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#451 - The Big Problems, Part 2: Positive Feedback, 19-Jul-1995

This week Congress is expected to finish dismantling 25 years worth of
environmental laws (though they have reserved the right to come back
later to undo more). Precisely what form the outcome will take is
unclear, though it will almost certainly be a serious setback for
environmental protection. In any case the visible process is what seems
most important. As the NEW YORK TIMES said, "All over the Capitol,
legislators are considering changes to the principal laws that govern
mining, grazing, logging, toxic wastes, water quality, endangered
species, and pesticides, in each case considering proposals to make the
laws more favorable to industry."[1] It seems clear that industry (the
word the TIMES uses for "corporations") has firm control of Congress.

This is not a partisan attack on the environment; both political
parties are participating to the best of their ability. The TIMES
reports that "Congressional Republicans, aided by many conservative
Democrats, intend to limit sharply actions by the E.P.A. (U.S.
Environmental Protection Agency), the Interior Department, the Energy
Department and any other agency involved in environmental programs."

For example the House Appropriations Committee has recommended cutting
$2.3 billion (or 32%) from the EPA's budget. The TIMES gives the flavor
of the coming changes: "The subcommittee removed money for the agency
to enforce air pollution permits, to regulate toxic air pollution from
oil refineries, to encourage tough state automobile inspections, to
require accident prevention plans in the chemical industry, to limit
pollution from cement kilns, to encourage state car-pooling plans, to
gather and publish data on chemical use, to protect wetlands, to set
water quality guidelines for the Great Lakes, to write new industrial
water pollution regulations, to issue stormwater runoff rules, to
control sewage overflows into rivers, and much more." As the TIMES
said, "Some of the proposals are breathtaking in their potential
effect."

How can the two major political parties go down this road without fear
that the public will throw them out of office? Ask yourself, what
alternatives does the public have? To put it bluntly, none.

In truth, the election process in the U.S. has fallen under the control
of a small corporate elite. Regardless of party affiliation, this small
group of people now provides roughly 75% of the funds needed for most
federal and state election campaigns, thus giving a tiny fraction of
the American people the power to elect a Congress that then fulfills
the wishes and needs of the few.

What is known about the financial power of this corporate elite? The
TIMES recently described it this way: "Federal Reserve figures from
1989, the most recent available, show that the wealthiest 1 percent of
American households... owns nearly 40 percent of the nation's
wealth."[2] "Further down the scale, the top 20 percent of Americans...
have more than 80 percent of the country's wealth, a figure higher than
in other industrial nations."

So 40% of all privately-held assets in the U.S. are held by only 2.5
million people. These are the truly wealthy. Eighty percent of all U.S.
assets are held by 50 million people, the well-to-do. And the remaining
20% of U.S. assets are shared among the remaining 200 million
Americans.

If the total net worth of the U.S. is 23 trillion dollars[3] and if it
is divided as the TIMES describes it, then it breaks down like this:
2.5 million people each have average (mean) net worth of $3.7 million;
another 47.5 million people each have an average net worth of $368,000;
and the remaining 200 million Americans each have an average net worth
of $23,000. (Net worth is assets that remain after debt has been
subtracted.) Within the bottom 80% of the population, net worth is
further skewed by race. In 1988, whites had an average (median) net
worth of $43,280, Hispanics had an average net worth of $5520, and
African- Americans had an average net worth of $4170.[4]

If America were the land of opportunity that most Americans like to
think it is, these figures might not be cause for concern because many
people might work their way out of a bad situation. But in actual fact,
as time passes the rich are getting richer and the poor are getting
poorer, and there seems to be nothing to prevent the gap from
continuing to widen. For example, in 1969, 12.1 percent of Americans
lived in poverty; by 1992 the figure had risen to 14.5 percent, despite
the fact that average per-person income (adjusted for inflation) had
increased 65% during those years.[5] During 1993, a bountiful year for
the economy, the top 40% of Americans saw their incomes increase, but
the other 60% lost ground: "While incomes rose for the most affluent
two-fifths of the nation's households as the economy expanded in 1993,
the rest of the country suffered from falling incomes, after adjusting
for inflation," the NEW YORK TIMES reported.[6] Furthermore, during
1993 an additional one million Americans fell below the poverty line
(defined as an income of $14,763 or less for a family of 4).[7]

There are at least 7 trends driving the nation toward greater
inequality:

1) Automation is reducing the number of high-wage blue-collar jobs. The
better-paying jobs are increasingly held by better-educated people. For
example, machine tools guided by microprocessors have reduced the need
for blue-collar workers on the shop floor, but have increased the
demand for skilled programmers. As economist Paul Krugman points out,
in 1979 a young man with a college degree earned only 30 percent more
than one with a high school diploma; by 1989 the premium had jumped to
74 percent.[8] Thus the wage gap between highly-educated workers and
less-educated workers is growing.

2) Corporations are moving jobs overseas because they can hire 47
workers in Bangladesh, India or Vietnam for the price of one U.S.
worker.[9] Even the threat of such moves is sufficient to exert strong
downward pressure on U.S. wages. As a result of automating, and moving
jobs overseas, corporations are creating jobs in the U.S. that are
temporary, part-time, and without benefits (pension plans and health-
care).

3) Taxes on the rich and on corporations dropped dramatically in 1986,
[10] rose slightly in 1993, and are now dropping again as the present
Congress rewards those who paid to put them into office. The greatest
cuts are expected in inheritance taxes[11] (the main tax on wealth in
the U.S.) and in the capital gains tax (a tax cut which will benefit
only the wealthiest 7% of all taxpayers; 93% of taxpayers have no
capital gains income at all).[12]

4) Trade unions, which exerted strong upward pressure on wages from the
1890s through the 1960s, have declined in numerical strength and
bargaining power. Partly this has resulted from American firms opening
plants overseas. For example, if U.S. workers strike for better wages
or conditions at a Caterpillar tractor plant in Illinois, Caterpillar
can ramp up production overseas and wait out the strike, depriving U.S.
workers of their work-stopping power, and ultimately resisting their
demands.

5) The present low minimum wage, which is $4.25 an hour. If it remains
at this level in 1996, it will be at a 40-year low in terms of
purchasing power.[13] President Clinton says he wants to raise it 90
cents over 2 years, but Congress has vowed to stop him.

6) The share of national income that goes to workers has begun to
decline, relative to income received by owners of capital (from
dividends and investments). For 150 years, workers have consistently
taken home 2/3rds of the nation's economic output in the form of wages,
salaries and benefits. Owners of capital (like stocks or bonds, or
small businesses) have received the other third in the form of
dividends, profits, and investment gains. Now even this time-honored
relationship is changing, as the share of national income shifts from
workers to the owners of capital. "The strongest evidence so far that
workers are receiving less of the fruits of their labors came last
week, when the Labor Department revised its estimates of wage and
compensation growth. After adjusting for inflation, average wages and
salaries apparently fell 2.3 percent over the 12-month period that
ended in March. Productivity rose 2.1 percent during the same period,"
the NEW YORK TIMES reported June 25, 1995.[14]

"Include fringe benefits, and the current numbers look even worse for
the wage-earners. Overall compensation fell 3 percent in the 12-month
period through March, as companies and state and local governments
provided fewer health care benefits," the TIMES reported.

7) Elections are costing more each year, and they already cost so much
that only individuals with serious money, or with access to serious
money, can run. This means the political system is for the most part
closed to people with ideas different from the majority of Republicans
and Democrats in Congress today.

What we seem to have is positive feedback --public and private policies
are pumping money upward in the population, providing a fortunate few
people with a fabulous reward but leaving the majority poorer each
passing year. Sufficient monies are sent back down from the top to
guarantee the re-election of officials dedicated to keeping the big
pump running, pushing benefits ever upward.

Stanford University economist Paul Krugman says, "There is no purely
economic reason why these growing disparities cannot go on for decades.
But they may eventually trigger a social crisis... The ultimate effect
[s] of growing economic disparities on our social and political health
may be hard to predict, but they are unlikely to be pleasant."[15]

--Peter Montague

=====

[1] John H. Cushman, Jr., "G.O.P.'s Plan for Environment Is Facing a
Big Test in Congress," NEW YORK TIMES July 17, 1995, pgs. A1, A11.

[2] Keith Bradsher, "Gap in Wealth in U.S. Called Widest in West," NEW
YORK TIMES April 17, 1995, pgs. A1, D4.

[3] William Proxmire, "How Rich We Are! And Yet How Poor [Letter to the
Editor]," NEW YORK TIMES October 22, 1994, pg. A22, gives the $23
trillion figure.

[4] The median net worth figures by race are 1988 figures; see Robert
Pear, "Rich Got Richer in 80's; Others Held Even," NEW YORK TIMES
January 11, 1991, pgs. A1, A20.

[5] Proxmire, cited above, says per-capita income (adjusted for
inflation) grew 3-fold during the last 50 years; this means it grew an
average rate of 2.2% per year. From this we can calculate that during
the period 1969 to 1992, per-capita income grew 65%; see REHW #199.

[6] Bradsher, cited above in note 2, pg. D4.

[7] Jason DeParle, "Census Sees Falling Income and More Poor," NEW YORK
TIMES October 7, 1994, pg. A16.

[8] Paul Krugman, "Long-Term Riches, Short-Term Pain," NEW YORK TIMES
September 25, 1994, pg. F9.

[9] Sir James Goldsmith, THE TRAP (New York: Carroll & Graf Publishers,
1994), pgs. 25-52.

[10] Donald L. Barlett and James B. Steele, AMERICA: WHO REALLY PAYS
THE TAXES (New York: Simon and Schuster, 1994).

[11] Bradsher, cited above in note 2, pg. D4, reports, "As part of the
contract with America tax provisions, the House on April 5 approved an
increase in individuals' exemptions from the estate tax, which is the
main federal tax on wealth. By the Treasury's estimate, this would cut
in half the number of people subject to the tax, to one-half of 1
percent of the estates of those dying each year."

[12] Barlett and Steele, cited above in note 10, pg. 30.

[13] "Clinton Proposes Minimum Wage Hike," FACTS ON FILE WORLD NEWS
DIGEST, February 9, 1995, p. 87.

[14] Keith Bradsher, "Productivity Is All, But It Doesn't Pay Well,"
NEW YORK TIMES June 25, 1995, pg. E4.

[15] Paul Krugman, cited above in note 8, pg. F9.

Descriptor terms: congress; legislation; contract with america; epa;
republicans; democrats; income; wealth; poverty; taxation;
corporations; environmental policy; inequality; free trade; labor
unions; minimum wage; money in politics;