Turns out a rising tide doesn’t lift all boats
From Robert Reich’s blog:
“Today the Dow Jones Industrial Average rose above 14,270 – completely erasing its 54 percent loss between 2007 and 2009. The stock market is basically back to where it was in 2000, while corporate earnings have doubled since then. Yet the real median wage is now 8 percent below what it was in 2000, and unemployment remains sky-high.”
The maxim, “A rising tide lifts all boats,” often attributed to President John F. Kennedy (although it turns out he didn’t coin it, see below) is supposed to suggest that a good economy helps everyone in it.
When lefties rail against the ever-increasing concentration of wealth in the top 1%, the right tends to rely on some variation of the “rising tide” logic. It’s wrong for the poor to begrudge the rich their riches because they are the “job creators” whose job-creating is the means by which the rising tide help the unrich rise.
It’s really a logical dodge. The left isn’t saying that there should be no rich people (although that seems to be what the rich hear). They are talking about the increasing inequality of wealth distribution. The right seldom responds on point and seems to have nothing to say about concentration/maldistribution of wealth. It would be a good thing if the smartest and most intellectually honest righties would directly address the concentration issue. Is there no amount of concentration of wealth at the top that would worry them?
As Reich’s data suggests, the rising tide metaphor loses its power when the water is rising under only one percent of the boats.
Reich, an economist and former labor secretary, suggests four factors that have helped separate the fortunes of the few from the many:
“First, productivity gains. Corporations have been investing in technology rather than their workers. They get tax credits and deductions for such investments; they get no such tax benefits for improving the skills of their employees. As a result, corporations can now do more with fewer people on their payrolls. That means higher profits.
Second, high unemployment itself. Joblessness all but eliminates the bargaining power of most workers – allowing corporations to keep wages low. Public policies that might otherwise reduce unemployment – a new WPA or CCC to hire the long-term unemployed, major investments in the nation’s crumbling infrastructure – have been rejected in favor of austerity economics. This also means higher profits, at least in the short run.
Third, globalization. Big American-based corporations have been expanding and hiring around the globe where markets are growing fastest – even while the U.S. market is lackluster. Tax policies and trade policies have encouraged them.
Finally, the Fed’s easy-money policies. They’ve pushed investors into the stock market because bond yields are so low. On Tuesday, the yield on the 10-year U.S. Treasury note was just 1.9%.”
By the way, if you were intrigued by the JFK aside above, when I went to write this post I looked up the origin of the “rising tide, all boats” phrase.
“In his memoir Counselor: A Life At The Edge Of History, Kennedy’s speechwriter Ted Sorensen reveals that the phrase was not one of his or the president’s own fashioning. It was in his first year working for Kennedy (during JFK’s tenure in the Senate), when Mr. Sorensen was trying to tackle economic problems in New England, that he happened upon the phrase. He writes that he noticed that ‘the regional chamber of commerce, the New England Council, had a thoughtful slogan: ‘A rising tide lifts all the boats.’’ From then on, JFK would borrow the slogan often. Sorensen highlights this as an example of quotes mistakenly attributed to President Kennedy.”
Inequality of wealth is not necessarily destructive. It could mean that there is a large pool of capital for investment. It could also mean that society has incentives for upward economic mobility. On the other hand, inequality can increase social stagnation and political instability. The latter kind of inequality is the result of an economic system that is too stratified, and that allows only minimal opportunities for advancement. It isn’t just envy that leads to instability (as observers from Veblen to George Carlin have pointed out, envy is what drives capitalist consumerism). It’s the hopelessness.
The US is rapidly moving towards the second type. Upward mobility is dying, and the prospects that our children will have it better than we did are slim. Policymakers and opinion-makers ignore the problem. Any discussion of inequality is met with a “lookat,” where the exceptional is held out as a paradigm (“Lookat him! He had no education/was not white/had whatever disadvantage you point out, but he’s rich!”) These people are statistical outliers. Building our economic structures around the myth that we can all do what they did is foolish.
“The right seldom responds on point”
From what I have read and heard over the years that should read “the right never responds on point.” That’s because the right has no answer to the concentration/maldistribution of wealth. It is I believe an article of faith among the right that concentration/maldistribution of wealth is not a problem but part of the natural order of things. I think this is the reason why in the years leading up to 2008 while the right was in control of all three branches of the national government the right wing think tanks were trying to discredit the New Deal and all of the progressive legislation and direction of the last 100 years. As if the Great Depression had never happened and as if most people had never concluded that capitalism, in its pure, unbridled form, was a failure. The 2008 meltdown and the depression this country has been in since has quieted such talk for the time being but there’s still a lot of “free market” fanatics running around who believe that the prosperity which the large numbers of people in the US and in Western Europe have enjoyed since 1945 somehow happened despite, not because of, massive government intervention in the economy.
an article of faith
is a good way to put it.
Specifically, one might call it a form of Social Calvinism: the believe that financial success proves that one has God’s favor.
The current construction of makers and markets is such that:
* Fewer workers are required to produce the same or more
* Fewer high-skilled, irreplaceable workers are required
* The market to sell into is now the whole world–not just the US
* The labor market competition is the whole world
* Transaction costs are minimal
* Communication and control are not bound by borders
* A larger percentage of all business is entirely financial in nature
* The most abundant and least paid jobs are one-on-one jobs with little leverage of capital
* Economies of scale rewards the largest
* Efficiency is most often measured by the fewest workers
All of these trends emphasize the concentration of wealth in fewer hands. All of these were the entire goal of the modern economy. It worked until it worked too well.
Now how do you dismantle that?
How do yo
Pies
I attribute the rising inequality of income to the declining bargaining power of the poor and the middle class. Managers have learned that they can be wealthier, not by making the pie bigger, but by increasing their portion of it. More specifically, Best Buy has learned that they can be more profitable by closing stores and laying off workers, not opening stores and bringing more and better products to market.
Years ago we were being told that, as time went on, people would have to work fewer and fewer hours each week as more and more “labor-saving devices” came into existence. What they FAILED to tell us is that labor saving devices were actually serving to REPLACE workers who would then have to do some other kind of work or just beg for money. I guess Capitalism Has indeed Hit the Fan, as economist Wolff would have it, and the powers that be had better figure out a way for capitalism to benefit the majority of people because otherwise we’ll end up back in the kind of situation the French faced when the cry was “liberty, equality, and fraternity”. I.e., Marie Antoinette ended up weighing 1 head less than before. Or one might say, automation has gone far enough to make most humans expendable.
The 1% do not think they need us any more. All of the trends in the last five years has reinforced that. They do not need a thriving American middle class to become wealthier; they have expanding middle classes in other countries to sell their goods and services to. Although the Chinese and Indian “middle class” are a far cry from the standard of living of the shrinking American middle class.
The recent experience of the 1% contradicts the comforting notion of Paul Welllstone that we all do better when we all do better.
The Real Question…
The real question is how did so many economists forget the lessons of wealth inequality? Liberal economists became neo-liberal free market economists with complete amnesia regarding basic economic history and facts. We knew that wealth inequality is actually bad for economies that are supposed to provide benefits to as many people as possible. We knew that tax cuts wouldn’t pay for themselves, and we knew that government spending wasn’t “bad” for the economy. We also knew that deregulation promotes bubbles and collapses. Yet all but a handful of economists and intellectuals liberal and conservative alike signed off on faith based magic plans.
Magic still holds sway amongst economists. Witness the recent debate over Dayton’s expanded sales tax. Minnpost’s resident economist produces an article that points us to a non-peer reviewed column arguing that business sales taxes “distort” business behavior. This is ideology masquerading as economics, it predicts that adding a sales tax line to some invoices will cripple the economy. The only data that’s alluded to comes from “models” they run on computers. The problem is that economic “models” didn’t just fail to predict the great recession, they actually told us such a recession was impossible. And then consistently predicted an end to the recession every six month for four years.
And then why did so many ordinary people sign on for an economic “trickle”? Did they not know what 1% means?
And now the amnesia has set in again, you see the economic coverage of the housing sector comparing the current stats to the 2007 stats as if 2007 is some kind of objective…IT WAS A BUBBLE CAUSED BY A WHITE COLLAR CRIME WAVE! If you see 2007 prices and sales again it will mean WE’RE IN THE MIDDLE OF ANOTHER BUBBLE AND WHITE COLLAR CRIME WAVE. This business of telling people that their “wealth” is their home value, THAT’s not wealth, it’s potential debt, there’s a difference. A home equity loan is NOT equal to cash in the bank or stocks you can sell.