Winners and losers

In my last two columns I wrote about the call of US billionaire-investor Warren Buffet to tax the rich more, and about efforts to create more jobs in the United States by reviving manufacturing that uses advanced technology.

Acceding to readers’ requests, I try to show in this piece how the few super-rich Americans came to be, and why the large US middle class sank into debt and alarming joblessness as a result of neoliberal globalization. To some extent, this process has been replicated in various countries, including the Philippines.

I have drawn much of the data and analyses from Robert B. Reich, former US labor secretary and author of the book, Aftershock: The Next Economy and America’s Future, particularly from his recent article in the op-ed section of the International Herald Tribune.

“American society has become more and more unequal,” notes Reich. Proof: per a recent research finding, the five percent of Americans with top incomes account for 37 percent of all goods and services bought in the country.

“When so much income goes to the top,” Reich observes, “the middle class doesn’t have enough purchasing power to keep the economy going without sinking ever more deeply into debt - which, as we have seen, ends badly.” He concludes: “The economy won’t really bounce back until America’s surge toward inequality is reversed.”

Reviewing economic data from the last 100 years, Reich arrived at the following interesting findings:

1. When the very rich took up a smaller proportion of the total income, the economy grew faster and median wages increased. The growing middle class consumed more goods and services, thus stoking demand and spurring production. This happened in the 30-year era of “the Great Prosperity” (1947-1977).

2. When the very rich took up a larger proportion of the total income, economic growth faltered, median wages stagnated, and the economy experienced “great downturns.”

This first occurred in the 15 years between 1918 and 1933. It has recurred, in worse scale and depth, in the 30-year “Great Regression” (1981-2011) due to neoliberal globalization policies applied.

(The triad proponents - the IMF, World Bank, and World Trade Organization — promised that globalization would bring about prosperity for all countries and peoples, without exception. Alas, the reverse has happened.)

3. The weakening of the middle class started in the late 1970s. Wages began to stagnate and jobs were lost when new technologies displaced jobs that could be automated, or done more cheaply abroad because of lower production costs and wages.

4. Inversely, the new technologies rewarded those who used it to innovate and enhance profitability with enormous financial returns, such as continually rising salaries and stock-options for top executives on Wall Street.

(The unregulated manipulations of intricate financial instruments by these high-flying executives spawned the 2008 global financial and economic crisis that persists till today.)

5. Thanks to the 55 percent of married women with children who took up jobs in the late1970s-1990s — from only 12 percent in the 1960s — the middle class continued to have money to spend. Not anymore since the late 1990s. Progressively, family incomes fell. By 2007 the typical US household’s debt rose threefold. Thousands of families now can’t redeem their mortgaged houses.

Why did this happen?

Blame the US government’s pursuance, since the late 1970s, of deregulation and privatization “with increasing fervor over the next three decades.” Says Reich:

“(Government) cut spending on infrastructure as a percentage of the national economy and shifted more of the costs of public higher education to families. It shredded safety nets… And it allowed companies to bust unions and threaten employees who tried to organize. Fewer than eight percent of private-sector workers are unionized.”

The state coddled the big banks, which were deregulated but insured against major losses. By doing this, Reich observes, the government “allowed finance — which until then had been the servant of American industry — to become its master, demanding short-term profits over long-term growth and raking in an ever larger portion of the nation’s profits.” By 2007 financial firms held over 40 percent of US corporate profits, as well as of salaries.

And as Warren Buffet disclosed earlier, the top income tax rate was reduced by half to 35 percent. Many very rich Americans were allowed to treat their incomes as capital gains subject to only 15 percent tax.

On the other hand, the government hiked the sales and payroll taxes taken out of employees’ salaries and workers’ wages. As incomes stagnated and taxes rose, many Americans protested. To no avail. Government was unmoved.

What should have been done? Reich thinks the government should have:

1. Focused on early childhood education, better public schools, expanded access to higher education.

2. Enlarged safety nets by giving part-time work unemployment insurance coverage, transition aid to workers moving to new locations, and Medicare for all.

3. Required big firms to give severance pay to dismissed workers and train them for new jobs, pegged the minimum wage at one-half the median wage.

4. Raised taxes on the rich and cut them for poorer Americans.

Hopefully, the P-Noy government policymakers can study these data and analyses as they apply to our own national experience in the last 30 years.

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