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A Political Economy Explanation for Changing Income Distributions.

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Presentation on theme: "A Political Economy Explanation for Changing Income Distributions."— Presentation transcript:

1 A Political Economy Explanation for Changing Income Distributions

2 Background The “Good Old Days” 1947-1975

3 Background –The good old days, the 1940’s through the mid-1970’s, really were good for most Americans. **


5 Real Family Incomes by quintile, adjusted for inflation, 1947-1973 First quintile117% ↑ Second quintile 97.5% ↑ Third quintile 103.1% ↑ Fourth quintile 104.3% ↑ Fifth quintile 88.3% ↑

6 Real Family Incomes In other words, virtually everybody’s real income doubled. And virtually everybody’s standard of living rose accordingly. This was a period of low real unemployment; even in rural and urban slums, most people had jobs.

7 Real Family Incomes Minimum wage was really a wage that you could live off of. It was also regularly adjusted for inflation. This set a floor for all workers, especially younger, or unskilled workers. Unemployment benefits were good, so that people could survive the relatively short periods without a job.

8 Real Family Incomes In the mid 1950’s, about a third of American workers had unions, which drastically reduced workplace deaths, disabilities, injuries and illnesses. Unions also fought for overtime pay, health insurance coverage, and generous retirement packages.

9 Real Family Incomes Not everyone benefited equally well. Women weren’t supposed to work, or if they did, they were supposed to be secretaries. And poverty was widespread among minorities and the rural white.

10 Causes The “Good Old Days” 1947-1975

11 Causes for widespread prosperity I.Exceptional position of the US economy in the world: no competitors for 20+ years. II.Government spending on education, infrastructure, health.

12 Causes for widespread prosperity A.The US dominated the world’s economy, because our competitors were destroyed (Germany and Japan), or damaged by the WWII (France, UK, Europe in general) B. US businesses had no problem exporting whatever they wanted. C.There were hardly any imports, except coffee.

13 Causes for widespread prosperity A.The United States government funded the GI Bill, and spent massively on all levels of education. B.The US government spent a lot on health care, especially starting in the 1960’s. C.The US government spent a lot on physical infrastructure, - Interstate highway system, roads, electrical power grids. D.The US government spent a lot on basic science.

14 Causes for widespread prosperity A.There was high voter turnout. B.A large majority of people voted Democratic. C.Most of these were what we would call liberal or moderate Democrats today. D.A third of American workers were in trade unions, which were respected, popular and strong. E.This combination meant that even some Republicans would today be called liberals.

15 Economic Changes The “Bad Old Days” 1947-1975

16 Real Family Incomes The richest quintile suffered from very high tax rates. The richest 1—10% had tax rates of 70% or higher, and few loopholes. Meanwhile their income only increased by 88%, not doubling, during the 1940’s to the 1970’s. They hardly had any bonuses.

17 Economic changes The 1960’s & 1970’s were not good for corporate America. A.During this time, profit rates fell, for nearly all industries. B.In addition, there was a great deal of mistrust of business & specific industries.

18 Falling Profits Strong unions led to pay raises, and increases in costs for health and safety related issues. Relatively full employment meant that workers could easily change jobs if a company didn’t treat people well. The environmental movement forced companies to spend large sums of money to clean up after themselves.

19 Falling Profits On top of this, there were two oil price shocks, in 1974 and 1979. In the first case, oil prices doubled. Then five years later oil prices tripled. These events triggered both inflation and recessions.

20 Unpopularity of Business In addition, there was a great deal of mistrust of business & specific industries. - People were angry with the profits companies made during the Vietnam War. - People were angry at the pollution companies made. - People were angry with the control companies had over many aspects of our society.

21 Regaining Control 1970’s to the present

22 Changing America For some people, the business of America is business. For others, what is good for General Motors is good for America.

23 Techniques to Regain Control 1.Rebuild the Republican Party 2.Change the Democratic Party 3.Take over the media 4.Change how politics are done 5.Change the culture

24 Rebirth of the Republican Party The Republican Party was reborn when it discovered how to persuade fundamentalist Christians to vote for it. Previously these people had never voted, or voted for (conservative) Democrats. This process began in the mid 1970’s, and is ongoing.

25 Rebirth of the Republican Party How? Find those issues that really stir up religious conservatives, persuade them that the Republican Party supports those issues, and persuade them that the Democratic Party is opposed to them. Not always that hard to do.

26 Rebirth of the Republican Party Result? The Republican Party is a popular party. The white South votes for the party of Abraham Lincoln. In parts of the country, poor and working class people vote for very wealthy candidates.

27 Restructure the Democratic Party After Democrats start losing a lot of elections from the mid-1970’s onwards, economic conservatives in the Democratic party take over the national leadership. The Democratic National Leadership tells democratic candidates that they are too liberal and leftist to win elections. Push the Democratic Party’s funds to conservatives.

28 Restructure the Democratic Party Result? Starting in the mid 1980’s, economic conservatives won in Democratic primaries, and then become the candidates (and sometimes the winners) for elections. At the national and state level, on economic issues, Democrats are far more “business- friendly” than any time since the 1920’s.

29 Change the Media Far more conservative news: - the creation of Fox News, - put pressure on the other TV networks to become more conservative - turning AM and FM radio talk shows into very conservative formats - expand Christian radio, which has conservative economic values

30 Change the Media Results? - all US news media is far more conservative on economic issues than it has been in decades -example: How many news outlets have talked about the tax cuts for the wealthiest in Wisconsin as a cause of the budget crises?

31 Change the Media Results? - Example: How many Americans have become persuaded that there is no global climate change. - Example: How many Americans have become persuaded Social Security is bankrupt, and the only way to save it is to invest the money in the stock market

32 New Political Campaigns - Development of negative campaign ads. - Development of political campaigns by sound bytes and TV advertisements. - Political debates without real debates - Lying or making up the facts has become very common.

33 Political Results 1970’s to the present

34 Political Results Election of Ronald Reagan, George Bush I, then Bill Clinton and George Bush II. Increasingly conservative Congress & Senate. Far more millionaires & multimillionaires in Senate & Congress. Increasingly conservative judges.

35 Economic Results 1970’s to the present

36 Economic Results 1.Fall in minimum wage 2.Assault on unions 3.Cut in social spending 4.Increased military spending/wars 5.Tax cuts for the rich and large corporations 6.Bailouts for failing large corporations

37 Fall in Minimum Wages Changes in the minimum wage are initiated by the President, and voted on in the House of Representatives and the Senate. Conservative presidents and Congress didn’t adjust the minimum wage to compensate for inflation. Who profits by this?

38 Fall in Minimum Wage A small majority of people who earn minimum wage are adults working full time, not teenagers. Many other wages are directly tied to minimum wage, e.g. McDonald Assistant Managers & Managers.

39 Fall in Minimum Wages If minimum wage falls, the real wages of all unskilled workers falls, sooner or later. This will also drag down wages of semi-skilled workers, sooner or later. So the wages of gardeners and fast food workers goes first. Then all retail workers, then factory workers.

40 Fall in Minimum Wages Results? Wages of unskilled workers, part time workers, young people drop. So does the wages of the bottom quintile. And now it is affecting other workers.

41 Assault on Unions President Reagan was the first openly anti-union President since the 1920s – helped destroy the air-traffic controllers union in 1981. Throughout the 1980’s the President despised unions - sets the tone.

42 Assault on Unions Full scale corporate attack on unions in the early and mid 1980’s, with unions losing most of the time. UAW lost at Caterpillar, for example.

43 Assault on Unions Laws were passed that made it much harder to unionize unorganized workers. Permanent replacements for strikers made it very difficult for strikes to be won. The number of strikes drops sharply. Union organizing drives to bring unions to auto workers in the South fails.

44 Assault on Unions Real wages and benefits of union members fell. Unions set a floor on local wages, so if union wages fall, so will everyone else’s.

45 Assault on Unions Result? Membership in unions as a percentage of the workforce drops dramatically. Union members wages and benefits decline, relative to everyone else, but also absolutely. This hits the first 2 income quintiles sharply.

46 Cuts in Social Spending –The Federal Government has not been funding basic physical infrastructure such as roads and bridges. –See the American Society of Civil Engineers 2009 Report Card at –

47 Cuts in Social Spending While the other developed democracies have expanded and improved their universal health care, the US did not until 2010. While other countries have expanded universal afterschool child care, the US has not. Higher education has become much more expensive.

48 Rising Military Spending Starting under President Reagan, the Federal government has spent enormous sums on war. spending/articles/fy11_growth_since_2 001/#contact

49 Economic Results Cont’ 4.Dramatic Tax Cuts for the Rich –Enormous tax cuts for businesses, particularly large corporations. –Enormous tax cuts for the wealthy. **

50 Economic Results Cont’ 4.Dramatic tax cuts for the rich leads to: –The take home income of the richest 1-10% goes up sharply. –They can take their increased income and purchase more stocks and bonds. –Since they own more stock, they enjoyed an even greater percentage of the stock market boom of the ’80’s and ’90’s. **

51 Economic Results Cont’ 4.Dramatic tax cuts for the rich leads to: –They can use their increased income to “rent” more politicians, or even run for office themselves. –This means that they can give themselves even more tax breaks. –They can spend more to change how politics is done. **

52 Economic Results Cont’ 4.Dramatic tax cuts for the rich leads to more conservative control of the US government: –North American Free Trade Agreement passed. –Central American Free Trade Agreement passed. –Both of these will lead to more deindustrialization and immigration. **

53 Economic Results Cont’ The widening income gap is not just something that happens, due to globalization or mysterious forces. The widening income gap is the result of deliberate policies to increase the wealth and power of the rich, and to return the US to the quiet of the 1950’s (or the 1920’s). **


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