Tom Perkins tells us about the 1%’s vision of a New America

Summary: Every day the New America grows on the ruins of the America-that-once-was. Every day our apathy weakens the Republic. Every day powerful people — each wielding wealth greater than millions or tens of millions of other Americans — add new brinks to the new plutocracy that will govern our children and their children. They’re doing so openly. To minimize our fear and guilt we laugh at them. They smile at our folly; the Founders cry silently.

The oligarchy club

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Content

  1. Telling us about the coming New America
  2. Tax rates on the wealthy at post-1930s lows. They’re not grateful…
  3. America’s exceptional inequality
  4. For More Information

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(1)  Telling us about the New America

Tom Perkins’ big idea: The rich should get more votes“, CNN, 14 February 2014 — Tom Perkins speaking at the Commonwealth Club in San Francisco. Everybody has words to live by, that justify their actions. Perkins shared his with us. He’s not joking, and their increasing power brings his vision closer to fruition every day, as the 1%’s command of all levels, all parts of the governing mechanism means that our votes have less effect than his dollars.

Listen, and be afraid. Unless we develop backbones and cohesion, Perkins vision will come true.  One way or another.

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Tax rates on the wealthy are at post-1930s lows. They’re not grateful…

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The state of the American middle class: are we thriving or sinking?

Summary: One function the FM website performs for readers is assembling data into pictures that show how our world works. Today we look at three factors of American households: income, spending, and debt — and how they relate to one another. It’s not a pretty picture, but one we can change if we work together.

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One powerful measure of America’s recovery from the crash is real disposable personal income (aka after-tax income). Let’s look at it in pure form, after adjusting for population growth and inflation: Real Disposable Income per capita. It has risen a pitiful 0.7% per year over the five years from the start of the recession. Slow movement in the right direction.

Real Disposable Income per Capita

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But that’s an aggregate number, and such numbers hide as much as they reveal. How has this tiny income gain been shared? Have all classes gained income? Note inflation (CPI) was 1.5% in 2010, so gains less than that are negative in real terms.

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Consequences of growing inequality in wealth, income, and power.

Summary: Part One looked at America’s rising inequality. Today we look at the resulting wide range of ill effects, a major driver building a New America. A rising concentration of income and wealth quickly becomes self-perpetuating as the 1% exploits their control of the government to gain yet more money and power. At some point we will have (or already have) a new political regime.

“In a state which is desirous of being saved from the greatest of all plagues — not faction, but rather distraction. There should exist among the citizens neither extreme poverty, nor, again, excess of wealth, for both are productive of both these evils.”
— Plato’s Laws.

“Avarice, the mother of all wickedness, who, always thirsty for more, opens wide her jaws for gold.”
— Claudianus, De Laudibus Stilichonis (~400 AD).

Fed Survey of Consumer Finance

Fed Survey of Consumer Finance

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Contents

  1. Causes of income inequality.
  2. “The Impact of Inequality on Growth”.
  3. The cost to America of wasting our human resources.
  4. The primary effect: concentrating political power.
  5. Pushback.
  6. For More Information.
  7. Another perspective.

(1)  Causes of income inequality.

Inequality over the Past Century“, Facundo Alvaredo, Finance & Development, September 2011 — “After declining in the first half of the 20th century, income inequality makes a comeback”. Excerpt:

Sources of Income of the 1%

IMF’s Finance & Development, September 2011

In the United States, average real incomes grew at a 1.3% annual rate between 1993 and 2008. But if the top 1 percent is excluded, average real income growth is almost halved, to about 0.75% a year.

Incomes of the top 1% grew 3.9% a year, capturing more than half of the overall economic growth experienced between 1993 and 2008.

… The new data call into question the standard relationship between economic development and income distribution—that growth and inequality reduction go hand in hand. But that relationship, postulated by economist Simon Kuznets, appears to be less certain — especially in English-speaking countries, which had a period of falling inequality during the first half of the 20th century followed by a reversal of the trend since the 1970s.

(2) The cost to America of wasting our human resources.

Becoming a better America paid off after WW2; stopping has cost us dearly: “The Allocation of Talent and U.S. Economic Growth“, Chang-Tai Hsieh et al, 22 February 2013. — Summary:

In 1960, 94% of doctors and lawyers were white men. By 2008, the fraction was just 62%. Similar changes in other highly-skilled occupations have occurred throughout the US economy during the last 50 years. Given that innate talent for these professions is unlikely to differ across groups, the occupational distribution in 1960 suggests that a substantial pool of innately talented black men, black women, and white women were not pursuing their comparative advantage.

This paper measures the macroeconomic consequences of the remarkable convergence in the occupational distribution between 1960 and 2008 through the prism of a Roy model. We find that 15 to 20% of growth in aggregate output per worker over this period may be explained by the improved allocation of talent.

(3)  “The Impact of Inequality on Growth”.

The Impact of Inequality on Growth“, Jared Bernstein, Center for American Progress, December 2013. — Summary:

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Growing inequality powers the rise of New America

Summary: Five years ago I wrote my first article about the problem of rising inequality in America. Now it’s become big time following a speech by President Obama. Today we review the evidence about the problem Additional information added Sunday morning, and the post broken into two. This is now part one. Part Two looks at its effects, and the inevitable pushback.

Wealth distribution of USA
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Contents

  1. Comparing America with our peer nations
  2. “Being Smart Isn’t Always Enough to Make it in America”
  3. Even worse news: a trend of greater inequality
  4. For More Information
  5. Another perspective

(1)  Comparing America with our peer nations

The Rise and Consequences of In equality in the United States, Alan B. Krueger Chairman, Council of Economic Advisers, 12 January 2012 — Introduces the Great Gatsby Curve.

Recent work by Miles Corak finds an intriguing link between the Intergenerational Income Elasticity (IGE) and in come inequality at a point in time. Countries that have a high degree of inequality also tend to have less economic mobility across generations. We have extended this work using OECD data on after-tax income inequality, as measured by the Gini coefficient.

This next figure shows a scatter diagram of the relationship between income mobility across generations on the Y-axis (measured by IGE) and inequality in the mid-1980s, as measured by the Gini coefficient for after-tax income, on the X- axis [Figure 7]. Each point represents a country. Higher values along the X-axis reflect greater inequality in family resources roughly around the time that the children were growing up. Higher values on the Y-axis indicate a lower degree of economic mobility across generations.

I call this the “Great Gatsby Curve.” The points cluster around an upward sloping line, indicating that countries that had more inequality across households also had more persistence in income from one generation to the next.

Great Gatsby Curve

2012 Economic Report of the President

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For more about this see “Income Inequality, Equality of Opportunity, and Intergenerational Mobility“, Miles Corak (Prof of Economics, U of Ottawa), Journal of Economic Perspectives, Summer 2013. See his other research here.

(2)  “Being Smart Isn’t Always Enough to Make it in America”

Being Smart Isn’t Always Enough to Make it in America“, Kevin Drum, Mother Jones, 12 December 2013, about  a chart from “Seven Steps Toward Social Mobility in President Obama’s Speech“, Richard V. Reeves and Kerry Searle Grannis, Brookings, 6 December 2013:

The chart below is a little tricky to read, but basically it shows how likely you are to make more money than your parents. You’d naturally expect smart kids to do better than dimmer kids, so it tracks that too.

Take a look at the green column on the far left. It’s for kids who grow up in the very poorest families. If you have high cognitive ability, you have a 24% chance of becoming a high earner as an adult. That’s not too bad. But if you come from a high-income family, you have a 45% chance of becoming a high earner as an adult. Same smarts, different outcome.

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Learning not to trust each other in America, and not to trust America

Summary: Strong social cohesion distinguishes successful from failed States, and has long been a strength of America. A side effect of the 1%’s successful programs to build a New America on the ruins of the America-that-Once-Was is erosion of our social cohesion. From that, should it continue, we can expect bitter fruit. Today we look at three telling articles about this evolution.

Conservatives fret that we will get inflation and devaluation — like Argentina. In fact Argentina’s fall came from its plutocracy’s greed, the loss of social cohesion, and the resulting social conflict.
Perhaps we should worry about becoming like Argentina.

Trust

Contents

  1. America’s system of High, Middle, & Low Justice
  2. Trust no promises by institutions in America
  3. Falling apart: decreased social cohesion
  4. For More Information
  5. Wide circles of trust make strong nations

(1) See America’s system of High, Middle, and Low Justice at work

Kozlowski Is Granted Parole“, New York Times, 3 December 2013 — 100 months served, the last six were at home. Excerpt:

Come January, L. Dennis Kozlowski’s long tenure in New York State’s penitentiary system will near its end. The state’s Board of Parole granted parole to Mr. Kozlowski, the former chief executive of Tyco International …

Now the onetime multimillionaire will take another step toward freedom, more than eight years after he was found guilty of essentially using Tyco as his own piggy bank. His conviction in 2005 of grand larceny, conspiracy and fraud cemented his status as an symbol of corporate greed and earned him a sentence of 8-1/3 to 25 years in prison.

… In July of this year, Mr. Kozlowski’s status was upgraded to “day reporting” status, which required him to briefly report to Lincoln twice a week. Since then, he has been sleeping at his home and going to work every day, though his lawyer declined to identify his current location or job.

Parole still carries some restrictions for Mr. Kozlowski, including regular check-ins with his parole officer, a curfew and refraining from alcohol. But he can apply for permission to leave the state, among other things.

(2)  Trust no promises by institutions in America; get what you are owed in cash now

Many State and local governments have underfunded pension plans. Now we learn how some will solve the problem: “Detroit Ruling on Bankruptcy Lifts Pension Protections“, New York Times, 3 December 2013 — Excerpt:

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Back to the future in New America: our new class structure

Summary: One of the news media’s master narratives is that the dark evolution of America just happens, much like the myth of the “invisible hand”. Inevitable. Resistance is futile. All is for the best in this, the best of all possible worlds. In fact most of the drivers of rising inequality are politics conducted by other means, invisible means. This is not new in America. We fought these battles before in the often-violent unionization struggles that accelerated after the Civil War (see section 5d here). Times differ, but we can win again.

“There’s class warfare, all right. But it’s my class, the rich class, that’s making war, and we’re winning.”
— Warren Buffet, quoted in the New York Times, 26 November 2006

Unbalanced Wage Scales

Unbalanced Wage Scales

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Content

  1. The emerging class structure of New America
  2. New America is made for corporations, not workers
  3. Corporations make millions from art while artists starve
  4. Academia adopts corporate comp systems: elites and peons
  5. For More Information
  6. The 99% need a raise

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(1)  The emerging class structure of New America

Increasing inequality of wealth and income plus changes in the structure of employment combine to return America to the 19th century class structure:

  • the top few percent who own almost everything — the bourgeoisie
  • elites with secure professions, high stable incomes, modest wealth
  • the petite bourgeoisie — small business owners
  • the proles, mostly with little job security and little or no wage growth

The major developments since 1980 have been downwards mobility of workers, even those who think of themselves as professionals and highly skilled workers. These stories fill the news media, although usually disguised. Here are three. Understanding these changes is the key to stopping them.

(2)  New America is made for corporations, not workers

Wages Stagnate as US Manufacturers Reap Record Profits“, Bloomberg, 21 November 2013 — Excerpt:

Boeing’s quest for concessions and employees’ opposition exposed a fault line in U.S. industry’s post-recession comeback: Even with hiring and output robust enough to be dubbed a manufacturing renaissance by President Barack Obama, workers are falling behind. Factory pay hasn’t kept pace with inflation and has fallen 3% on that basis since May 2009, while average pay for all wage earners slid only about 1%.

“We need to focus on how many jobs there are that give an adult a chance to earn a decent living,” said Gordon Lafer, an associate professor at the University of Oregon’s Labor Education and Research Center in Eugene. “Too much of the discussion has been about the number of jobs, and that’s obviously important, but there’s also a crisis in the quality of jobs.”

Boeing said it needed labor givebacks to keep the Seattle area as the home of the 777X jet, a new model with more than $95 billion in orders since September. Union workers said Boeing needed to share more of the wealth they help create. “This is really a symbol of what’s going on in this whole country,” said Machinist Thomas Campbell, 40. “We’re losing middle-class jobs.”

… The average hourly wage in U.S. manufacturing was $24.56 in October, 1.9% more than the $24.10 for all wage earners. In May 2009, the premium for factory jobs was 3.9% . Weighing on wages are two-tier compensation systems under which employees starting out earn less than their more experienced peers did, and factory-job growth in the South.

Since the U.S. recession ended in June 2009, for example, Tennessee has added more than 18,000 manufacturing jobs, while New Jersey lost 17,000. Factory workers in Tennessee earned an average of $54,758 annually in 2012, almost 10% less than national levels and trailing the $76,038 of their New Jersey counterparts, according to the Bureau of Labor Statistics.

(3)  Corporations make millions from art while artists starve

The new media created by Silicon Valley benefits corporations and consumers, the standard New America system. Workers have low wages and insecure incomes. The Huffington Post takes this to an extreme, paying its writers nothing.

My Song Got Played On Pandora 1 Million Times and All I Got Was $16.89, Less Than What I Make From a Single T-Shirt Sale!“, David Lowery (lead singer of Cracker), The Trichordist, 24 June 2013 — Opening:

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For Thanksgiving, Walmart shows us the New America

Summary: Words have failed to convey to you the nature of the New America being built on the ruins of the America-that-once-was (for a brief period after WW2).  Let’s try pictures, pictures about Thanksgiving in the New America — at Walmart.

A Walmart Thanksgiving

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Contents

  1. WalMart shows us the New America
  2. Bad news about the New America
  3. What this story says about America
  4. About the unionization drive
  5. For More Information

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(1)  WalMart shows us the New America

Their photo (above) has gone viral. Let’s hope their headline is a joke: “Is Walmart’s request of associates to help provide Thanksgiving dinner for co-workers proof of low wages?“, The Plain Dealer (Cleveland OH), 18 November 2013 —  Excerpt:

Kory Lundberg, a Walmart spokesman, said the food drive is proof that employees care about each other. “It is for associates who have had some hardships come up,” he said. “Maybe their spouse lost a job. This is part of the company’s culture to rally around associates and take care of them when they face extreme hardships,” he said.

… But an employee at the Canton store wasn’t feeling that Walmart was looking out for her when she went to her locker more than two weeks ago and discovered the food drive containers. To her, the gesture was proof the company acknowledged many of its employees were struggling, but also proof it was not willing to substantively address their plight.

The employee said she didn’t want to use her name for fear of being fired. In a dozen years working at the company, she had never seen a food drive for employees, which she described as “demoralizing” and “kind of depressing”. The employee took photos of the bins, and sent them to the Organization United for Respect at Walmart, or OUR Walmart, the group of associates holding the strikes in Cincinnati and Dayton.

Vanessa Ferreira, an OUR Walmart organizer, said she “flipped out” when she first saw the photos taken by the Canton worker. … “The company needs to stand up and give them their 40 hours and a living wage, so they don’t have to worry about whether they can afford Thanksgiving.”

Walmart tells a story to ABC News:

“Kory Lundberg, a spokesman for Walmart, said this store of about 300 employees has been hosting a holiday food drive for a few years. “Quite frankly, a lot of people in that store are frustrated and offended that this is reported in a way besides other folks rallying around each other,” Lundberg said. Last year, he said there were about 12 people who benefited from the program. “I couldn’t be prouder of people in that store helping in a tough situation,” he said.

(2)  Bad news about the New America

The few, the proud, the very rich“, Sylvia Allegretto (labor economist), Center on Wage and Employment Dynamics, UC Berkeley, 5 December 2011 — Excerpt (red emphasis added):

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