“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 Isn’t that an old-fashioned, almost Marxist sort of discussion, out of date in our modern information economy?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
“An Issue Of Fairness”: Suddenly America’s Top Corporate Leaders Are Shunning Tea Party Extremism
Leaders of the American business community, who have long indulged the Republican far right as an instrument toward their own ends, seem to be growing weary of its political excesses. Recognizing the public verdict of last month’s election, corporate officialdom is moving toward moderation on taxes and other issues, showing support for the Obama White House and edging away from congressional Republicans.
The latest top executive to endorse the president’s position on rescinding the Bush tax cuts for the top two percent is Fred Smith, CEO of Federal Express and a former economic advisor to Senator John McCain — who denounced as “mythology” the notion that raising the top rate would damage the U.S. economy.
Smith joined a lengthening queue of business leaders from all sectors who have stepped up over the past week to voice their acceptance of increased taxes as part of a budget agreement to break the stalemate on Capitol Hill — not only to avoid the so-called fiscal cliff on December 31, but because fairness requires the wealthy to pay their fair share. Randall Stephenson, chief executive of AT&T, the nation’s largest telecom company, told Business Week that higher taxes and more revenue must be part of any budget agreement. So did Lloyd Blankfein, the CEO of Goldman Sachs. And so did a group of defense industry executives from companies such as United Technologies, RTI International, TASC and Northrop Grumman.
Income tax rates “need to go up some,” said David Langstaff, the CEO of TASC, at a Washington press event organized by the Aerospace Industries Association, a defense lobby. “This is a fairness issue — there needs to be recognition that we’re not collecting enough revenue. In the last decade we’ve fought two wars without raising taxes. So I think it does need to go up.”
Indeed, the president was warmly received this week when he visited the Business Roundtable, a powerful Washington lobbying group that officially prefers Republican policy on maintaining the Bush tax cuts unchanged. “This room likes a winner,” said Roundtable chairman James McNerney, the CEO of Boeing, as his members applauded the president, who worked the room as if among old friends. They didn’t seem terribly upset when the president told them that tax rates — their tax rates — would have to go up, and in fact, they are reportedly supporting him on the need to avoid another destructive struggle with Congress over the debt ceiling. Evidently they won’t go along with the kind of blackmail game that congressional Republicans played with the debt ceiling in the summer of 2011, leading to a credit downgrade and slower growth for months afterward.
The suddenly sensible sounds emanating from the business community are astonishing when contrasted with the anger displayed toward the president by many of these corporate suits only weeks ago, when they berated Obama as “anti-business” and loudly yearned for a corporate-style Romney presidency. Resoundingly rebuked by the electorate, which overwhelmingly favors Obama’s positions on taxes and entitlements — and stands ready to blame the Republicans if no budget agreement is achieved — the business leaders are backing ever so subtly away from their traditional alliance with the GOP.
These brand-conscious executives suddenly have realized that the Republican brand, especially at the congressional level, is politically toxic. And they would rather not be too closely identified with it at this dangerous moment.
Remarkably, the Tea Party Republicans have now alienated their party’s most important constituency — the upper echelon of the business community. It is a profound irony that the issue raising friction between these politicians and their erstwhile backers is a fanatical partisan determination to defend the tax benefits enjoyed by those same wealthy executives.
The president’s opponents are backing themselves into a corner where even their own old friends cannot defend them. Meanwhile Obama may finally have learned that if he stands firm and refuses to negotiate with himself, he can win over public opinion and break the partisan obstructionism.
By: Joe Conason, The National Memo, December 7, 2012
“Fighting Fiscal Phantoms”:The GOP Hydra-Headed Deficit Scold Movement Has Lost Some Of Its Clout
These are difficult times for the deficit scolds who have dominated policy discussion for almost three years. One could almost feel sorry for them, if it weren’t for their role in diverting attention from the ongoing problem of inadequate recovery, and thereby helping to perpetuate catastrophically high unemployment.
What has changed? For one thing, the crisis they predicted keeps not happening. Far from fleeing U.S. debt, investors have continued to pile in, driving interest rates to historical lows. Beyond that, suddenly the clear and present danger to the American economy isn’t that we’ll fail to reduce the deficit enough; it is, instead, that we’ll reduce the deficit too much. For that’s what the “fiscal cliff” — better described as the austerity bomb — is all about: the tax hikes and spending cuts scheduled to kick in at the end of this year are precisely not what we want to see happen in a still-depressed economy.
Given these realities, the deficit-scold movement has lost some of its clout. That movement, by the way, is a hydra-headed beast, comprising many organizations that turn out, on inspection, to be financed and run by more or less the same people; dig down into many of these groups’ back stories and you will, in particular, find Peter Peterson, the private-equity billionaire, playing a key role.
But the deficit scolds aren’t giving up. Now yet another organization, Fix the Debt, is campaigning for cuts to Social Security and Medicare, even while making lower tax rates a “core principle.” That last part makes no sense in terms of the group’s ostensible mission, but makes perfect sense if you look at the array of big corporations, from Goldman Sachs to the UnitedHealth Group, that are involved in the effort and would benefit from tax cuts. Hey, sacrifice is for the little people.
So should we take this latest push seriously? No — and not just because these people, aside from exhibiting a lot of hypocrisy, have been wrong about everything so far. The truth is that at a fundamental level the crisis story they’re trying to sell doesn’t make sense.
You’ve heard the story many times: Supposedly, any day now investors will lose faith in America’s ability to come to grips with its budget failures. When they do, there will be a run on Treasury bonds, interest rates will spike, and the U.S. economy will plunge back into recession.
This sounds plausible to many people, because it’s roughly speaking what happened to Greece. But we’re not Greece, and it’s almost impossible to see how this could actually happen to a country in our situation.
For we have our own currency — and almost all of our debt, both private and public, is denominated in dollars. So our government, unlike the Greek government, literally can’t run out of money. After all, it can print the stuff. So there’s almost no risk that America will default on its debt — I’d say no risk at all if it weren’t for the possibility that Republicans would once again try to hold the nation hostage over the debt ceiling.
But if the U.S. government prints money to pay its bills, won’t that lead to inflation? No, not if the economy is still depressed.
Now, it’s true that investors might start to expect higher inflation some years down the road. They might also push down the value of the dollar. Both of these things, however, would actually help rather than hurt the U.S. economy right now: expected inflation would discourage corporations and families from sitting on cash, while a weaker dollar would make our exports more competitive.
Still, haven’t crises like the one envisioned by deficit scolds happened in the past? Actually, no. As far as I can tell, every example supposedly illustrating the dangers of debt involves either a country that, like Greece today, lacked its own currency, or a country that, like Asian economies in the 1990s, had large debts in foreign currencies. Countries with large debts in their own currency, like France after World War I, have sometimes experienced big loss-of-confidence drops in the value of their currency — but nothing like the debt-induced recession we’re being told to fear.
So let’s step back for a minute, and consider what’s going on here. For years, deficit scolds have held Washington in thrall with warnings of an imminent debt crisis, even though investors, who continue to buy U.S. bonds, clearly believe that such a crisis won’t happen; economic analysis says that such a crisis can’t happen; and the historical record shows no examples bearing any resemblance to our current situation in which such a crisis actually did happen.
If you ask me, it’s time for Washington to stop worrying about this phantom menace — and to stop listening to the people who have been peddling this scare story in an attempt to get their way.
By: Paul Krugman, Op-Ed Columnist, The New York Times, November 26, 2012
“Tax-Payer Financed Capitalism”: The Great American Tax Debate Misses The Point
Casting the tax debate as an argument in which liberals want to use the tax system to reduce income inequality after the fact by taxing the wealthy at higher rates than middle and lower income classes, while conservatives favor flat taxes that tax rich and poor at the same rate, misses the main point. Deregulation of the financial system over the last 35 years and tax preferences that benefit corporations and wealthy individuals have done much to increase the before-tax incomes of the top 1 percent. An army of tax accountants, many of them recruited from the IRS, has figured out how to push the envelope on tax avoidance for the big businesses and wealthy individuals that can afford their high-priced services. For these folks, tax accounting has been transformed from a service that makes sure that required taxes are paid to a profit center that manipulates the tax code to generate huge returns at the expense of the tax-paying public. Increasingly what we see in the United States is the growing importance of tax-payer financed capitalism.
There is no economic reason that the debt taken on by corporations should be treated differently in the tax code from the equity invested by shareholders, but it is. Corporations get to deduct the interest paid on debt from their earnings, thus reducing the corporate income tax they have to pay. The tax code also provides an incentive for private equity firms, which plan to hold companies they acquire for their portfolios for just a few years, to load these companies with debt. In good times, this greatly increases the returns to investors. In poor economic conditions, this greatly increases the risk of financial distress and even bankruptcy, and imposes great costs on workers, creditors and communities. For investors with a time horizon measured in years and not decades, this is a risk worth taking for the promise of higher returns.
Tax preferences mean that income from owning stock is taxed at a far lower rate than income from working—a point made by Warren Buffet who famously pointed out that his secretary pays a higher tax rate than he does. The fiction that bonuses earned by partners in private equity and hedge fund firms is ‘carried interest’ that should be taxed at the lower rate on earnings from owning stock, rather than at the higher rate on ordinary income that ordinary workers and managers pay on their bonuses, boosts the income and wealth of these already wealthy economic players.
The use of aggressive tax avoidance schemes is rampant among big businesses and wealthy individuals. Setting up a subsidiary that lives in a file drawer in a tax haven and owns the company’s intellectual property and collects the royalties on it, or that owns the loans the company has made and collects the interest, allows financial institutions, pharmaceutical companies, and IT companies to park their profits outside the United States and defer taxes on this income indefinitely while waiting for a tax holiday to bring their profits home. Setting up so-called blocker corporations in offshore tax havens to launder taxable income for foreigners and pension funds, and turn it into nontaxable income is another favorite scheme.
Tax preferences and tax loop holes enrich the already wealthy and increase their incomes while starving the country of much needed tax revenue. The meaning of this rise in tax-payer financed capitalism is that the rest of us must either pay higher taxes or do without necessary services.
By: Eileen Appelbaum, U. S. News and World Report, September 19, 2012
“A Choice Between Two Supreme Court’s: This November, A Chance To Vote On Citizens United
In today’s polarized political climate, there are a few things on which American voters overwhelmingly agree. For all our disputes, we can find common ground in this: we’re completely fed up. About 80 percent of us don’t think Congress is doing a good job. Only about one third of us view the federal government favorably. In a precipitous drop, less than half of Americans have a favorable view of the Supreme Court. Across all political lines, 75 percentof Americans say there is too much money in politics, and about the same percentage think this glut of money in politics gives the rich more power than the rest in our democracy.
Interestingly, another thing that most Americans have in common is that 80 percent of us have never heard of Citizens United v. FEC, the case in which the Supreme Court ruled that corporations have a First Amendment right to spend unlimited amounts of money to influence elections. Our feelings of frustration with Washington are deeply connected with the widespread, and entirely founded, suspicion that our elected officials aren’t representing voters, but are instead indebted to the wealthy interests that pay for their campaigns. This distrust has only deepened as politicians and the courts have handed over more and more power to those with the deepest pockets.
Citizens United is only the most famous of the recent spate of Supreme Court decisions aimed at eliminating hard-won campaign finance regulations. In fact, shortly before Citizens United, the George W. Bush-created right-wing bloc of the Supreme Court issued major rulings that had already begun to undermine decades of federal clean election laws.
And we are only partway down the slippery slope. It keeps getting worse as the Supreme Court gradually dismantles state-level clean elections laws, as it did in Arizona, and clarifies that its sweeping decision in Citizens United applies to states as well, as it did in Montana. Indeed, it won’t be long before this or some future right-wing Supreme Court cuts to the chase and lifts the century-old ban on direct corporate contributions to political candidates, one of the most basic checks we have against widespread corruption.
Believe it or not, this November, we’ll have the chance to vote on whether this slippery slope continues, or whether we stop it and roll it back. Each of these regressive campaign finance rulings has had a monumental impact on our democracy. It’s easy to forget that they have been made by one-vote 5-4 majorities of the Supreme Court. That means we’re just one Supreme Court vote away from stopping the trend in its tracks — and even reversing it. Although Mitt Romney has flip-flopped on many issues, he’s crystal clear about how he feels on this issue and exactly what kind of judge he would appoint to the Supreme Court and the lower federal courts. He has said he believes “corporations are people” and he means it. He’s promised to nominate more Supreme Court justices like the ones who handed down Citizens United. And his chief judicial adviser, former judge Robert Bork, is legendary in his opposition to individual voting rights while advocating expansive corporate power. On this issue in particular, President Obama has been very clear and comes down unambiguously on the opposite side. Look no further than his Supreme Court picks so far. Elena Kagan and Sonia Sotomayor have consistently resisted the right-wing court’s radical transformation of our democracy. In fact, his nominees now represent half the votes in the High Court who are standing up for democracy against “government by and for” the highest bidder.
Some 2008 Obama voters may not be thrilled by the last four years. Some may even be considering giving Mitt Romney a chance, despite their misgivings. But no matter who your candidate is, what issues you care about or on what side you come down on them, most importantly your vote this November will likely determine the Supreme Court for a generation. If Romney has the opportunity to replace one of the more moderate Supreme Court justices, the Court’s far-right majority will not remain narrow. The votes will be there to dismantle any remaining limits of money in politics for the foreseeable future. Conversely, future Obama appointments give Americans the chance to halt this downward spiral and the opportunity to reclaim our democracy.
Whatever the issues you most care about, this November’s election will be a choice between two Supreme Courts. And the two alternatives could not be more different. Quite simply, this is the chance that the overwhelming majority of Americans — who recognize that there is too much money in politics and that it is corrupting our government at every level — finally have to vote on it.
Will we seize this opportunity?
By: Michael B. Keegan, The Huffington Post, September 6, 2012
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