“The First Progressive Revolution”: It Did Happen And It Will Happen Again
Exactly a century ago, on February 3, 1913, the Sixteenth Amendment to the Constitution was ratified, authorizing a federal income tax. Congress turned it into a graduated tax, based on “capacity to pay.”
It was among the signal victories of the progressive movement—the first constitutional amendment in 40 years (the first 10 had been included in the Bill of Rights, the 11th and 12th in 1789 and 1804, and three others in consequence of the Civil War), reflecting a great political transformation in America.
The 1880s and 1890s had been the Gilded Age, the time of robber barons, when a small number controlled almost all the nation’s wealth as well as our democracy, when poverty had risen to record levels, and when it looked as though the country was destined to become a moneyed aristocracy.
But almost without warning, progressives reversed the tide. Teddy Roosevelt became president in 1901, pledging to break up the giant trusts and end the reign of the “malefactors of great wealth.” Laws were enacted protecting the public from impure foods and drugs, and from corrupt legislators.
By 1909 Democrats and progressive Republicans had swept many state elections, subsequently establishing the 40-hour work week and other reforms that would later be the foundation stones for the New Deal. Woodrow Wilson won the 1912 presidential election.
A progressive backlash against concentrated wealth and power occurred a century ago in America. In the 1880s and 1890s such a movement seemed improbable, if not impossible. Only idealists and dreamers thought the nation had the political will to reform itself, let alone enact a constitutional amendment of such importance—analogous, today, to an amendment reversing Citizens United v. FEC and limiting the flow of big money into politics.
But it did happen. And it will happen again.
By: Robert Reich, The American Prospect, February 3, 2013
“Robots And Robber Barons”: Profits Continue To Rise At The Expense Of Workers
The American economy is still, by most measures, deeply depressed. But corporate profits are at a record high. How is that possible? It’s simple: profits have surged as a share of national income, while wages and other labor compensation are down. The pie isn’t growing the way it should — but capital is doing fine by grabbing an ever-larger slice, at labor’s expense.
Wait — are we really back to talking about capital versus labor? Isn’t that an old-fashioned, almost Marxist sort of discussion, out of date in our modern information economy? Well, that’s what many people thought; for the past generation discussions of inequality have focused overwhelmingly not on capital versus labor but on distributional issues between workers, either on the gap between more- and less-educated workers or on the soaring incomes of a handful of superstars in finance and other fields. But that may be yesterday’s story.
More specifically, while it’s true that the finance guys are still making out like bandits — in part because, as we now know, some of them actually are bandits — the wage gap between workers with a college education and those without, which grew a lot in the 1980s and early 1990s, hasn’t changed much since then. Indeed, recent college graduates had stagnant incomes even before the financial crisis struck. Increasingly, profits have been rising at the expense of workers in general, including workers with the skills that were supposed to lead to success in today’s economy.
Why is this happening? As best as I can tell, there are two plausible explanations, both of which could be true to some extent. One is that technology has taken a turn that places labor at a disadvantage; the other is that we’re looking at the effects of a sharp increase in monopoly power. Think of these two stories as emphasizing robots on one side, robber barons on the other.
About the robots: there’s no question that in some high-profile industries, technology is displacing workers of all, or almost all, kinds. For example, one of the reasons some high-technology manufacturing has lately been moving back to the United States is that these days the most valuable piece of a computer, the motherboard, is basically made by robots, so cheap Asian labor is no longer a reason to produce them abroad.
In a recent book, “Race Against the Machine,” M.I.T.’s Erik Brynjolfsson and Andrew McAfee argue that similar stories are playing out in many fields, including services like translation and legal research. What’s striking about their examples is that many of the jobs being displaced are high-skill and high-wage; the downside of technology isn’t limited to menial workers.
Still, can innovation and progress really hurt large numbers of workers, maybe even workers in general? I often encounter assertions that this can’t happen. But the truth is that it can, and serious economists have been aware of this possibility for almost two centuries. The early-19th-century economist David Ricardo is best known for the theory of comparative advantage, which makes the case for free trade; but the same 1817 book in which he presented that theory also included a chapter on how the new, capital-intensive technologies of the Industrial Revolution could actually make workers worse off, at least for a while — which modern scholarship suggests may indeed have happened for several decades.
What about robber barons? We don’t talk much about monopoly power these days; antitrust enforcement largely collapsed during the Reagan years and has never really recovered. Yet Barry Lynn and Phillip Longman of the New America Foundation argue, persuasively in my view, that increasing business concentration could be an important factor in stagnating demand for labor, as corporations use their growing monopoly power to raise prices without passing the gains on to their employees.
I don’t know how much of the devaluation of labor either technology or monopoly explains, in part because there has been so little discussion of what’s going on. I think it’s fair to say that the shift of income from labor to capital has not yet made it into our national discourse.
Yet that shift is happening — and it has major implications. For example, there is a big, lavishly financed push to reduce corporate tax rates; is this really what we want to be doing at a time when profits are surging at workers’ expense? Or what about the push to reduce or eliminate inheritance taxes; if we’re moving back to a world in which financial capital, not skill or education, determines income, do we really want to make it even easier to inherit wealth?
As I said, this is a discussion that has barely begun — but it’s time to get started, before the robots and the robber barons turn our society into something unrecognizable.
By: Paul Krugman, Op-Ed Columnist, The New York Times, December 9, 2012
“Take That Turkey Off The Table”: The Bush Tax Cuts For The Wealthy Are Un-American
Reading about the historic Johnstown flood of 1889 brought to mind the Bush tax cuts for the wealthy—and why the president must rid us of them now as the nation starts a new season, thankful yet sober.
The 1 percent of that era were the robber barons of the Gilded Age, with great steel, coke, and railroad wealth concentrated in Pittsburgh. They started an exclusive club, several industrial barons, including Andrew Carnegie, devoted to fishing and hunting, by the South Fork Dam. The dam the club constructed nearby overlooked several towns and villages in the rugged incline and valley below. On a terribly rainy spring day when the dam broke, an entire lake drowned those towns in torrents of water, debris and floating trees, and houses. Because the fancy club’s earthen dam was shoddy, roughly 2,200 people died in the worst natural disaster to befall an American town up to that point.
The robber barons’ summer recreation endangered the whole community’s safety and livelihood. People talked about the dam breaking all the time before it did. And that’s what I’m talking about. For too long we have lived under the yoke, under the treacherous dam of putting really rich people first. To recover from our own economic calamity, those tax cuts must be scrubbed, along with everything with George W. Bush’s name on it. Let it not be forgot, he’s the guy that took peace and prosperity and turned it all into desert dust and debt.
Taking that turkey off the table would not upset most wealthy people, who were content to live under the Clinton tax code. That is what President Obama wishes to do, but he has been thwarted once before by stubborn Republicans. This time around, he seems to have more mettle about getting rid of the significant tax break the rich have received, just for being rich. It will also bring substantial revenue badly needed by the Treasury. I grant you, there are hedge fund managers out there who see it differently than you and me.
As we mark the autumn harvest in a collective ritual that brings comfort, let’s resolve to rid ourselves of the most divisive policy remaining from the Bush years. A policy that is, in the end, unfair and un-American. And life will start looking up.
By: Jamie Stiehm, U. S. News and World Report, Washington Whispers, November 20, 2012
“Deregulation And Worker’s Bargaining Power”: New Insight Into The Decline Of The Middle Class
The recently released 2012 Organisation for Economic Co-operation and Development Employment Outlook provides new insights into the decline of the middle class. The report documents the global shift from labor income to profits. Across the Organisation for Economic Co-operation and Development, known as OECD, the share of income going to wages, salaries, and benefits—labor’s share—declined over the last 20 years. The median labor share in OECD countries fell from 66.1 percent to 61.7 percent of national income. However, the decline in labor compensation was not equally shared by all employees; the wage share of top income earners increased while low-paid workers were hardest hit. On average, the wage share of the top 1 percent of income earners increased by 20 percent over the past two decades.
In the United States, where labor’s share began its decline in the 1980s, it fell a further 2.5 percentage points over the past 20 years. Excluding top earners’ income, the decline in the adjusted labor share was 4.5 percentage points.
The decline in labor’s share of national income did not result from a shift away from labor intensive industries to industries that employ a low share of labor. The OECD’s analysis found overwhelmingly that it is within-industry declines in labor’s share of industry value added that explains the fall in labor’s share. On average, the OECD found, real wage growth within industries did not keep pace with productivity growth.
Examining the causes of the decline in labor’s share, the OECD found that labor-saving technical change across most industries was associated with greater investment in capital and higher productivity growth as machines replaced workers in some jobs. The OECD found a strong association between technical change and the decline in labor’s share. It is important not to be hasty and jump to the conclusion that technological unemployment is to blame for the decline in labor’s share. In fact, the OECD did not find fewer jobs overall for less-educated workers.
Rather, what they found is not a decline in low-skill jobs, but a decline in jobs that pay middle-class wages. The share of the high-skilled in occupations such as manager or IT engineer increased as did jobs at the bottom of the wage distribution, typically low-paid precarious jobs. Unfortunately, this increase in demand and employment of workers in low-paying occupations did not improve the earnings of these workers. Increasingly, better-educated workers who in the past would have found middle-class jobs ended up low-paid employment. The OECD found that educational requirements increased quickly in low-pay occupations and that “workers in these jobs tend to be overqualified” (p. 124). A recent report from the Center for Economic and Policy Research found this to be true in the United States, where 43 percent of low-wage workers have some college or a college degree, 27 percent have a high school degree, and only 20 percent did not graduate from high school.
What, then, explains the failure of real wages to grow in line with productivity growth, and for increased educational attainment to translate into middle-class earnings? The evidence points to the negative effects of deregulation of some industries and increased globalization on workers’ bargaining power.
Deregulation of industries such as energy, transportation, and communication in which union density had traditionally been high opened these industries to new enterprises staffed by non-union workers. Increasing globalization—the delocalization of some parts of the supply chain as well as import competition from low-wage countries for blue-collar workers (but, notably, not for doctors, lawyers, and other high-paid workers) has led to the loss of well-paid unionized jobs. Both of these developments have led to a reduction in workers’ bargaining power vis a vis employers and have weakened unions, leaving workers to fend for themselves and employers to fix wages individually. The result according to the OECD has been to “decrease the bargaining power of workers, particularly those who are low-skilled, and thus their ability to appropriate their share [of productivity gains].”
The unequal distribution of labor income—with nearly all the gains in wages going to the top 1 percent while earnings stagnated or declined for the 99 percent—has gone hand-in-hand with the decrease in the share of national income going to labor and the shift from labor income to profits. Absent a countervailing force that enables workers to share fairly in the economy’s productivity gains, the decline in labor’s share appears likely to continue.
By: Eileen Appelbaum, Washington Whispers, U. S. News and World Report, August 25, 2012
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