As a life-long Democrat and political economist by profession, I’ve been saddened by the drift of core members toward financial ruin and collective intolerance. I’ve warned for years our growing inequality would bring our nation to its knees. Nick Hanauer and David M. Rolf provide an detailed analysis examining the extent of the financial implosion. See The Top 1% of Americans Have Taken $50 Trillion From the Bottom 90%—And That’s Made the U.S. Less Secure
The authors base their thesis on new research by Carter C. Price and Kathryn Edwards (RAND Corporation), claiming the USA had more equitable income distributions during the three decades following World War II (1945 through 1974). One doesn’t need to be a political economist to understand the lack of common sense in this declaration. Certainly Black Americans weren’t receiving “equitable income distributions” during the period. And, how about women? Utter nonsense, right?
Had income distribution held steady they argue, “the aggregate annual income of Americans earning below the 90th percentile would have been $2.5 trillion higher in the year 2018 alone.” Beginning in 1975, the authors correctly report “nearly all of the benefits of growth these past 45 years were captured by those at the very top. And as the American economy grows radically unequal it is holding back economic growth itself.”
Hanauer and Rolf claim this amount of money equals nearly 12% of GDP and enough to “more than double median income — enough to pay every single working American in the bottom 90% an additional $1,144 a month. Every month. Every single year.”
How This Works Financially
- GDP (2016): $18.71 Trillion
- Median Income (2016): $59,039
- Number of Workers (2016): 151,440,000 => 90% = 136,296,000
- Total Cost: $1,144/month X 12 months X 136,296,000 workers = $1,871,071,488,000 (or $1.87 Trillion)
Essentially, by taking (taxing) the Top 10% and redistributing this to the Bottom 90%, each worker would receive an additional $13,728 per year.
Consider a current entry level employee making the federal minimum wage of $7.25/hr. At 40 hours per week, 52 weeks per year, this employee makes $15,080 annually. With the additional $13,728, the employee would be making nearly $29,000 per year or about $2,400/month. This is a hourly wage of $13.85. In Election 2016, Bernie Sanders called for a minimum wage of $15/hr. Hillary pegged her rate at $12/hr.
This sounds fun and easy on paper, but most small businesses can’t double their base pay. There would be massive job cuts if such a proposal was forced on the market.
A different proposal might call on government to make up the difference. The business would pay $7.25/hr and government would compensate each employee $6.60/hr for a total of $13.85/hr. If someone made $20/hr, they would also receive an additional $6.60/hr from government. Government would collect the resources to pay 90% of workers by taxing the Top 10%.
Again, sounds delightful and simple on paper. If I were a business owner and needed to offer $20 to attract suitable applicants, yet know the government would supplement an additional $6.60/hr, why not offer the position at $18/hr or $16/hr? If I paid $16/hr, my new employee would make $22.60/hr including government support — still good for her — and I could put the $4/hr difference in my pocket. This is over $8,000 per year for me. If I have ten employees, I would increase my bottom line by $80,000.
What stops this? Nothing. This is the Law of Unintended Consequences in a market-based economy. And, such a proposal doesn’t address inequalities in compensation for minority groups or women.
Globalization
I’ve discussed the significance of 1975 before. This is the year the USA switched from being a Net Exporting nation to Net Importing nation. Prior to 1975, unions were strong, wages good and wealth throughout the nation was increasing. Post 1975, factories began moving overseas, and we began transitioning from manufacturing to service industry jobs. These positions pay less. At the same time, CEOs evolved to managing global corporations — larger operations and more complex industries that led to higher pay.
People with money invested in businesses — through the stock market. Reaganomics, i.e., Supply Side Economics or Trickle Down Theory, encouraged investment by lowering taxes on dividends, capital gains and those in the top income brackets.
From 1945-1974, we were the richest nation in the world. Forces of global capitalism began equalizing wealth around the globe beginning in 1975. As Americans were some of the highest paid employees, our compensation started to trend downward toward the middle or equilibrium. Workers in poorer nations started realizing increases in wealth — moving upward toward the middle or equilibrium.
This is globalization. In the long run, this rebalancing of income and wealth is positive. For Americans unfortunately in the short run, children will likely not be as financially successful as their parents. We see these effects today. Young people have massive college debt, while the jobs they land provide insufficient compensation. They cannot buy a home or struggle to start a family. They demand free college, student debt relief and more government-provided services.
The 21st Century Democrat Party
Democrats of the 1960s were driven by unions. Unions fought for good pay primarily in manufacturing jobs. As manufacturing fled to foreign shores, the ability of unions to provide good-paying jobs ended. Few youngsters are interested in union membership today. The illustration below shows how declines in union membership are associated with a drop in middle-class share of income. What then drives the Political Left?
Democrats of the 21st Century want open borders … not because they’re humanitarian, but their policy offers cheap foreign labor that can be exploited. This ensures low prices for struggling families and huge profits for businesses.
Some 70% of agriculture workers in California are illegal. Young girls are raped and sexually abused. Boys are injured and abused. Many end up in sex trade as slaves. This policy is Neo Slavery … Part II in America for Democrats. Southern Democrats capitalized on imported Blacks; Western Democrats today on illegal Browns.
Democrats of the 21st Century want free college … but college is a business today. Studying is the last thing students do. Parties, sporting events, socializing and various group activities to WAKE them up to a more equitable world. Few students leave with any marketable skills — because in the Service Industry, reading, ‘riting and ‘rithmatic aren’t important skills. Better to just be social with a strong EQ — so youngsters spend $100,000 on a degree to make $20/hr.
Democrats of the 21st Century want student loan forgiveness … colleges fleeced them for $100,000s without any decent-paying jobs to help them pay it back. To keep the national House of Cards upright, Democrats now need to forgive this debt.
Democrats of the 21st Century want national healthcare … dangerous in America, because we’re so litigious. People will sue the government for every failure — and public healthcare, like public education, police and infrastructure projects, will be underfunded. There will be many mistakes and shortcomings. People will demand care for everything yet be unwilling to pay more in taxes. Tax the rich, they say. Atlas fears he may collapse. There are better options, such as Medicare For Anybody.
Democrats of the 21st Century want a Green New Deal … agree we are late in response. But they will blame the oil industry, tax fossil fuels and raise costs for all of us. What household can afford increases in energy prices? Turn America into a place like Hawai’i: too expensive to live; too expensive to start a business. Thus, people work 2-3 jobs just to make a basic income and good-paying jobs are hard to find.
Democrats of the 21st Century want government to replace the family. Can’t even count the number of single women with kids today. Democrats are influenced by feminists who don’t really prefer men in their lives. They are bad men out there; but keiki need good fathers. Public schools have become babysitting services ; they ask government to provide most other goods and services.
NPR had an interesting report last week on Pennsylvania. Former mining, manufacturing and factory towns used to hire 80% men and 20% women in good-paying union jobs. With the loss of manufacturing, these communities diversified to Med & Ed — healthcare and education. Now, companies hire 80% women and 20% men. This is the pressure White males suffer just to find employment, and Med & Ed jobs do not pay as well as did those in manufacturing.
Democrats of the 21st Century want to defund police and provide more social services. Some of this discussion is good. We all need to deescalate with each other. Think about it: why should a police officer respond to a service call due to a naked guy on PCP running down the street with a knife? Let a couple 120lb ladies handle him. Nurses do this frequently in the ER without firing a shot. There are many options.
What will happen is communities will likely pair officers with social workers … raising costs and demands for more taxes. Let’s just agree to pay. Officials claim they’ll provide more mental health services. Extremely expensive so likely just put kids and society on more drugs. Women administrators, particularly in our schools, do not manage boys effectively — except for prescribing more drugs. This is why we see the growing school-to-prison pipeline trend for males.
The current public education model is a disaster. Only 30% of 8th graders read at level or are proficient in math — some of the worst outcomes in advanced nations. But skills really aren’t important. Our youngsters write 32-character tweets, send brief videos, tear down statues, revise America history and initiate projects in cooperative groups. This is what’s required in a service-based economy.
Democrats of the 21st Century want cooperative relations with nations around the world. Other countries love this. The U.S. has dominated since 1945. They’re draining our power and wealth, while increasing theirs. Barack Obama stated with pride America is the shining city on the hill. The world looks forward to knocking us off our Pillar of Arrogance.
Democrats of the 21st Century want to raise minimum wages and guarantee higher pay — but business owners don’t have this financial flexibility. Doesn’t work economically and will crush many small businesses, which generate most of the jobs. I demonstrated above why these wage targets are difficult in a global economy.
Democrats of the 21st Century want to increase taxes on those who earn and make money. This punishing success and rewarding mediocrity. Already, the Most Rich are selling stocks and moving money outside USA in anticipation of a Biden victory. We all will be asked to contribute more. I encourage those with means to step up heroically at this time. It took 45 years to reach our state of high inequality. How do we put a restless population to work in a C19 environment?
There’s a classic political adage: if you want to live like a Republican, vote like a Democrat. The problem with this policy is the financial numbers simply don’t add up. We’re approaching $30 Trillion in national debt. Nobody can comprehend such obligation.
We’re definitely between a Rock and Hard Place. Hope you vote wisely.
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