$47 Trillion – the ripoff by the rich and corporations – in two charts – maybe a few more…..

I was already 31 years old when the rip-off of America began in 1979. I was busy, and the changes in American life were only occasionally to be noticed.  By the mid-1980s my management life started to feature the early signs of the financialization of the corporation. I knew of Milton Friedman’s famous dictum, “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” Only much later did I come to see the extent to which the rich and corporations set the “rules of the game” for their own purposes and entirely ignored the last challenge about “open and free competition without deception or fraud”. Increasingly, my management tasks were reoriented to managing to the bottom line. Products, services, employees, customers, they were just a sideshow, not my main focus.

By the late 1990s, I was involved in a start-up business and exposed to the culture of angel investors and the intense pursuit of financial gain in the shortest possible time by venture capitalists. Over the past ten years, I have learned much more. Nevertheless, when I came across these “counterfactual” income projections from the Rand Corporation, the extent of the rip off came into view. $47 trillion pillaged by the rich and corporations.

The Great Divide

Following WWII increases in productivity (that is the $s of output per hour of work input) were shared with workers. This drove the great explosion of the American middle class in the ’50s and ’60s. Beginning in 1979 this trend collapsed. This has produced a huge increase in income inequality.

What Happened to the $47 trillion??

What would things look like if 1948-1979 income trends had continued to this day.

If we ask what the income distribution would have been if the trends of the 1948-1979 period had continued, we come up with a very clear view of the consequences of the collapse of income growth for the bottom 80-90% of the population and the resulting explosion of income for the top of the pile.

Researchers at the Rand Corporation asked exactly this question.¹

In the table below you will find actual average income for segments of the population and the projections(“Projected” column) of what the income would have been if the income trends of the 1948-1975 period had continued.²  

For example, looking at the table just above, people at the 25^th percentile of the population started in 1975 earning $28,000 per year. By 2018, their income had grown to $33,000 per year. For context, the official poverty line for a family of four in 2018 was $25,100.

But, if their income had followed the trend line of growth for the 1948-1975 period, it is projected that they would have earned $61,000 per year in 2018.  Displayed in the ? column (last on the right) is the percentage that actual income grew compared to the projected value.  For example,  people in the 25^th percentile actually earned $33,000 in 2018 which is just 15.2 % income growth from 1975.

The same data is shown as a graph below:

So, to finish this thought piece, think of what your family’s income was in 2018.  Imagine what your life would have been like if you had the additional income in the projected column.  85% ($28,000) more income at the 25^th percentile, 84% ($42,000) more for the 50^th percentile, and 38% ($35,000) at the 75^th percentile.

$47 Trillion ended up in the hands of the top 5%, mostly in the top 1%!!

Looking at these projections in aggregate, between 1975 and 2018 $47 trillion of income would have been in the hands of the bottom 90% if the 1945-1975 income trends had continued. Instead, it ended up in the hands of the top 10% of the population.³

$47 trillion??  What the hell is $47 trillion? The entire output of the US and Chinese economies in 2021 was $41.05 trillion. Or, it is equal to the combined GDP of China, Japan, Germany, India, UK, France, Italy, Canada, Brazil, Russia, and South Korea in 2022. These are the largest economies in the world not including the US at number 1 position. Or, $47 trillion is equal to the economic output of every country in the world in 2022 excepting India, Germany, Japan,  China, and the US. So, $47 trillion is a lot. $47,000,000,000,000.

This graph shows that the middle 40% and bottom 50% of the population fell behind in their share of per capita GDP (per person income). The 90th to 99th percentiles maintained their share of GDP. It is the top 1% (roughly 3,300,000) and especially the top 0.01% (roughly 33,000 people) who are the recipients of this enormous redistribution in income.⁴

How did this happen?

This phenomenon is not the result of some act of nature nor an inevitable result of the free market economy. It is capitalism in action. The rich and corporations have always recognized that those who control the laws and regulations that govern the economy substantially control who wins and who loses. Building on work by economists and other academics⁵ that began during the Great Depression and accelerated during the post-WWII decades, the rich and corporations launched a campaign in the United States⁶ to undo the changes in laws and regulations made during the popular reactions to the excesses of the Gilded Age (roughly 1877 to 1900) and the failures of the Great Depression(1929-1941). This campaign has no really good name. Some refer to it as “free market capitalism” others, “neoliberalism”⁷. I won’t enter into a further discussion of its name.

This campaign features a set of key concepts about how capitalism should work and how the rest of society should be organized.

• free markets – the ideal for economic activity
• success or failure is in each person’s hands, every person is in their own boat
• minimal government involvement – low taxes and spending
• privatization of government activities – education, healthcare, prisons, transportation, water, to name a few
• deregulation – limit government to private property protection, contract enforcement, etc.
• free trade – no tariffs, free flows of money
• globalization – maximizing each country’s competitive advantages
• financialization – the only purpose of a business is to increase share price. Shift to the extraction of money instead of the creation of real value (goods and services)
• economic growth and innovation originate in the market economy – government plays no active, positive role

Let’s take note that these concepts and policies are largely to be accepted on faith. They do not have a factual basis in how the world works, nor even our nature as a species.

Free markets are proclaimed to be the most efficient distributor of economic resources and economic gains. Free markets are self-regulating and self-optimizing. These claims about markets are pure fantasy. Just think over the last 30 years of the various bubbles, irrational exuberances, financial fraud, housing market failures, and the whole American medical system. Do the words efficient, self-regulating, and self-optimizing come to mind?

The declared role of government is a further example.  President Reagan said, “Government is not the solution to our problem; government is the problem.” ⁸ This summarizes the neoliberal view of government as an impediment not an enabler. This notion defies the entire history of the development of capitalism in which government actions and investment have been central to the growth of capitalism. If you are reading this post on a smartphone, for example, all of the basic technologies are the product of government-funded research.⁹ If you can recall the air pollution of the 1950s and ’60s, government regulations have produced the cleaner air we breathe today.

Absent government regulation capitalist enterprises will crap up the environment as much as possible since doing so increase their profits. This is the externalization of costs strategy. Get somebody else to pay for as much of my production costs as possible. It is a competitive requirement that capitalist firms maximize this strategy.

As has been proven repeatedly in the history of capitalism concentration of ownership and control of markets by a few firms is a built-in tendency. The US economy is much, much more monopolized today than in 1970.¹⁰ Reduction in government regulation of mergers and acquisitions facilitated this transformation beginning in the early 1980s. Here is a list of some of the markets that are highly concentrated:¹¹

• pharmaceuticals
• pharmacy benefit managers
• health insurers
• appliances
• athletic shoes
• defense contractors
• books
• alcohol
• beer
• drug stores
• grocery stores
• office supplies
• eyeglasses
• television advertising
• internet advertising
• internet searches
• semiconductors
• enterprise software
• lcd glass
• vitamin c (ascorbic acid)
• automobile components
• glass bottles
• bottle caps and pharmaceutical bottles
• airlines
• railroads
• travel search
• rental cars
• mattresses
• lab equipment
• lasik eye lasers
• offshore oil services
• onshore oil services
• contract manufacturing
• food services
• champagne
• cowboy boots
• home improvement stores
• candy

This is just an introduction to the faith-based nature of the free-market, neoliberal policies and their implementation by the rich and corporations through their control of American political system.

Keep in mind that the US GDP (Gross Domestic Product) was $2.9 trillion in 1980. It grew to $23.3  trillion (in constant $s) in 2020. That turns out to be $12,275 per capita in 1980 growing to $69,287 per capita in 2022.

The Top-Down Movement in Action

This movement, call it free-market or neoliberal as you like, is the most successful political movement of the 20th century and continues to be the most important in the 21st century.¹² Unlike other political movements that we take note of, this is not a mass, bottoms-up movement. It is top-down, the rich and corporations driving the changes through the political system.

Most narratives of the birth of this movement in action begin with Lewis Powell’s “CONFIDENTIAL MEMORANDUM: ATTACK ON AMERICAN FREE ENTERPRISE SYSTEM” to the US Chamber of Commerce in 1971.¹³. Powell called for an organized effort by the business community to counter what he considered to be attacks on the free enterprise system. These coming from schools, universities, government, and mass media. He called for

• establishing think tanks, legal foundations, and other institutions to develop and promote conservative, pro-business ideas.
• increasing surveillance and analysis of textbooks to challenge perceived anti-business biases in education.
• speaking out against what he saw as baseless criticisms of the free enterprise system and advocating for its benefits.

And, this needed to be a long-term commitment. Here are a few elements of this action plan that we see at work to this day:

• Think tanks – The Cato Institute, Heritage Foundation, American Legislative Exchange Council (ALEC).
• Funding of academic research, especially in economics, law, and business schools.
• Extensive lobbying by businesses at the Federal and state levels.

Lobbying in Washington is itself a big business with more than $4.1 billion spent in 2022 with an army of over 12,000 lobbyists.¹⁴ That is $7.7 million per Congressperson and Senator with messages delivered by 22 lobbyists knocking on each office door. And this is effective. As Gilens and Page pointed out in their empirical study of influences in the government, “economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence.”¹⁵

What to do?

Make the political system more democratic:

• End anonymous money in politics.
• Outlaw politicians taking money from corporations.
• Publicly fund national and state-level elections.

Change corporate governance:

• End anonymous shell corporations. Make the real owners and managers of every business immediately visible.
• Put employees and taxpayers on the Board of Directors of public and private companies with sales of more than $100 million.
• Change corporate management incentive packages to reward real value creation (products and services) not financial engineering. Promote value creation over value extraction.

Change government laws, regulations, and oversight:

• Three strikes and you are dissolved. Impose the death sentence on corporations that repeatedly violate laws and regulations. Add penalties applied to senior managers for corporate criminality.
• Break up the monopolies – any market where three or fewer corporations control more than 50% of sales is monopolized.
• Get tough on corporations illegally harassing unions.
• Institute a maximum compensation package for corporate managers, say $1 million.
• Re-instate the separation between commercial banking and investment banking – bring back the Glass Steagal Act.
• Regulate financial speculation, end high-frequency trading in stock and financial markets
• End tax subsidies to corporations. Establish a minimum corporate tax.
• End tax support and favoritism for financial extraction schemes like private equity, e.g. carried interest loophole.
• Enforce US labor and environmental standards on products and services imported into the US.
• Make labor conditions in factories around the world visible – live video feeds accessible via QR code links printed on all packaging. If people knew the conditions under which these blue jeans are produced, they might think otherwise about buying them.

 

1. Carter C. Price and Kathryn A. Edwards, “Trends in Income From 1975 to 2018” (RAND Corporation, September 14, 2020), https://www.rand.org/pubs/working_papers/WRA516-1.html.
2. Please note that the income distribution in 1975 was not an ideal. There was significant inequality. From our current perspective, it seems idyllic compared to the transformations of the last 40 years.
3. Price, Carter C., and Kathryn A. Edwards. “Trends in Income From 1975 to 2018.” (RAND Corporation, September 14, 2020). https://www.rand.org/pubs/working_papers/WRA516-1.html.
4. For another day, we could look at the wealth inequalities that this has produced. Much worse!
5. The classic origin text is Hayek, Friedrich A. von. The Road to Serfdom. G. Routledge, London, 1944.
6. This movement was also championed in the UK and then forced on much of the developing world through US foreign policy, the International Monetary Fund, and the World Bank
7. The “liberalism” of neoliberalism is not the liberalism we associate with FDR and the Democratic Party here in the US. The academics who coined this word were referring to 18th and 19th century European liberalism. A different beast.
8. First Inaugural Address on January 20, 1981
9. see Mariana Mazzucato, The Entrepreneurial State: Debunking Public vs. Private Sector Myths, Revised edition (New York, NY: PublicAffairs, 2015)
10. Just search for “monopoly“(click on this link to conduct the search) on this website for many discussions of monopolization.
11. https://www.openmarketsinstitute.org/learn/monopoly-by-the-numbers
12. I have to credit my stepson Jonathan London, Professor of Global Political Economics at Leiden University in the Netherlands, with this observation.
13. Lewis Powell, “Memorandum: Attack On American Free Enterprise System | Lewis F. Powell Jr. Papers | Washington and Lee University School of Law” (August 23, 1971), https://scholarlycommons.law.wlu.edu/powellmemo/.
14. https://www.opensecrets.org/federal-lobbying
15. Martin Gilens and Benjamin I. Page, “Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens,” Perspectives on Politics 12, no. 3 (September 2014): 564–81, https://doi.org/10.1017/S1537592714001595.