Portrait, Robert Reich, 08/16/09. (photo: Perian Flaherty)
05 January 14
ne
of the worst epithets that can be leveled at a politician these days is
to call him a "redistributionist." Yet 2013 marked one of the biggest
redistributions in recent American history. It was a redistribution
upward, from average working people to the owners of America.
The stock market ended 2013 at an all-time high -
giving stockholders their biggest annual gain in almost two decades.Most
Americans didn't share in those gains, however, because most people
haven't been able to save enough to invest in the stock market. More
than two-thirds of Americans live from paycheck to paycheck.
Even if you include the value of IRA's, most shares of
stock are owned by the very wealthy. The richest 1 percent of Americans
owns 35 percent of the value of American-owned shares. The richest 10 percent owns over 80 percent.So in the bull market of 2013, America's rich hit the jackpot.
What does this have to do with redistribution? Some
might argue the stock market is just a giant casino. Since it's owned
mostly by the wealthy, a rise in stock prices simply reflects a transfer
of wealth from some of the rich (who cashed in their shares too early)
to others of the rich (who bought shares early enough and held on to
them long enough to reap the big gains).
But this neglects the fact that stock prices track
corporate profits. The relationship isn't exact, and price-earnings
ratios move up and down in the short term. Yet over the slightly longer
term, share prices do correlate with profits. And 2013 was a banner year
for profits.
Where did those profits come from? Here's where
redistribution comes in. American corporations didn't make most of their
money from increased sales (although their foreign sales did increase).
They made their big bucks mostly by reducing their costs - especially
their biggest single cost: wages.
They push wages down because most workers no longer
have any bargaining power when it comes to determining pay. The
continuing high rate of unemployment - including a record number of
long-term jobless, and a large number who have given up looking for work
altogether - has allowed employers to set the terms.
For years, the bargaining power of American workers
has also been eroding due to ever-more efficient means of outsourcing
abroad, new computer software that can replace almost any routine job,
and an ongoing shift of full-time to part-time and contract work. And
unions have been decimated. In the 1950s, over a third of private-sector
workers were members of labor unions. Now, fewer than 7 percent are
unionized.
All this helps explain why corporate profits have been
increasing throughout this recovery (they grew over 18 percent in 2013
alone) while wages have been dropping. Corporate earnings now represent
the largest share of the gross domestic product - and wages the smallest share of GDP - than at any time since records have been kept.
Hence, the Great Redistribution.
Some might say this doesn't really amount to a
"redistribution" as we normally define that term, because government
isn't redistributing anything. By this view, the declining wages, higher
profits, and the surging bull market simply reflect the workings of the
free market.
But this overlooks the fact that government sets the
rules of the game. Federal and state budgets have been cut, for example -
thereby reducing overall demand and keeping unemployment higher than
otherwise. Congress has repeatedly rejected tax incentives designed to
encourage more hiring. States have adopted "right-to-work" laws that
undercut unions. And so on.
If all this weren't enough, the tax system is rigged
in favor of the owners of wealth, and against people whose income comes
from wages. Wealth is taxed at a lower rate than labor.
Capital gains, dividends, and debt all get favorable
treatment in the tax code - which is why Mitt Romney, Warren Buffet, and
other billionaires and multimillionaires continue to pay around 12
percent of their income in taxes each year, while most of the rest of us
pay at least twice that rate.
Among the biggest winners are top executives and Wall
Street traders whose year-end bonuses are tied to the stock market, and
hedge-fund and private-equity managers whose special "carried interest"
tax loophole allows their income to be treated as capital gains. The
wild bull market of 2013 has given them all fabulous after-tax
windfalls.
America has been redistributing upward for some time -
after all, "trickle-down" economics turned out to be trickle up - but
we outdid ourselves in 2013. At a time of record inequality and
decreasing mobility, America conducted a Great Redistribution upward.
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