BIG-MONEY

The Volcanic Core Fueling the 2016 Election

Not a day passes that I don’t get a call from the media asking me to compare Bernie Sanders’s and Hillary Clinton’s tax plans, or bank plans, or health-care plans.

I don’t mind. I’ve been teaching public policy for much of the last thirty-five years. I’m a policy wonk.

But detailed policy proposals are as relevant to the election of 2016 as is that gaseous planet beyond Pluto. They don’t have a chance of making it, as things are now.

The other day Bill Clinton attacked Bernie Sanders’s proposal for a single-payer health plan as unfeasible and a “recipe for gridlock.”

Yet these days, nothing of any significance is feasible and every bold idea is a recipe for gridlock.

This election is about changing the parameters of what’s feasible and ending the choke hold of big money on our political system.

I’ve known Hillary Clinton since she was 19 years old, and have nothing but respect for her. In my view, she’s the most qualified candidate for president of the political system we now have.

But Bernie Sanders is the most qualified candidate to create the political system we should have, because he’s leading a political movement for change.

The upcoming election isn’t about detailed policy proposals. It’s about power – whether those who have it will keep it, or whether average Americans will get some as well.

A study published in the fall of 2014 by Princeton professor Martin Gilens and Northwestern’s Benjamin Page reveals the scale of the challenge.

Gilens and Page analyzed 1,799 policy issues in detail, determining the relative influence on them of economic elites, business groups, mass-based interest groups, and average citizens.

Their conclusion: “The preferences of the average American appear to have only a minuscule, near-zero, statistically nonsignificant impact upon public policy.”

Instead, lawmakers respond to the moneyed interests – those with the most lobbying prowess and deepest pockets to bankroll campaigns.

It’s sobering that Gilens and Page’s data come from the period 1981 to 2002, before the Supreme Court opened the floodgates to big money in its “Citizens United” and “McCutcheon” decisions. Their study also predated the advent of super PACs and “dark money,” and even the Wall Street bailout.

If average Americans had a “near-zero” impact on public policy then, their impact is now zero.

Which explains a paradox I found a few months ago when I was on book tour in the nation’s heartland: I kept bumping into people who told me they were trying to make up their minds in the upcoming election between Sanders and Trump.

At first I was dumbfounded. The two are at opposite ends of the political divide.  
But as I talked with these people, I kept hearing the same refrains. They wanted to end “crony capitalism.” They detested “corporate welfare,” such as the Wall Street bailout.

They wanted to prevent the big banks from extorting us ever again. Close tax loopholes for hedge-fund partners. Stop the drug companies and health insurers from ripping off American consumers. End trade treaties that sell out American workers. Get big money out of politics.

Somewhere in all this I came to see the volcanic core of what’s fueling this election.

If you’re one of the tens of millions of Americans who are working harder than ever but getting nowhere, and who understand that the political-economic system is rigged against you and in favor of the rich and powerful, what are you going to do?

Either you’re going to be attracted to an authoritarian son-of-a-bitch who promises to make America great again by keeping out people different from you and creating “great” jobs in America, who sounds like he won’t let anything or anybody stand in his way, and who’s so rich he can’t be bought off.

Or you’ll go for a political activist who tells it like it is, who has lived by his convictions for fifty years, who won’t take a dime of money from big corporations or Wall Street or the very rich, and who is leading a grass-roots “political revolution” to regain control over our democracy and economy.

In other words, either a dictator who promises to bring power back to the people, or a movement leader who asks us to join together to bring power back to the people.

You don’t care about the details of proposed policies and programs.

You just want a system that works for you.

What I Learned on My Red State Book Tour

I’ve just returned from three weeks in “red” America.

It was ostensibly a book tour but I wanted to talk with conservative Republicans and Tea Partiers.

I intended to put into practice what I tell my students – that the best way to learn is to talk with people who disagree you. I wanted to learn from red America, and hoped they’d also learn a bit from me (and perhaps also buy my book).

But something odd happened. It turned out that many of the conservative Republicans and Tea Partiers I met agreed with much of what I had to say, and I agreed with them.

For example, most condemned what they called “crony capitalism,” by which they mean big corporations getting sweetheart deals from the government because of lobbying and campaign contributions.

I met with group of small farmers in Missouri who were livid about growth of “factory farms” owned and run by big corporations, that abused land and cattle, damaged the environment, and ultimately harmed consumers.

They claimed giant food processors were using their monopoly power to squeeze the farmers dry, and the government was doing squat about it because of Big Agriculture’s money.

I met in Cincinnati with Republican small-business owners who are still hurting from the bursting of the housing bubble and the bailout of Wall Street.

“Why didn’t underwater homeowners get any help?” one of them asked rhetorically. “Because Wall Street has all the power.” Others nodded in agreement.  

Whenever I suggested that big Wall Street banks be busted up – “any bank that’s too big to fail is too big, period” – I got loud applause.

In Kansas City I met with Tea Partiers who were angry that hedge-fund managers had wangled their own special “carried interest” tax deal.

“No reason for it,” said one. “They’re not investing a dime of their own money. But they’ve paid off the politicians.”

In Raleigh, I heard from local bankers who thought Bill Clinton should never have repealed the Glass-Steagall Act. “Clinton was in the pockets of Wall Street just like George W. Bush was,” said one.

Most of the people I met in America’s heartland want big money out of politics, and think the Supreme Court’s “Citizens United” decision was shameful.

Most are also dead-set against the Trans Pacific Partnership. In fact, they’re opposed to trade agreements, including NAFTA, that they believe have made it easier for corporations to outsource American jobs abroad.

A surprising number think the economic system is biased in favor of the rich. (That’s consistent with a recent Quinnipiac poll in which 46 percent of Republicans believe “the system favors the wealthy.”)

The more conversations I had, the more I understood the connection between their view of “crony capitalism” and their dislike of government.

They don’t oppose government per se. In fact, as the Pew Research Center has found, more Republicans favor additional spending on Social Security, Medicare, education, and infrastructure than want to cut those programs.

Rather, they see government as the vehicle for big corporations and Wall Street to exert their power in ways that hurt the little guy.  

They call themselves Republicans but many of the inhabitants of America’s heartland are populists in the tradition of William Jennings Bryan.

I also began to understand why many of them are attracted to Donald Trump. I had assumed they were attracted by Trump’s blunderbuss and his scapegoating of immigrants.

That’s part of it. But mostly, I think, they see Trump as someone who’ll stand up for them – a countervailing power against the perceived conspiracy of big corporations, Wall Street, and big government.

Trump isn’t saying what the moneyed interests in the GOP want to hear. He’d impose tariffs on American companies that send manufacturing overseas, for example. 

He’d raise taxes on hedge-fund managers. (“The hedge-fund guys didn’t build this country,” Trump says. “They’re “getting away with murder.”)

He’d protect Social Security and Medicare.

I kept hearing “Trump is so rich he can’t be bought.”

Heartland Republicans and progressive Democrats remain wide apart on social and cultural issues. 

But there’s a growing overlap on economics. The populist upsurge is real.

I sincerely hope Donald Trump doesn’t become president. He’s a divider and a buffoon. 

But I do hope the economic populists in both parties come together.

That’s the only way we’re going to reform a system that’s now rigged against most of us.  

A Big Idea for Hillary

If Donald Trump continues to implode, Hillary Clinton will win simply by being the presidential candidate who isn’t Trump.

But the prospect of a President Trump is so terrifying that Hillary shouldn’t take any chances. The latest match-up polls show her about 6 points ahead – a comfortable but not sure-fire margin.

What else can she offer other than that she’s also experienced and would be the first woman to hold the job?

So far, she’s put forth a bunch of respectable policy ideas. But they’re small relative to the economic problems most Americans face and to Americans’ overwhelming sense the nation is off track.

She needs a big idea that gives her candidacy a purpose and rationale – and, if she’s elected president, a mandate to get something hugely important done.

What could that big idea be? I can think of several big economic proposals. The problem is they couldn’t get through Congress – even if, as now seems possible, Democrats retake the Senate.

Nor, for that matter, could Hillary’s smaller ideas get through.

Which suggests a really big idea – an idea that’s the prerequisite for every other one, an idea that directly addresses what’s disturbing so many Americans today – an idea that, if she truly commits herself to it, would even reassure voters about Hillary Clinton herself.

The big idea I’m talking about is democracy.

Everyone knows our democracy is drowning under big money. Confidence in politics has plummeted, and big money as the major culprit.

In 1964, just 29 percent of voters believed government was “run by a few big interests looking out for themselves,” according to the American National Election Studies survey. In the most recent survey, almost 80 percent of Americans think so.

And because the free market depends on laws and rules, big money’s political influence has rigged the economic system in favor of those at the top.

Which has fueled this year’s anti-establishment rebellions – propelling Bernie Sanders’s “political revolution” that won him 22 states, and contributing to Donald (“I don’t need anybody’s money”) Trump’s authoritarian appeal.

A study published in the fall of 2014 by Princeton professor Martin Gilens and Professor Benjamin Page of Northwestern shows that big money has almost entirely disenfranchised Americans. Gilens and Page took a close look at 1,799 policy issues, determining the relative influence on them of economic elites, business groups, and average citizens.

Their conclusion: “The preferences of average Americans appear to have only a minuscule, near-zero, statistically non-significant impact upon public policy.” Instead, lawmakers respond to the policy demands of wealthy individuals and big business.

The super wealthy account for a growing share of both parties’ funds. In the presidential election year 1980, the richest 0.01 percent gave 10 percent of total campaign contributions. In 2012, the richest 0.01 percent accounted for an astounding 40 percent.

Adding to the cynicism is the revolving door. In the 1970s only about 3 percent of retiring members of Congress went on to become lobbyists. In recent years half of all retiring senators and 42 percent of retiring representatives have done so.

This isn’t because recent retirees have fewer qualms about making money off their government contacts. It’s because so much money has inundated Washington that the financial rewards of lobbying have become huge.  

Meanwhile, the revolving door between Wall Street, on the one side, and the White House and Treasury, on the other, is swiveling faster than ever.

Clinton should focus her campaign on reversing all of this. For a start, she should commit to nominating Supreme Court justices who will strike down “Citizen’s United,” the 2010 Supreme Court case that opened the big-money floodgates far wider.

She should also fight for public financing of general elections for president and for congress – with government matching small-donor contributions made to any candidate who agrees to abide by overall spending limits on large-donor contributions.

She should demand full disclosure of all sources of campaign funding, regardless of whether those funds are passed through non-profit organizations or through corporate entities or both.

And she should slow the revolving door – committing to a strict two-year interval between high-level government service and lobbying or corporate jobs, and a similarly interval between serving as a top executive or director of a major Wall Street bank and serving at a top level position in the executive branch.

Will Hillary Clinton make restoring democracy her big idea? When she announced her candidacy she said “the deck is stacked in favor of those at the top” and that she wants to be the “champion” of “everyday Americans.”  

The best way to ensure everyday Americans get a fair deal is to make our democracy work again.

How to Shrink Inequality

Some inequality of income and wealth is inevitable, if not necessary. If an economy is to function well, people need incentives to work hard and innovate.

The pertinent question is not whether income and wealth inequality is good or bad. It is at what point do these inequalities become so great as to pose a serious threat to our economy, our ideal of equal opportunity and our democracy.

We are near or have already reached that tipping point. As French economist Thomas Piketty shows beyond doubt in his “Capital in the Twenty-First Century,” we are heading back to levels of inequality not seen since the Gilded Age of the late 19th century. The dysfunctions of our economy and politics are not self-correcting when it comes to inequality.

But a return to the Gilded Age is not inevitable. It is incumbent on us to dedicate ourselves to reversing this diabolical trend. But in order to reform the system, we need a political movement for shared prosperity.

Herewith a short summary of what has happened, how it threatens the foundations of our society, why it has happened, and what we must do to reverse it.

What has Happened

The data on widening inequality are remarkably and disturbingly clear. The Congressional Budget Office has found that between 1979 and 2007, the onset of the Great Recession, the gap in income—after federal taxes and transfer payments—more than tripled between the top 1 percent of the population and everyone else. The after-tax, after-transfer income of the top 1 percent increased by 275 percent, while it increased less than 40 percent for the middle three quintiles of the population and only 18 percent for the bottom quintile.

The gap has continued to widen in the recovery. According to the Census Bureau, median family and median household incomes have been falling, adjusted for inflation; while according to the data gathered by my colleague Emmanuel Saez, the income of the wealthiest 1 percent has soared by 31 percent. In fact, Saez has calculated that 95 percent of all economic gains since the recovery began have gone to the top 1 percent.

Wealth has become even more concentrated than income. An April 2013 Pew Research Center report found that from 2009 to 2011, “the mean net worth of households in the upper 7 percent of wealth distribution rose by an estimated 28 percent, while the mean net worth of households in the lower 93 percent dropped by 4 percent.”

Why It Threatens Our Society

This trend is now threatening the three foundation stones of our society: our economy, our ideal of equal opportunity and our democracy.

The economy. In the United States, consumer spending accounts for approximately 70 percent of economic activity. If consumers don’t have adequate purchasing power, businesses have no incentive to expand or hire additional workers. Because the rich spend a smaller proportion of their incomes than the middle class and the poor, it stands to reason that as a larger and larger share of the nation’s total income goes to the top, consumer demand is dampened. If the middle class is forced to borrow in order to maintain its standard of living, that dampening may come suddenly—when debt bubbles burst.

Consider that the two peak years of inequality over the past century—when the top 1 percent garnered more than 23 percent of total income—were 1928 and 2007. Each of these periods was preceded by substantial increases in borrowing, which ended notoriously in the Great Crash of 1929 and the near-meltdown of 2008.

The anemic recovery we are now experiencing is directly related to the decline in median household incomes after 2009, coupled with the inability or unwillingness of consumers to take on additional debt and of banks to finance that debt—wisely, given the damage wrought by the bursting debt bubble. We cannot have a growing economy without a growing and buoyant middle class. We cannot have a growing middle class if almost all of the economic gains go to the top 1 percent.

Equal opportunity. Widening inequality also challenges the nation’s core ideal of equal opportunity, because it hampers upward mobility. High inequality correlates with low upward mobility. Studies are not conclusive because the speed of upward mobility is difficult to measure.

But even under the unrealistic assumption that its velocity is no different today than it was thirty years ago—that someone born into a poor or lower-middle-class family today can move upward at the same rate as three decades ago—widening inequality still hampers upward mobility. That’s simply because the ladder is far longer now. The distance between its bottom and top rungs, and between every rung along the way, is far greater. Anyone ascending it at the same speed as before will necessarily make less progress upward.

In addition, when the middle class is in decline and median household incomes are dropping, there are fewer possibilities for upward mobility. A stressed middle class is also less willing to share the ladder of opportunity with those below it. For this reason, the issue of widening inequality cannot be separated from the problems of poverty and diminishing opportunities for those near the bottom. They are one and the same.

Democracy. The connection between widening inequality and the undermining of democracy has long been understood. As former Supreme Court Justice Louis Brandeis is famously alleged to have said in the early years of the last century, an era when robber barons dumped sacks of money on legislators’ desks, “We may have a democracy, or we may have great wealth concentrated in the hands of a few, but we cannot have both.”

As income and wealth flow upward, political power follows. Money flowing to political campaigns, lobbyists, think tanks, “expert” witnesses and media campaigns buys disproportionate influence. With all that money, no legislative bulwark can be high enough or strong enough to protect the democratic process.

The threat to our democracy also comes from the polarization that accompanies high levels of inequality. Partisanship—measured by some political scientists as the distance between median Republican and Democratic roll-call votes on key economic issues—almost directly tracks with the level of inequality. It reached high levels in the first decades of the twentieth century when inequality soared, and has reached similar levels in recent years.

When large numbers of Americans are working harder than ever but getting nowhere, and see most of the economic gains going to a small group at the top, they suspect the game is rigged. Some of these people can be persuaded that the culprit is big government; others, that the blame falls on the wealthy and big corporations. The result is fierce partisanship, fueled by anti-establishment populism on both the right and the left of the political spectrum.

Why It Has Happened

Between the end of World War II and the early 1970s, the median wage grew in tandem with productivity. Both roughly doubled in those years, adjusted for inflation. But after the 1970s, productivity continued to rise at roughly the same pace as before, while wages began to flatten. In part, this was due to the twin forces of globalization and labor-replacing technologies that began to hit the American workforce like strong winds—accelerating into massive storms in the 1980s and ’90s, and hurricanes since then.

Containers, satellite communication technologies, and cargo ships and planes radically reduced the cost of producing goods anywhere around the globe, thereby eliminating many manufacturing jobs or putting downward pressure on other wages. Automation, followed by computers, software, robotics, computer-controlled machine tools and widespread digitization, further eroded jobs and wages. These forces simultaneously undermined organized labor. Unionized companies faced increasing competitive pressures to outsource, automate or move to nonunion states.

These forces didn’t erode all incomes, however. In fact, they added to the value of complex work done by those who were well educated, well connected and fortunate enough to have chosen the right professions. Those lucky few who were perceived to be the most valuable saw their pay skyrocket.

But that’s only part of the story. Instead of responding to these gale-force winds with policies designed to upgrade the skills of Americans, modernize our infrastructure, strengthen our safety net and adapt the workforce—and pay for much of this with higher taxes on the wealthy—we did the reverse. We began disinvesting in education, job training and infrastructure. We began shredding our safety net. We made it harder for many Americans to join unions. (The decline in unionization directly correlates with the decline of the portion of income going to the middle class.) And we reduced taxes on the wealthy.

We also deregulated. Financial deregulation in particular made finance the most lucrative industry in America, as it had been in the 1920s. Here again, the parallels between the 1920s and recent years are striking, reflecting the same pattern of inequality.

Other advanced economies have faced the same gale-force winds but have not suffered the same inequalities as we have because they have helped their workforces adapt to the new economic realities—leaving the United States the most unequal of all advanced nations by far.

What We Must Do

There is no single solution for reversing widening inequality. Thomas Piketty’s monumental book “Capital in the Twenty-First Century” paints a troubling picture of societies dominated by a comparative few, whose cumulative wealth and unearned income overshadow the majority who rely on jobs and earned income. But our future is not set in stone, and Piketty’s description of past and current trends need not determine our path in the future. Here are ten initiatives that could reverse the trends described above:

1) Make work pay. The fastest-growing categories of work are retail, restaurant (including fast food), hospital (especially orderlies and staff), hotel, childcare and eldercare. But these jobs tend to pay very little. A first step toward making work pay is to raise the federal minimum wage to $15 an hour, pegging it to inflation; abolish the tipped minimum wage; and expand the Earned Income Tax Credit. No American who works full time should be in poverty.

2) Unionize low-wage workers. The rise and fall of the American middle class correlates almost exactly with the rise and fall of private-sector unions, because unions gave the middle class the bargaining power it needed to secure a fair share of the gains from economic growth. We need to reinvigorate unions, beginning with low-wage service occupations that are sheltered from global competition and from labor-replacing technologies. Lower-wage Americans deserve more bargaining power.

3) Invest in education. This investment should extend from early childhood through world-class primary and secondary schools, affordable public higher education, good technical education and lifelong learning. Education should not be thought of as a private investment; it is a public good that helps both individuals and the economy. Yet for too many Americans, high-quality education is unaffordable and unattainable. Every American should have an equal opportunity to make the most of herself or himself. High-quality education should be freely available to all, starting at the age of 3 and extending through four years of university or technical education.

4) Invest in infrastructure. Many working Americans—especially those on the lower rungs of the income ladder—are hobbled by an obsolete infrastructure that generates long commutes to work, excessively high home and rental prices, inadequate Internet access, insufficient power and water sources, and unnecessary environmental degradation. Every American should have access to an infrastructure suitable to the richest nation in the world.

5) Pay for these investments with higher taxes on the wealthy. Between the end of World War II and 1981 (when the wealthiest were getting paid a far lower share of total national income), the highest marginal federal income tax rate never fell below 70 percent, and the effective rate (including tax deductions and credits) hovered around 50 percent. But with Ronald Reagan’s tax cut of 1981, followed by George W. Bush’s tax cuts of 2001 and 2003, the taxes on top incomes were slashed, and tax loopholes favoring the wealthy were widened. The implicit promise—sometimes made explicit—was that the benefits from such cuts would trickle down to the broad middle class and even to the poor. As I’ve shown, however, nothing trickled down. At a time in American history when the after-tax incomes of the wealthy continue to soar, while median household incomes are falling, and when we must invest far more in education and infrastructure, it seems appropriate to raise the top marginal tax rate and close tax loopholes that disproportionately favor the wealthy.

6) Make the payroll tax progressive. Payroll taxes account for 40 percent of government revenues, yet they are not nearly as progressive as income taxes. One way to make the payroll tax more progressive would be to exempt the first $15,000 of wages and make up the difference by removing the cap on the portion of income subject to Social Security payroll taxes.

7) Raise the estate tax and eliminate the “stepped-up basis” for determining capital gains at death. As Piketty warns, the United States, like other rich nations, could be moving toward an oligarchy of inherited wealth and away from a meritocracy based on labor income. The most direct way to reduce the dominance of inherited wealth is to raise the estate tax by triggering it at $1 million of wealth per person rather than its current $5.34 million (and thereafter peg those levels to inflation). We should also eliminate the “stepped-up basis” rule that lets heirs avoid capital gains taxes on the appreciation of assets that occurred before the death of their benefactors.

8) Constrain Wall Street. The financial sector has added to the burdens of the middle class and the poor through excesses that were the proximate cause of an economic crisis in 2008, similar to the crisis of 1929. Even though capital requirements have been tightened and oversight strengthened, the biggest banks are still too big to fail, jail or curtail—and therefore capable of generating another crisis. The Glass-Steagall Act, which separated commercial- and investment-banking functions, should be resurrected in full, and the size of the nation’s biggest banks should be capped.

9) Give all Americans a share in future economic gains. The richest 10 percent of Americans own roughly 80 percent of the value of the nation’s capital stock; the richest 1 percent own about 35 percent. As the returns to capital continue to outpace the returns to labor, this allocation of ownership further aggravates inequality. Ownership should be broadened through a plan that would give every newborn American an “opportunity share” worth, say, $5,000 in a diversified index of stocks and bonds—which, compounded over time, would be worth considerably more. The share could be cashed in gradually starting at the age of 18.

10) Get big money out of politics. Last, but certainly not least, we must limit the political influence of the great accumulations of wealth that are threatening our democracy and drowning out the voices of average Americans. The Supreme Court’s 2010 Citizens United decision must be reversed—either by the Court itself, or by constitutional amendment. In the meantime, we must move toward the public financing of elections—for example, with the federal government giving presidential candidates, as well as House and Senate candidates in general elections, $2 for every $1 raised from small donors.

Building a Movement

It’s doubtful that these and other measures designed to reverse widening inequality will be enacted anytime soon. Having served in Washington, I know how difficult it is to get anything done unless the broad public understands what’s at stake and actively pushes for reform.

That’s why we need a movement for shared prosperity—a movement on a scale similar to the Progressive movement at the turn of the last century, which fueled the first progressive income tax and antitrust laws; the suffrage movement, which won women the vote; the labor movement, which helped animate the New Deal and fueled the great prosperity of the first three decades after World War II; the civil rights movement, which achieved the landmark Civil Rights and Voting Rights acts; and the environmental movement, which spawned the National Environmental Policy Act and other critical legislation.

Time and again, when the situation demands it, America has saved capitalism from its own excesses. We put ideology aside and do what’s necessary. No other nation is as fundamentally pragmatic. We will reverse the trend toward widening inequality eventually. We have no choice. But we must organize and mobilize in order that it be done.

[This essay appears in the current edition of “The Nation.”]

 

politico.com
Bernie Sanders, the Zombie Candidate
It’s already over, and now he’s just causing havoc. I’ve seen firsthand how much damage this kind of candidacy can do. By DAVID WADE

When he first decided to run for president, Bernie Sanders had a goal in mind: to start a political revolution by getting big money out of politics.

If he wants to do it—if Sanders wants to build a lasting movement to fight money’s outsize influence—he has to close one door to open another. The transition from contender to gracious supporter of the nominee isn’t easy for any presidential candidate, but he needs to make it, and soon.

We already know Sanders isn’t going to win the Democratic Party’s nomination; Hillary Clinton has amassed more than 92 percent of the delegates needed to secure the nomination, and she’ll easily pick up the rest. So right now, Sanders’ campaign is the walking dead: a zombie. And having worked for John Kerry during the slugfest of the 2004 primaries, I’ve seen up close how much damage this sort of prolonged “zombie” candidacy can inflict on the eventual nominee—and what’s ultimately at stake for the country.

Read more here