about something different.
It might be worth mentioning that being mentally ill is a really good way to end up living on the streets in America.
“. . . the ever smaller number of people who own an ever larger amount of our national assets; ”
ISTM that you explicitly define “the pie” as the share of each in the production of a current year, but that at other times you seem to imply that it is the real assets of the rich that are also part of the pie. I mean, for instance, the ownership of homes, other real estate, natural resources, industrial plants, everything that can be bought and sold for cash.
These assets are relevant because if, for instance, you lose your job but you own a boat or a house, you can sell it and live off the sale for a while. In other words, I think the system is more complex than the way you define it.
Also, I think that spending habits are also part of the system — this is why a huge amount of available capital is used for advertisment. It may be an indirect cause of the spinning of the wheels, but habits are part of the system just as drivers are part of a system that is a moving car. Which means that the ordinary consumer is part of the problem that is our current crisis.
unagidon, I just think there are more prosaic, less “systematic” reasons that some people are prospering and many are not. Some very big sectors of the American economy are ailing – automotive, manufacturing, state and local government – and people that depend on those sectors for employment are in a bad way. (Think about who employs urban/blue collar/African Americans). Some other sectors of the economy – financial services, high tech, defense – are doing better, and people working in those sectors, by and large, are not suffering as much.
Michigan and Ohio are really ailing because their economies are built on sectors that are dying or dead. Cities are ailing more than suburbs because, again, some of those older industries tend to draw workers from urban areas.
I shouldn’t say those industries are dead – just that they’re dead in America. In India and China, they’re roaring engines of job growth.
Ann
You raised the question of investments made by the super rich. You probably already know this, but these people do not buy mutual funds as do the rest of us, rather they are in municipal bonds, hedge funds and private equity. In terms of economic growth muni’s can be a positive, hedge funds, except to the degree that they participate in credit default swaps are neutral, while private equity is highly destructive.
The private equity model calls for the private equity firm to use its investors funds and borrowed money to acquire a successful and productive company. Once having gained control, the private equity firm causes its newly acquired company to load up on as much debt as possible. It then causes the acquired company to take these borrowed funds and dividend them out to the parent (the private equity firm) who then pays off the debt required to make the acquisition and send a hefty dividend to its investors. The result of all this is that the acquired company is left as a cripple that can service its now excessive debt load only by laying off employees, cutting pay and benefits of non-unionized employees, selling productive assets and even stripping the pension fund.
This is definitely not an avenue to economic growth. Every private equity deal is another nail in the coffin!
Jim said: “Some very big sectors of the American economy are ailing – automotive, manufacturing, state and local government – and people that depend on those sectors for employment are in a bad way.”
True, but there seems to be no shortage of cars or manufactured goods. Is it really “natural” that the production of these is failing in the US and thriving in other countries? Of course, you may say that in the context of globalized labor competition (which itself seems to be a natural outcome of capitalism) the movement of manufacturing away from the US is natural and inevitable.
But let me suggest something. If all of these mass displacements are inevitable given the logic of capitalism (displacements starting from industrial labor to things now cutting close to the bone of the middle class), then could one not argue that the relative local impoverishment that this creates is not the fault of lazy, greedy, unproductive workers or of people who made poor long term life choices by, say, becoming factory workers or computer programmers?
If it is the case that so much of what the Right likes to attribute to personal independent virtue is actually caused by systematic things that cannot be controlled by independent workers, could it then follow that the price for capital being allowed to do this to society would be more social supports. For example, in addition to unemployment insurance there is also state supported job training, health insurance, etc. I know that many will assume that the payment for this would naturally come out of the diminishing share of the economic pie held by those still fortunate to be employed. But if it is the case that the overall share of the pie itself held by capitalists is increasing, why not attach these systematic supports to at least part of that share. Even if one things that the rich are justified in making a lot of money in an expanding economy, I just don’t see the justice in them getting a larger percentage share of the economy and also passing on the social costs of their activities to workers who are less and less able to defend themselves. Can you?
Dear Ann,
My original study in graduate school explicitly “define(d) “the pie” as the share of each in the production of a current year”. But since this happened year after year, it seemed reasonable to say that this was the mechanism that capital used to transfer more and more of the underlying physical assets to themselves year after year as well.
It is true that if one is fortunate to have ownership of an asset, one has (a bit) of a cushion. But if you were to strip out all cases where the assets have liens of one sort of another, liens held by the real majority holders of capital in this country, how much would really be left in the hands of owners that are not part of this minority that is taking more and more?
Charles Ladner –
Thanks very much for the explanation of private equity deals. No, I didn’t know about such a mechanism. That is really awful. Totally predatory. All the more reason for us to learn more about economics and de facto business operations. And to think our legislators — the ones we elect — countenance such dealings. We have ourselves to blame as well.
Unagidon –
As I understand you, you have two big problems. First, it is somehow unfair or at least a structura fault of the capitalist systems that workers are sometimes laid off. But as the old saying goes, if nobody was ever laid off we’d all still be diggind potatoes. So if we are to retain the competitiveness of capitalism, fairness would seem to require that there is some way the people laid off will not be reduced to poverty. I submit that one way (assuming fair wages) is for the worker to save against a rainy day. Americans don’t seem to think they have any obligation to do this. Another way is for the rest of us to pay for workman’s compensation. It seems to me that the latter is a fairer system, simply because some workers are deadheads and refuse to save.
Your other big problem is that the very rich have too big a portion of the pie, whatever it is. I agree. But I think the pie is more complex than you think it is, and one must factor in the responsibilities of all the human sectors — the workers, for instance,must be willing to pay for workers’ compensation and health care for all. This, as we’re seeing this very day, is very expensive. Yes, the rich have too much of the cash, and there should be some re-distribution, but the rest of us have to be willing to educate ourselves about how the system works and to vote and put pressure on our representatives accordingly.
And then there is the matter of fair wages. This is an ethical problem, of course, but that doesn’t make it unreal. It seems to me that if we are all part of a capitalist system, it follows that we all have a right to a share of it, otherwise, as Marx noted, the workers are just objects or tools. Plus, tthe system won’t work if the workers don’t share spending power. When that happens (as is partly happening now) the richer will just keep getting richer, etc., and the system will break down even furthre. So fair wages is a practical problem which affect the functioning of the system. OR where have I gone wrong?
“The private equity model calls for the private equity firm to use its investors funds and borrowed money to acquire a successful and productive company. Once having gained control, the private equity firm causes its newly acquired company to load up on as much debt as possible. It then causes the acquired company to take these borrowed funds and dividend them out to the parent (the private equity firm) who then pays off the debt required to make the acquisition and send a hefty dividend to its investors. The result of all this is that the acquired company is left as a cripple that can service its now excessive debt load only by laying off employees, cutting pay and benefits of non-unionized employees, selling productive assets and even stripping the pension fund.”
But note how this can be translated into the political realm. The private equity firm has made an investment decision in the impersonal interests of its investors. The firm has oriented itself for short term gain, of course, but its business model is to move on to the next firm and to do it all over again. When the original firm has to do the lay offs, etc., it is said to have been bloated and is now being made “efficient” and “competitive”. The only long term value to this transaction comes from the idea that the private equity company has “released” capital that was locked up in the target firm and which is now available for new investment. But in general, the capital is going to be used to fuel another parasitic attack on another company. All of this is entirely within the general common understanding of how capitalism is supposed to run. To say that this kind of behavior not only runs against the long term interests of the public, but is actually parasitic and destructive of capitalism (in the US) itself is to risk being called a socialist who is trying to protect the workers of the looted firm from the just effects of their own actions.
Unagidon –
It seems to me that ownership of some real assets is almost a necessity if the system is going to work. They are the only way to maintain independence of the state and *for* the state. If one is at the mercy of welfare, then one is at the mercy of the politicians, and they are all too often power-grabbers who love to manipulate the poor.
This is why I support tax breaks for people with mortgages. They are unfair to the rest of us in one way, but to the extent that they further a citizenry with some financial independence, they are good for all of us.
I might also note that home ownership became more common after WW II when the economy boomed. When the boomers die (and, yes, they too will die and it’s already starting to happen, their homes will be inherited by their children, giving more independence to their children who inherit the homes. Granted, boomes typically had at least several children, but most of those should at least inherit a sizeable amount towards a down pyment on their own homes or a chunk of money to lessen their monthly mortage payments, thus moving that generation towards more independence.
Marx was right about this too: property is the difference between the proletariat (the vulnerable) and the owners. The value of cash is too easily destroyed.
Dear Ann,
Layoffs are one thing, but the destruction and transfer not just of whole industries but whole economic sectors is something else. We haven’t just had a bunch of layoffs in the US because the industrial sector has modernized. We have in fact become de-industrialized. As technology develops, one can make a good case that workers should be prepared to retool themselves. But we have millions of workers who are just as qualified if not more qualified than the overseas recipients of their jobs who have no place to go and their redundancy has nothing to do with anything they themselves could have reasonably been expected to control. This is a structural problem that needs a structural solution.
The “pie” itself is of course complex. The discussion of how it is complex and what it means was something that I had wanted to come out in this discussion. But one thing is rather simple about it. Whether one talks about physical ownership of assets; ownership of annual revenues; active control of economic production or whatever, all of these things have been moving towards a smaller group of people at the top and the rest of us are being encouraged to fight over what’s left. And this division, which is understandable but contrived and artificial makes us far less able to resist what is really going on.
Unagidon
Private equity as a means of creative destruction worked pretty in the early ’90′s, but it’s been a long long time since it has been a benefit to the economy. Just as with any such financial instrument, its value can be and has been distorted by extreme greed
Restoration of income tax rates and certain other elements of the code as existed prior to the tax “reforms” of the 1980′s would go a long way towards putting an end to these and other shenanigans now infecting Wall Street.
“there seems to be no shortage of cars or manufactured goods. Is it really “natural” that the production of these is failing in the US and thriving in other countries? Of course, you may say that in the context of globalized labor competition (which itself seems to be a natural outcome of capitalism) the movement of manufacturing away from the US is natural and inevitable.”
I don’t use the word “natural” to describe what happens in markets, because markets are not “natural” the way that nature – God’s creation – is natural. Markets are the sum total of a huge pile of human endeavors, decisions and actions.
Certainly, it was “inevitable” that US manufacturing jobs would move overseas, *once overseas labor markets became credible competitors*. That was not “natural”, either – it was the result of many different factors, some of them policy-driven (mandatory English courses in primary school in European and Asian countries), some of them cultural (Asian countries do a better job of educating their young than we do, and their workers work harder and longer than ours), some economic (lower wage structure) some technological (it’s possible to call a toll-free number for customer support and have the call answered in India).
In the preceding paragraph, I’ve identified four areas – government policy, culture, wages and technology – that have resulted in our getting our clocks cleaned. None of them, as far as I can see, have anything to do with whether or not a hedge fund manager or owner of a network engineering consultancy, neither of whom has laid off any auto workers in Michigan, pays 35% or 39.6% taxes.
Does the US even have a “competition policy”? What stengths does the US bring to the table, and what policies can we devise that will make our workers more competitive in a world labor market?
“But let me suggest something. If all of these mass displacements are inevitable given the logic of capitalism (displacements starting from industrial labor to things now cutting close to the bone of the middle class), then could one not argue that the relative local impoverishment that this creates is not the fault of lazy, greedy, unproductive workers or of people who made poor long term life choices by, say, becoming factory workers or computer programmers?”
You’ll get no argument from me.
Here’s a depressing holiday thought: my own opinion is that we are in the midst of a prolonged economic dislocation, as US wages try to adjust to global wages that are considerably lower.
Unagidon –
ISTM that it is necessary that even large industries sometimes go the way of the dodo bird. The coal industry *ought* to die. This is where government action in a big way becomes necessary — in this case first, to retrain the workers who lose jobs and 2) helping private industry with the costs of alternative energy. Will the mine owners suffer? Indeed — but that’s why they/we got profits all those generations: they took the risks. I notice also that Exxon and a couple of other oil companies are now starting small stores. I suspect that those have been planned to be the neighborhood groceries of coming generations.
What do people think of Moody’s warning that last week’s tax cut deal could have a negative impact on the US credit rating? The identified risk is loss of confidence, something that would have once been ridiculous regarding the US. Not that the rating agencies are particularly trustworthy, considering the role they all played in the mess we’re in now.
http://finance.fortune.cnn.com/2010/12/14/moodys-warns-on-tax-cut-deal/?section=magazines_fortune
Hey Ann- One real life example of the private equity abuses Charles Ladner described is Simmons Bedding Co, an established and flourishing business until private equity firms destroyed it. http://www.nytimes.com/2009/10/05/business/economy/05simmons.html
Here in the Bronx, Stella D’Oro cookies, a community institution that employed a lot of people, was gutted the same way. And private equity investors destabilized Stuyvesant Town, home to more than 25,000 moderate income families in NYC.
Jim said: “In the preceding paragraph, I’ve identified four areas – government policy, culture, wages and technology – that have resulted in our getting our clocks cleaned. None of them, as far as I can see, have anything to do with whether or not a hedge fund manager or owner of a network engineering consultancy, neither of whom has laid off any auto workers in Michigan, pays 35% or 39.6% taxes.”
Depends on who you mean by “we”. The rich seem to be doing just fine and it would seem perfectly reasonable that instead of investing the the US, they are investing in those places that are cleaning our clocks.
Jim said: “Does the US even have a “competition policy”? What strengths does the US bring to the table, and what policies can we devise that will make our workers more competitive in a world labor market?”
The whole point behind deregulation and low (or no) taxes on capital is to free capital to move easily and quickly into investment, which it is doing. Is there any particular reason why it should follow that our workers need to be more competitive in the world market? From the point of view of the capitalist, if capital can move easily, it will go where the high returns are. Or to put it another way, American capital has a very effective competitive strategy; it just doesn’t involve American workers very much.
Jim said: “Here’s a depressing holiday thought: my own opinion is that we are in the midst of a prolonged economic dislocation, as US wages try to adjust to global wages that are considerably lower.”
Yes. The lower wages argument puts the blame squarely upon the workers. Or at the least it makes it look like capital is saying “our hands are tied; capital just naturally has to flow to where the lower wages are. It’s all for the investors after all…”
The wage discussion is interesting because there are all sorts of reasons why wages are lower outside the US that have nothing to do with foreign workers simply being willing to work for less wages. This is a complicated discussion and outside of the scope of the current one. But despite America “getting its clock cleaned” and being out competed on the wage front, the accumulation of capital by the American rich STILL proceeds apace AND capital is also getting a larger share of the overall assets of the nation.
So what if this overall portion of the pie that the capitalists are taking is allocated instead for the benefit of the workers; sort of a general piece of the pie that they get together in trust that pays for their re-education, health benefits, unemployment, etc. It looks to me like the pie continues to grow for the holders of capital and it also looks like they have been “investing” a significant amount of capital in things that don’t seem to serve any public purpose broadly defined. I know that we would hear howls of pain from those who feel gored by a couple of percent increase in the tax rate, and I feel for the plight of the rich, I really do, but I am not seeing how it would hobble them.
Dear Ann: “ISTM that it is necessary that even large industries sometimes go the way of the dodo bird. The coal industry *ought* to die.”
Of course they should be allowed to die. What I object to is that American capitalism (but not European or Japanese capitalism) says “too bad, so sad” and in general leaves workers high and dry and ALSO blames them for their own plight.
Irene said: “What do people think of Moody’s warning that last week’s tax cut deal could have a negative impact on the US credit rating? The identified risk is loss of confidence, something that would have once been ridiculous regarding the US. Not that the rating agencies are particularly trustworthy, considering the role they all played in the mess we’re in now.”
This could certainly affect the government’s ability to raise funds to fuel the deficit and will also have a negative effect on the American stock market. However, you can put your mind at ease that American capital will be able to freely move their funds to whomever still has a better credit rating. Of course, this won’t be good for the population, but this is a sacrifice that we all have to make in order to protect our capital’s rate of return so that capitalists will feel save enough to invest in American jobs, or something like that.
“The lower wages argument puts the blame squarely upon the workers. Or at the least it makes it look like capital is saying “our hands are tied; capital just naturally has to flow to where the lower wages are. It’s all for the investors after all…””
Well … I’m not “blaming” the American workers for anything except negotiating the best wage they’ve been able to get. That they now need to compete with workers in China and Maylaysia is the result of macro factors beyond the control of any worker (or collective of workers – or national government).
Regarding the outflow of capital – yes, certainly, it is companies looking out for the best interest of their shareholders, and saying, ‘sorry, American workers, you’re priced out of the marketplace’. But note that, in many cases, it’s not a case of directors saying, “we can make a little profit by keeping the factory open in the US, or a lot more profit by opening one in China”. It’s more like, “we can open the factory in China and stay competitive with our competitors who already manufacture in China, some of whom aren’t American-based and so aren’t saddled with an American wage structure; or, sometime in the not too distant future, we can go out of business.”
“The whole point behind deregulation and low (or no) taxes on capital is to free capital to move easily and quickly into investment, which it is doing. Is there any particular reason why it should follow that our workers need to be more competitive in the world market? From the point of view of the capitalist, if capital can move easily, it will go where the high returns are. Or to put it another way, American capital has a very effective competitive strategy; it just doesn’t involve American workers very much.”
I agree with you. But I’m not asking about American capital’s competitve policy; I’m asking about the US as a *political entity* having a competitive policy. The nations (the political units) that are absorbing our manufacturing jobs have had them for years, and apparently they’re pretty effective – the governments are coordinating everything from education policy to tariffs and subsidies to tax breaks for American companies to offshore. Does America, as a political entity, even view the world that way?
Jim said: “I agree with you. But I’m not asking about American capital’s competitve policy; I’m asking about the US as a *political entity* having a competitive policy.”
Because of the structure of our own politics, we tend to think that there is the government on one hand and either everyone else on the other or various special interests on the other who try to capture the government. In fact, our government as a political entity is tied up with business and has a competitive policy just like everyone one else. And our competitive policy is to more or less entirely center our economic policy in the favor of capital, only supporting labor as little as politically necessary. Other advanced industrial states have a different idea about social risks and costs relative to business, which is why they have cheaper and better medical systems for example. But we have chosen to do things differently.