Why Inequality Matters

lawrnence strike 1912The U.S. social and economic landscape is rapidly changing. Inequalities in wealth, which began an upward ascent back in the 1980s, accelerated in the 1990s. Now they are flying off the charts, thanks first to the tax cuts ushered in by Bush II and second to Obama’s recent continuation of those tax cuts, plus more, which have the effect of taking from the working class and poor in order to give to the rich.

Nicholas Kristof of The New York Times provides these grim statistics: “C.E.O.’s of the largest American companies earned an average of 42 times as much as the average worker in 1980, but 531 times as much in 2001. Perhaps the most astounding statistic is this: From 1980 to 2005, more than four-fifths of the total increase in American incomes went to the richest 1 percent.” (November 6, 2010).

Obama’s continuation of Bush’s tax cuts amount to an additional massive transfer of wealth from working people to the rich. For example, at least one-quarter of the benefits of these tax cuts go to the wealthiest 1 percent of the population, thereby increasing the inequalities in wealth. Most working people will only see a slight drop in their taxes, but the stunning provision is that families that make less than $40,000 will actually suffer a tax increase. If they could only lobby the politicians like the bankers do, they wouldn’t be in this predicament.

Changes in the estate tax will greatly benefit the rich. Instead of being taxed at the pre-Bush rate of 55 percent, the estate taxes will remain at a mere 35 percent. And estates exempt from paying any taxes, instead of being only those under $1 million, will be set at $5 million, another windfall for the rich. The wealthiest Americans will also be able to maintain their super low 15 percent tax bracket on capital gains and dividend income, well below what most working people pay on their income. And the hedge fund managers and private equity investors, who often make millions of dollars a year, get to keep their obscenely low tax rate of 15 percent.

The raw figures themselves are bad enough. But lurking behind them is a poison pill. For example, working people will see a drop in the amount they pay into Social Security. But this decrease will then serve to usher Social Security faster into insolvency, which will then be used as an excuse to cut the benefits of this tremendously popular program. And this revenue reduction is in addition to a long-standing one: the rich enjoy a special break because they are not required to pay Social Security taxes on any of their income over $106,000, meaning that they pay into Social Security at a lower rate than ordinary working people.

But aside from Social Security, virtually all social programs, including public education, are facing mounting threats. Because the Obama tax cuts will further increase the deficit, as they did under Bush, the surging deficit will provide the semblance of a rationale for the claim that the government is overspending and must cut back on Medicare, Medicaid, and public education. And these programs for the most part are vital to working people and the poor, not the very rich. In other words, the appearance that working people will benefit from some tax relief is deceptive; much more will be taken from them than given to them in this transaction.

And all the bad medicine contained in the extension of the tax cuts will be compounded if the recommendations of the co-chairmen of the Deficit Reduction Commission are implemented. They too have launched an attack on Social Security. In particular, they want to cut benefits by raising the retirement age to 69, which will amount to torture for many who do physical labor. But as if that wasn’t enough, in a moment of breathtaking arrogance, they are recommending even further tax cuts for the rich while increasing taxes on working people. Paul Krugman of The New York Times has observed that their proposals amount to “a major transfer of income upward, from the middle class to a small minority of wealthy Americans.” (November 11, 2010).

All of this is to say that the main engine fueling the rising inequalities in wealth lies not in any claims about the superior intelligence, industriousness, or good luck of the rich. Rather, the playing field has been tilted in their direction. Bob Herbert, again from The New York Times, reported that a recent study concluded that

…the economic struggles of the middle and working classes in the U.S. since the late-1970s were not primarily the result of globalization and technological changes but rather a long series of policy changes in government that overwhelmingly favored the very rich. Those changes were the result of increasingly sophisticated, well-financed and well-organized efforts by the corporate and financial sectors to tilt government policies in their favor, and thus in favor of the very wealthy. From tax laws to deregulation to corporate governance to safety net issues, government action was deliberately shaped to allow those who were already very wealthy to amass an ever increasing share of the nation’s economic benefits. (November 1, 2010).

What is crucial to realize is that deep inequalities in wealth undermine the well-being of society on almost every front.

These inequalities cripple the economy. In the U.S., 70 percent of economic activity is dependent on consumption. When the vast majority of people suffer a drop in income, they are not in a position to engage in the kind of spending that keeps the demand for goods high and production humming. So the economy continues to stagnate, even though corporations are sitting on billions in cash revenue. They are unwilling to hire, knowing that the demand for their products has dropped in tandem with the income of working people.

Public education, which is vital to the economy, deteriorates when wealth is monopolized by a few. Because of the low tax rates on the rich, governments lack the resources to properly fund education so more students are turned away or attend overcrowded classes with overworked teachers.

Vast inequalities in wealth undermine democracy. When the rich monopolize most of the wealth, they use some of their money to lobby government officials and influence government policy, as the Bob Herbert quote above testifies. The banks spend the most money on lobbying, and so there should be little surprise that most legislation goes in their favor, despite the fact that it is often contrary to the good of society as a whole. And this practice unleashes a vicious cycle: the rich get more money by lobbying politicians; then they use some of that money to mount an even more expansive lobbying campaign.

The New York Times recently mentioned in an editorial that “Representative Spencer Bachus of Alabama, the next chairman of the House Financial Services Committee told the Birmingham News that ‘Washington and the regulators are there to serve the banks’” (December 27, 2010). Bachus did not come to this conclusion on his own. This is exactly what the bankers have been telling him and the other politicians. And they have succeeded in imposing this vision on Washington. In a rare moment of frankness, Senator Dick Durbin blurted out: “And the banks – hard to believe in a time when we’re facing a banking crisis that many of the banks created – are still the most powerful lobby on Capitol Hill. And they frankly own the place.”

In countries with the highest rates of inequality – usually third world countries – corruption becomes endemic. In order to augment their low salary, police demand bribes before responding to citizens’ pleas for help. Doctors demand bribes before administering care. The drug trade intensifies, as those who are shut out of the formal economy scramble to get a buck. The U.S. is moving closer to these countries.

Finally, large inequalities in wealth shred the social and moral fabric of society. When people’s experiences have virtually nothing in common because of the economic chasm that separates their lives, they experience little sympathy for one another. Extending a helping hand to those in need is a good deed that is relegated to a lunatic fringe. The concept of what is good for society as a whole is reduced to an empty idealism while naked self-interest and greed become the only reality that is recognized.

What can be done? The tension resulting from these growing inequalities is rapidly approaching an explosive climax. But organized labor officials, who are in a position to mobilize massive numbers of working people to put up a fight, are giving the impression that they are suffering from a state of complete paralysis. Of course, every two years they come to life and furiously expend huge amounts of money and energy to elect Democrats to office, only to see the Democrats fail to throw anything their way except a few crumbs. And in another two years, all the broken promises are pushed under the rug, and this self-defeating ritual repeats itself.

But self-defeating rituals have their limits. By clinging to the Democrats, the labor officials are widening the disconnect between themselves and their membership. Ordinary working people are angry. They watch the bankers bestow even more generous bonuses on themselves while the rest of us are still losing our jobs, or suffering pay cuts, with the risk of home foreclosures on the horizon. Working people have watched the inequalities in wealth soar, whether Democrats or Republicans were at the helm. And a growing number of working people are becoming permanently disaffected with the Democrats. They want something to be done, and they have no faith in the politicians, be they Democrats or Republicans.

The only alternative available to working people that offers real prospects for success are mass mobilizations in the streets and strikes – the kind of militant struggles that scored so many gains in the 1930s. Either the labor officials will have to take the initiative and organize huge demonstrations and defy the Democratic Party, which scorns mass movements led by ordinary working people since it can’t control them; or eventually rank and file anger will explode and the officials will be pushed to the sidelines as people take matters into their own hands. It is time the labor movement united and put up a fight.

Ann Robertson and Bill Leumer

Ann Robertson is a Lecturer at San Francisco State University and a member of the California Faculty Association. Bill Leumer is a member of the International Brotherhood of Teamsters, Local 853 (ret.). Both are writers for Workers Action and may be reached at sanfrancisco@workerscompass.org.

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Comments

  1. says

    One aspect of this income shift that the article does not touch on is its impact on the competition for talent.
    I already know lots of people who have given up careers in teaching, nursing, and even medicine because the rewards are greater in the private sector.
    Non profits will compete for top executive talent and consequently divert even more money away from their core mission.

    There is some irony in the punish-the-poor crowd that they respond to wage demands from teachers, nurses, etc. by expecting them to work for the love of the job, but they demand everything for themselves including a gold plated kitchen sink.

  2. Sharon Toji says

    I come from a union family. As a teacher, I was a union member. My sign company is a signatory in northern California to the carpenters union (against our will — it’s not a fit for us and we should be in a different union). In southern California, we give all the fringe benefits, at their insistence, to the painter’s union — also a bad fit. Signs are no longer painted, nor do we construct them (“carpenter” them) on site.

    However, I am increasingly angry at the unions. In northern Cal, we pay about $10 per hour that we install signs to health insurance. However, none of our workers has ever received a penny of health insurance from the union, nor will they ever. Instead, we pay separately from our own funds for a 100 percent, non-deductible policy for our workers, as we do for our entire staff, down even to half time workers. They are supposed to send our workers a rebate check for the vacation money we pay to them, but no one has ever received it. In southern Cal, the insurance isn’t quite as high, but no one receives it. In order to get vacation money, they are forced to travel to a credit union that is remote for some of them, in person. They have never been notified of this. We had to find it out. They will never be able to get the pension money that is paid in for them, either. They pay dues, as well. But not one penny of any of this benefits any worker of ours!

    The end result is that money goes to these unions, and since we have to pay it, it gives us less money to pay our in-house workers, who should be getting wages as high as the installers, but don’t. The money is just not there!

    These so-called fringe benefit payments are going somewhere, and I hope some workers are getting them, but we are just lining the pockets of the union with no benefits to our workers, and depriving other workers as a result. My own workers report to me that many of the prevailing wage workers they meet on the job hate Democrats, hate Obama, and are the furthest from understanding why they still have construction jobs and are so well paid. I am losing faith in the unions.

  3. Mad Jayhawk says

    I just don’t understand.

    Some dude down the street works 16 hours a day 6 or 7 days a week at his own business which is wildly successful because, hmmmm, he works at it 16 hours a day along with his wife and teenage children. They started the business with nothing except a few loans from probably skeptical relatives and friends 10 years ago and now are reaping the rewards.

    Now you are saying that this man is evil because he has worked hard and is now making, after years of long hours, very good money that puts him into tax bracket that causes the liberals that have nothing and want what he has to paint a target on his back and badmouth him at every turn?

    What is wrong with everyone being taxed the same percentage?

    Envy is a terrible thing. I would hate to have to live a pitiful little life full of envy for things I cannot have because I will make the effort to earn them. It would even be worse to go around and suggest for political gain that those who do earn more than I do are somehow evil and deserve to have the fruits of their labor taxed at a rate more than I am. I personally do not care what you make, what the guy down the street makes, or what Warren Buffet makes. If you do, I feel sorry for you.

    • says

      Rarely can one obtain wild success by manning a small, family owned and run business for long hours (no more than 268 person/hours per week are available for anything).
      My current employer has achieved success because of pilots, mechanics, accounting personnel, human resources personnel, parts and inventory personnel, dispatchers, a few IT personnel, and probably a few other groups of workers. We are relatively speaking a small business, with well under 1000 employees.
      My employers in 1990 were enriched by the work of ‘coders’, telephone interviewers, data entry people, sales people and client representatives, programmers, and data analysis people. They had a small company employing well under 500 people.
      In both cases the term ‘enriched’ is appropriate, as in both cases the head(s) of the company were enabled to afford to live well in upper class to high upper class neighborhoods.
      Be Well,
      Bob Griffin

  4. Joe Weinstein says

    Well-intended would-be tactics and verities are posted above by Admin, Bob R, Garry W and Jay L. But each proposal has its limits, as we are in a new era.

    The majority of today’s pols and other ‘leaders’ are a profession and breed apart. So I must question the idea that masses of people in the streets will mean that ‘people take matters into their own hands’. Even after weeks of mass discontent on the streets in LA or NY nothing at all need happen in Sac or DC. We may once again get mass looting of main-street shops but that will not long keep food on anyone’s table, and it will result in scaring the silent majority into acquiescence to a police state.

    Another political party? In our present 200-year-old system all power flows to a corrupted and readily corrupted oligarchy of political officers. At most, a new party primarily means changing just who the oligarchs are, but not the fact of oligarchy.

    Waiting for people to get tired of a ‘life’ of ‘perpetual war and tax cuts’? Most people don’t notice the difference between presence or absence of a foreign war, or small changes in their taxes (let alone big changes in other people’s taxes). It’s moreover both bigoted and unrealistic and bigoted to equate ‘fools’ to those of us of age 60+. Suckers are born and raised every minute.

    Allegedly you must ‘pay for’ what you ‘spend’. Any family can tell you that SOMEONE must pay for what YOU spend, but that someone needn’t be you and often won’t be. In families, typically the parents pay for what the kids spend. In society, it’s often the other way around. When all the fiscal sleights of hand are done, today’s spending amounts to commandeering resources in ways that will maybe enhance but more than likely will squander or constrain the options otherwise available to future generations.

    Class warfare is indeed no solution, but of late this country hasn’t been actually solving (vs pretending to solve) any big problem at the ballot box either. The way our old system works, the ballot box is in general used mainly to decide which oligarchs to hand off the problems to, not to solve the problems themselves nor even to guarantee that their solution will even be sought (let alone found).

    Solutions will continue to evade us until we change our complacently accepting attitude not merely toward one or another party but indeed toward the entire two-century-obsolete political system, a system wherein oligarchic whimsy trumps both reason and democracy in public policy decision-making. A more reasoning and democratic system is possible, wherein teams of willing ordinary citizens in manageable time take turns proposing, deliberating, making and reviewing public decisions.

    In my opinion that sort of change is what we really need to pursue in order that we the people fruitfully follow Admin’s advice to take matters into our own hands.

  5. Joshua says

    “Obama’s continuation of Bush’s tax cuts amount to an additional massive transfer of wealth from working people to the rich. ”

    Taking less of “rich” people’s money doen’t equal taking it from poor people. Any transfer has to be from the “Haves” to the “Have nots”, as the “Have Nots” don’t have any wealth to transfer. If the “Have Nots” had wealth to be transfered there would be no problem to whine about. IF there was a transfer of wealth it would be from the “Haves” to the “Have Nots” in the form of harebrained social engineering schemes produced by the Lunatic Left. Thus the new tax plan , which prevents taxes being raised to pre-Bush era levels, actually prevents any additional transfer of private property to the Body Politic , which typically squanders said property on aformentioned harebrained schemes.

    The “Rich” didn’t steal from you, you never had anything worth stealing and you darn well know it.

    Now if you want to talk about Corrupt Government funneling money to Billionaires as being a problem , I agree. In that , the Problem is not billionaires , it’s the corrupt Government that has the POWER to move Tax Payer money into their pockets. If the Government abuses the power WE invest in it, then we MUST strip it of the powers that allow them to behave corruptly and prosecute those who have exercised those powers for personal gain.

    How many Government handouts have the Teamsters received or Unions in general? Why are my tax dollars going to prop up unions? In other words Mobbed-up Unions are just another Pig at the trough at Tax payer expence, you have little room for finger pointing.

    • dr. o says

      Joshua, it is a waste of perfectly good electrons to attempt to point out the fallacies of their Communist economic beliefs to this group… What they want this country to become was done in Russia and it is a dismal failure.. It is being done in many countries right now such as Africa, Asia, Venezuela, and it is failing… The end game in Venezuela will be a blood bath against a socialist/communist, thieving government…

      These socialist/communists are incapable of understanding that what I have spent a lifetime to earn and to save does not belong to them… They are not entitled to 35% or 55% or any percent… It belongs to me… It is invested… It is working… It is creating cash flow, it is supporting jobs, it is paying wages that people take home to their families, and it is paying taxes to the government… Take it away from me and that capital instantly stops supporting those jobs and stops paying those wages – and there is not tax for the government; take it form me once and you get it once… Let me accumulate it and it pays taxes on the profits forever… Only a fool thinks that taking accumulated capital helps the country…

      These thieves, for the most part, are incapable of making the effort to build a business and to accumulate capital and to create an inheritance for their children… Because of this they are envious and angry and they lash out at those who have worked longer, harder, and smarter than they have… They want to band together into a mob called a party and take by force what they are not entitled to by history, by religion, or by common law…

      Eliminate the accumulation of capital and you are back to the kind of society they have in many parts of Africa and Asia, where people squat in mud huts and beg for food because there is no capital to buy an industrial sewing machine, or drill a well… There is no capital to put up a factory, or a gas station, or a supermarket and create jobs that pay wages… There is no capital accumulated to put to work because those socialist/corrupt governments take by force (law) all capital that accumulates and stops those factories, etc. from being built…

      There Joshua, see what you have done… You made me go and inconvenience a number of electrons to post this message that they are incapable of understanding…

    • says

      Interesting argument and one that deserves a response.

      It presumes that the initial allocation of wealth/income is inherently fair. And that is the fallacy.

      It presumes that when a boss allocates to his workers only starvation wages and to himself the balance, that is justified by some divine “market” providence, and that any attempt by any outside force (such as a government) to interfere with that divine providence is interfering with natural law.

      It presumes that governments only work to deprive the rich from their right to allocate to their workers as they see fit, or to take from the bosses what the bosses have allocated to themselves.

      It completely overlooks how that government laid the ground rules that allows that rich person to enrich themselves. It is a liberal government that tries to ameliorate the worst excesses of that self enrichment process. it would be a communist or socialist government that had different ground rules.

      Let me illustrate by an historical example. Right wingers aren’t the only ones who can site our founding history.

      We all learned in our history books that the first factories in the United States were the spinning mills In places like Lowell, Massachusetts. (Massachusetts has always been ahead of the rest of the country). What they don’t usually tell us is that those workers hired local farm girls, the only available work force at that time.

      Well it seems that those farm girls didn’t take to well to the dingy conditions and the regimentation of the factory spinning mill. they went out on strike.

      Well when the daughters and the wives of the local community go out on strike against the evil factory owner, the towns people were overwhelmingly sympathetic. This was not good for the factory owners.

      So the factory owners did what the law of the land allowed them to then (and still does, more or less) they went out and found some hungry immigrants – in this case Irish immigrants.

      The Irish weren’t too popular. They looked different, they talked different, and they behaved differently.

      When the Irish protested the dingy factory conditions, and the regimentation and the poor wages, they found no sympathy. They were labeled as ungrateful freeloaders and run out of town.

      And the factory owners got rich.

      If factory owners – and later business owners – had to treat their workers in an environment of community scrutiny and community standards (like the farm girls) we might have a very different county.

      Government is the will of the people. Never all of the people – just some who can compromise on what are acceptable community standards.

      Unfortunately, we are moving to a world where too many people think too many people can operate without any regard to community standards, without any regard or sense of community at all.

      And that does not bode well for America.

  6. Jay Levenberg,Esq. says

    Whatver happened to the idea you have to pay for what you spend. It appears both parties have lost sight of economic priciples that helped to make the country strong. We kept borrowing in good and bad times thinking there would be no consequences. People never worried about the deficit. Strikes and the like will be counter-productive as the majority in the country wouldn’t tolerate what goes on in Europe. Such advice is foolhardy at best and dangerous at worst. We solve our problems in this country at the ballot box. The country spoke in November that things can’t go on as before. The argument now is over taxes vs. spending but whatever is done has to get the budget back in line or we will end up being a third world country. Class warfare is not a solution.

    • Dr. Wayne Gautreau says

      You need to look no further than Dr. Raghuram Rajan, Economist, University of Chicago. I know this is where “trickle down” economic theory was born but Dr. Rajan is not a believer in this philosophy. You can find his article that supports this article in Money magazine Special Outlook Issue “Make money in 2011″ He states that the rising income inequality is the biggest threat to not only of economy but also is moving America to a third world country. As an Economist myself I would say we have achieved that distinction. Forty years ago this country was the largest exporter of finished goods and services the world has ever seen and the largest importer of raw materials. America was the largest creditor nation the world has known. Today America is the largest importer of finished goods and services and the largest exporter of raw materials. America is also the largest debtor nation the world have ever know. Our political system is completely owned by the wealthy and major corporations (United Citizens decision by the Supreme Court five conservative justices). Americas middle class is almost disappearing while China’s , Brazil’s and India’s is growing and we know what their economies’ look like. By all definitions America has become a third world county. This all started with Ronald Reagan and the republicans that bought into the trickle down economic philosophy and rewarded corporations for shipping manufacturing jobs overseas. Through the right wing media “Faux News” they got Americans to believe that our economy had evolved to a “knowledge” based economy away from a manufacturing based economy. Well now those jobs have been shopped out to India, China and other countries. Economies that are strong and growing have a large middle class. Economies that are not growing and have a high rate of crime have a small to no middle class (one has to look no further than Mexico for proof). What’s left of the middle class and the poor need to mobilize and rise up against what one political party wants to achieve or it will be welcome to the economy of Charles Dickens “A Christmas Carol”. From the mouth of “tiny Tim” “God bless us everyone”, we are going top need it.

      Dr. Wayne Gautreau

  7. garry walsh says

    It will take another 20 years before the majority of americans grasp the concept that they have been had. The 60+ fools, southern idiots and religious zealots will have to be beat over the head for a long time before they grasp the reality that perpetual war and tax cuts dont make for any kind of life.

    • says

      Garry

      I am 60+ and neither I, nor any of my over 60 friends, have ever supported perpetual war, or tax cuts for the wealthy.

      And remember that the great, revered-by-the-right geezer, Ronald Reagan, signed more tax increases than tax cuts. He at least had the sense to know that government had to pay its bills.

      I’m sure I have spoken heresy – bring it on.

      As for me, the Ronald Reaganism, “government is the problem” is the most corrosive, treasonous utterance that has ever been made by a US President.

      Well maybe Andrew Jackson’s famous response to the Supreme Court that rebuked him might trump RR.

  8. says

    The are three fronts in the class war. This article mentions mass mobilizations and strikes. Both are essential. But it doesn’t mention the third — electoral politics independent of the Democratic Party. Working people need a labor party with a socialist program.

    In California, the Peace and Freedom Party is the nucleus of such a party — the largest in any state. Given the resources, it will expand to other states.

    • Val says

      We cannot rely on Big Labor. Big Labor has been corrupt for a long time. It’s become a business like every other capitalist business. Anyone familiar with the expression of Business Trade Unionism?

      Peace and freedom is on the Ballot. But that old hippie name should be changed and the Party’s character has to be changed. People don’t like the idea of hippies anymore.

      I agree with the poster who said it has to be an independent 3rd party led by labor. Unfortunately, we tried that with Labor “Advocates which died. It had the same kind of middle class leftism that has crippled so many other parties.

      If a new labor party is borne, it has to be borne of the rank and file. It has to have working class trade unionists in it, not middle class types or middle class liberal or left types. It has to have people who want to involve and include people. Not those looking for power and status. This is the liberal and progressive left’s biggest problem. All politics means is a route to power and status.

      But there is a much much bigger problem. A new labor party has to avoid the “identity” politics of the Democratic Party. People outside of the two coasts are not interested in gays and guns. They don’t want to hear about race and feminismism. They want jobs. They want healthcare. They are concerned with bread and butter issues.

      Liberalism is America isn’t really interested in true civil rights anyway. Liberals have failed to struggle against an apartheid system of education which has once again crept back into America. What’s worse, public education is now being dismanteld and the Liberal left in the Democratic Party has kept it’s mouth shut. Yeah, it’s turns out all those progressive aren’t so progressive after all but they will jump on anyone who doesn’t display paternalistic attitudes towards people of color.

      The only way to regain the working class is to abolish the politics of race and united all people around a common working class front based on bread and butter issues and classwide issues of access to healthcare, education, housing and a better life.

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