Posts from Robert Reich

The American dream promises that anyone can make it if they work hard enough and play by the rules. Anyone can make it by pulling themselves up by their “bootstraps.” 

Baloney. 

The truth is: In America today, your life chances depend largely on how you started – where you grew up and how much your parents earned.

Everything else – whether you attend college, your chances of landing a well-paying job, even your health – hinges on this start. 

So as inequality of income and wealth has widened – especially along the lines of race and gender – American children born into poverty have less chance of making it. While 90% of children born in 1940 grew up to earn more than their parents, today only half of all American adults earn more than their parents did. 

And children born to the top 10 percent of earners are typically on track to make three times more income as adults than the children of the bottom 10 percent.

The phrase “pulling yourself up by the bootstraps” itself is rubbish. Its origins date back to an 18th-century fairy tale, and the phrase was originally intended as a metaphor for an impossible feat of strength. 

Other countries understand that the family you’re born into as well as the social safety nets and social springboards you have access to play large roles. 

Children born poor in Canada, Denmark, or the United Kingdom – nations without America’s degree of inequality, nations which provide strong social safety nets and public investments – have a greater chance of economic success than children born poor in America. 

Donald Trump and Republicans in Congress keep crowing about the economy, when in reality Trumponomics has been a disaster. Here are its 7 biggest failures:

1. Trump promised to bring down America’s trade deficit “as fast as possible.” Instead, the trade deficit has hit an all-time high. The United States is now purchasing more goods and services from the rest of the world than we sell abroad than at any time in history.

2. As a presidential candidate in 2016, he said he could completely eliminate the federal debt in 8 years. Instead, the federal debt has exploded thanksto Trump and the GOP’s $1.9 trillion tax cuts for the wealthy and corporations. They’re already using the growing debt to threaten cuts to Social Security, Medicare, and Medicaid.

3. He promised to boost the wages of American workers, including a $4,000 pay raise for the average American family. Instead, wages for most Americans have been flat, adjusted for inflation. Meanwhile, over the same period, corporate profits have soared and the rich have become far richer, but the gains haven’t trickled down.

4. His administration said that corporations would invest their savings from tax cuts. Instead, corporations spent more money buying back shares of their own stock in 2018 than they invested in new equipment or facilities. These stock buybacks provide no real benefit for the economy, but boost executive bonuses and payouts for wealthy investors.

5. He promised a tax cut for middle-class families. Instead most Americans will end up paying more by 2027.

The biggest economic story of our times isn’t about supply and demand.  It’s about institutions and politics.  It’s about power.

The median annual earnings of full-time wage and salaried workers in 1979, in today’s dollars, was $43,680. The median earnings in 2018 was $45,708. If between 1979 and 2018, the American economy almost tripled in size, so where did the gains go?  Most went to the top.

Now this is broadly known, but there is less certainty about why.

1. The Conventional View  

Conventional wisdom attributes the widening economic divide to globalization and technological change – the “inevitable” result of the invisible hand of the so-called “free market.”

Simply put, as the American economy merged with the rest of the globe, American workers had to compete with foreign workers willing to toil for a fraction of American wages. And as technology advanced, American workers also had to compete with software and robots that were cheaper to employ than Americans.

So, according to this conventional view, the only realistic way to raise the wages of most Americans is to give them more and better education and job training, so they can become more competitive. They can thereby overcome the so-called “skills gap” that keeps them from taking the jobs of the future – jobs and opportunities generated by new technologies.

2.  A Deeper View of the American Political Economy

The conventional story isn’t completely wrong, and education and training are important. But the conventional view leaves out some of the largest and most important changes, and therefore overlooks the most important solutions.

To understand what really happened, it’s critical to understand that there is no “free market” in nature. The term “free market” suggests outcomes are objectively fair and that any “intervention” in the free market is somehow “unnatural.” But in reality, markets cannot exist without people constructing them. Markets depend on rules, and rules come out of legislatures, executive agencies, and courts.  The biggest political change over the last four decades is the overwhelming dominance of big money in politics – influencing what those rules are to be.

Some politicians are calling for higher taxes on the rich. Naturally, these proposals have unleashed a torrent of opposition – mostly from…the rich. Here are the 12 biggest myths they’re propounding: 

Myth 1: A top marginal tax rate applies to all of a rich person’s total income or wealth.

Wrong. It would only apply to dollars in excess of a certain level. The 70 percent income tax rate proposed by Congresswoman Alexandria Ocasio-Cortez would apply only to dollars in excess of 10 million dollars a year. The 2 percent wealth tax proposed by Elizabeth Warren would apply only to wealth in excess of 50 million dollars.

Myth 2 : Raising taxes on the rich is a far-left idea.

Baloney. 70 percent of Americans – including 54 percent of Republicans – support raising taxes on families making more than 10 million dollars a year.  And expecting the rich to pay their fair share is a traditional American idea. From 1930 to 1980, the average top marginal income tax rate was  78 percent. From 1951 to 1963 it exceeded 90 percent – again, only on dollars in excess of a very high threshold. Even considering all deductions and tax credits, the very rich paid over half of their top incomes in taxes.  

Myth 3: A wealth tax is unconstitutional.

Rubbish. Most locales already impose an annual wealth tax on the value of peoples’ homes – the main source of household wealth for most people. It’s called the property tax. The rich hold most of their wealth in stocks and bonds, so why should these forms of wealth escape taxation?  Article I Section 8 of the Constitution gives “Congress [the] power to lay and collect taxes.”

Myth 4: When taxes on the rich are cut, they invest more and everyone benefits, when taxes on the rich are increased, economic growth slows.

Utter baloney. Trickle-down economics is a cruel joke. Donald Trump, George W. Bush, and Ronald Reagan all cut taxes on the rich, and nothing trickled down. There’s no evidence that higher taxes on the rich slows economic growth. To the contrary, when the top marginal tax rate has been high – between 71 to 92 percent – growth has averaged 4 percent a year. But when top rate has been low – between 28 and 39 percent – growth has averaged only 2.1 percent.

We renew our resolve that America will never be a socialist country,” Donald Trump said recently.

Someone should alert him that America is now a hotbed of socialism. But it’s socialism for the rich. Everyone else is treated to harsh capitalism.

In the conservative mind, socialism means getting something for doing nothing. This pretty much describes General Motors’ receipt of $600 million in federal contracts, plus $500 million in tax breaks, since Trump took office.

Some of this corporate welfare has gone into the pockets of GM executives. Chairman and CEO Mary Barra raked in almost $22 million in total compensation in 2017 alone.

But GM employees are subject to harsh capitalism. GM is planning to lay off more than 14,000 workers and close three assembly plants and two component factories in North America by the end of 2019.

The nation’s largest banks saved $21 billion last year thanks to Trump’s tax cuts, some of which went into massive bonuses for bank executives. On the other hand, thousands of lower-level bank employees got a big dose of harsh capitalism. They lost their jobs.

Most Americans still cling to the meritocratic notion that people are rewarded according to their efforts and abilities. But meritocracy is becoming a cruel joke.

The Justice Department recently announced indictments of dozens of wealthy parents for using bribery and fraud to get their children into prestigious colleges.

But the real scandal isn’t how far a few wealthy parents will go to get their kids admitted (apparently $1.2 million in illegal payoffs), but how commonplace it has become for them to go almost as far without breaking any laws – shelling out big bucks for essay tutors, testing tutors, admissions counselors, and “enrichment” courses (not to mention sky-high tuition at private schools feeding into the Ivy League).  

Inequality is lurking behind all this, and not just because the wealthy can afford it. Researchers Daniel Schneider, Orestes Hastings, and Joe LaBriola found that in states with the biggest gaps between rich and poor, well-to-do parents spend the most trying to get their children into elite colleges.

America’s unprecedented concentration of wealth combined with seemingly bottomless poverty have increased parental anxiety – raising the stakes, and the competition, for admission.

While some entrepreneurs in America’s billionaire class lack a prestigious degree, it’s become harder to become a run-of-the-mill multimillionaire in America without one.

Donald Trump has perfected the art of telling a fake story about America. The only way to counter that is to tell the real story of America.

Trump’s story is by now familiar: he alone will rescue average Americans from powerful alien forces – immigrants, foreign traders, foreign politicians and their international agreements – that have undermined the wellbeing of Americans.

These forces have been successful largely because Democrats, liberals, “socialists,” cultural elites, the Washington establishment, the media and “deep state” bureaucrats have helped them, in order to enrich themselves and boost their power. Not surprisingly, according to Trump, these forces seek to remove him from office.

What makes Trump’s story powerful to some Americans despite its utter phoniness is that it echoes the four tales Americans have been telling ourselves since before the founding of the Republic.

To combat Trump’s fake story, we need a true story based on facts, logic and history. But in order for that true story to resonate with Americans, it must also echo the same four tales.

The first tale: The Triumphant Individual. 

It’s the little guy or gal who works hard, takes risks, believes in him or herself, and eventually gains wealth, fame and honor. The tale is epitomized in the life of Abe Lincoln, born in a log cabin, who believed that “the value of life is to improve one’s condition.” The moral: with enough effort and courage, anyone can make it in America.

The challenges are well known: Working Americans are struggling to keep up with the increasing cost of living. Unemployment is low, but wages of most Americans have remained flat. More than three-quarters of Americans are now living paycheck to paycheck. Most can’t afford a $500 emergency.

There’s a simple and bold solution that would cost about as much as the Trump tax cut. But instead of helping corporations and the rich, it would help millions of working and middle-class Americans by putting money directly in their pockets.

I’m talking about expanding something called the Earned Income Tax Credit, or EITC. And although it’s been around for decades, it can be the basis of a revolutionary change in the lives of millions of people. 

As it now stands, the EITC gives thousands of dollars to the working poor, with the amount of money they receive gradually decreasing as their earnings rise until they reach a cap, which is now a little over $50,000.

It works so well because it directly boosts the incomes of people who need it the most. Cash gives people freedom and dignity— the power to decide, for example, whether to have their car repaired or buy new shoes for their kids or save for a rainy day. 

When working people have money to spend, they spend most of it in the communities they live in. This, in turn, causes businesses to hire more people to meet the demand. It’s a virtuous cycle that lessens poverty, makes the tax code fairer, and boosts the overall economy.

America is the only place in the world where any citizen over the age of 35 can run for president. No experience in government necessary. No support from a political party necessary. You don’t even have to have any ideas or policy proposals.

Take Howard Schultz, the former CEO of Starbucks whose most notable achievement to date has been the Mocha Frappucinno.

Last Tuesday, CNN made Schultz a Serious Presidential Candidate by giving him an hour-long “town hall” in which he fielded questions from an audience.

Why did CNN do this? Because Schultz is worth over $3.6 billion.

In today’s America, someone with this much money can buy so much advertising and self-promotion that he automatically becomes a SPC just by virtue of wanting the job and having the capacity to self-finance a campaign.

Ironically, CNN and other major media are giving Schultz free media now because he can afford an almost infinite amount of paid media later.

Years ago, political parties played the major roles in selecting presidential candidates. Candidates came up through the ranks. They had to convince party leaders across the nation they had what it took to be president. Conventions were the last step in the winnowing process.

Then, over the last several decades, the media took over the job of winnowing the pack. Winners were determined largely by campaign coverage, including presidential primary debates.

You’ve heard me talk about inequalities of income and wealth and political power. But another kind of inequality needs to be addressed as well: widening inequalities of place.

On the one hand, booming mega-cities. On the other hand, an American heartland that’s becoming emptier, older, whiter, less educated, and poorer. Trump country.

To understand what’s happening you first need to see technology not as a thing but as a process of group learning – of talented people interacting with each other continuously and directly, keying off  each other’s creativity, testing new concepts, quickly discarding those that don’t work, and building cumulative knowledge.

This learning goes way beyond the confines of any individual company. It now happens in geographic clusters – mostly along the east and west coasts in places like Seattle, San Francisco, Los Angeles, New York, Boston and suburban Washington D.C.

Bright young college graduates are streaming into these places, where their talents generate more value–and higher wages–together than they would separately.

As money pours into these places, so do service jobs that cater to the new wealth – lawyers, wealth managers and management consultants, as well as cooks, baristas and pilates instructors.