Taking Sides in the Class War

  This post, and its accompanying fact sheet,  are part of a presentation on economic inequality presented at the Cedar Valley Unitarian Universalists on April 12, 2015.

Please take a look at the fact sheet before reading the rest of the post.

             FACT SHEET----ECONOMIC INEQUALITY IN AMERICA.

1.  Can inequality be quantified, or defined objectively?  Yes.  The Gini Index does this. In 1912, an Italian economist named Corrado Gini devised an index which integrates the income data from an entire country into a single number, the Gini Index.  If all of the income in a country went to a single individual, the country would have an index equal to 1.   If all income were divided perfectly evenly, the country would have an index equal to 0.  So all Gini indices fall between 0 and 1.   (The higher the number, the more inequality.) Since 1912, economists worldwide have used the Gini Index.

2.  What is the U.S. Gini Index, and how does this compare to other countries?  In 1985, the U.S. Gini Index was .419.   Across Europe at that time, the index ranged from .200 to .300.  Historically, at least since WWII,  income distribution in Europe has been radically more equal than in the U.S.

3. Where do Gini numbers come from?   The U.S. Census Bureau computes and publishes Gini Index numbers for the U.S. as a whole, and for each Congressional District.

4. How has the U.S. Gini Index changed through time?   In 1968, the U.S. index was .386, the lowest ever recorded. By 1975, it was .397.    By 1985, it was .419.  Today, it's .476.

To look at it another way, in 2012, the top 1% got 23% of all income.  This is the same percentage as in 1928---just before the start of the Great Depression.   In case you were wondering why Wall Street investors would care about inequality--now you know.

All Gini Index numbers quoted here are from an article in the March 16 issue of The New Yorker by Jill Lepore, entitled "Richer and Poorer."  In this article she reviews three recent books, including Robert Putnam's Our Kids:  The American Dream in Crisis.

   

                  TAKING SIDES IN THE CLASS WAR........by Albert Browne

            Last summer, the Unitarian Universalist General Assembly ( the UU GA) chose" Escalating Inequality" as its National Study and Action Issue.    Yet the UU GA is not the only voice speaking out on this subject.   In the last few years, The International Monetary Fund, (the IMF) has been saying that the main thing holding back the economic recovery, worldwide,  is economic inequality in the US.  The Pope also talks about inequality, and President Obama had  made remediation of inequality the centerpiece of his second term, until world events pushed it onto a back burner.  Keep in mind that the IMF is a syndicate of international banking interests.   No one ever accused them of being a friend of working people anywhere.  Yet even they are worried about inequality. They think if this  problem  remains unchecked, it could bring down the whole Western economic system.  Several editorials have been printed in the Wall Street Journal  sharing  that concern.   What are the odds that  the Pope, the IMF, and the UU GA would all agree on something? Yet they are all concerned about inequality.

            How did we ever get to this level of inequality?  Well, it is the predictable result of a 40 year class war.    Do we really have a class war?   Warren Buffet says, "Yes, there is a class war---and unfortunately, my side is winning."  But  before I try to persuade you of a moral obligation to fight  growing inequality by doing something, I would like to examine the question of whether there is any action you could take that would make a difference.  If not, then you probably have no obligation to do anything at all.  We have all spent most of our adult lives hearing that any attempt improve the lives of those who are less successful is bound to fail, or would just make things worse.  Or we've  heard that taxing billionaires to fund benefits for the general public is counter-productive,  because billionaires are the "job creators," or because the  confiscation of wealth through taxation might undermine the incentive for investors to take risks.  We are told that even though our human instincts might spur us to help others, we should resist this urge because it just makes things worse.  We are told that the only thing society can really  do that helps is to repeal taxation and regulation, and get government out of the way,  so the "magic of the market"  can do its work.  Well, since the meltdown of 2008, our most recent experience with "the magic of the market," you might wonder how anyone could still believe this stuff, but a lot of people do, and they are not all uneducated or ignorant people.   We are so immersed in this kind of "free-market cheerleading" that most people accept it without ever examining why.   Whether you call it "trickle down" economics, or "supply side" economics, it's all the same idea, and it's been around for a long time. The idea is actually based on the theories of two Eighteenth Century economists;  Adam Smith, who wrote the Wealth of Nations,  and  Jean-Baptist Say,   who gave us "Say's Law."  People like to quote  Adam Smith, though most have not actually read Smith, and would not much like what they saw if they ever did. But it's Say's Law that all reactionary economic schemes really depend on.

   This idea gets resurrected about once every generation, and the reason it always has believers is that some of its defenders always have impressive credentials.    Milton Friedman, after all, was a Nobel laureate.  Winning the  Nobel Prize in Economics in 1976 made him the High-Priest of Money, and his  acolytes soon took over the economics departments of many of our best colleges   So if you have been influenced by these ideas, and all of us have, then I should take the few minutes required to demonstrate that Say's Law is all complete and utter nonsense before I try to discuss how we might discharge our moral and ethical obligations to the economic losers our society systematically creates. If you harbor even the slightest doubt that attempts to improve the human condition have a good chance of working, then my job should be to purge that doubt.  Otherwise, when you get involved in a progressive project, your heart will never be in it, because your head will be telling you that it can't work.

              Nobel Prize winning economists Paul Krugman, who writes for the New York Times and  Joseph Steiglitz, former President of the IMF, disagree strongly with supply side economics.  In fact, if they were all alive today, you could fill a couple rooms with Nobel Prize winning economists who totally dismissed supply side economics. 

            But the economist who explains most clearly why supply side economics doesn't work, is the late John Kenneth Galbraith.  Galbraith was economic advisor for four U.S. Presidents:  Roosevelt, Truman, Kennedy and Johnson, though he broke with the Johnson Administration in the mid 60s over the Viet Nam War.   Amazingly, every administration he worked for saw an increase in the American standard of living for as many years as he was part of the team.  When not advising presidents, he was a tenured professor at Harvard, and he wrote over 30 books.  When I was in College, Galbraith was required reading in every economics class, and is still considered the foremost authority on the causes of The Great Depression. 

            Galbraith says that in 1930,  you could not be hired by any economics department in the country if you did not accept Say's Law.  But by 1935,  you could not be hired if you did accept it.   Say's Law basically says that production creates its own demand.  That there could never be a glut, that is, more goods on the market than purchasing power to buy it, because production creates its own purchasing power.  If Say's Law is true, then there is no need for government to intervene in the economy to shore up demand, because demand is always there. Since demand can take care of itself, then everything can be left to the market, and there is no need for the government to become involved in the economy at all.  Yet one of Say's Law's corollaries is that there can never be a depression. There might be a brief downturn, but not a real depression.  But by 1935, we had  a  real  depression, and we'd had it for five years.

            To understand what happened, we need to look at what a depression is and how it happens.  Marx, writing in the mid-nineteenth century, says that the culprit is profit. If a factory makes something that sells for 100 bucks, and if the total wage paid to the production workers, truckers, retail clerks, and all the other people who make the sale possible adds up to 100 bucks, there is no problem.  Every time another unit is dumped on the market,  another hundred dollars of wages is also poured into the market, and there is enough buying power to buy that unit.  But if there is a profit, even a small one, therein lies the seeds of a depression.  According to Marx, if there is a 5% profit, and that profit is hoarded rather than spent or re-invested, then only 95% of the production can be purchased, and the other 5% remains unsold. But over the years, unsold things accumulate, and eventually stores stop re-ordering, and factories lay off.  And since every lay off further decreases the aggregate purchasing power, the number of laid off workers increases exponentially, and we have a depression.   Marx was not the first to observe this. These ideas had been around a while, and sixty years before Marx, Jean Say had written a rebuttal.   Why does the IMF say that inequality produces a sluggish economy?  Put simply, the reason is that if all excess cash is concentrated into very few hands, then working people don't buy much because they don't have the money, and the very rich don't spend a very high percentage of what they have because they no longer need anything, nor could anyone consume that much anyway. So when the IMF says that inequality is holding back the recovery,  they are really saying that Marx was right, but I'm sure they don't like to put it that way.  But Say tells us that profits do not get hoarded--they are deposited in banks, and banks always  loan them out.  Someone always borrows these monies and spends them-- on something. One way or another,  all of the money is spent, so there can't ever be a depression. 

            Galbraith explains how there can be a depression.   Obama has been criticized for saving the banks first.  But FDR did the same thing.   The economy cannot operate without the free flow of borrowing and lending.  But Galbraith says that after FDR's first year,  money was available to any credit-worthy costumer, at low interest rates---but there was little borrowing or lending.  And the depression continued for another 7 years.    Why?  Suppose you  owned a factory, and your warehouse was stacked to the ceiling with unsold merchandise, and half your workers were laid off.   Would you be likely pick that moment to go into debt to build another factory?  If you owned a chain of stores and half of them were boarded up,  would you take on debt to build more stores?  When the economy is sluggish, not all of the money gets loaned out and spent----some of it just sits there.  American corporations are now sitting on a huge hoard of cash---over a trillion dollars.  They aren't likely to spend it until the economy improves, and the economy is not likely to improve until they spend it.   We had the same situation in the 30's, and the man who figured out how to solve it was John Maynard Keynes. Adam Smith had believed that if the market was completely unencumbered by government, it would produce a paradise for everyone. He was wrong.  When Marx lived in England, the country had espoused the principles of Adam Smith for half a century.  Marx saw children sold to factories by their desperate parents, locked inside factories for 15 hours a day, and starved or whipped if they couldn't work fast enough. To Marx, this did not look much like paradise.

 Marx believed that if the government confiscated all facilities of production--then--there would be a paradise.  He was wrong too. When Barbara Ehrenreich was asked why the Communist experiment failed,  she said, "Because--people are no damn good."  I suppose humanity is a flawed species.  Some would blame it on original sin, but I'm not sure I agree.  When I commit sins, they are not usually all that original. 

             Keynes said that there is no need for government to own or control production, but he accepted that governments must set rules, especially for the financial sector.  And there must be other rules:  a minimum wage,  maximum hours, safety standards,  child labor laws, anti-trust laws,  laws guaranteeing the right to belong to a union, and laws regulating foreign trade. But Keynes felt that government had a function that went beyond simple rule setting.   In his 1935 classic, The General Theory of Employment, Interest, and Money,  he explained that the government must also carefully monitor the economy and ensure that at any point in time, the aggregate purchasing power is precisely equal to the quantity of goods for sale.   Too many dollars chasing too few goods results in inflation, too few dollars results in depression.  Government continually adjusts this balance through its role as the country's largest consumer.  Government can add dollars to the economy by deliberately running a deficit--by putting more dollars into the economy through spending than it takes out in taxes.  It can subtract dollars by running a surplus, and taxing more than it spends.  This deliberate use of fiscal policy is now  called Keynesianism.  All of the post war boom, in every county that had a boom, was run on this principle.  It appealed to all political parties because it spared them the embarrassment of taking sides in a class war.  When John Kennedy said, "A rising tide lifts all boats," he was telling the truth.  Back then, if an administration could bring about a 3% growth in real GDP, everyone ended up with 3% more of everything.

             But in the 1970s, we saw the beginnings of a class war,  and its main tools were union-busting and globalization.  So after 40 years of shipping jobs to third world countries, de-regulation, and union-busting, we have a situation where  95% of any increase in GDP is skimmed off at the top. Harold Meyerson, writing in the July/Aug 2014 issue of the American Prospect Magazine, points out that from 1947 to 1972, productivity rose 97%, and compensation rose by nearly the same amount.  The reason was that we had powerful unions then. When workers noticed that their employer had a huge gain in productivity due to their own efficiency and sweat, they were in a position to demand a share of it.  But today it doesn't work that way. The Obama Administration spent nearly a trillion dollars to stimulate the economy, and it worked. We did not slide into the great depression everyone thought was coming.  But Meyerson says that 95% of the income growth since then has accrued to the wealthiest 1%.    

            I said that the tools of class warfare were globalization and union-busting. But globalization itself is used as a tool of union-busting.   Suppose that a few years after NAFTA was passed, a large manufacturing company approaches its union and says, " Why don't we have a two-tier wage, and pay all new hires half of what you guys are making. (Assume that in this case, the company is not some struggling loser that is hanging on by its fingernails. It is highly profitable because its union work force has made it that way.)  The union replies, "Why would we ever agree to that?  Wouldn't we  be selling out our kids?"   The company explains:  We have already moved one department to Mexico.  If you do not agree, we will move the rest of the plant, and your kids will have no jobs at all.   So-- they agree.  This scenario was played out over and over  in every industrial city in the country. It happened right here in Waterloo.  People are still mad at Bill Clinton for telling us that NAFTA would bring 100,000 jobs into the US, without mentioning that it would cause 400,000 jobs to leave the country, for a net loss of 300,000 jobs.  But losing 300,000 jobs is nothing.  The real problem is not the jobs that actually left the country---it's the 10 million jobs that were converted from high paying jobs to low paying jobs under the threat of being moved out of the country. That's what NAFTA was all about.  Organized labor tried to warn America about this, but nobody listened.

      Today, both the benefit of productivity growth and of government spending mostly flows to the top.  So political parties no longer have the luxury of avoiding class confrontation if they wish to deliver economic security to the 99%,  since this can now be done only at the expense of the 1%.  Not all billionaires would resist this.  Warren Buffet says, "The trouble with this country is that rich people like me don't pay enough taxes."  Bill Gates is giving his money away, and George Soros backs liberal causes all the time.  But most billionaires would rather spend a dollar on electoral propaganda than pay a dime in taxes.  So any politician who isn't willing to stand toe to toe with the richest, most powerful people in the country should stop trying to pretend he's going to change anything.

            Some years ago, a group of physicians in a poor neighborhood in New York organized a citizens' group to force slum landlords to improve housing standards, especially, to get rid of the rats.  When the doctors were interviewed on TV, they were asked why they got involved.  One doctor answered, "For years we were treating children with rat bites.  Finally, one day, one of us asked, "Instead of just treating the rat bites, why don't we do something about the rats?"

            Most of the social action we UUs engage in involves treating the effects of the class war.  We donate to the food bank.  This is a good thing to do---I do it myself, and I plan to keep doing it. Yet the institutions we support only treat the symptoms of the class war. Sooner or later, we are going to have join the ranks and fight that class war and win it.  UUs, as a group, have always been activists in progressive causes.  Go to any meeting of progressive activists and you will see a few UUs in the room.

             We are fighting, but we have not yet won, and now we are playing against a stacked deck, especially after Citizens United.  Not only do we fight against unlimited corporate campaign money, we face voter suppression and gerrymandering.   Consider the requirement for a photo ID.   The only Photo ID they usually accept is a driver's license.  Now who would be affected by this requirement? Old people who do not see well enough to drive.  People who live in urban centers, where cars are not practical. Poor people, who cannot afford a car,  and also women.  Why women?  Most driver's licenses are issued for 4 years.   If a woman has been married, divorced, or widowed in that time, she may be living under a different name than appears on her driver's license.  Guess what?  The state of Texas does not plan to let her vote.   Up to 400,000  women may be turned away from the polls in the US for this reason. Why don't they want women to vote?  Women tend to be moderates or liberals---they won't usually back some tea party ultra-conservative.  So if that's who you're planning to run, you have to suppress the female vote.  And the effect of gerrymandering can't be overlooked. Far more voters in America voted for a Democrat for Congress than for a Republican in the last election, yet the Republicans control the House.  This is mostly due to deliberate gerrymandering, though we liberals sometimes voluntarily gerrymander ourselves by moving away from battleground states like Iowa,  where our votes make a difference, to solidly blue states where they don't.  But though it's an unfair fight, we have to fight anyway, and we have to teach our children to fight---because it won't be won in our lifetime.

            So, if we are to join the battle in the class war, where can we begin?  I have given this a great deal of thought, and I believe that if you were to do only one thing, the thing that would make the most difference would be to support labor unions---all of them---even if you don't belong to one.   Ask yourself this: When did we ever have much equality in this country, and where did it come from?  In the 50s and 60s, we had quite a bit of equality, and opportunity for working class Americans.  And most of it came out of the labor movement.  The "good union job,"  the chance to work under a union contract and earn a good wage, is what built the American middle class. The 40 hour week, the minimum wage, and unemployment compensation all came out of the labor movement.  It's true that the Democratic Party passed these things into law, but only after the labor movement pushed them into doing it, and only after labor votes got them elected in the first place.

            Big business will always have massive power and influence.   But back when there was such a thing as Big Labor, it provided a counterbalance to that influence. Can you think of anything that will provide such a counterbalance if organized labor ever disappears?  I can't. And without your support, the labor movement could easily disappear in your lifetime.  But won't the labor movement die anyway?  Aren't labor unions dinosaurs---outdated and irrelevant  institutions?  This is what big business would like you to believe, but nothing could be further from the truth. Canada has an economy very similar to ours, and the labor movement there is doing just fine.    What's the difference?  Different labor laws.

            The Taft-Hartley Law, passed by a Republican congress over Harry Truman's veto, was mainly an anti-labor law. But it did provide, at least on paper, a guarantee that any group of workers could have a union if they wanted one.   But its enforcement mechanisms were weak, and difficult to enforce.  And by now the anti-labor lawyers and conservative courts have had 65 years to find ways to circumvent even the meager protections which the law did provide.  Polls have consistently shown that about 87 % of non-union workers would prefer to work under a union contract if given a choice.  But big business makes sure they're never given a choice.  Most union organizers won't even begin an organizing campaign unless they have signed cards requesting union representation from 80% of the work force.  But in the end, most organizing campaigns fail.

            If you would like to see how this works, read Thomas Geohagan's book, Which Side Are You On?     Geohagen was a labor lawyer for 40 years.   He explains the tactics used by union-busting lawyers to thwart organizing campaigns.  If you were an anti-union employer whose business was targeted for organization, you could call one of these people, and they would promise that they could, absolutely, keep the union out of your plant---for a price.  The game plan is this:   When the NLRB informs you that a clear majority of your work force has requested union representation, you demand a vote.  This in itself can cause a delay of over six months. But just before the election date comes due, you pick a quarrel with some aspect of the election, and demand another delay.  You object that the janitors were included in the proposed bargaining unit, or that they were not included, or that the security guards were included, or whatever.  It doesn't matter what you object to---you just object to something.   And when the re-scheduled election date comes due, you object to something else.   By using such stalling tactics, an election can be delayed for three or four years.   What do you do with that time?   You begin systematically firing any worker you suspect of having pro-union sympathies, always pretending that they were fired for something else.   And you continue to barrage your workers with anti-union propaganda.  That's the game plan.  After a few years, after you are sure that half the workers who wanted a union are gone, you allow the election and it fails. 

            After hearing this plan, the employer might ask, "Isn't that illegal?" The union-buster replies, "Of course it's illegal.  You do it anyway---and you get caught and pay the fine.  And you keep on doing it and keep on paying the fines.  You accept the fines as a cost of doing business, and your plant stays non-union."     The lawyer goes on:  " The law clearly requires you to allow the workers to have a union if they want one.  If you want to obey the law, fine.  Sign a union contract.   But you didn't bring me here to show you how to obey the law---you asked me to show you how to keep the union out of your company---and I did."

            The unions are not on a level playing field,  but we can change that.  How do we help?  There are the usual ways:   we can respect picket lines, we can write letters to the editor, we can obtain from the union hall a list of union-made products and make an attempt to buy union when possible.  When there is a prolonged labor dispute, you can get on the union's web site and see if there is a place for donation to the strike fund or to the legal defense fund.  Every little bit helps.  But what you can really do is help politically.  Back candidates who support organized labor, and vote against those who don't.   So-- how do we know who supports labor?   They all say they do.   Well, you don't ask the candidate if he is friendly to labor---you ask labor. State labor organizations know exactly who our friends are.   They keep records on how politicians vote on all important issues. 

            But when I say we should support labor-friendly candidates, I don't just mean vote for them,  I mean support them.   In any winnable race,  make a personal commitment to do whaever you can to see that they win.  Contribute whatever money you can afford to the campaign, and contribute your time.   Man phone banks, knock on doors, write letters to editors---make the winning of that campaign your personal contribution towards a building better world.

            We didn't ask for this class war, and we didn't start it.  And the right wing billionaires who did start it were certainly under no obligation to do so.    At the beginning of the Reagan administration, the New Deal had been a matter of settled law for two generations, and had been accepted by eight consecutive presidents, including three Republicans.  Nonetheless, we now have a class war, and we've had it for forty years----and I suggest that we'd better win it.