Saving Capitalism: For The Many, Not Just The Few by Robert Reich (Notes)

As income and wealth have concentrated at the top, political power has moved there as well. Money and power are inextricably linked. And with power has come influence over the market mechanism. The invisible hand of the marketplace is connected to a wealthy and muscular arm.

 In 2010, the majority of the Supreme Court of the United States decided in Citizens United versus Federal Election Commission that corporations are people under the First Amendment, entitled to free speech. Therefore, said the court, the McCain-Feingold act, which had limited spending by corporations on political advertisements, violated the Constitution and was no longer the law of land.

Higher share prices have added substantially to the incomes and well at those at the top. In the bull market that sent stocks soaring from 1994 to 2014, America's rich hit the jackpot. By 2010, the richest 1% of Americans own 35% of the value of American owned shares, both directly and indirectly through their pension plans. The richest 10% owned more than 80%.

The compensation of CEOs in America's largest corporations over the last three decades, relative to the pay of average workers went– – from a ratio of 20 to 1 in 1965, 230 to 1 in 1978, hundred 23 to 1 in 1995, 296 to 1 in 2013, and over 300 to one today.

 Professor William Lazonick  of the University of Massachusetts has documented that a major means by which corporations accomplish such pumping is to use their earnings, or to borrow additional money, to buy back shares of stock. This maneuver pumps up share prices by reducing the number of shares owned by the public. A smaller supply effortly increases the price of each remaining share. In recent years, such buybacks have become a major corporate expenditure.  Not only do stock buybacks enrich CEOs and other top executives at the expense of smaller investors who do not know about the timing or amounts of buybacks, they also drain away money the corporation might otherwise spend on research and development, long-term expansion, worker retraining, and higher wages.

 Corporations deduct CEO pay from their income taxes.

The reason Wall Street bankers got $26.7 billion in bonuses in 2013 was not because they work so much harder or were so much more clever or insightful than most Americans. They received those bonuses because they happen to work in institutions that hold a privileged place in the American political economy. The subsidy going to the big banks comes from you and me and other taxpayers because we paid for the last bailout and it is assumed we will pay for the next one.

 In 2013, an American household smack in the middle of the earning scale received less than the equivalent household did 15 years before, in 1998, when pay is adjusted for inflation. Median household earnings were 8% below what they were in 2007.

 Between 2020 13, the real average hourly wages of young college graduates declined. By 2014, according to the Federal Reserve Bank of New York, the share of recent college graduates working in jobs that typically do not require a college degree was 46%, versus 35% for college graduates overall.

The so-called recovery from the great recession has been among the most anemic recoveries in American economic history, especially given how far the economy fell into thousand eight in 2009.  The ongoing problem is inadequate overall demand, the same impediment that had delivered the economy into the great recession in the first place. After the crash of 2008, most Americans did not have the resources to buy enough goods and services to convince businesses to invest, expand and hire.

 The third job category I named  "symbolic – analytic services." Here I included all the problem-solving, problem identifying, and strategic thinking that go into the manipulation of symbols – – data, words, oral and visual representations. The essence of this work is to rearrange abstract symbols using a variety of analytic and creative tools – – mathematical algorithms, legal arguments, financial gimmicks, scientific principles, powerful words and phrases, visual patterns, psychological insights, and other techniques for solving conceptual puzzles.

 We are faced not just with labor reducing technologies but with knowledge replacing technologies. The combination of advanced sensors, voice recognition, artificial intelligence, big data, text mining, and pattern recognition algorithms is generating smart robots capable of quickly learning human actions, and even learning from one another.

 The demand for well-educated workers and United States seems to a peak around 2000 and then fallen, even as the supply of well-educated workers has continued to grow.  Since 2000 the vast majority of college graduates have experienced little or no income gains at all. Even those in the top 90th percentile of college graduates increased her cumulative income by only 4.4% between 2020 and 2013. Over the same years, the entry level wages of college graduates actually dropped, a decline of 8.1% for women graduates and 6.7% for men. To state it another way, while a college education has become a prerequisite for joining the middle class, it is no longer a sure means of gaining ground once admitted to it.

Greed Is Good (at TD Bank?)

TD Bank announced additional layoffs both in their US and Canadian operations. Listed below are some interesting online comments from observers who are not fond of TD Bank or the decision to layoff employees...
"Give a man a gun and he can rob a bank... Give a man a bank and he can rob the world."

"The TD Bank has been cutting staffing and FTE (full-time equivalent) hours in the branch banks for the past 4-5 years now. Ask any Branch manager that is willing to say something about this and you will find out that in the same of some "productivity" measure most branches barely have enough staffing compliment to keep a branch open according to the compliance standards set by the TD banks themselves."

"This is a problem that starts with shareholders. Shareholders expect a certain return; call it $1B in profits. Why $1B; so that their shares keep their value and the Corporation can keep paying dividends to keep them happy. When the bank can no longer meet expectations of their forecasts, they have to reduce their largest expense; salaries. The problem; Greed. Executives will do whatever they have to keep their jobs, and their 7 or 8 figure salaries. Do they need this much money; absolutely not, and they could keep ten, or hundreds of jobs if they each took a pay cut. But why would they? Their objectives are to meet very aggressive forecasts, in an economic climate that is quite unstable with potential downside. So, the question is why not set a more realistic forecast, that is risk weighted, and would not upset analysts and investors. Again, it comes to shareholder greed, and the need for executives to keep them happy. It's a circular loop, that at the end of the day, comes down to profits. Although profits are important to reinvest in the company, when you hold significant cash balances, you can have a bad year. Agreed? Certainly the case at the public company that I worked at!"

"TD makes billions but will give you next to zero return on your savings."

"Make $2B profit, cut staff. Disgusting."

"As a shareholder I do feel the expenditure of millions on consultants to tell a business that maintains its own HR department and has row after row of executives that could do an in-house review does not speak well of senior management that are paid to run the business. I doubt you will find the report suggested the layoff of any of the executive management or the rollback of any bonus programs for same. As for those laid off, they are but the victims of the CEO protecting his pay package."

" Restructuring 101, Rule 1: Restructuring begins at the level immediately below yourself."

"You work at TD, so does someone I know. My friend knows a whole whack of people at the lower levels that have been shown the door or told their job will no longer exist.
TD has been cutting, cutting and cutting for some time -- and yet the "goals" for the front line staff have been increased substantially -- my friend says there are at lot of really stressed out, really unhappy employees. And of course a lot of these back-office function cuts that have been going on only make it worse, since now it takes forever to reach someone or get something done from the back-office. I also know a person in the mutual fund industry - his comment is that TD is by far the slowest when it comes to transferring monies -- once again, back-office cuts. Obviously these are only some of the stores -- I have a lot of other ones that are a lot nastier, but suffice to say, this bank has cut too deep, and yet continues to cut further. I've been a client for over 30 years, and have a lot of TD shares, but I'm very seriously considering abandoning ship on both fronts. Not happy with the direction I see them going in."

The Republicans’ Incompetence Caucus by David Brooks

I am publishing David Brooks's article in its entirety. The italics below are mine. This article should be read by every intelligent voter and citizen in this country as it's dead on correct.

"The House Republican caucus is close to ungovernable these days. How did this situation come about?

This was not just the work of the Freedom Caucus or Ted Cruz or one month’s activity. The Republican Party’s capacity for effective self-governance degraded slowly, over the course of a long chain of rhetorical excesses, mental corruptions and philosophical betrayals. Basically, the party abandoned traditional conservatism for right-wing radicalism. Republicans came to see themselves as insurgents and revolutionaries, and every revolution tends toward anarchy and ends up devouring its own.

By traditional definitions, conservatism stands for intellectual humility, a belief in steady, incremental change, a preference for reform rather than revolution, a respect for hierarchy, precedence, balance and order, and a tone of voice that is prudent, measured and responsible. Conservatives of this disposition can be dull, but they know how to nurture and run institutions. They also see the nation as one organic whole. Citizens may fall into different classes and political factions, but they are still joined by chains of affection that command ultimate loyalty and love.

All of this has been overturned in dangerous parts of the Republican Party. Over the past 30 years, or at least since Rush Limbaugh came on the scene, the Republican rhetorical tone has grown ever more bombastic, hyperbolic and imbalanced. Public figures are prisoners of their own prose styles, and Republicans from Newt Gingrich through Ben Carson have become addicted to a crisis mentality. Civilization was always on the brink of collapse. Every setback, like the passage of Obamacare, became the ruination of the republic. Comparisons to Nazi Germany became a staple.

This produced a radical mind-set. Conservatives started talking about the Reagan “revolution,” the Gingrich “revolution.” Among people too ill educated to understand the different spheres, political practitioners adopted the mental habits of the entrepreneur. Everything had to be transformational and disruptive. Hierarchy and authority were equated with injustice. Self-expression became more valued than self-restraint and coalition building. A contempt for politics infested the Republican mind.

Politics is the process of making decisions amid diverse opinions. It involves conversation, calm deliberation, self-discipline, the capacity to listen to other points of view and balance valid but competing ideas and interests.

But this new Republican faction regards the messy business of politics as soiled and impure. Compromise is corruption. Inconvenient facts are ignored. Countrymen with different views are regarded as aliens. Political identity became a sort of ethnic identity, and any compromise was regarded as a blood betrayal.

A weird contradictory mentality replaced traditional conservatism. Republican radicals have contempt for politics, but they still believe that transformational political change can rescue the nation. Republicans developed a contempt for Washington and government, but they elected leaders who made the most lavish promises imaginable. Government would be reduced by a quarter! Shutdowns would happen! The nation would be saved by transformational change! As Steven Bilakovics writes in his book “Democracy Without Politics,” “even as we expect ever less of democracy we apparently expect ever more from democracy.”

This anti-political political ethos produced elected leaders of jaw-dropping incompetence. Running a government is a craft, like carpentry. But the new Republican officials did not believe in government and so did not respect its traditions, its disciplines and its craftsmanship. They do not accept the hierarchical structures of authority inherent in political activity.

In his masterwork, “Politics as a Vocation,” Max Weber argues that the pre-eminent qualities for a politician are passion, a feeling of responsibility and a sense of proportion. A politician needs warm passion to impel action but a cool sense of responsibility and proportion to make careful decisions in a complex landscape.

If a politician lacks the quality of detachment — the ability to let the difficult facts of reality work their way into the mind — then, Weber argues, the politician ends up striving for the “boastful but entirely empty gesture.” His work “leads nowhere and is senseless.”

Welcome to Ted Cruz, Donald Trump and the Freedom Caucus.

Really, have we ever seen bumbling on this scale, people at once so cynical and so naïve, so willfully ignorant in using levers of power to produce some tangible if incremental good? These insurgents can’t even acknowledge democracy’s legitimacy — if you can’t persuade a majority of your colleagues, maybe you should accept their position. You might be wrong!

People who don’t accept democracy will be bad at conversation. They won’t respect tradition, institutions or precedent. These figures are masters at destruction but incompetent at construction.

These insurgents are incompetent at governing and unwilling to be governed. But they are not a spontaneous growth. It took a thousand small betrayals of conservatism to get to the dysfunction we see all around."