Tuesday, October 27, 2015

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.

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