If you want to see what’s wrong with America take a good look at the nauseating list of the 400 richest Americans – the
Forbes 400.
While the economy struggled to create jobs, it was another banner year
for the super-rich. They increased their collective wealth by a whopping
$200 billion, which is more than enough to provide every student in the
country with free higher education.
Meanwhile, the median
middle-class family – the one smack in the middle of the income
distribution -- saw its net worth (assets minus liabilities) drop from
$102,844 in 2005 to $66,740 in 2010 according to the
U.S. Census Bureau.
So while the richest 400 Americans increased their wealth by 54 percent
since 2005, the median middle-class family saw its wealth decline by 35
percent. Welcome to the new American math.
It’s not easy to wrap our arms around so much financial fat. The numbers involved are truly mind-boggling. Here’s more new math:
- The richest 400 Americans have as much combined wealth as 25.5 million middle-income Americans. 400 = 25.5 million!
- The average wealthy member of the Forbes 400 is 63,000 times as rich as the average middle-class family. One = 63,000!
- It
would take the median middle-class family 82,411 years to earn an
amount equal to the wealth of the average person on the rich list.
That’s the very definition of financial obscenity.
What do the richest of the rich do?
The
rich list gives us insight into how wealth is accumulated today. Are
the super-rich “wealth creators” who bring new goods, services and jobs
to our economy? Or are they “wealth extractors” who cleverly skim it
from the rest of us? Here’s the breakdown of the main industries
represented by the 400 richest Americans:
| Investment | 24.0 percent |
| Media | 8.8 percent |
| Energy | 8.0 percent |
| Food/beverage | 7.5 percent |
| Fashion/retail | 5.8 percent |
| Manufacturing | 3.8 percent |
| Healthcare | 3.3 percent |
The
very first Forbes 400 list, published in 1982, reflects a different
economy. Only 9 percent were in finance while 15.5 percent came from
manufacturing. But since then our best and brightest have learned a new
lesson: it is far better to take than to make.
Why are the super-rich getting richer while the middle-class implodes?
To
break out of the 1970s economic doldrums, the economics and policy
establishment, including leaders of both parties, agreed on a new model.
We needed to build an investment-led economy, they said, by cutting
taxes, deregulating industry and creating more labor “flexibility”
(which is French for union-busting). Together, they argued, these
policies would dramatically increase capital investment, which in turn
would lead to innovation, more jobs and higher incomes for all
Americans. Here’s what actually happened.
1. Tax Cuts for the Super-Rich
Step
by step, the tax code was altered to appease and aid the super-rich.
First, marginal tax rates were dramatically reduced on the top brackets,
falling from a post-war high of 91 percent in the 1950s to 35 percent
today. But the biggest giveaway was cutting the capital gains rate to 15
percent. Since most of the super-rich receive their income in the form
of capital gains, this was like winning the lottery, each and every
year. That’s how Mitt Romney could pay only 13 to 14 percent on his
enormous income. As this chart shows, the tax bite is fading away for
the super-rich.
2. Financial Deregulation
Both
parties tripped over themselves to assist Wall Street by dismantling
nearly all of the critical New Deal financial curbs. Until deregulation,
Wall Street was a boring place to work with incomes nearly identical to
those with similar education in other sectors. After deregulation it
became a gold mine (see chart below). Anti-trust actions to break up big
banks no longer occurred. Glass-Steagall (which separated speculative
banking from commercial banking) was gutted. Too-big-to-fail casinos
flourished (until they crashed) along with ever rising incomes for
financiers.
3. Union-Busting
Say
what you will about unions, but the fact remains that when unions are
strong, the middle-class prospers and the income gap closes. It’s
remarkable how the rise of the super-rich and the decline of the
middle-class correspond to the generation-long assault on unions.
National Labor Relations Board (NLRB) and court rulings combined with
new anti-union tactics by employers to make organizing new members more
difficult. Also the decline of domestic manufacturing, aided and abetted
by rapacious financial engineers, further eroded labor’s base. Until
this turns around, the middle-class, as well as the poor, will suffer.
4. The Wall Street Crash and Bailouts
The
financial crash devastated the middle-class, largely because its wealth
is largely dependent on housing values. When the financial casinos went
under, the housing bubble imploded. As the economy nearly came to a
standstill in 2008-'09, 8 million jobs vanished in a matter of months,
all destroyed by Wall Street’s reckless adventurism. To prevent another
Great Depression, Washington bailed out the big banks and hedge funds,
but not homeowners. The idea, successfully marketed by Wall Street’s
minions in government, was that by saving Wall Street, the economy as a
whole would be resurrected. Again, trickledown failed to aid the
middle-class as unemployment grew to depression-era levels. Yes, GM and
Chrysler received support as well, which kept employment from crashing
even further. But Wall Street received most of the booty. No wonder
super-rich financiers are prospering.
5. Corporate Money in Politics
As
more and more money gushed to the top, more and more money entered into
politics and lobbying. The net result was more government goodies for
the super-rich. Corporate America, in every shape and form, took
effective control of the legislative process so that both parties
continued to shower the wealthy with tax breaks, and their industries
with direct subsidies. While conservative political theorists sang
praises to the all powerful free market, the largest corporate players
raided the treasury again and again. And while some complain about the
undo influence of liberal “special interests,” the biggest interest of
all is business which outspends labor to the tune of $14 to $1…and that
was before
Citizens United.
Why the Ryan-Romney Plan has zero chance of resurrecting the middle-class
Ryan
and Romney are in love with wealth and the few who amass it. As a
result, they are fully committed to precisely the same policies that
created the obscene wealth gaps in the first place. They want even more
tax cuts for the rich, even more regulatory freedom for Wall Street, and
even more attacks on unions. If they reinstitute these failed policies,
we certainly will see larger too-big-to-fail banks that will gamble and
fail, and again grab bailouts from us. All the while, those juicy tax
cuts for the super-rich will float over to the Grand Caymans, while
average middle-class incomes decline. Maybe before the 2008 crash we
could have had a serious argument about the merits of tax cuts and
deregulation. But we just lived through a real-life experiment using
precisely those policies, and the results are in: This dog don’t hunt.
What will it take to resurrect the middle-class?
Americans
don’t begrudge the accumulation of wealth as long as our own standard
of living improves and our children have a good shot at doing better. We
do not expect to work hard and then watch our standard of living
decline, while the uber-rich live lavishly by skimming away our
collective wealth.
There is a way out -- but it won’t come easy.
It’s a hard road because it runs counter to nearly everything we hear
about the economy. Revitalizing the middle class (and lower-income
groups as well) starts with one central observation
– the private sector on its own will never create enough jobs for all who need them. And without full-employment we will continue to see our incomes stagnate and decline.
Unfortunately,
it’s hard for us to trust government in part because we live in a
surround-sound world that incessantly blares out anti-big government
ideology. As a result, many believe that a government job is somehow
less worthy than a private-sector job. But is a teacher employed at a
private school somehow more valuable than a teacher in your public
school system? Is a private security guard more worthy than a policeman?
You can try this kind of thought experiment up and down the
occupational ladder and you’ll find millions of jobs that are done
better in the public sector.
But that’s just a start for retooling
our minds. The biggest breakthrough comes when we finally realize that
after a major financial crash, it’s just not possible for the
private-sector economy on its own to produce the jobs needed to put our
people to work. We’ll be waiting decades to get back to full-employment
if we rely solely on private-sector expansion. It won’t expand until
demand increases, and demand won’t increase until we expand, not
contract, public employment.
If you want to see a vibrant
middle-class, then we should be creating vibrant middle-class jobs in
the public sector – more teachers, more social workers, more workers
rebuilding our infrastructure and weatherizing our buildings. (And yes
we can fund private contractors to help out as well.) Instead, we are
doing precisely the opposite: we are gutting public employment –about
650,000 good-paying federal, state and local government jobs were
eliminated over the past two years, all in the name of debt reduction.
A simple reform
We don’t need to run up debt to put our people to work.
All
we need to do is make those who caused the crash pay to clean it up.
Here’s a simple reform program that neither party has the guts to
implement:
1. A financial transaction tax on Wall Street on each and every trade, especially on risky derivatives.
2. Eliminate the special tax rate for capital gains.
3. Institute a 3 percent yearly wealth tax on anyone with a net worth of $10 million or more.
Collectively
this would produce revenues in access of $300 billion per year which
could readily create 6 million new public-sector jobs both directly and
through contractors. (And if we do it right every new job could be green
and reduce our carbon footprint.) Add in a multiplier, and our economy
would soon reach full-employment.
We are at a clear fork in the
road: either we create the jobs we need right now by taxing Wall Street
and the super-rich, or the rest of us will suffer several decades of
stagnation, while the private sector continues to mint a surplus of
financial billionaires and a deficit of decent jobs.
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