The Angry Rich

By PAUL KRUGMAN

Published: September 19, 2010

Anger is sweeping America. True, this white-hot rage is a minority phenomenon, not something that characterizes most of our fellow citizens. But the angry minority is angry indeed, consisting of people who feel that things to which they are entitled are being taken away. And they’re out for revenge.

Fred R. Conrad/The New York Times

Paul Krugman

No, I’m not talking about the Tea Partiers. I’m talking about the rich.

These are terrible times for many people in this country. Poverty, especially acute poverty, has soared in the economic slump; millions of people have lost their homes. Young people can’t find jobs; laid-off 50-somethings fear that they’ll never work again.

Yet if you want to find real political rage — the kind of rage that makes people compare President Obama to Hitler, or accuse him of treason — you won’t find it among these suffering Americans. You’ll find it instead among the very privileged, people who don’t have to worry about losing their jobs, their homes, or their health insurance, but who are outraged, outraged, at the thought of paying modestly higher taxes.

The rage of the rich has been building ever since Mr. Obama took office. At first, however, it was largely confined to Wall Street. Thus when New York magazine published an article titled “The Wail Of the 1%,” it was talking about financial wheeler-dealers whose firms had been bailed out with taxpayer funds, but were furious at suggestions that the price of these bailouts should include temporary limits on bonuses. When the billionaire Stephen Schwarzman compared an Obama proposal to the Nazi invasion of Poland, the proposal in question would have closed a tax loophole that specifically benefits fund managers like him.

Now, however, as decision time looms for the fate of the Bush tax cuts — will top tax rates go back to Clinton-era levels? — the rage of the rich has broadened, and also in some ways changed its character.

For one thing, craziness has gone mainstream. It’s one thing when a billionaire rants at a dinner event. It’s another when Forbes magazine runs a cover story alleging that the president of the United States is deliberately trying to bring America down as part of his Kenyan, “anticolonialist” agenda, that “the U.S. is being ruled according to the dreams of a Luo tribesman of the 1950s.” When it comes to defending the interests of the rich, it seems, the normal rules of civilized (and rational) discourse no longer apply.

At the same time, self-pity among the privileged has become acceptable, even fashionable.

Tax-cut advocates used to pretend that they were mainly concerned about helping typical American families. Even tax breaks for the rich were justified in terms of trickle-down economics, the claim that lower taxes at the top would make the economy stronger for everyone.

These days, however, tax-cutters are hardly even trying to make the trickle-down case. Yes, Republicans are pushing the line that raising taxes at the top would hurt small businesses, but their hearts don’t really seem in it. Instead, it has become common to hear vehement denials that people making $400,000 or $500,000 a year are rich. I mean, look at the expenses of people in that income class — the property taxes they have to pay on their expensive houses, the cost of sending their kids to elite private schools, and so on. Why, they can barely make ends meet.

And among the undeniably rich, a belligerent sense of entitlement has taken hold: it’s their money, and they have the right to keep it. “Taxes are what we pay for civilized society,” said Oliver Wendell Holmes — but that was a long time ago.

The spectacle of high-income Americans, the world’s luckiest people, wallowing in self-pity and self-righteousness would be funny, except for one thing: they may well get their way. Never mind the $700 billion price tag for extending the high-end tax breaks: virtually all Republicans and some Democrats are rushing to the aid of the oppressed affluent.

You see, the rich are different from you and me: they have more influence. It’s partly a matter of campaign contributions, but it’s also a matter of social pressure, since politicians spend a lot of time hanging out with the wealthy. So when the rich face the prospect of paying an extra 3 or 4 percent of their income in taxes, politicians feel their pain — feel it much more acutely, it’s clear, than they feel the pain of families who are losing their jobs, their houses, and their hopes.

And when the tax fight is over, one way or another, you can be sure that the people currently defending the incomes of the elite will go back to demanding cuts in Social Security and aid to the unemployed. America must make hard choices, they’ll say; we all have to be willing to make sacrifices.

But when they say “we,” they mean “you.” Sacrifice is for the little people.

Jobs and the Economy

The Chamber of Commerce is rolling out its “jobs and economy” political initiative today. As Politico reports, the blitz is “designed to drive voters toward ““5 Questions to Ask Your Candidates,” to be distributed by mail and online to millions of voters.”

Here are the five, accompanied by five alternatives tied to reality rather than the Chamber’s ideological phantasmagoria:

1. Do you believe that our free enterprise system is currently threatened?

Do you believe that entrenched corporate interests are blocking reforms vital to our country’s future?

2. Do you believe that tax increases hurt job creation?

Do you believe that tax cuts to businesses sitting on trillions of dollars will create jobs or waste money?

3. Do you think that the growth of government at all levels and the deficits that follow negatively impact job creation?

Do you think that deregulation of corporations and banks and the financial wilding that followed, crashing the economy, and doubling the national debt negatively impacted job creation?

4. Would you deal with the debt and deficit issues through increasing government revenue or decreasing government spending?

Would you deal with debt and deficit issues by building a new foundation for the economy so we can grow our way out of the hole we are in, or with austerity, cutting spending on education, energy, infrastructure, Medicare and Social Security to balance our budget?

5. Do you believe that the uncertainty resulting from pending tax increases, higher government deficits, and more government regulations will hurt the economy?

Do you believe businesses aren’t hiring because they see no demand for their products, or that they are foregoing profitable opportunities fretting about deficits, and possible increases in taxes and regulations?

This country is struggling to respond to the worst downturn since the Great Depression, a direct result of the failed conservative policies that the Chamber of Commerce has advocated for decades.

Over the last decade, we lost one in three manufacturing jobs. Inequality reached Gilded Age extremes.. CEOs and bankers pocketed million dollar bonuses while cooking the books and gambling on exotic securities, inflating the housing bubble until it burst. Health insurance companies kept a strangle hold on a health care system that costs twice as much as those in other industrial countries, leaves millions uninsured and provides worse health care. Catastrophic climate change went unaddressed. Big Oil and big coal insured that the US would forfeit the lead in the new green industrial revolution that is sweeping the world. Conservatives removed the cop on the corporate beat leading directly to the financial wilding and collapse, the horrors of Massey in West Virginia and BP in the Gulf, the risks of poisoned toys and infected eggs.

One would think that in the ruins, the Chamber of Commerce would have the common decency to reconsider its ideological positions. After all, they have not only been ruinous to workers and the country, they led directly to the economic freefall that devastated businesses.

But no. Not one comma has been changed. Not a line changed in the stump speech. Mindless, without shame or sense, blind to the world around it, the Chamber gathers new millions from companies and peddles its poisonous nostrums.

By Robert Borosage

Union Members to Palin: Where do you stand

Union Members to Palin Where do you stand?

In an attempt to rally rank-and-file union members behind the Republican Party in advance of November's midterm elections, former Alaska Gov. Sarah Palin recently took to the Internet to appeal to union members to oppose President Obama and congressional Democrats.

To my hardworking, patriotic brothers and sisters in the labor movement: you don't have to put up with the scare tactics and the big government agenda of the union bosses. There is a different home for you: the commonsense conservative movement.

She even cited her and husband's former membership in my union, the International Brotherhood of Electrical Workers.

Now former sister Palin is more than welcome to try to sell the GOP's agenda to our membership -- we count Democrats, Republicans and independents among our ranks. But let me offer her a piece of sales advice.

If there is something our members hate -- and we've done polling on this -- it is overheated rhetoric and knee-jerk partisanship. They value their vote and want to know where candidates stand on the issues that matter the most to them, their families and communities -- not just to folks like me in Washington. This year it's all about jobs, jobs, jobs.

If Gov. Palin expects to get union members to support her endorsed candidates -- and our locals have been more than willing to endorse GOP candidates if they are better on our issues -- we need to see the details. But besides denouncing the Employee Free Choice Act -- the bill that would remove many of the existing obstacles to workers exercising their right to join a union -- and Obama's rescue of the auto industry, which saved thousands of jobs, there isn't much else in her appeal that tells us what she and her friends would do to help "good blue-collar Americans" if they took power.

So in the interest of clarity, I hope Gov. Palin tells us more about where her "commonsense cause" stands on the following issues:

Made in America: American manufacturing once dominated the world economy. Now, you're lucky to find a Stars and Stripes made in the U.S.A. This nation has already lost one-third of its manufacturing output. And from Ohio to North Carolina, that has meant millions of lost jobs -- jobs that once brought middle-class prosperity to communities across the country.

"The good blue collar Americans" Gov. Palin speaks of want our lawmakers to get serious about making things here at home again. We need real incentives for corporations to build and hire in the U.S.A. We need Congress to stop passing lousy trade deals and to get serious about cracking down on Chinese currency manipulation, which amounts to an unfair global advantage.

Where does she stand on the "Make it in America" agenda being promoted in Congress? The plan would eliminate tax-breaks for companies that offshore jobs and promote investments in new technologies that would enhance manufacturing here at home.

One of Gov. Palin's endorsed candidates, Rep. Michele Bachmann (R-Minn.) has voted for nearly every job killing trade deal that has come before her since she was elected, while voting against expanding the Trade Adjustment Assistance program, the federal lifeline for workers who have lost their jobs to global competition.

And let's not forget Palin-endorsed California senatorial candidate Carly Fiorina, the former Hewlett-Packard chief executive (best known for giving more than 30,000 workers the pink slip), who in 2004 told a group of Silicon Valley executives that "there is no job that is America's God-given right anymore."

After Fiorina's speech, Sidney Weintraub, a political economist at the Center for Strategic and International Studies, told the San Francisco Chronicle: "Labor unions have battled 'offshoring,' which Fiorina calls 'right- shoring.'"

How does that fit in with Gov. Palin's call for "creating good jobs with good wages?"

Safety on the Job: As a wife of a former oil field worker, Gov. Palin surely knows the safety concerns that plague so many working families each day. Our members and their families want to know that their safety isn't taken for granted.

But we can't always count on the goodwill of employers, as we saw from the mine tragedy in West Virginia last spring. We need to make sure the government is doing its job of upholding basic safety standards in the workplace.

So how could Gov. Palin endorse someone like Rand Paul in Kentucky, who recently said mine safety regulations are unnecessary?

Equal Pay for Equal Work: I'm sure Sarah Palin wouldn't have put up with being paid less than her male co-workers. So why did she dump $5,000 on Iowa Sen. Chuck Grassley's re-election campaign? Isn't she aware that he was one of the leading opponents of the Lily Ledbetter Fair Pay Act, which was signed into law by Obama in 2009? The law reversed a Supreme Court ruling that prevented Ledbetter, a Goodyear Tire employee with nearly 20 years on the job, from suing for back pay after discovering she had been paid less that her male co-workers for doing the same job for years.

Disgracefully, only five GOP senators voted for the bill -- one of them being Alaska Sen. Lisa Murkowski, who just lost her GOP primary. No word on how her victorious opponent Joe Miller -- another Palin friend -- would have voted on it, but it's something many real IBEW sisters would like to know.

The people that Sarah Palin once called brothers and sisters and shared union membership with would like to get some serious answers.

Follow Edwin D. Hill on Twitter: www.twitter.com/IBEW

The Origin of the Crisis

Well it's Labor Day, and I had forgotten I would be home alone. (Russ has a top priority job he has to finish.) So I thought I'd watch the news and find out what is going on in the world. But turns out the same thing that was going on yesterday is going on today; and other than a couple of recaps of sad, catastrophic events in the world, no one had much real info about the world--specifically our American world and politics. Just a rehash of nothing. Of course I knew this--that tv news is just bad entertainment (or propaganda), and don't ever forget it. But I was feeling lazy and wanted some real information spoon fed anyway. I missed Fareed Zakaria's show yesterday so I was standing in a vacuum.

I struggled upstairs to see what I could find on the internet about the state of the union and our economy. It's depressing to see the stats about Republicans taking over Democratic seats and the uproar over the economy. Though often it makes little difference. Obama blames Bush (seems justified to me), Bush blames Clinton, Clinton Blames Bush, and on it goes. It is hard to figure out exactly what went wrong and who was at fault. And the voting public seems to be a lot like home buyers--very little imagination. If it is not currently in wonderful condition, the problem is the current administration (so don't buy it). No real thought about how it got that way or what it would really cost to renovate it. And no vision of what it might be. Hmm did that make sense?

The criticism of Obama is pretty funny and depressing; though I too wish he could have got universal health care passed (or at the very least a public option), really fixed Wall Street, cleaned up the environment, and brought peace to the Middle East. (Contrary to everyone's expectations--on the left and the right, turns out he is not God.) But mostly the news pundits throw labels around mixed with an occasional "fact." Basically we pretend we know what we are talking about, when we don't. Follow the money, unfortunately, seems to work in all waters. Hmm, I think I'm rambling.

But anyway, I did find an interesting and intelligent column online about how we got where we are. (If anyone has a substantive argument about our current state showing something else, I would be willing to read it.) And if you're in a hurry--skip to the first major heading, "The Origin of the Crisis."

THE REAL

LESSONS OF LABOR DAY

Welcome to the worst Labor Day in the memory of most Americans. Organized labor is down to about 7 percent of the private work force. Members of non-organized labor -- most of the rest of us -- are unemployed, underemployed or underwater. The Labor Department reported on Friday that just 67,000 new private-sector jobs were created in August, which, when added to the loss of public-sector (mostly temporary Census worker jobs) resulted in a net loss of over 50,000 jobs for the month. But at least 125,000 net new jobs are needed to keep up with the growth of the potential work force.

Face it: The national economy isn't escaping the gravitational pull of the Great Recession. None of the standard booster rockets are working. Near-zero short-term interest rates from the Fed, almost record-low borrowing costs in the bond market, a giant stimulus package, along with tax credits for small businesses that hire the long-term unemployed have all failed to do enough.

That's because the real problem has to do with the structure of the economy, not the business cycle. No booster rocket can work unless consumers are able, at some point, to keep the economy moving on their own. But consumers no longer have the purchasing power to buy the goods and services they produce as workers; for some time now, their means haven't kept up with what the growing economy could and should have been able to provide them.

The Origin of the Crisis

This crisis began decades ago when a new wave of technology -- things like satellite communications, container ships, computers and eventually the Internet -- made it cheaper for American employers to use low-wage labor abroad or labor-replacing software here at home than to continue paying the typical worker a middle-class wage. Even though the American economy kept growing, hourly wages flattened. The median male worker earns less today, adjusted for inflation, than he did 30 years ago.

But for years American families kept spending as if their incomes were keeping pace with overall economic growth. And their spending fueled continued growth. How did families manage this trick? First, women streamed into the paid work force. By the late 1990s, more than 60 percent of mothers with young children worked outside the home (in 1966, only 24 percent did).

Second, everyone put in more hours. What families didn't receive in wage increases they made up for in work increases. By the mid-2000s, the typical male worker was putting in roughly 100 hours more each year than two decades before, and the typical female worker about 200 hours more.

When American families couldn't squeeze any more income out of these two coping mechanisms, they embarked on a third: going ever deeper into debt. This seemed painless -- as long as home prices were soaring. From 2002 to 2007, American households extracted $2.3 trillion from their homes.

Eventually, of course, the debt bubble burst -- and with it, the last coping mechanism. Now we're left to deal with the underlying problem that we've avoided for decades. Even if nearly everyone was employed, the vast middle class still wouldn't have enough money to buy what the economy is capable of producing.

Where have all the economic gains gone? Mostly to the top. The economists Emmanuel Saez and Thomas Piketty examined tax returns from 1913 to 2008. They discovered an interesting pattern. In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation's total income; by 2007, the top 1 percent took in 23.5 percent of total income.

It's no coincidence that the last time income was this concentrated was in 1928. I do not mean to suggest that such astonishing consolidations of income at the top directly cause sharp economic declines. The connection is more subtle.

The rich spend a much smaller proportion of their incomes than the rest of us. So when they get a disproportionate share of total income, the economy is robbed of the demand it needs to keep growing and creating jobs.

What's more, the rich don't necessarily invest their earnings and savings in the American economy; they send them anywhere around the globe where they'll summon the highest returns -- sometimes that's here, but often it's the Cayman Islands, China or elsewhere. The rich also put their money into assets most likely to attract other big investors (commodities, stocks, dot-coms or real estate), which can become wildly inflated as a result.

Meanwhile, as the economy grows, the vast majority in the middle naturally want to live better. Their consequent spending fuels continued growth and creates enough jobs for almost everyone, at least for a time. But because this situation can't be sustained, at some point -- 1929 and 2008 offer ready examples -- the bill comes due.

What We Learned and Didn't Learn From the Great Depression of the 1930s

This time around, policymakers had knowledge their counterparts didn't have in 1929; they knew they could avoid immediate financial calamity by flooding the economy with money. But, paradoxically, averting another Great Depression-like calamity removed political pressure for more fundamental reform. We're left instead with a long and seemingly endless Great Jobs Recession.

The Great Depression and its aftermath demonstrate that there is only one way back to full recovery: through more widely shared prosperity. In the 1930s, the American economy was completely restructured. New Deal measures -- Social Security, a 40-hour work week with time-and-a-half overtime, unemployment insurance, the right to form unions and bargain collectively, the minimum wage -- leveled the playing field.

In the decades after World War II, legislation like the G.I. Bill, a vast expansion of public higher education and civil rights and voting rights laws further reduced economic inequality. Much of this was paid for with a 70 percent to 90 percent marginal income tax on the highest incomes. And as America's middle class shared more of the economy's gains, it was able to buy more of the goods and services the economy could provide. The result: rapid growth and more jobs.

By contrast, little has been done since 2008 to widen the circle of prosperity. Health-care reform is an important step forward but it's not nearly enough.

What Else Should Be Done

What else could be done to raise wages and thereby spur the economy? I don't pretend to have all the answers but some initiatives seem worthwhile.

We might consider, for example, extending the earned income tax credit all the way up through the middle class, and paying for it with a tax on carbon. The carbon tax would raise the prices of goods and services especially dependent on carbon-based fuels, which is appropriate given that the social costs of carbon-based fuels should be included in their prices. Consider how much our society now spends on such things as foreign wars designed to secure our sources of oil, as well as oil cleanups. But the wage subsidies would more than make up for these price rises, at least for most Americans in the middle and below.

Another step would be to exempt the first $20,000 of income from payroll taxes and paying for it with a payroll tax on incomes over $250,000. This, too, seems reasonable, given that under current law only the first $106,000 of income is subject to the Social Security portion of the payroll tax - a particularly regressive system. Most higher-income people, who get good medical care, live longer and collect far more in Social Security benefits, than do lower-income people.

In the longer term, Americans must be better prepared to succeed in the global, high-tech economy. Early childhood education should be more widely available, paid for by a small 0.5 percent fee on all financial transactions. Public universities should be free; in return, graduates would then be required to pay back 10 percent of their first 10 years of full-time income.

Another step: workers who lose their jobs and have to settle for positions that pay less could qualify for "earnings insurance" that would pay half the salary difference for two years; such a program would probably prove less expensive than extended unemployment benefits.

These measures would not enlarge the budget deficit because they would be paid for. In fact, such moves would help reduce the long-term deficits by getting more Americans back to work and the economy growing again.

Here's the point. Policies that generate more widely shared prosperity lead to stronger and more sustainable economic growth -- and that's good for everyone.

The rich are better off with a smaller percentage of a fast-growing economy than a larger share of an economy that's barely moving. That's the Labor Day lesson we learned decades ago; until we remember it again, we'll be stuck in the Great Recession.

Robert Reich, 09.05.2010

Former Secretary of Labor, Professor at Berkeley

Berkeley! Whaddaya expect?