4 charts show why Democrats have only themselves to blame
We know that unemployment, underemployment and the number of laborers who left the pool of workers all remain alarmingly high. In a recent post, we saw how a new team who replaced Obama’s original economic advisers engineered a tepid stimulus, and the political people, in a misguided attempt to attract Republican votes watered the effect down by converting about 1/3 of the amount from direct spending to tax breaks for businesses. Now this would be a tragedy under any circumstance, but in this case the situation was made worse by political naivete and economic malpractice.
Since that first capitulation, the Democrats have been forced to fatten any bill designed to prime the economic pump with tax breaks. Tax breaks, of course, don’t create jobs, either directly or indirectly. If an employer gets a reduction in taxes he does not use that savings to hire anyone unless the demand for his goods or services justifies the hire. It is the spending, not the tax cut that creates the demand. And to the extent spending is replaced by tax cuts, the pump-priming feature of the bill is lessened. The tax break is just a windfall for the employer.
And what windfalls have the rich enjoyed! By all measures, the small fraction of the economic elite in this country own a vastly disproportionate percentage of the national wealth and earn a vastly disproportionate amount of the national income. French economist Emmanuel Saez has tracked this phenomenon for years. Here is a chart illustrating the long-term historical trend, from The Economist, March 5, 2012:with data through 2010:
You can see from this that the top 1% of earners received the highest proportion of national income right before the Crash in 1929 and right before the Great Recession of 2007. You can also see that the percentage of income going to the very wealthy, the top 1% of income earners, remained (relatively) low as a result of New Deal legislation and continued low until the Reagan Administration. Fron then on it began a steady and spectacular rise. During the Clinton Administration, the real growth of the income of the top 1% was 99.7%. The bottom 99% (that is, everyone other than the top 1%) had real growth in income of 20.3%. So the top 1% captured 45% (nearly half!) of the real growth in total national income from 1993-2000. (See Emmanuel Saez, “Striking it Richer: The Evolution of Top Incomes in the United States (Updated with 2009 and 2010 estimates)” (March 2, 2012) [Hereafter, “Striking it Richer”], Table 1).
In the Great Recession from 2007 to 2009, the portion of income going to the top 10% declined but mostly owing to losses on realized capital gains.
“The sharp fall in top incomes is explained primarily by the collapse of realized capital gains due to the stock-market crash. Aggregate realized capital gains fell from $895 billion in 2007 to $236 billion in 2009. Indeed, including realized capital gains, the top decile income share dropped from 49.7% in 2007 to 46.5% in 2009 while excluding realized capital gains, the top decile income share remained virtually constant from 45.7% in 2007 to 45.5% in 2009 (Figure 1).” (Striking it Richer, p 1.)
In the first phase of the recovery from the 2007-2009 recession, unlike the recovery from the Great Depressiion, it was the high end earners that reaped the (anemic) growth.
“In 2010, average real income per family grew by 2.3% … [see Chart immediately above] but the gains were very uneven. Top 1% incomes grew by 11.6% while bottom 99% incomes grew only by 0.2%. Hence, the top 1% captured 93% of the income gains in the first year of recovery. Such an uneven recovery can help explain the recent public demonstrations against inequality. It is likely that this uneven recovery has continued in 2011 as the stock market has continued to recover. National Accounts statistics show that corporate profits and dividends distributed have grown strongly in 2011 while wage and salary accruals have only grown only modestly. Unemployment and non-employment have remained high in 2011.” (Striking it Richer, p 2.)
So the modest recovery in the economy (modest because of the temporizing of the Administrations economic team) was mostly sucked up by the richest of the haves. But why shoud that be?
Well, two disturbing trends have culminated. The following two charts were prepared by Business Insiders (June 22, 2012), based on data from the St. Louis Federal Reserve Bank, and reveal a large part of the problem. The first shows corporate profit as a percentage of GDP.
You can see that corporate profits have reached an all-time high for the period since the end of World War II, and it is really not even close. The run-up began and continued through the administration of George W. Bush. And after the end of the 2007-09 recession, they continued to climb. This means the owners of these corporations also became wealthier. And this came at a time that taxes on capital gains had been reduced to below the rate for taxes on labor. And so the second chart shows a related phenomenon.
Wages, as a portion of the US GDP, are the lowest they have ever been. The trend began with the Nixon Administration and only rallied once—during the Clinton years. And these wages bear a higher tax rate than the capital appreciation that enrich the richest.
So what has our governing legal party done, or at least attempted to do about it? We know they continued the Bush tax cuts which continued to benefit the richest. We know that additional tax breaks for busness (already enjoying record profits) have been provided. The President has convened a distinguished group of business advisers to keep him abreast of anything that might disturb or annoy large accumulations of capital. We never hear of ay labor advisory group. (We know the leader of the Democratic Party was AWOL during the labor fight of the year in Wisconsin. He was too busy, he explained, to help defeat Scott Walker, the man who was the public face of the right wing’s efforts to destroy unions.)
And where has the party gone that used to seek a full employment economy? Who supported labor since the days FDR singned the Wagner Act? Which Deomcrat has made income disparity an issue?
Is there any question why the public, which know how things are, without the need for charts, has little enthusiasm for the Party? Yes, maybe with Obama’s defeat, there will be an unbreakable majority of right-wingers on the Court. But, really, could they do much worse for incomes policy, than have the majority party?