ROBERT B. REICH, Chancellor’s Professor of Public Policy at the University of California at Berkeley and Senior Fellow at the Blum Center for Developing Economies, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the twentieth century. He has written thirteen books, including the best sellers “Aftershock" and “The Work of Nations." His latest, "Beyond Outrage," is now out in paperback. He is also a founding editor of the American Prospect magazine and chairman of Common Cause. His new film, "Inequality for All," is now available on Netflix, iTunes, DVD, and On Demand.

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COLBERT REPORT, NOVEMBER, 2013

WITH BILL MOYERS, SEPT. 2013

DAILY SHOW, SEPTEMBER 2013, PART 1

DAILY SHOW, SEPTEMBER 2013, PART 2

DEMOCRACY NOW, SEPTEMBER 2013

INTELLIGENCE SQUARED DEBATES, SEPTEMBER 2012

DAILY SHOW, APRIL 2012, PART 1

DAILY SHOW, APRIL 2012, PART 2

COLBERT REPORT, OCTOBER, 2010

WITH CONAN OBRIEN, JANUARY, 2010

DEBATING RON PAUL, JANUARY, 2010

  • David Brooks’ Utter Ignorance About Inequality


    Saturday, January 18, 2014
    Occasionally David Brooks, who personifies the oxymoron “conservative thinker” better than anyone I know, displays such profound ignorance that a rejoinder is necessary lest his illogic permanently pollute public debate. Such is the case with his New York Times column last Friday, arguing that we should be focusing on the “interrelated social problems of the poor” rather than on inequality, and that the two are fundamentally distinct.
    Baloney.
     
    First, when almost all the gains from growth go to the top, as they have for the last thirty years, the middle class doesn’t have the purchasing power necessary for buoyant growth.
    Once the middle class has exhausted all its coping mechanisms – wives and mothers surging into paid work (as they did in the 1970s and 1980s), longer working hours (which characterized the 1990s), and deep indebtedness (2002 to 2008) – the inevitable result is fewer jobs and slow growth, as we continue to experience.
    Few jobs and slow growth hit the poor especially hard because they’re the first to be fired, last to be hired, and most likely to bear the brunt of declining wages and benefits.
     
    Second, when the middle class is stressed, it has a harder time being generous to those in need. The “interrelated social problems” of the poor presumably will require some money, but the fiscal cupboard is bare. And because the middle class is so financially insecure, it doesn’t want to, nor does it feel it can afford to, pay more in taxes.
     
    Third, America’s shrinking middle class also hobbles upward mobility. Not only is there less money for good schools, job training, and social services, but the poor face a more difficult challenge moving upward because the income ladder is far longer than it used to be, and its middle rungs have disappeared.
     
    Brooks also argues that we should not be talking about unequal political power, because such utterances cause divisiveness and make it harder to reach political consensus over what to do for the poor.
     
    Hogwash. The concentration of power at the top — which flows largely from the concentration of income and wealth there — has prevented  Washington from dealing with the problems of the poor and the middle class.
    To the contrary, as wealth has accumulated at the top, Washington has reduced taxes on the wealthy, expanded tax loopholes that disproportionately benefit the rich, deregulated Wall Street, and provided ever larger subsidies, bailouts, and tax breaks for large corporations. The only things that have trickled down to the middle and poor besides fewer jobs and smaller paychecks are public services that are increasingly inadequate because they’re starved for money.
     
    Unequal political power is the endgame of widening inequality — its most noxious and nefarious consequence, and the most fundamental threat to our democracy. Big money has now all but engulfed Washington and many state capitals — drowning out the voices of average Americans, filling the campaign chests of candidates who will do their bidding, financing attacks on organized labor, and bankrolling a vast empire of right-wing think-tanks and publicists that fill the airwaves with half-truths and distortions.
     
    That David Brooks, among the most thoughtful of all conservative pundits, doesn’t see or acknowledge any of this is a sign of how far the right has moved away from the reality most Americans live in every day. 
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  • Fear is Why Workers in Red States Vote Against Their Economic Self-Interest


    Wednesday, January 15, 2014

    Last week’s massive spill of the toxic chemical MCHM into West Virginia’s Elk River illustrates another benefit to the business class of high unemployment, economic insecurity, and a safety-net shot through with holes. Not only are employees eager to accept whatever job they can get. They are also also unwilling to demand healthy and safe environments.  

    The spill was the region’s third major chemical accident in five years, coming after two investigations by the federal Chemical Safety Board in the Kanawha Valley, also known as “Chemical Valley,” and repeated recommendations from federal regulators and environmental advocates that the state embrace tougher rules to better safeguard chemicals. 

    No action was ever taken. State and local officials turned a deaf ear. The storage tank that leaked, owned by Freedom Industries, hadn’t been inspected for decades. 

    But nobody complained. 

    Not even now, with the toxins moving down river toward Cincinnati, can the residents of Charleston and the surrounding area be sure their drinking water is safe — partly because the government’s calculation for safe levels is based on a single study by the manufacturer of the toxic chemical, which was never published, and partly because the West Virginia American Water Company, which supplies the drinking water, is a for-profit corporation that may not want to highlight any lingering danger.  

    So why wasn’t more done to prevent this, and why isn’t there more of any outcry even now? 

    The answer isn’t hard to find. As Maya Nye, president of People Concerned About Chemical Safety, a citizen’s group formed after a 2008 explosion and fire killed workers at West Virginia’s Bayer CropScience plant in the state, explained to the New York Times: “We are so desperate for jobs in West Virginia we don’t want to do anything that pushes industry out.” 

    Exactly.

    I often heard the same refrain when I headed the U.S. Department of Labor. When we sought to impose a large fine on the Bridgestone-Firestone Tire Company for flagrantly disregarding workplace safety rules and causing workers at one of its plants in Oklahoma to be maimed and killed, for example, the community was solidly behind us — that is, until Bridgestone-Firestone threatened to close the plant if we didn’t back down.

    The threat was enough to ignite a storm of opposition to the proposed penalty from the very workers and families we were trying to protect. (We didn’t back down and Bridgestone-Firestone didn’t carry out its threat, but the political fallout was intense.)

    For years political scientists have wondered why so many working class and poor citizens of so-called “red” states vote against their economic self-interest. The usual explanation is that, for these voters, economic issues are trumped by social and cultural issues like guns, abortion, and race. 

    I’m not so sure. The wages of production workers have been dropping for thirty years, adjusted for inflation, and their economic security has disappeared. Companies can and do shut down, sometimes literally overnight. A smaller share of working-age Americans hold jobs today than at any time in more than three decades. 

    People are so desperate for jobs they don’t want to rock the boat. They don’t want rules and regulations enforced that might cost them their livelihoods. For them, a job is precious — sometimes even more precious than a safe workplace or safe drinking water. 

    This is especially true in poorer regions of the country like West Virginia and through much of the South and rural America — so-called “red” states where the old working class has been voting Republican. Guns, abortion, and race are part of the explanation. But don’t overlook economic anxieties that translate into a willingness to vote for whatever it is that industry wants. 

    This may explain why Republican officials who have been casting their votes against unions, against expanding Medicaid, against raising the minimum wage, against extended unemployment insurance, and against jobs bills that would put people to work, continue to be elected and re-elected. They obviously have the support of corporate patrons who want to keep unemployment high and workers insecure because a pliant working class helps their bottom lines. But they also, paradoxically, get the votes of many workers who are clinging so desperately to their jobs that they’re afraid of change and too cowed to make a ruckus.  

    The best bulwark against corporate irresponsibility is a strong and growing middle class. But in order to summon the political will to achieve it, we have to overcome the timidity that flows from economic desperation. It’s a diabolical chicken-and-egg conundrum at a the core of American politics today.

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  • Today’s Lousy Jobs Report and the Scourge of Inequality


    Friday, January 10, 2014

    The U.S. economy created a measly 74,000 new jobs in December, and a smaller percentage of working-age Americans is now employed than at any time in the last three decades (before women surged into the workforce).

    What does this have to do with the fact that median household incomes continue to drop (adjusted for inflation) and that 95 percent of all the economic gains since the recovery started have gone to the top 1 percent? 

    Plenty. Businesses won’t create new jobs without enough customers. But most Americans no longer have enough purchasing power to fuel that job growth. 

    That’s why it’s so important to (1) raise the minimum wage at least to its inflation-adjusted value 40 years ago — which would be well over $10 an hour, (2) extend unemployment benefits to the jobless, (3) launch a major jobs program to rebuild the nation’s crumbling infrastructure, (4) expand Medicaid to the near-poor, (5) enable low-wage workers to unionize, (6) rehire all the teachers, social workers, police, and other public service employees who were laid off in the recession, (7) exempt the first $20,000 of income from Social Security payroll taxes and make up the difference by removing the cap on income subject to the tax.

    And because the rich spend a far smaller proportion of their earnings than the middle class and poor, pay for much of this by (8) closing tax loopholes that benefit the rich such as the “carried interest” tax benefit for hedge-fund and private-equity managers, (9) raise the highest marginal tax rate, and (10) impose a small tax on all financial transactions. 

    One of the major political parties adamantly refuses to do any of this, and the other doesn’t have the strength or backbone to make them.

    Make a ruckus. 

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  • Why The Republican’s Old Divide-and-Conquer Strategy — Setting Working Class Against the Poor — Is Backfiring


    Thursday, January 9, 2014

    For almost forty years Republicans have pursued a divide-and-conquer strategy intended to convince working-class whites that the poor were their enemies.

    The big news is it’s starting to backfire. 

    Republicans told the working class that its hard-earned tax dollars were being siphoned off to pay for “welfare queens” (as Ronald Reagan decorously dubbed a black single woman on welfare) and other nefarious loafers. The poor were “them” — lazy, dependent on government handouts, and overwhelmingly black — in sharp contrast to “us,” who were working ever harder, proudly independent (even sending wives and mothers to work, in order to prop up family incomes dragged down by shrinking male paychecks), and white.  

    It was a cunning strategy designed to split the broad Democratic coalition that had supported the New Deal and Great Society, by using the cleavers of racial prejudice and economic anxiety. It also conveniently fueled resentment of government taxes and spending. 

    The strategy also served to distract attention from the real cause of the working class’s shrinking paychecks — corporations that were busily busting unions, outsourcing abroad, and replacing jobs with automated equipment and, subsequently, computers and robotics.  

    But the divide-and-conquer strategy is no longer convincing because the dividing line between poor and middle class has all but disappeared. “They” are fast becoming “us.”

    Poverty is now a condition that almost anyone can fall into. In the first two years of this recovery, according to new report from Census Bureau, about one in three Americans dropped into poverty for at least two to six months.

    Three decades of flattening wages and declining economic security have taken a broader toll. Nearly 55 percent of Americans between the ages of 25 and 60 have experienced at least a year in poverty or near poverty (below 150 percent of the poverty line). Half of all American children have at some point during their childhoods relied on food stamps. 

    Fifty years ago, when Lyndon Johnson declared a “war on poverty,” most of the nation’s chronically poor had little or no connection to the labor force, while most working-class Americans had full-time jobs. 

    This distinction has broken down as well. Now a significant percentage of the poor are working but not earning enough to get themselves and their families out of poverty. And a growing portion of the middle class finds themselves in the same place — often in part-time or temporary positions, or in contract work.

    Economic insecurity is endemic. Working-class whites who used to be cushioned against the vagaries of the market are now fully exposed to them. Trade unions that once bargained on behalf of employees and protected their contractual rights have withered. Informal expectations of lifelong employment with a single company are gone. Company loyalty has become a bad joke. 

    Financial markets are now calling the shots — forcing companies to suddenly uproot, sell out to other companies, transfer whole divisions abroad, liquidate unprofitable units, or adopt new software that suddenly renders old skills obsolete.

    Because money moves at the speed of an electronic impulse while human beings move at the speed of human beings, the humans — most of them hourly workers but many white collar as well — have been getting shafted.  

    This means sudden and unexpected poverty has become a real possibility for almost everyone these days. And there’s little margin of safety. With the real median household income continuing to drop, 65 percent of working families are living from paycheck to paycheck. 

    Race is no longer a dividing line, either. According to Census Bureau numbers, two-thirds of those below the poverty line at any given point identify themselves as white.

    This new face of poverty — a face that’s both poor, near-poor, and precarious working middle, and that’s simultaneously black, Latino, and white  — renders the old Republican divide-and-conquer strategy obsolete. Most people are now on the same losing side of the divide. Since the start of the recovery, 95 percent of the economy’s gains have gone to the top 1 percent. 

    Which means Republican opposition to extended unemployment insurance, food stamps, jobs programs, and a higher minimum wage pose a real danger of backfiring on the GOP. 

    Just look at North Carolina, a bellwether state, where Democratic Senator Kay Hagan, up for re-election, is doing well by attacking Republicans back home as “irresponsible and cold-hearted” for slashing unemployment benefits and social services. The state Democratic Party is highlighting her Republican opponent’s “long record of demeaning statements against those struggling to make ends meet.”  (Tom Tillis, the speaker of the State, had spoken of the need  “to divide and conquer” people on public assistance, and called criticisms of the cuts as “whining coming from losers.”)

    The new economy has been especially harsh for the bottom two-thirds of Americans. It’s not hard to imagine a new political coalition of America’s poor and working middle class, bent not only on repairing the nation’s frayed safety nets but also on getting a fair share of the economies’ gains.

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  • The Year of the Great Redistribution


    Saturday, January 4, 2014

    One of the worst epithets that can be leveled at a politician these days is to call him a “redistributionist.” Yet 2013 marked one of the biggest redistributions in recent American history. It was a redistribution upward, from average working people to the owners of America.

    The stock market ended 2013 at an all-time high — giving stockholders their biggest annual gain in almost two decades. Most Americans didn’t share in those gains, however, because most people haven’t been able to save enough to invest in the stock market. More than two-thirds of Americans live from paycheck to paycheck.

    Even if you include the value of IRA’s, most shares of stock are owned by the very wealthy. The richest 1 percent of Americans owns 35 percent of the value of American-owned shares. The richest 10 percent owns over 80 percent. So in the bull market of 2013, America’s rich hit the jackpot.

    What does this have to do with redistribution? Some might argue the stock market is just a giant casino. Since it’s owned mostly by the wealthy, a rise in stock prices simply reflects a transfer of wealth from some of the rich (who cashed in their shares too early) to others of the rich (who bought shares early enough and held on to them long enough to reap the big gains).

    But this neglects the fact that stock prices track corporate profits. The relationship isn’t exact, and price-earnings ratios move up and down in the short term. Yet over the slightly longer term, share prices do correlate with profits. And 2013 was a banner year for profits

    Where did those profits come from? Here’s where redistribution comes in. American corporations didn’t make most of their money from increased sales (although their foreign sales did increase). They made their big bucks mostly by reducing their costs — especially their biggest single cost: wages

    They push wages down because most workers no longer have any bargaining power when it comes to determining pay. The continuing high rate of unemployment — including a record number of long-term jobless, and a large number who have given up looking for work altogether — has allowed employers to set the terms.

    For years, the bargaining power of American workers has also been eroding due to ever-more efficient means of outsourcing abroad, new computer software that can replace almost any routine job, and an ongoing shift of full-time to part-time and contract work. And unions have been decimated. In the 1950s, over a third of private-sector workers were members of labor unions. Now, fewer than 7 percent are unionized.

    All this helps explain why corporate profits have been increasing throughout this recovery (they grew over 18 percent in 2013 alone) while wages have been dropping. Corporate earnings now represent the largest share of the gross domestic product — and wages the smallest share of GDP — than at any time since records have been kept. 

    Hence, the Great Redistribution.

    Some might say this doesn’t really amount to a “redistribution” as we normally define that term, because government isn’t redistributing anything. By this view, the declining wages, higher profits, and the surging bull market simply reflect the workings of the free market.

    But this overlooks the fact that government sets the rules of the game. Federal and state budgets have been cut, for example — thereby reducing overall demand and keeping unemployment higher than otherwise. Congress has repeatedly rejected tax incentives designed to encourage more hiring. States have adopted “right-to-work” laws that undercut unions. And so on.

    If all this weren’t enough, the tax system is rigged in favor of the owners of wealth, and against people whose income comes from wages. Wealth is taxed at a lower rate than labor.

    Capital gains, dividends, and debt all get favorable treatment in the tax code – which is why Mitt Romney, Warren Buffet, and other billionaires and multimillionaires continue to pay around 12 percent of their income in taxes each year, while most of the rest of us pay at least twice that rate.

    Among the biggest winners are top executives and Wall Street traders whose year-end bonuses are tied to the stock market, and hedge-fund and private-equity managers whose special “carried interest” tax loophole allows their income to be treated as capital gains. The wild bull market of 2013 has given them all fabulous after-tax windfalls.

    America has been redistributing upward for some time – after all, “trickle-down” economics turned out to be trickle up — but we outdid ourselves in 2013. At a time of record inequality and decreasing mobility, America conducted a Great Redistribution upward.
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  • Monday, December 30, 2013

    A NEW YEAR’S MESSAGE

    Despite do-nothing congressional Republicans, we ARE making progress around the country because Americans are organizing and mobilizing. Together we can make 2014 the year we turn the tide on economic inequality.

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  • Why You Shouldn’t Succumb to Defeatism About the Affordable Care Act


    Friday, December 27, 2013

    Whatever happened to American can-do optimism?  Even before the Affordable Care Act covers its first beneficiary, the nattering nabobs of negativism are out in full force.

    “Tens of millions more Americans will lose their coverage and find that new ObamaCare plans have higher premiums, larger deductibles, and fewer doctors,” predicts Republican operative Karl Rove. “Enrollment numbers will be smaller than projected and budget outlays will be higher.”

    Rove is joined by a chorus of conservative Cassandra’s, from Fox News to the editorial pages of the Wall Street Journal, all warning that the new law will be a disaster. 

    Robert Laszewski, president of Health Policy and Strategy Associates, anticipates a shortage of doctors. “There just aren’t going to be enough of them.”

    Professor John Cochrane of the University of Chicago predicts the individual mandate will “unravel” when “we see how sick the people are who signed up on exchanges, and if our government really is going to penalize voters for not buying health insurance.” 

    The round-the-clock nay-saying is having an effect. Support for the law has plummeted to 35 percent of those questioned in a recent CNN poll, a 5-point drop in less than a month. Sixty-two percent now say they oppose the law, up four points from November. 

    Even liberal-leaning commentators are openly worrying. On ABC’s “This Week,” Cokie Roberts responded to my view that the law eventually would prove popular by warning of “a whole other wave of reaction against it” if employers start dropping their insurance. 

    Some congressional Democrats are getting cold feet. West Virginia Senator Joe Manchin recently fretted that “if it’s so much more expensive than what we anticipated and if the coverage is not as good as what we had, you’ve got a complete meltdown.” 

    Get a grip.

    If the past is any guide, some fixes will probably be necessary – but so what? Our current healthcare system is the real disaster — the most expensive and least effective among all developed countries, according Bloomberg’s recent ranking. We’d be collectively insane if we didn’t try to overhaul it.

    But we won’t get it perfect immediately. What needs fixing can be fixed. And over time we can learn how to do it better.

    If enrollments are lower than anticipated, the proper response is to keep at it until larger numbers are enrolled. CHIP, the Children’s Health Insurance Program, got off to a slow start in 1998. The Congressional Research Service reported “general disappointment … with low enrollment rates early in the program.” CHIP didn’t reach its target level of enrollment for five years. Now it enrolls nearly ninety percent of all eligible children. 

    Richard Nixon’s Supplemental Security Income program of 1974 – designed to standardize welfare benefits to the poor — was widely scorned at the time, and many states were reluctant to sign up. Even two years after its launch, only about half of eligible recipients had enrolled. Today, more than 8 million Americans are covered. 

    If mistakes are made implementing the Affordable Care Act, the appropriate response is to fix them. When George W. Bush’s Medicare Part D drug benefit was launched, large numbers of low-income seniors had to be switched from Medicaid. Many needed their prescriptions filled before the switch had been completed, causing loud complaints. The website for the plan initially malfunctioned. Pharmacies got the wrong information. Other complications led even Republican Representative John Boehner to call it “horrendous.” But the transition was managed, and Medicare Part D is now a firm fixture in the Medicare firmament.

    If young people don’t sign up for the Affordable Care Act in sufficient numbers and costs rise too fast, other ways can be found to encourage their enrollment and control costs. If there aren’t enough doctors initially, medical staffs can be utilized more efficiently. If employers begin to drop their own insurance, incentives can be altered so they don’t.

    Why be defeatist before we begin? Even Social Security — the most popular of all government programs — had problems when it was launched in 1935. A full year later, Alf Landon, the Republican presidential candidate, called it “a fraud on the workingman.” Former President Herbert Hoover said it would imprison the elderly in the equivalent of “a national zoo.” Americans were slow to sign up. Not until the 1970s did Social Security cover most working-age Americans.

    As Alexis de Tocqueville recognized as early as the 1830s, what distinguishes America is our pragmatism, resilience, and optimism. We invent, experiment, and fix what has to be fixed.

    Of course there will be problems implementing the Affordable Care Act. But if we’re determined to create a system that’s cheaper and more effective at keeping Americans healthy than the one we have now – and, in truth, we have no choice – we have every chance of succeeding.

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  • The Meaning of a Decent Society


    Thursday, December 19, 2013

    It’s the season to show concern for the less fortunate among us. We should also be concerned about the widening gap between the most fortunate and everyone else.

    Although it’s still possible to win the lottery (your chance of winning $648 million in the recent Mega Millions sweepstakes was one in 259 million), the biggest lottery of all is what family we’re born into. Our life chances are now determined to an unprecedented degree by the wealth of our parents.

    That’s not always been the case. The faith that anyone could move from rags to riches – with enough guts and gumption, hard work and nose to the grindstone – was once at the core of the American Dream.

    And equal opportunity was the heart of the American creed. Although imperfectly achieved, that ideal eventually propelled us to overcome legalized segregation by race, and to guarantee civil rights. It fueled efforts to improve all our schools and widen access to higher education. It pushed the nation to help the unemployed, raise the minimum wage, and provide pathways to good jobs. Much of this was financed by taxes on the most fortunate.

    But for more than three decades we’ve been going backwards. It’s far more difficult today for a child from a poor family to become a middle-class or wealthy adult. Or even for a middle-class child to become wealthy.

    The major reason is widening inequality. The longer the ladder, the harder the climb. America is now more unequal that it’s been for eighty or more years, with the most unequal distribution of income and wealth of all developed nations. Equal opportunity has become a pipe dream.

    Rather than respond with policies to reverse the trend and get us back on the road to equal opportunity and widely-shared prosperity, we’ve spent much of the last three decades doing the opposite.

    Taxes have been cut on the rich, public schools have deteriorated, higher education has become unaffordable for many, safety nets have been shredded, and the minimum wage has been allowed to drop 30 percent below where it was in 1968, adjusted for inflation.

    Congress has just passed a tiny bipartisan budget agreement, and the Federal Reserve has decided to wean the economy off artificially low interest rates. Both decisions reflect Washington’s (and Wall Street’s) assumption that the economy is almost back on track.

    But it’s not at all back on the track it was on more than three decades ago.

    It’s certainly not on track for the record 4 million Americans now unemployed for more than six months, or for the unprecedented 20 million American children in poverty (we now have the highest rate of child poverty of all developed nations other than Romania), or for the third of all working Americans whose jobs are now part-time or temporary, or for the majority of Americans whose real wages continue to drop.

    How can the economy be back on track when 95 percent of the economic gains since the recovery began in 2009 have gone to the richest 1 percent?

    The underlying issue is a moral one: What do we owe one another as members of the same society?

    Conservatives answer that question by saying it’s a matter of personal choice – of charitable works, philanthropy, and individual acts of kindness joined in “a thousand points of light.”

    But that leaves out what we could and should seek to accomplish together as a society. It neglects the organization of our economy, and its social consequences. It minimizes the potential role of democracy in determining the rules of the game, as well as the corruption of democracy by big money. It overlooks our strivings for social justice.

    In short, it ducks the meaning of a decent society.

    Last month Pope Francis wondered aloud whether “trickle-down theories, which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness…”. Rush Limbaugh accused the Pope of being a Marxist for merely raising the issue.

    But the question of how to bring about greater justice and inclusiveness is as American as apple pie. It has animated our efforts for more than a century – during the Progressive Era, the New Deal, the Great Society, and beyond — to make capitalism work for the betterment of all rather merely than the enrichment of a few.

    The supply-side, trickle-down, market-fundamentalist views that took root in America in the early 1980s got us fundamentally off track.

    To get back to the kind of shared prosperity and upward mobility we once considered normal will require another era of fundamental reform, of both our economy and our democracy.

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  • When Charity Begins at Home (Particularly the Homes of the Wealthy)


    Thursday, December 12, 2013

    It’s charity time, and not just because the holiday season reminds us to be charitable. As the tax year draws to a close, the charitable tax deduction beckons.

    America’s wealthy are its largest beneficiaries. According to the Congressional Budget Office, $33 billion of last year’s $39 billion in total charitable deductions went to the richest 20 percent of Americans, of whom the richest 1 percent reaped the lion’s share.

    The generosity of the super-rich is sometimes proffered as evidence they’re contributing as much to the nation’s well-being as they did decades ago when they paid a much larger share of their earnings in taxes. Think again.

    Undoubtedly, super-rich family foundations, such as the Bill and Melinda Gates Foundation, are doing a lot of good. Wealthy philanthropic giving is on the rise, paralleling the rise in super-rich giving that characterized the late nineteenth century, when magnates (some called them “robber barons”) like Andrew Carnegie and John D. Rockefeller established philanthropic institutions that survive today.

    But a large portion of the charitable deductions now claimed by America’s wealthy are for donations to culture palaces – operas, art museums, symphonies, and theaters – where they spend their leisure time hobnobbing with other wealthy benefactors.

    Another portion is for contributions to the elite prep schools and universities they once attended or want their children to attend. (Such institutions typically give preference in admissions, a kind of affirmative action, to applicants and “legacies” whose parents have been notably generous.)

    Harvard, Yale, Princeton, and the rest of the Ivy League are worthy institutions, to be sure, but they’re not known for educating large numbers of poor young people. (The University of California at Berkeley, where I teach, has more poor students eligible for Pell Grants than the entire Ivy League put together.) And they’re less likely to graduate aspiring social workers and legal defense attorneys than aspiring investment bankers and corporate lawyers.

    I’m all in favor of supporting fancy museums and elite schools, but face it: These aren’t really charities as most people understand the term. They’re often investments in the life-styles the wealthy already enjoy and want their children to have as well. Increasingly, being rich in America means not having to come across anyone who’s not.

    They’re also investments in prestige – especially if they result in the family name engraved on a new wing of an art museum, symphony hall, or ivied dorm.

    It’s their business how they donate their money, of course. But not entirely. As with all tax deductions, the government has to match the charitable deduction with additional tax revenues or spending cuts; otherwise, the budget deficit widens.

    In economic terms, a tax deduction is exactly the same as government spending. Which means the government will, in effect, hand out $40 billion this year for “charity” that’s going largely to wealthy people who use much of it to enhance their lifestyles.

    To put this in perspective, $40 billion is more than the federal government will spend this year on Temporary Assistance for Needy Families (what’s left of welfare), school lunches for poor kids, and Head Start, put together.

    Which raises the question of what the adjective “charitable” should mean. I can see why a taxpayer’s contribution to, say, the Salvation Army should be eligible for a charitable tax deduction. But why, exactly, should a contribution to the Guggenheim Museum or to Harvard Business School?

    A while ago, New York’s Lincoln Center held a fund-raising gala supported by the charitable contributions of hedge fund industry leaders, some of whom take home $1 billion a year. I may be missing something but this doesn’t strike me as charity, either. Poor New Yorkers rarely attend concerts at Lincoln Center.

    What portion of charitable giving actually goes to the poor? The Washington Post’s Dylan Matthews looked into this, and the best he could come up with was a 2005 analysis by Google and Indiana University’s Center for Philanthropy showing that even under the most generous assumptions only about a third of “charitable” donations were targeted to helping the poor.

    At a time in our nation’s history when the number of poor Americans continues to rise, when government doesn’t have the money to do what’s needed, and when America’s very rich are richer than ever, this doesn’t seem right.

    If Congress ever gets around to revising the tax code, it might consider limiting the charitable deduction to real charities.

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  • Raw Deal


    Wednesday, December 11, 2013

    About the only good thing that can be said about the budget deal just patched together by House Republican budget chair Paul Ryan and Senate Democratic budget chair Patty Murray is that the right-wing Heritage Foundation and the Koch brothers’ Americans for Prosperity oppose it.

    But that doesn’t mean it’s a good deal for the country. In fact, it’s a bad deal, for at least three reasons:

    First, it fails extend unemployment benefits for 1.3 million jobless who will lose them in a few weeks. These people and their families are still caught in the worst downturn since the Great Depression.

    Almost three Americans are jobless for every job that’s available – a ratio worse than it was at the bottom of the last downturn.

    Moreover, the nation still harbors an unprecedented number of long-term unemployed. In past recessions emergency benefits continued until the rate of long-term employment hovered around 1 percent or less. But the current level of long-term unemployed is 2.6 percent.

    The second reason this deal is bad is it contributes to the nation’s savage inequality. The deal doesn’t close a single tax loophole for wealthy, and it doesn’t restore food stamps to the poor.

    Third, the deal makes no fiscal sense. It’s topsy-turvy: The deal contains no short-term stimulus, and does nothing about the long-term deficit.

    Although the deal overrides the dread “sequester” that mindlessly cuts domestic spending (except for Social Security, Medicare, and Medicaid), it doesn’t put an end to the sequester. It merely postpones the sequester for two years.

    The deal does remove the treat of another government shutdown January 15, when the stopgap spending resolution that reopened the government in October runs out. But it doesn’t prevent another standoff over the debt ceiling next March when the borrowing authority of the government is exhausted.

    I can understand why Republican leaders like this deal. They don’t want to risk another government shutdown, given how badly they got burned by the last one earlier in the fall. As the midterm elections loom, they’d rather keep attention focused on whatever they can find that’s wrong with the Affordable Care Act – or, more accurately, whatever trumped-up charge they and their megaphones at Fox News and yell radio can bring against the Act.

    But America would do better with another temporary spending resolution than with this raw deal.

    On hearing of the deal yesterday, President Obama said, “that’s the way the American people expect Washington to work.” Sadly, he was not being ironic.

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