Sunday, 15 December 2013

CREATED EQUAL?



Dick Pountain/14th Sept 2011 2:45/Political Quarterly/Winner-Take-All Politics Review

TITLE: Winner-Take-All Politics: How Washington Made the Rich Richer – And Turned Its Back on the Middle Class
AUTHORS: Jacob S. Hacker and Paul Pierson
PUBLISHER: Simon & Schuster Paperbacks
PUBLISHED:  March 2011, 368pp, £11.50

Back in 1995 two economics professors, Robert Frank and Philip J. Cook, published “The Winner-Take-All Society”, one of the more important works of social criticism of the late 20th century. They analysed the way in which the rewards accruing to the highest echelons of US society – top managers, bankers, film and sports stars and other entertainers – had raced away from the pay of lesser mortals. They explained this phenomenon in terms of a new market structure, under conditions of ubiquitous mass media attention, whereby it becomes only profitable to employ the most popular performers and to divert most of the available wage fund to secure them. This economic explanation was convincing as far as it went, but hardly touched upon politics. Now two political science professors, Jacob S. Hacker and Paul Pierson, have filled that gap admirably with a painstakingly researched, illuminating and alarming book (whose rather similar title will no doubt confuse a few Google searchers). They explore the political struggles – and lack thereof – that permitted this enormous disparity of wealth to grow over the intervening 15 years, to the point where it’s now become a threat to the US economy, perhaps to democracy itself. 

"Winner-Take-All Politics” investigates the way that politically shrewd, determined and well-funded factions on the Right of the Republican party have, over more than half a century, managed to change the tax laws (on income, capital gains, companies, property and inheritance) and labour laws in a regressive direction, so as to divert the share of GDP received by labour toward the owners and managers of capital. During the 1950s and 60s this effort was explicitly aimed at undoing the hated gains made by labour under Roosevelt’s New Deal, but in recent decades it has been justified instead by neo-liberal claims about the efficiency of free markets and their wealth-and-job creating power. The US welfare state has not yet been totally dismantled, but effective political manoeuvring on the Right, combined with ineffectual responses from the Left now call its immediate future into question. 

As for the book’s subtitle, bear in mind a shift in the meaning of “middle class” as one crosses the Atlantic. The USA’s founding ideology, starting from the premise that “All men are created equal”, inhibits discussion of economic class in the same terms Europeans employ, and so what Americans call the “middle class” encompasses the larger part of what we would call “working class” – those who work for a wage or salary. That American workers were so much better paid than Europeans during the later 20th century only deepened this confusion (as did Tony Blair’s uncritical adoption of the same terminology). No longer: the devastating economic crisis that began in 2007 with the mis-selling of subprime mortgages has slashed the net worth of the middle fifth of American households by 25%.

The authors start out by explaining the sheer scale of the inequality. Between 1979 and 2006 the average income of Americans grew by around 50%, but the income of the lowest fifth grew by only 10% while that of the upper fifth grew by 55%. However such broad brackets conceal the fact that the top 1% tripled their incomes, while the top 0.01% saw their annual income rocket from $4 million to $24 million, an astounding and unprecedented concentration of wealth. The top fifth of the US population now own 84% of total wealth, while the median American family now earns less, adjusted for inflation, than in 1998. Hacker and Pierson squelch all the popular conservative excuses: everyone got richer through “trickle down” (they didn’t); the US grew faster than Europe during the period (it didn’t); the US is more productive (it isn’t). 

Next they demolish the myth, widely accepted on both Left and Right, that this all began with “Reaganomics” following the election of Ronald Reagan in 1981. Actually the two most damaging assaults on redistributive taxation and union membership happened in the 1970s, after disgraced Republican president Richard Nixon – a right-wing populist with an eye always on the blue-collar vote – and his hasty successor Gerald Ford offered compromises over welfare and health-care reform bills far more liberal than anything Obama has considered. The Democrats refused them, complacently anticipating a Carter victory in 1976, but their tax reform bill went down to defeat in 1977, followed by defeats for consumer protection, health-care reform, an indexed minimum wage and, most pivotally, a progressive labour relations bill filibustered away in 1978. Congress instead passed a halving of capital gains tax and a rise in payroll tax (the most regressive of all taxes). The liberal epoch died three years before Reagan could lay a finger on it.

This wasn’t enacted to meet any shift in popular will: in 1939 35% of Americans believed that “government should redistribute wealth by heavy taxes on the rich”; by 1998 that rose to 45%, in 2007 to 56%. Again, in 2005 more than half of non-unionised US workers wanted to join a union, up from 30% in 1980, yet union membership has actually plummeted from 25% in 1970 to 7% today. How precisely employers, abetted by politicians of both parties, could so blatantly flout popular concern forms the core material of this book. 

Demographics and racial politics were part of it. The 1964 Civil Rights Act turned much of the southern white-working class against New Deal politics, leading Southern Democrats in Washington to vote with Republicans on economic issues. Electoral politics are part of it too. Televised elections require both parties to raise colossal sums for advertising, forcing the Democrats (after some short-lived coyness) to woo the super-rich as assiduously as the Republicans. Elections as TV spectator sport also distract and confuse the electorate, rendering them impatient of understanding the boring details of governance. Power lies not in winning elections but in what happens day-by-day between elections in the committee rooms, and Republicans learned to be better at it than Democrats. Persuading “middle class” workers to vote against their own interests isn’t black magic, but Hacker and Pierson show how it demands formidable organisation and persistence, in hundreds of obscure and unglamorous committees.

The Republicans have honed their skills at small-state and anti-tax propaganda, often by borrowing techniques from the radical Left and simply inverting them, but they’ve acquired a truly Machiavellian finesse in manipulating the levers of Congress to achieve those massive tax cuts for the super-rich that Hacker and Pierson identify as the largest contribution to the growing wealth gap. Ronald Reagan’s “Economic Recovery and Tax” Act of 1981 did indeed begin a bi-partisan agenda of tax cuts for business, which could still be portrayed as pro-growth and job creating, but by the presidency of George W. Bush, Republicans were confident enough to funnel cuts directly to the super-rich using truly predatory cunning.

Richard Nixon’s 1969 Tax Reform Act had introduced the “Alternative Minimum Tax” (AMT) – largely to assuage popular outrage over the number of corporations and millionaires paying no tax at all – which made persons earning above a certain threshold pay a higher, flat-rate tax. Because that threshold wasn’t indexed to inflation, by the 1990s AMT began to creep down to affect more and more taxpayers. George W. Bush’s administration had the Congressional votes to repeal AMT, but when planning its massive 2001 tax cut instead widened the scope of AMT to cover most of the upper 20% of taxpayers. The merely wealthy upper-middle classes thereby lost most of the benefit of the tax cut, enraging them and goading them further toward anti-tax (and hence anti-Democrat) attitudes, while the super-rich top 1% already in AMT received the full tax cut and were left smiling. And the extra revenue raised financed future tax cuts – three birds with one stone. A road toward the Tea Party, the Debt-Ceiling Standoff and all the present woes of Obama’s administration was opening up.

It’s perhaps inevitable that the book’s final chapter on “Beating Winner-Take-All” feels underpowered compared to the strength of earlier arguments. The authors quote James Fallows as saying that the American system of governance has “become mismatched to the real circumstances of the nation”, but can see no magic bullet that will set it aright. Legislative changes needed to start shrinking the gap are politically unattainable with the present balance of power – the Democrats have been so out-manoeuvred they can’t raise taxes even to pay for Obama’s modest health-care bill, nor can they effectively reform the financial and banking system. Even the Internet, Obama’s secret weapon in 2008, is now used to equal effect by the Tea Party. If Obama ever had a Machiavellian streak, the time to unleash it would have been 2009 when he controlled both houses, by abolishing the “cloture” rule that encourages filibusters and requires a super-majority to pass substantial reforms, then by seeking campaign finance reform to level the playing field, and only then moving on to health-care.

A European social democrat reading this disturbing book might too easily conclude that American workers vote irrationally for their own nemesis, but in truth they have far less affection for a State which for several generations has done far less for them than our welfare states do. And we in the UK shouldn’t be too complacent because a similar hollowing-out has already begun – that “squeezed middle” which Ed Milliband so hopes to win for Labour could instead turn toward the tax-cutters.