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Wednesday, April 30, 2014

Fast Food Pulls a Fast One: Facts So Horrible Only Republicans Could Enjoy


Fast Food Pulls a Fast One

Patrons enter the Taco Bell fast-food restaurant in Franklin Township, Somerset County, NJ. (AP Photo/Mike Derer)Bad enough that the empty calories of many a fast-food meal have all the nutritional value of a fingernail paring. Even worse, the vast profits this industry pulls in are lining the pockets of its CEOs while many of those who work in the kitchens and behind the counters are struggling to eke out a living and can’t afford a decent meal, much less a fast one.
Yes, you have heard this before. Over the last year or so, you’ve probably seen news coverage of the strikes and other job actions fast-food workers have taken against their employers. Maybe you’ve even read about the wage theft lawsuits that have been filed against McDonald’s and Taco Bell, or the recent settlements in New York State against McDonald’s, Pizza Hut and Domino’s Pizza that have led to payments to employees of more than $2 million.
But, much in the way that Thomas Piketty’s book Capital in the Twenty-First Century lays out the hard data backing up everything we’ve believed about the reality of vast income inequality in America, a trio of new reports confirms with solid statistics what we’ve suspected about the fast-food industry — that those in charge are gobbling up the profits voraciously while their workers are forced into public assistance. What’s more, our tax dollars are subsidizing both the fast-food poor who need the help and the fast-food rich who don’t.
First, a recent data brief from the National Employment Law Project (NELP) notes, “Lower-wage industries accounted for 22 percent of job losses during the recession, but 44 percent of employment growth over the past four years. Today, lower-wage industries employ 1.85 million more workers than at the start of the recession.” In other words, as The New York Times more succinctly put it, “The poor economy has replaced good jobs with bad ones.”
Michael Evangelist, author of the NELP report, told the Times, “Fast food is driving the bulk of the job growth at the low end — the job gains there are absolutely phenomenal. If this is the reality — if these jobs are here to stay and are going to be making up a considerable part of the economy — the question is, how do we make them better?”
A study from the public policy and advocacy group Demos, Fast Food Failure, confirms that, “The fast food industry is… one of the highest growth employers in the nation” but needs to address “imbalanced pay practices in order to mitigate the damaging effects of income inequality.”
The numbers are stunning. According to Demos, “In 2012, the compensation of fast food CEOs was more than 1,200 times the earnings of the average fast food worker. Proxy disclosures recently released by fast food companies reveal that the ratio remained above 1,000-to-1 in 2013.”
The average fast-food CEO made $23.8 million last year, four times what the average was in 2000, while fast-food workers “are the lowest paid in the economy. The average hourly wage of fast-food employees is $9.09, or less than $19,000 per year for a full-time worker, though most fast-food workers do not get full-time hours. Their wages have increased just 0.3 percent in real dollars since 2000.”
That $19,000 is below the “poverty threshold” for someone supporting a family of three, and on average, fast-food workers actually make less than $12,000 because they don’t get called into work for a full forty hours a week. The Demos report also cites numbers from a University of Illinois/University of California-Berkeley analysis that “87 percent of front-line fast food workers do not receive health benefits through their jobs. Since fast food employers do not pay for the critical needs of low-wage workers and their families, public programs foot the bill.
“According to the same study, more than half of front-line fast food employees are enrolled in a public assistance program, at a cost of nearly $7 billion per year.” Those are public assistance programs for which we’re paying and which the fast-food giants count on to keep their profit margin high while not paying employees what they need to care for their families.
Which brings us to the third report, this one from the progressive Institute for Policy Studies (IPS) and titled, Restaurant Industry Pay: Taxpayers’ Double Burden. Double burden because in addition to the money in food stamps, Medicaid and other government assistance impoverished fast-food workers need to survive, taxpayers also are underwriting CEO compensation.
What? The IPS report explains that it’s pulled off by means of “a loophole that allows all U.S. publicly held corporations to deduct unlimited amounts from their income taxes for the cost of executive stock options, certain stock grants, and other forms of so-called ‘performance pay.’ In effect, these companies are exploiting the U.S. tax code to send taxpayers the bill for the huge rewards they’re doling out to their top executives.”
IPS calculated the pay of the CEOs at the 20 largest corporate members of the National Restaurant Association — known as “the other NRA,” the restaurant industry’s multimillion spending lobbyist. Among those 20 are the CEOs of McDonald’s, Chipotle, Starbucks, Dunkin’ Brands and Yum! Brands, which owns Kentucky Fried Chicken, Taco Bell and Pizza Hut. IPS discovered that over the past two decades, these executives “pocketed more than $662 million in fully deductible ‘performance pay,’ lowering their companies’ IRS bills by an estimated $232 million. That would be enough to cover the average cost of food stamps for more than 145,000 households for a year.” In fact, the bigger the executive payoff, the less the fast-food company pays in taxes. Talk about a Happy Meal. You want fries with that?
So going back to that question Michael Evangelist, author of the NELP report, asks — how can we make things better? For one, as IPS recommends, we can close the performance pay loophole. The Stop Subsidizing Multimillion Dollar Corporate Bonuses Act in Congress caps deductibility of employee compensation at $1 million, period. This could generate $50 billion in revenues over ten years, according to the House and Senate Joint Committee on Taxation. And California Congresswoman Barbara Lee has introduced the Income Equity Act. It cuts off corporate tax deductions for any executive’s pay that’s more than 25 times the salary of the company’s lowest paid worker or $500,000, whichever is highest.
If you think that’s unprecedented, IPS points out that both the Affordable Care Act and the TARP bank bailout sets a $500,000 deductibility cap “on pay for bailout recipients and health insurance firms. The deductibility caps on health insurance firms, designed to discourage these corporations from using profits from premiums to overcompensate their executives, go into effect this year.”
Second, of course, raise the minimum wage, preferably to $15 an hour. As per the IPS report, “Minimum wage increase supporters highlight the potential stimulus effects of putting more money into the pockets of low-wage earners. Unlike those at the top end of the income scale, minimum wage workers tend to spend all of their earnings” — just to meet basic needs. “Every extra dollar that goes to a low-wage worker adds about $1.21 to the national economy. This economic stimulus would pump money into local economies and help create new jobs.”
Ultimately, though, it’s the companies that must take action. Yet some of their CEOs say they favor a wage hike but still allow the National Restaurant Association to continue doing their dirty work for them, lobbying fiercely, as they are right now in Congress against any minimum wage hike at all (this is the same gang that for more than twenty years has kept the minimum wage for tipped restaurant workers at a paltry $2.13 an hour).
Time for the CEOs to put their money where it counts, “to arrest the damage,” as that Demos report says, “from pay disparity and restore the focus on long-term interests of the firm.” Time to show some foresight, for as wages remain stagnant, purchases will go unmade, the health and wellbeing of workers will continue to decline and with that deterioration, the service and reliability on which the companies ultimately depend for profitability will crash as well.
If things continue as they are, the only thing fast about the fast-food business will be the speed of its fall.

Saturday, April 26, 2014

The New Gilded Age: A bigger con job than the first one


The New Gilded Age: A bigger con job than the first one

Inequality has reached 19th-century levels – but that era had a dynamism and optimism that ours can only fake

The New Gilded Age: A bigger con job than the first oneDonald Trump (Credit: AP/Mary Altaffer/Reuters/Steve Marcus)

Every time we travel by air, we encounter vivid evidence of what Robert Reich and various others have recently described as the New Gilded Age. The airlines and the supposedly neutral bureaucrats of the TSA don’t even pretend that our society is not divided into economic castes. Coach passengers wait in hour-long security lines and are herded aboard the aircraft in numerically coded clusters, to be ensconced in a tiny, cramped seat and begrudgingly offered a four-ounce cup of Sprite. It’s like a stern reminder that our presence is being suffered rather than encouraged, that our Orbitz or Kayak discount tickets are not what’s keeping this failing industry afloat.
Those traveling first class or business, in many contexts, have their own departure lounges, their own lines (very short ones) and their own entrances to the plane. They are whisked aboard ahead of the rest of us, and disappear into an apartheid realm of luxury that is both metaphorical and real. As a fascinating and, to my mind, terrifying New Yorker article by David Owen recently explained, vast resources and immense levels of design, engineering and architectural skill have been devoted to creating these mile-high fantasylands of privilege: Enclosed cabins with double beds, mini-home-theater systems, gourmet meals curated by a chef and sommelier, and so on.
Now, the fact that all this airborne decadence is something of a Potemkin village – you’re still aboard an airplane, in a space smaller than a $39 single at the Motel 6 behind the Conoco station – and that most of the passengers in first class or business are mid-level corporate suits rather than genuine tycoons, tells us something important about the New Gilded Age. It’s pretty much a fake. It’s like a giant game of three-card monte, in which the superrich move just enough money around to make society appear dynamic, to convince many of the rest of us that lives of wealth and luxury await us, just beyond the horizon. The first-class cabin, like the McMansions Thomas Frank recently wrote about, is a vulgar echo of something that once seemed impressive, a promise that is never fulfilled. It’s a reminder that in America we are never to see ourselves as members of an exploited class, but only, in the apocryphal but revealing phrase attributed to John Steinbeck, as temporarily embarrassed millionaires. (What Steinbeck actually wrote has a quite different flavor and meaning.)
Frank’s economic, social and aesthetic history of the big-ass ugly house was great fun to read, but I think he makes a taxonomical error, or at least an oversimplification. The McMansion, at least in its classic mass-produced form – known to real-estate agents as the “five-minute house,” or in the British Isles as the “fuck-me house,” for the exclamation it provokes — is only the true abode of the bottom half of the 1 percent, people earning roughly $350,000 to $500,000, most of whom go to work every day at salaried jobs. The serious hoarders of capital, the top one-third of 1 percent or so, are a tiny and insulated group who wouldn’t be caught dead in some treeless gated community in the Dallas-Fort Worth exurbs. Their enormous, architect-designed or exquisitely renovated digs in East Hampton and Coral Gables and Jackson Hole and the Provençal countryside are grotesque in a different way and on a grander scale. The suburban McMansion is a pale mockery of that kind of wealth, a simulacrum built of stapled-together sheetrock and extended to the next 2 or 3 percent, the lackeys and maidservants of wealth, with all the sincerity of Lucy holding that football for Charlie Brown. It’s the Monopoly money of real estate.
When I say that the New Gilded Age is a fake, I am not claiming that the worsening economic inequality that Reich and Paul Krugman and others write about so eloquently is not real or does not matter. French economist Thomas Piketty has thrown the ultra-rich and their loyal defenders among the right-wing intelligentsia into a panic with his much-discussed bestseller “Capital in the Twenty-first Century,” which argues in intense, data-rich detail that over the past half-century wealth has stagnated and income gone flat for the vast majority of people in the Western world. Furthermore, Piketty draws an explicit comparison with the first Gilded Age of the late 19th century when he observes that those at the top of the wealth pyramid today generally did not get there on merit, because they worked harder and got better educations and developed brilliant ideas, but because they were born atop big piles of money that got bigger, and because current economic conditions exaggerate the inherent tendency of capital to breed and multiply.
Earlier this week, Krugman and David Brooks both took on the Piketty craze in the same issue of the New York Times, and you get one guess as to which of them was skeptical about Piketty’s proposal for a global wealth tax. (It pains me immensely to say this, but Brooks is probably right when he describes that idea as “utopian.”) At least Brooks appears to have skimmed through Piketty’s book; Megan McArdle of Bloomberg wrote a disastrous post in which she sought to debunk his focus on inequality – meaningful friendships and a good marriage are more important! – while admitting that she hadn’t read the book and wasn’t likely to anytime soon.
I don’t know whether this was some editor’s idea of a joke, but on the same day that Brooks’ and Krugman’s columns were published, and just a day after a front-page story about the American middle class falling behind its cognates in Western Europe and Canada, the Times ran a real estate feature entitled “What You Get for … $2,500,000.” This is not something those of us in the lower 99 percent have much cause to wonder about, but even as pornography the article was unsatisfying: a two-bedroom contemporary in the San Juan Islands of Washington state; a three-bedroom cottage on Narragansett Bay in Rhode Island. Pretty houses in picturesque locations and all, but seriously? Two and a half million clams, and your mother-in-law ends up on the sofa? It felt more like a taunt than a promise: If you happen to come into a quite impressive amount of money, which you probably won’t, you still won’t be able to afford anything close to the Architectural Digest houses that seriously rich people own.
When I say that the New Gilded Age is a fake, I mean that it’s even more of a fake than the first one was. It’s a forgery of a forgery of prosperity. Mark Twain and Charles Dudley Warner came up with the phrase in 1873 to indicate that the economic boom of America’s Industrial Age was covering up severe poverty and widespread social problems. They were right, of course: That boom was built largely on exploited low-wage laborers, especially Italian, Jewish and Polish immigrants packed into urban tenement neighborhoods. Politics of the period were infamously corrupt — although political participation was extremely high, with some national elections attracting a 90-percent turnout. (It was both a cynical age and an enthusiastic one.) African-Americans in the South were an oppressed and terrorized serf class with no political rights; women could not vote (except in a few Western states) and generally could not earn money or own property independent of their husbands.
But with all that said, the Gilded Age boom actually was a boom, albeit an uneven and highly stratified one. Real wages rose by 60 percent between 1860 and 1890, even with a steady incoming tide of immigration, and by the turn of the 20th century, per-capita income in the U.S. was much higher than in any European country. Railroads, coal mining, steel production and electricity combined to drive economic growth so dramatic that the 20th century could never quite repeat it, except briefly (and deceptively, Piketty argues) in the aftermath of World War II. Enormous fortunes were accumulated by the likes of John D. Rockefeller, Andrew Carnegie and Cornelius Vanderbilt, but as Piketty knows well, the problem of capital congealing and multiplying among a few families at the top of the heap was much more severe in old-money aristocratic Europe.
In other words, for all its abundant flaws the Gilded Age was a period of immense ferment, dynamism and optimism in America, and I can’t imagine anybody, now or in the future, describing our current age that way. That period witnessed the birth and burgeoning of the labor movement and the women’s movement. Public education became widespread for the first time, cities opened the first public hospitals and states founded the great land-grant universities, most of which were meant to be tuition-free forever. Carnegie, who had risen from poverty in Scotland, gave away nearly his entire fortune, endowing libraries, schools and other public institutions all over the country. Even the more prudent Rockefeller gave away $500 million, about half his total wealth. American art and literature blossomed: It was the era of Whitman and Melville, Edith Wharton and Henry James, Mary Cassatt and Winslow Homer.
The gingerbread mansions of the first-wave Gilded Age aristocrats are undeniably vulgar in their way, oversized imitations of European palazzos visited on the Grand Tour, furnished with looted antiquities, black-market Old Masters and the carcasses of endangered species. But they were also built to last, and every middle-sized American city still has a few of them, preserved as museums or municipal showpieces. They stand as bewildering memorials to a blend of avarice, pretension and public-spiritedness that no longer computes in the post-Reagan era, when fringe free-market ideology has become mainstream and any conception of the “good of society” is communistic. Almost our only engine of economic growth, in the new Gilded Age, is that everything is made to be torn down or thrown away. Does anyone think that the prefab glitz of Trump Tower, which looked crappy a month after it was opened, or Derek Jeter’s 30,000-square-foot “English Manor-style” fuck-me house on Tampa Bay, will be around for our grandkids to gawk at? Would you want them to be?
There are unquestionably things to prefer about our own era: Women, people of color and LGBT folk participate more or less fully in our cultural and political life, and the discourse of rights has evolved in directions few 19th-century Americans could have imagined. (Pot is almost legal now — but opium and cocaine were legal then!) But in economic terms, the first Gilded Age was a period of production and expansion (perhaps unsustainably so), whereas the New Gilded Age is its negative image, a period of contraction and consumption. Instead of Andrew Carnegie founding libraries, we have Donald Trump yelling at people on television like a low-rent parody of the Calvinist God. Instead of rising wages for almost everyone and universal free education, we offer ever cheaper goods made in countries we used to bomb, a mortgage you can’t afford on a house you don’t want in the middle of a former soybean field, and the prospect that one day you’ll get to sit on an airplane in a temporary bubble of pretend wealth – on your boss’s dime! — drinking Champagne and listening to tinny string-quartet music while the rest of us curse at our kids and cram our oddly shaped packages under the seat.

Friday, April 25, 2014

10 Corporate Behemoths Stifling Competition and Delivering Awful Service to You


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Customers benefit when actual competition occurs. But that's rare these days.

April 24, 2014  

One of the fundamentals of free-market capitalism is that consumers benefit when competition is plentiful. If a business is selling a weak or inferior product, consumers can turn to the competition for a better deal. President Franklin Delano Roosevelt understood that, which is why a key element of his New Deal was the anti-trust, anti-monopoly legislation of the 1930s. Roosevelt firmly believed that large companies should be forced into a competitive environment whether they liked it or not, and that belief served the U.S. well for many years. But in recent decades, a variety of corporate lobbyists, far-right Republicans and neoliberal Democrats have shredded the New Deal and undermined anti-trust laws—thus encouraging corporations to grow larger and larger and engage in monopolistic practices. 
Here are 10 mammoth corporations that detest free-market competition and do everything they can to stamp it out or greatly reduce it.
1. Comcast
When Comcast acquired Greater Media’s cable TV operations in Philadelphia in 1999 and gained over 250,000 new cable television customers in the East Coast’s second largest city (thus expanding its Mid-Atlantic customer base to more than 2 million at that point), consumer rights advocates feared that the company was growing too large. But Comcast is a much larger company than it was 15 years ago: it has since acquired major companies ranging from NBC Universal to AT&T Broadband, and if the proposed Comcast/Time Warner Cable merger goes through, Comcast will have at least 30 million cable customers and an estimated 38% of the U.S.’ broadband customers. Despite being infamous for its poor customer service, Comcast keeps growing bigger and bigger, which is a reflection of its mammoth lobbying budget. Comcast spent $18.8 million on lobbying in 2013, and many politicians (both Republicans and Democrats) are afraid to challenge its monopolistic practices and force the company into genuine free-market competition.  
Harming net neutrality will only add to the already-unfair advantage that telecom giants like Comcast and Verizon enjoy. Tom Wheeler, the new head of the Federal Communications Commission (FCC), is a former lobbyist for the telecom industry—which, arguably, is a conflict of interest—and now, the FCC itself is undermining net neutrality by accepting the idea that ISPs can ask content providers to pay for preferential treatment.
2. Monsanto
Founded in 1901, the Monsanto Corporation has been in business for 113 years. Monsanto’s size has increased considerably along the way, and these days, it is a corporate bully that doesn’t hesitate to throw its weight around. Now the world’s dominant provider of controversial GMO (genetically modified organism) seeds, Monsanto has been quite aggressive about suing farmers for unauthorized use of its seeds—even if the farmer never intended to become a Monsanto customer. Percy Schmeiser (a canola farmer in Saskatchewan, Canada) was sued by Monsanto for a patent violation after GMO seeds from a neighbor’s canola plants drifted onto his land. Schmeiser has complained that Monsanto made it impossible for him to continue with his canola strain because he can’t prove his canola plants are Monsanto-free. Meanwhile, organic farmers have complained that because Monsanto’s GMO seeds are so ubiquitous in the U.S., it has become much harder for them to maintain organic standards. Monsanto hates competition, and its strong-arm tactics with Schmeiser and other farmers bear that out.
3. Blue Cross
During the healthcare reform debate of 2009 and 2010, Blue Cross and other health insurance giants used their lobbying muscle to make certain that the outcome—whether it was one favored by Democrats, Republicans or the Tea Party—would be more favorable to corporate profits than to consumers. Republicans and the Tea Party wanted to maintain the status quo, while some of the more liberal/progressive Democrats favored a public option that health insurance companies would have to compete with (a single-payer system was never on the table). Terrified at the thought of real competition, the health insurance industry spent a fortune lobbying against the establishment of a public option—and the law Democrats in Congress ended up passing in 2010, the Affordable Care Act, was greatly influenced by Republican ideas of the past (including those of the Heritage Foundation and 2006 GOP presidential candidate Bob Dole). The ACA does contain some positive reforms and has brought health insurance to millions of Americans who were unable to obtain it before, but it would have a lot more teeth had the health insurance industry not been unwilling to face real competition in the form of a public option.
4. Bank of America
The “too big to fail” status that Bank of America now enjoys is ironic in light of its humble beginnings. Founded as Bank of Italy by Amadeo Gianni in San Francisco in 1904, BofA originally found its niche by catering to Italian immigrants who faced discrimination from other banks. But today’s BofA has very little in common with the operation Gianni started 110 years ago. In recent decades, the megabank (which received $45 million in bailout money after the crash of September 2008 and now controls almost one in five home mortgages in the U.S.) has demonstrated its anti-competition philosophy by gobbling up one bank after another—and the more competition BofA eliminates, the worse it becomes for consumers. BofA apologists argue that if customers don’t like its abundance of fees and poor customer service, they can simply take their money elsewhere. But that’s a flawed argument because thanks to BofA’s aggressive lobbying and anti-competition practices, there are fewer and fewer alternatives to BofA in many parts of the United States.
5. Verizon
When the Federal Communications Commission approved the merger of Bell Atlantic and GTE in 2000, Verizon Communications became the largest provider of phone service in the United States. Since then, its practices have often been both anti-competition and anti-regulation. One of the biggest complaints consumers have about mobile/wireless providers is being forced to signlong-term contracts. Verizon Wireless has often demonstrated its aversion to competition by chaining customers to such contracts and hitting them with stiff termination fees should they become dissatisfied and cancel. On the landline side, Verizon has been aggressively pushing many of its customers to give up copper wiring and go with its fiber-optics program FiOS—that is, if Verizon even offers landlines in a particular area. After Hurricane Sandy damaged copper lines on Fire Island, NY (where Verizon had a monopoly) in 2012, Verizon wanted to discontinue copper line support, but wasn’t offering FiOS there and tried to force the area’s landline customers onto the wireless program Voice Link. Problem: Voice Link didn’t support broadband, and many Fire Island residents liked having both a cell phone and a landline. Verizon later reconsidered and announced it would be installing FiOS on Fire Island, but the debacle underscored the problems that can occur when a behemoth like Verizon becomes a monopoly in a particular area.
6. American Airlines
Like banking and telecommunications, air travel is an industry that has been plagued by more and more consolidation. In 2013, American Airlines became the world’s largest airline when it merged with U.S. Airways (which had merged with America West in 2005). Other big airline mergers of the last five years have included the Delta/Northwest and United/Continental mergers—and now, 85% of the U.S. air travel market is dominated by only four airlines: American, United, Delta and Southwest (widely regarded as the most consumer-friendly of the four). To understand how bad all these mergers are for consumers, one need only look at a study conducted by the Massachusetts Institute of Technology, which found that from 2007-2012, airlines in the United States cut the number of domestic flights by 14%. The more companies like American are allowed to reduce competition, the worse it will be for consumers in terms of price, convenience and customer service.
7. Wells Fargo
Like BofA, Wells Fargo had a reputation for being a West Coast bank throughout much of its history. But when the New Deal was greatly undermined in the 1980s and 1990s and the Glass-Steagall Act was overturned in 1999, Wells Fargo expanded considerably. Wells Fargo now has a strong presence all over the U.S. and has been allowed to acquire one bank after another (including Wachovia in 2009). Wells Fargo, whose assets increased from $609 billion before 2008 to $1.4 trillion in 2013, needn’t worry about having a lot of competition because it has devoured so many of the local and regional banks it once competed with.
8. Koch Industries
Billionaires brothers Charles and David Koch like to paint themselves as masters of free-market competition. But in reality, Koch Industries is the essence of crony capitalism—and the tens of millions of dollars the Koch brothers have donated to politicians (especially Republicans and Tea Party candidates, but some Democrats as well) are designed to ensure that politicians never challenge Koch Industries in a meaningful way. The Citizens United and McCutcheon decisions encourage the Koch brothers to make sure that any politicians they help elect are as submissive to Koch Industries as possible. And the Koch brothers’ desire to build a pro-Koch media empire that doesn’t challenge them in any meaningful way will only further their corporatist agenda.
9. Goldman Sachs
Matt Taibbi, who wrote about problems in the banking industry extensively during his years with Rolling Stone, has often said that in a true free-market environment, a behemoth like Goldman Sachs would not exist—especially in light of all the damage banking giants have done to the economies of the U.S. and other countries. But thanks to the too-big-to-fail doctrine, Goldman Sachs has not only been propped up by the U.S. government and the Federal Reserve, but has been allowed to continue growing in size: according to Bloomberg Businessweek, the U.S. five largest banks (JPMorgan Chase, Bank of America, Citigroup, Wells Fargo and Goldman Sachs) went from comprising 43% of American GDP in 2006 to 56% in 2011. Ideally, Goldman Sachs should have been broken up and divided into an abundance of smaller banks after the crash of September 2008—a move that would have mandated competition—but instead, commercial and investment banking were allowed to become even more concentrated. Beholden to banking lobbyists, U.S. politicians have sheltered Goldman Sachs execs from the thing they need the most: competition.
10. JPMorgan Chase
Far-right critics of FDR's New Deal like to characterize Roosevelt as a Marxist, which is downright absurd to actual Marxists. But FDR understood how vital competition was to free-market capitalism when he signed the Glass-Steagall Act into law in 1933. Mandating a strict separation of commercial and investment banking, Glass-Steagall was meant to discourage monopolies—and its repeal in 1999 encouraged JPMorgan Chase to become the unwieldy giant it is today. Formed when J.P. Morgan & Co. merged with Chase Manhattan Bank in 2000, JPMorgan Chase is now the U.S.’ largest financial institution. A company that has $2.4 trillion in assets has enormous lobbying power, and according to the Center for Responsive Politics, it spent $8 million on lobbying in 2012. CEO Jamie Dimon claims that JPMorgan Chase (which faced hundreds of millions of dollars of fines last year) is overregulated when, in reality, it is woefully underregulated and would not have become so bloated if it operated in a true free-market economy and hadn’t received so much corporate welfare (including $25 billion in bailout money in October 2008).
Alex Henderson's work has appeared in the L.A. Weekly, Billboard, Spin, Creem, the Pasadena Weekly and many other publications. Follow him on Twitter @alexvhenderson.

Thursday, April 24, 2014

American Oligarchy: America is a society controlled not by self-made people, but their spoiled offspring.



America is becoming a society controlled not by self-made people, but their spoiled offspring.

Paul Krugman Tells Bill Moyers That Inherited Wealth Is Destroying Our Country

In this clip, economist Paul Krugman tells Bill Moyers that America is on the road to becoming a society controlled not by self-made men or women, but by their offspring. “Those of you who talk about the 1 percent, you don’t really get what’s going on. You’re living in the past. You’re living in the ’80s. You think that Gordon Gekko is the future,” he says, referring to the character in Wall Street, who became a symbol of unrestrained greed.
“[R]ight now, what we’re really talking about is Gordon Gekko’s son or daughter. We’re talking about inherited wealth playing an ever-growing role,” he concludes. Watch the entire show to learn more about what the Nobel prize winning economist has to say about Thomas Piketty’s new book, Capital in the Twenty-First Century.
The following is video of Moyers' interview with Krugman, with an accompanying transcript:
BILL MOYERS: This week on Moyers & Company, Nobel Laureate Paul Krugman of "The New York Times" on a revolutionary new book about wealth and democracy.
PAUL KRUGMAN: Piketty is telling us that we are on the road not just to a highly unequal society, but to a society of an oligarchy. A society of inherited wealth.
ANNOUNCER:Funding is provided by:
Anne Gumowitz, encouraging the renewal of democracy.
Carnegie Corporation of New York, celebrating 100 years of philanthropy, and committed to doing real and permanent good in the world.
The Ford Foundation, working with visionaries on the front lines of social change worldwide.
The Herb Alpert Foundation, supporting organizations whose mission is to promote compassion and creativity in our society.
The John D. And Catherine T. MacArthur Foundation, committed to building a more just, verdant, and peaceful world. More information at Macfound.org.
Park Foundation, dedicated to heightening public awareness of critical issues.
The Kohlberg Foundation.
Barbara G. Fleischman.
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BILL MOYERS: Welcome. Even in this age of hyperlinks and cyberspace, nearly six centuries after Gutenberg devised his printing press, it’s still possible for a single book to shake the foundations, rattle clichés, upend dogma, unnerve ideologues, and arm everyday people with the knowledge they need to fight back against the predatory powers that have robbed them of their birthright as citizens.
This is such a book: “Capital in the Twenty-First Century,” by the French economist Thomas Piketty. The book of the season to many. To others, the book of the decade. Reviewers have called it “a bulldozer of a book,” “magisterial,” “seminal,” “definitive,” “a watershed.”
At 700 pages it’s already a best seller. And there isn’t a single scene of seduction, not one celebrity interview, not one picture -- just graph after graph, fact on fact, drawn from two centuries of data and imbedded in prose that can suddenly explode like a supernova in the brain.
Here’s one of its extraordinary insights: we are heading into a future dominated by inherited wealth as capital concentrates in fewer and fewer hands, giving the very rich ever greater power over politics, government, and society. “Patrimonial capitalism” is the name for it, and it has potentially terrifying consequences for democracy. For those who work for a living, the level of inequality in the US, writes Piketty, is “probably higher than in any other society, at any time in the past, anywhere in the world.” Over three decades, between 1977 and 2007, 60 percent of our national income went to the richest 1 percent of Americans. No wonder this is the one book the 1 percent doesn't want the other 99 percent to read.
Paul Krugman has been writing extensively and generously about Piketty’s book. The Nobel prize-winning economist and “New York Times” columnist calls it “a tour de force…a magnificent sweeping meditation on inequality…that will change both the way we think about society and the way we do economics.”
As scholar, author of many books, and widely read columnist and blogger, Paul Krugman has himself changed a lot of thinking on politics and economics. Welcome back.
BILL MOYERS: Inequality's been on the table for a long time. You’ve written extensively, others have, too. I mean, it’s a familiar issue, but what explains that this book has now become a phenomenon?
PAUL KRUGMAN: Actually, a lot of what we know about inequality actually comes from him, because he's been an invisible presence behind a lot. So when you talk about the 1 percent, you're actually to a larger extent reflecting his prior work. But what he's really done now is he said, "Even those of you who talk about the 1 percent, you don't really get what's going on. You're living in the past. You're living in the '80s. You think that Gordon Gekko is the future."
And Gordon Gekko is a bad guy, he's a predator. But he's a self-made predator. And right now, what we're really talking about is we're talking about Gordon Gekko's son or daughter. We're talking about inherited wealth playing an ever-growing role. So he's telling us that we are on the road not just to a highly unequal society, but to a society of an oligarchy. A society of inherited wealth, “patrimonial capitalism.” And he does it with an enormous amount of documentation and it's a revelation. I mean, even for someone like me, it's a revelation.
BILL MOYERS: I was going to ask, what could-- what has Paul Krugman had to learn from this book?
PAUL KRUGMAN: Even the title, the first word in the title, "capital." We stopped talking about capital. Even people like me stopped talking about capital because we thought it was all about human capital. We thought it was all about earnings. We thought that the wealthy were people who one way or another found a way to make a lot of money.
And we knew that that wasn't always true. We knew that in the Gilded Age or in the Belle Époque in Europe, which he prefers to talk about. That high incomes were mostly a result of having lots and lots of assets. But we sort of said, "Well, that's not the way things work anymore." And he says, "Oh yeah? It turns out that you're wrong." That’s true, that right now, a lot of high incomes in America are people who didn't start out all that rich. But we're rapidly moving towards a state where inherited wealth dominates. I didn't know that. I really was-- I should've known it. I should've thought about it, but I didn't. And so then here comes this book with-- I mean, it's beautiful-- absolutely analytically beautiful, if that makes any sense at all.
BILL MOYERS: As you know, I'm no economist, but I found this book, as I said in the opening, just very readable and suddenly there would be this moment of epiphany.
PAUL KRUGMAN: Yeah, it's a real "eureka" book. You suddenly say, "Oh, this is not-- the world is not the way I saw it." The world in fact has moved on a long way in the last 25 years and not in a direction you're going to like because we are seeing not only great disparities in income and wealth, but we're seeing them get entrenched. We're seeing them become inequalities that will be transferred across generations. We are becoming very much the kind of society we imagine we're nothing like.
BILL MOYERS: Here’s Piketty’s main point: capital tends to produce real returns of 4 to 5 percent, and economic growth is much slower. What's the practical result of that?
PAUL KRUGMAN: What that means is that if you have a large fortune, or a family has a large fortune, they can -- the inheritors of that large fortune -- can live very, very well. They can live an extraordinary standard of living and still put a large fraction of the income from that fortune aside and the fortune will grow faster than the economy.
So the big dynastic fortunes tend to take an ever-growing share of total, national wealth. So once you-- when you have a situation where the returns on capital are pretty high and the growth rate of the economy is not that high, you have a situation in which not only can people live well off inherited wealth, but they can actually pass on to the next generation even more, an even a higher share.
And so it's all, in his terms, "r" the rate of return on capital, and "g” the rate of growth of the economy. And when you have a high r, low g economy, which is what we now have, then you're talking not-- you're talking about a situation in which dynasties come increasingly to increasingly to dominate the top of the economic spectrum and a tiny fraction of the population ends up very dominant.
BILL MOYERS: What's the realistic impact of this on working people?
PAUL KRUGMAN: There's a direct impact, which is that part of income is always going to go to labor, although that seems to be a diminishing fraction. But the part that comes from capital is going to be in the hands of a very few people. The other thing, which I think is critically important, that he talks about more towards the end of the book is political economy.
That when you have -- Teddy Roosevelt could’ve told you and did -- that when you have a few people who are so wealthy that they can effectively buy the political system, the political system is going to tend to serve their interests. And that is going to reinforce this shift of income and wealth towards the top.
BILL MOYERS: Do you agree with him that we are drifting toward oligarchy?
PAUL KRUGMAN: Oh yeah. Oh, I don't think that’s even -- I don't see that there's any question of it. If you look at the-- certainly if you look at what we know already, and we're learning more, but what we know already about the concentration of income, of wealth, you can see that it is growing. You can see that-- and you can actually see-- I've spent a little while just sort of going through the “Forbes 400” list.
And what you find is already there’s an awful lot of inherited wealth in there. It’s no longer a list of self-made men. And of the self-made men, a lot of them are pretty elderly. And their-- those fortunes are going to be passed on to next generations. So the drift towards oligarchy is very visible, both casual observation and in the numbers.
BILL MOYERS: I was taken with something you wrote the other day. You said that in your opinion, the real problem is not capital accumulation per se as much as it is, quote, "remarkably high compensation and incomes." Now how is that different from what you were just saying about wealth that passes to the next generation?
PAUL KRUGMAN: So right now, high incomes are still primarily coming from people who've made a lot of money typically as corporate executives. That has been the story, so the big expansion of inequality in the United States since the 1970s has so far been driven by high salaries, high bonuses and all, so on.
That's where we are now. But our image of the top is really a quarter century old. It is about the way things were when these great fortunes were just getting started, when we were just seeing the explosion of inequality. But we're well along the way towards one in which it is, in fact, an older thing, where people accumulate capital, pass it on to their heirs, and you get this dynastic wealth.
So right now, and this is where Piketty has interesting things to say, but not this compelling vision about why America is so unequal right now. But looking forward, he's telling us that the story is already changing. And it's going to change more. So we are going probably, unless something gets better, we're going to look back nostalgically on the early 21st century when you could still at least have the pretense that the wealthy actually earned their wealth. And, you know, by the year 2030, it'll all be inherited.
BILL MOYERS: And at the same time, we can't even manage to pay workers a minimum wage of $10.10.
PAUL KRUGMAN: Yeah. And what's amazing, I thought actually one of the most depressing things, although enlightening in his book, is he talks about France in the Belle Époque, the years before World War I, which was ideologically as much a society committed to equality in principle as we are today. But in practice, was totally dominated by very wealthy families, where it was impossible to even raise the possibility of seriously taxing great wealth.
Where it was very hard to do anything to improve the conditions of ordinary workers. And it shows you how that can happen. How you can have a society where the-- even though the ideology is democratic, even though we claim that all men are equal, in practice, not a chance.
BILL MOYERS: Isn't that what's happening now in this country?
PAUL KRUGMAN: Exactly, exactly. That's the point. And what's funny is at the time, Americans used to say, "Oh-- we should never allow ourselves to become like old Europe." And in fact, we have.
BILL MOYERS: But we have had the Rockefellers, we've had the Carnegies, we've had the Pews. We've had big dynasties that transferred their wealth from one generation to another.
PAUL KRUGMAN: Yes. Before World War I, we had our dynastic families, but they were not nearly as dominant as they were in Europe. Largely-- not because we didn't have high returns on capital, but because we were growing so fast. We were an immigrant nation, a fast-growing nation.
So they hadn't been able to establish a lock. And then after that, we had a long period of high taxation of large estates, high taxation of capital income. But now we're on our way back. Now we're on our way back towards something that looks much more like that kind of hierarchical society.
BILL MOYERS: Piketty makes the point, that the very size of inherited fortunes today is so great that it practically makes them invisible. Quote "Wealth is so concentrated that a large segment of society is virtually unaware of its existence."
PAUL KRUGMAN: Sure. If you have conversations with people who are not in this business, who are not economists, they have no idea what real wealth means in America. They think that having a million dollars makes you wealthy. They think that-- or having a salary of several hundred thousand dollars makes you wealthy. And while it's certainly true, that's a vastly privileged condition compared with most people, the sheer size of those big fortunes is so far outside our normal experience that it does become invisible. You're never going to meet these people. You're never going to have any sense of what it is that they control. And most people I think have no idea just how far the commanding heights are from you and me.
BILL MOYERS: You remind us often, and you did so just the other day, that the United States has a much more unequal distribution of income than other advanced countries. And that much of this difference comes from government actions, such as?
PAUL KRUGMAN: If you look at, oh, look at European countries, just about all of them. They don't actually necessarily have higher taxes on very high incomes. That's not so much the factor. And they have higher taxes overall, which are used to pay for a lot of programs of aid.
So you have universal healthcare, and we have-- sort of are stumbling our way towards something like that now but they have a lot of income support for people with low incomes. They have lots of support for young parents, they have lots of basically, a lot of redistribution. Which is a dirty word in US politics, but in fact is essential for having a decent society. So that to be the average American is richer than the average person in France.
Although that's mostly because we work longer hours. But to be in the bottom fifth of France is a far, far better thing than to be in the bottom fifth in the United States because of these government policies. It’s not that wages are especially high at the bottom in France. A little bit higher than in the United States, because we have a high minimum wage. But mostly, you have government programs, which make an enormous difference. The level of inequality of market income what people actually make is not that different among advanced countries. The level of inequality of disposable income, once the government has gotten through taxing and spending, is much, much higher in the US than it is in most other advanced countries. And that's because of the government.
BILL MOYERS: Well why is, as you said, redistribution such a noxious word in our political system?
PAUL KRUGMAN: I think mostly it's just because there's a very effective apparatus of TV and print media and think tanks and so on who hammer against any suggestion of redistribution. It's just, they've managed to convince a lot of people that it is somehow un-American.
Which actually, if you look at American history, that's not all true. But they-- it's just been pushed very hard. I think also the United States, look, we have to admit, race is always lurking under almost everything in American life. And redistribution in the minds of a lot of people means taking money from people like me and giving it to people who don't look like me. And I think that is a big difference between us and Europe.
BILL MOYERS: You do know that conservatives are regularly, consistently saying that inequality doesn't matter, that if the very rich were less rich, it wouldn't really make a difference to people out there working for a living.
PAUL KRUGMAN: But of course, what Europeans do, which is to tax the rich and use it to provide benefits to people lower down the scale. That makes a big difference. That can make an enormous difference. Take--
PAUL KRUGMAN: Take a few percent of national income, take it away from the top 1 percent and direct it towards the bottom 20 percent, that's a tremendous gain in the quality of life for the bottom 20 percent. So just think about it. Actually, we have a health reform. It’s not the health reform we would've wanted, but it's better than no reform.
It's financed in large part with small surtaxes on high incomes. That's, if you actually ask where the money's coming from, a lot of it is coming from an additional tax on investment income, an additional tax on earned income for very high earners. That is going to give basically everybody in America the guarantee of being able to have essential, basic health insurance at an affordable cost.
That's a huge change in people's lives. Which is being financed in large part by taking a little bit from the top. So a little bit of Robin Hoodism does a lot. You can do a lot more with that. And so no one is talking about just-- let's punish the rich for the sake of punishing them. But the question is, can you do redistribution in a way that makes this a better society, and the answer is yes.
BILL MOYERS: Well at the end of his book, Piketty is talking about the global tax on wealth. Do you think that's feasible?
PAUL KRUGMAN: Well, is it feasible politically? You know, if the United States were behind it. Lots of things would become possible. If the United States were to support this, then I think you could pretty much guarantee that the Europeans would-- enough Europeans would be willing to go along.
And while there would be some countries that would, you know, rogue countries that would want to serve as havens for tax evasion, we would have a lot of leverage over them. So really it's not that the international global system makes this impossible, it's really, it's the US political system that makes it look impossible right now. And that can change.
BILL MOYERS: But given the dysfunction of Congress, given the fact that the Supreme Court has in effect decided to enable corporations and their rich to consolidate their hold on our political system, do you have any hope of the kind of change that both Piketty and you would advocate?
PAUL KRUGMAN: I think you don't give up hope on these things. We have-- look at the American political tradition. Look at the-- one of the interesting things that Piketty says is that serious progressive taxation of high incomes and great wealth is an American invention. We invented it, and we invented it in the early 20th century, right at the peak of our Gilded Age.
And somehow we found it in ourselves to turn-- to find political leaders, people like Teddy Roosevelt, who are willing to say, "This is a bad thing, we do not want the society that is emerging here." So I think things can change. What-- if you ask, you know, are we going to get a wealth tax, a global wealth tax before the 2016 election? Well no, we're not. Might we get one by the 2024 election? Possibly.
BILL MOYERS: You wrote something the other day that's hard to forget. You said, "We live in such an ugliness in America right now."
PAUL KRUGMAN: Yeah. This is one of the things that puzzles me actually about my own country, which is it's one thing to have disparities of income and wealth and to have differing views about what we should be doing about it. But there's a level of harshness in our debates mostly coming from the people who are actually doing very well.
So, you know, we've had a parade of billionaires whining about being-- you know, the incredible injustice that people are actually criticizing them. And then comparing anyone who criticizes them to the Nazis. You know, it's almost a tic that they have. This is-- this is very strange. And it's kind of scary because, you know, it's one thing if someone without a lot of power seems to be going off and into a rage for no good reason. But these are people who have a lot of influence because of the amount of money they control.
BILL MOYERS: Given what you just said and given the fact that there's this ugliness, what do you think it's going to take? A mass uprising? Consistent demonstrations? Insurgent politics? How are we going to stem the tide that he says is taking us into oligarchy?
PAUL KRUGMAN: There's a negative and there’s a positive take. Piketty argues-- seems to argue through much of the book that we only escaped the old oligarchy for a while thanks to really disastrous events. Thanks to wars and depressions, which disrupted the system. That's an argument you can make.
On the other hand, if you read histories of the New Deal, you know that it didn't come-- it didn't spring out of nowhere. That we had a progressive movement and a lot of proto New Deal programs building for quite a long time.
There was, in fact, a move in America. There was an increasing political, philosophical readiness to take on inequality of wealth and power long before FDR moved into the White House. And so, I think there are better angels of our nature. That there is this ugliness which can be frightening. But there is also a redemptive streak in-- here and in other places.
And that-- don't give up hope on this. That given consistent argumentation, given events, and perhaps you know, as people become more aware of what is actually going on then there is a chance of changing things. Do we know that? No. But there's nothing in what we know now that says you should give up hope of being able to change this even without a catastrophe.
BILL MOYERS: Paul Krugman, thank you very much for joining me.
PAUL KRUGMAN: Thank you for having me on.
BILL MOYERS: The evidence keeps mounting. Just this past Tuesday, the 15th of April, Tax Day, the AFL-CIO reported that last year the chief executive officers of 350 top American corporations were paid 331 times more money than the average US worker. Those executives made an average of $11.7 million compared to the average worker who earned $35,239.
As that analysis circulated on Tax Day, the economist Robert Reich reminded us that in addition to getting the largest percent of total national income in nearly a century, many in the one percent are paying a lower federal tax rate than a lot of people in the middle-class. You will, no doubt, remember that an obliging Congress, of both parties, allows high rollers of finance the privilege of carried interest, a tax rate below that of their secretaries and clerks. And at state and local levels, while the poorest 20 percent of Americans pay an average tax rate of over 11 percent, the richest one percent of the country pays half that rate. Now, neither nature nor nature’s God drew up our tax codes. That’s the work of legislators, politicians, and it’s one way they have, as Chief Justice John Roberts might put it, of expressing gratitude to their donors. Oh, Mr. Adelson, we so appreciate your generosity that we cut your estate taxes so you can give $8 billion as a tax-free payment to your heirs, even though down the road the public will have to put up $2.8 billion to compensate for the loss in tax revenues.
All of which makes truly repugnant the argument, heard so often from courtiers of the rich, that inequality doesn’t matter. Of course it matters. Inequality is what has turned Washington into a protection racket for the one percent. It buys all those goodies from government: tax breaks, tax havens, allowing corporations and the rich to park their money in a no-tax zone, loopholes, favors like carried interest, and on, and on, and on.
Listen, there’s a big study coming out in the fall from Martin Gilens at Princeton and Benjamin Page at Northwestern, based on data collected between 1981 and 2002. Their conclusion, quote, “… America’s claims to being a democratic society are seriously threatened … the preferences of the average American appear to have only a minuscule, near-zero, statistically non-significant impact upon public policy.”
Sad, that it’s come to this. The drift toward oligarchy that Thomas Piketty describes in his formidable book has become a mad dash, and it will overrun us, and overwhelm us, unless we stop it.
At our website BillMoyers.com, you can find out much more about Piketty’s book and the debate it has sparked on both the left and right. That’s at BillMoyers.com. I’ll see you there and I’ll see you here, next time.
Bill Moyers has received 35 Emmy awards, nine Peabody Awards, the National Academy of Television’s Lifetime Achievement Award, and an honorary doctor of fine arts from the American Film Institute over his 40 years in broadcast journalism.  He is currently host of the weekly public television series Moyers & Company and president of the Schumann Media Center, a non-profit organization which supports independent journalism.  He delivered these remarks (slightly adapted here) at the annual Legacy Awards dinner of the Brennan Center for Justice, a non-partisan public policy institute in New York City that focuses on voting rights, money in politics, equal justice, and other seminal issues of democracy. This is his first TomDispatch piece.