How Do We Avoid the Pitchforks and Achieve Greater Economic Equality?

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I am extremely fond of someone whose politics and world view differ significantly from mine. One text exchange with him really brought me up short. I had written what I consider a self-evident truth: unless we do something about the growing economic inequality in this country, it won’t be only the poor and struggling middle class who will suffer. Eventually, our fraying social fabric will tear completely, and the .01% will find society inhospitable to them as well.

My correspondent’s response stunned me. He said that what I’m suggesting will mean the end of a nation based on merit, and my grandchild will face a dismal future. I responded that I do worry about my grandchild’s dismal future, but it’s because of the ravages of climate change—not efforts to reduce inequality. And so our discussion ended.

I didn’t launch into all the evidence demonstrating that our society has never been based solely on merit—from the Original Sin of Slavery to the very 21st Century scandal of famous people bribing coaches to get their kids into the best colleges.

But the idea that any mention of redressing inequality could evoke such a reaction made me think that it’s time to talk about why the wealthiest among us should welcome steps to close the ever-widening economic gap, why some of them are advocating for just that, and what approaches might be feasible for us as a nation.

I realize once again I’m taking on a “you can’t cover such a mammoth, complex topic in a blog” subject. That’s why I won’t mention world economic inequality right now. I have some awareness of my limits, for goodness’ sake (!?). I must add a disclaimer, however: my formal education in economics is practically zero, so you should be skeptical of anything I write that I don’t attribute to others.

What I do have is a heart that hurts when I see so much suffering and anger in this land of plenty, a conviction that this growing economic inequity is unsustainable, and—I’ve been told—an analytical mind in addressing problems. And my blessed blog gives me a bit of a forum to try to evoke discussion of these views.

So here we go.

We’ll start with Nick Hanauer. I don’t know how many of you are familiar with him and his work, but I’ve attached a link to his 2014 TED Talk: “Beware, Fellow Plutocrats: The Pitchforks Are Coming.” It’s worth “eavesdropping” on Hanauer’s speech, which lays some of the groundwork for the reasons and ways to bring about positive economic change. (I’m not endorsing everything he’s ever said or written—simply focusing here on ideas that make great sense to me.)

I think this is especially important as the Democratic Party internally debates how moderate, progressive, or even (gasp!) socialistic its policies should be. Polls show that most voters—not just Democrats—want policies that are moderately progressive—though the word “progressive” may worry them (worries bolstered by the Trump-Republican push to make even the desire for healthcare sound like we’re racing toward the “evils of socialism.”)

Hanauer describes himself as a “plutocrat” and “proud and unapologetic capitalist” who has made a fortune. (He was the first non-family investor in Amazon, co-founded a company that Microsoft bought for $6.4 billion, etc.) But he says he’s neither the smartest nor hardest working person and was a mediocre student.

“Truly, my success is the consequence of spectacular luck, of birth, of circumstance and of timing. But I am actually pretty good at a couple of things. One, I have an unusually high tolerance for risk, and the other is I have a good sense, a good intuition about what will happen in the future, and I think that that intuition about the future is the essence of good entrepreneurship.”

“So what do I see in our future today, you ask? I see pitchforks, as in angry mobs with pitchforks, because while people like us plutocrats are living beyond the dreams of avarice, the other 99 percent of our fellow citizens are falling farther and farther behind.”

To me, that evaluation resonates strongly, and I hope his message is reaching at least some of his fellow plutocrats.

Hanauer stresses that although he believes some inequality is essential for what he calls a “high-functioning capitalist democracy,” inequality today is historically high and worsening daily. If this trend continues, he says, our society will become more like what 18th-century France had “before the revolution and the mobs with the pitchforks.”

“So I have a message for my fellow plutocrats and zillionaires and for anyone who lives in a gated bubble world: Wake up. Wake up. It cannot last. Because if we do not do something to fix the glaring economic inequities in our society, the pitchforks will come for us, for no free and open society can long sustain this kind of rising economic inequality. It has never happened.
There are no examples. You show me a highly unequal society, and I will show you a police state or an uprising.” [All the passages bolded for emphasis are mine.]

What’s more, he says, this inequality is bad for business. Throw out a belief in “trickle-down economics,” which never worked, Hanauer says, because economies aren’t efficient and don’t tend toward fairness. He advocates what he calls “middle-out economics,” which views economies as complex systems that can be effective only if they’re well-managed.

He gives a cogent illustration of why trickle-down economics can’t work.

“I earn 1,000 times the median wage, but I do not buy 1,000 times as much stuff, do I? I actually bought two pairs of these pants…I could have bought 2,000 pairs, but what would I do with them? How many haircuts can I get?…a few plutocrats…can never drive a great national economy. Only a thriving middle class can do that.”

How do we achieve that thriving middle class? One way, which Hanauer sparked, is to raise the minimum wage. Less than one year after his article “The Capitalist’s Case for a $15 Minimum Wage” was published—and Forbes called it “Nick Hanauer’s near-insane proposal”—Seattle did just that: raised the minimum wage to $15 an hour, more than twice the existing federal rate.

“It happened because a group of us reminded the middle class that they are the source of growth and prosperity in capitalist economies…that when workers have more money, businesses have more customers, and need more employees…that when businesses pay workers a living wage, taxpayers are relieved of the burden of funding the poverty programs like food stamps and medical assistance and rent assistance that those workers need. We reminded them that low-wage workers make terrible taxpayers, and that when you raise the minimum wage…all businesses benefit yet all can compete.”

To those who insist this approach is economically disastrous, he points out that Seattle is doing very well, thank you, and is one of the fastest growing cities in the US, with a booming restaurant business, where the restaurant workers can afford to eat where they work (despite restaurateurs who had said they’d have to close their doors).

Hanauer acknowledges these issues are more complex than he can depict in one speech but says there’s simply no evidence that increasing wages will harm both workers and the economy.

“The most insidious thing about trickle-down economics is not the claim that if the rich get richer, everyone is better off. It is the claim made by those who oppose any increase in the minimum wage that if the poor get richer, that will be bad for the economy. This is nonsense.”

When President Bill Clinton said “the era of big government is over,” we had already been on a trajectory that sees government as a necessary evil at best, or pure evil at worst. (Notably, Clinton had added: “but we cannot go back to a time when our citizens were left to fend for themselves.”) Without mentioning those sentiments, Hanauer calls for “a new politics, a new capitalism”:

“Let’s by all means shrink the size of government, but not by slashing the poverty programs, but by ensuring that workers are paid enough so that they actually don’t need those programs…Government does create prosperity and growth, by creating the conditions that allow both entrepreneurs and their customers to thrive.”

“Balancing the power of capitalists like me and workers isn’t bad for capitalism. It’s essential to it. Programs like a reasonable minimum wage, affordable healthcare, paid sick leave, and the progressive taxation necessary to pay for the important infrastructure necessary for the middle class like education, R and D, these are indispensable tools shrewd capitalists should embrace to drive growth, because no one benefits from it like us.”

He concludes with a message to his fellow plutocrats that it’s time to “recommit to our country”—and to a more inclusive and efficient capitalism…

“…a capitalism that will ensure that America’s economy remains the most dynamic and prosperous in the world. Let’s secure the future for ourselves, our children and their children. Or alternatively, we could do nothing, hide in our gated communities and private schools, enjoy our planes and yachts — they’re fun — and wait for the pitchforks.”

Since this speech, Hanauer has continued to push for change. His podcast, Pitchfork Economics, is widely available. I listened to a segment in which US Senator and 2020 Presidential candidate Cory Booker discussed his proposed bill concerning stock buybacks, explained here. May sound dull, but I found it fascinating.

Before 1982, I learned, stock buybacks were illegal: using corporate profits to buy back stocks, thereby raising the price of those stocks, was viewed as market manipulation. Doesn’t that make sense? But now it’s standard practice, contributing nothing to economic growth except what goes into the stockholders’ pockets. The workers whose increased productivity made those profits possible receive zilch; their wages remain stagnant, as wages have since the late 1970s.

Even worse, there are disincentives to corporations trying to be fair.

Booker cites American Airlines. After having a great quarter last year, he says, “they announced long overdue pay raises to the pilots and flight attendants.” But analysts looked askance at this move, and Morgan Stanley downgraded American’s shares, complaining its action established a worrying precedent for American Airlines and the industry.

So they were essentially punished for trying to be fair to their workers. Is that not an example of an economy gone seriously awry?

Booker’s bill, the “Workers Dividend Act,” says that if corporations plan to engage in stock buybacks, they must give a commensurate share to their employees. He stresses that this bill is not intended to “vilify” wealth, but simply to ensure that everyone has more.

Importantly, he points out why it’s needed:

“We make moral and value decisions with how we structure our tax codes, shortchanging workers, adding to wealth disparity, and weakening our democracy as a whole.”

To me, the big question is: How do we get the plutocrats to change direction before our democracy is further weakened—and/or the pitchforks are activated?

I’d be remiss if I didn’t mention Michael Tomasky’s Op-Ed, published today in The New York Times: “Is America Becoming an Oligarchy?,” which echoes the concerns expressed here. Tomasky writes:

“Democracy can’t flourish in a context of grotesque concentration of wealth. This idea is neither new nor radical nor alien. It is old, mainstream and as American as Thomas Jefferson.”

Many writers have examined this topic lately, and I think it’s one that we must face as a nation. I plan to explore some of the ideas in subsequent posts.

Are you with me in having this discussion—whether you agree or disagree?

Annie

15 thoughts on “How Do We Avoid the Pitchforks and Achieve Greater Economic Equality?

  1. Hi Anne,I believe your comment about stock buybacks being illegal prior to 1982 is erroneous. Stock buybacks have always been legal. The use of large stock buybacks to manipulate stock prices has always been illegal.Since there was wide disagreement between what was a legal buyback and what constituted manipulation the SEC in 1982 attempted to resolve this issue by issuing regulations attempting to provide a safe harbor. That is what occurred in 1982. The 1982 effort by the SEC was to avoid or reduce future litigation. None of these issues are so simple and easy to understand. Taken in the context of a world economy they are extraordinarily complex. Have you considered that the real ownership of stocks is well over 50% by worker pension plans. Are these pension plans evil for attempting to remain solvent? Are or should the pitchforks attack the largest holders of stock namely the workers themselves? Shall we allow the worker pension plans to go bankrupt?These areas are best left to experts on the subject rather than to commentators who select items on which they find apparent unfairness. There are generally good and valid reasons for the unfair situations. Many of these relate to laws and regulations being promulgated in different times to accomplish appropriate goals at that time. The comments expressed are indicative of the current failure of government which arises from the distinctly different views within our country. Shall we dispatch conflicting views?Hope all is well. I could not resist providing some context to your blog. Try to recognize that all countries are trying to accomplish the same goals and therefore are in competition.    Thanks,  Alan

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    1. Hi, Alan,

      Your point that stock buybacks were legal prior to 1982—except for large buybacks, which were considered illegal because they were deemed stock manipulation—strikes me as a distinction without a difference. It was Cory Booker who said they were illegal until 1982, but experts in numerous other articles I’ve read say precisely the same thing. The reason they leave out the qualification you make, I believe, is that such buybacks apparently didn’t occur due to concern that the SEC would come down hard on the offending companies. Thus, the illegality served as a deterrent, until the floodgates opened with the passage of Rule 10b-18. And many wiser heads than mine believe that the implications to our society that have resulted have been seriously, even dangerously, negative.

      The practice provides a short-term shot in the arm that not only doesn’t help workers; it doesn’t help the company over the long-term either because of the impact on diverting funds that could promote growth. Rita McGrath, an international expert on innovation and growth strategies who focuses on corporate entrepreneurship, wrote “The Case for Banning Stock Buybacks,” on CNN.com (2/26/19). She described companies that engaged in the most buybacks, such as GE, underperforming when compared to their peers. And she observed that Sears spent $6 billion since 2005 “buying back shares, which it could have used for long-term investment that might have kept it from going bankrupt.”

      As for your concern about pension funds, McGrath also talks about buybacks’ unintended consequences, including increased risks for long-term shareholders (trading in safe cash for risky stock) and “using current shareholder’s money to, in effect, buy high and sell low.” And since there’s less money for investment “unlike other ways of returning excess cash to investors, such as dividends, buybacks can distort financial measures.” Thus, buybacks may provide needless instability for people who are depending on pensions (and I’m one of them).

      Economist William Lazonick and journalist Ken Jacobson, wrote the following in The New York Times (August 23, 2018): “Defenders of buybacks contend they do no harm because the funds are reallocated through financial markets and used elsewhere in the economy. A company’s profits are, however, the financial foundation for investments in productive capabilities, first and foremost in employees. Investment in training and retaining employees is the key to productivity growth and innovation, for individual companies and for the economy. According to our research, when trillions of dollars of corporate cash are extracted from companies through buybacks, on top of dividends, the result is a dramatic concentration of income among the richest American households and the destruction of middle-class employment opportunities.”

      And the Republican tax cut has further stimulated this corporate practice.

      But buybacks are simply one way that our economy is exacerbating inequality. The choice isn’t between buybacks and nothing. The fact that the issue is complex and international does not mean we Americans aren’t capable of finding ways to address it that don’t “soak the rich” but do recognize that we have a vast problem, which many—in addition to me—believe we must address creatively—and soon.

      Thanks for taking the time to provide your views.

      Annie

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  2. Interesting blog Annie. I agree that a diminished middle class will change the face of democracies. There will be more unrest, not unlike the yellow jacket protests in France. Doesn’t it all come down to jobs. Which is why I like Trump taking on China et.al instead of holding to the status quo. He hasn’t been given enough credit for his ideas on shaking up trade monopolies. The minimum wage angle in the economy is overplayed. Minimum wage in the service industries drives up prices, which leads to a loss of customers, which leads to the service providers trying to cut costs by innovation or staff reduction. Plutocrats, I would assume have most of their wealth tied up in stocks. So it is not liquid. It would depend on the moral fibre of the individual plutocrat as to how they treat their wealth. They either give back to society or they don’t. It’s their choice to make. The US federal debt is very high and it would be interesting to add the debt of all the states and see what the cumulative amount is. No wonder Trump asked for no further interest rate increases. You can only squeeze so much in taxes out of people before things go seriously wrong. I’ll stop there.

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    1. Hi, Len–

      Well, obviously, we have basic disagreements on your various points. But it’s hard for someone like me to see how dramatically the Republican party, which was always against protectionism in trade and against the deficit, has followed Trump down both those roads. A number of economists see warning signs ahead for our economy, which is why Trump is trying so hard to gain political control of the Federal Reserve, so he can make sure that if the economy needs a jolt, they’ll raise interest rates before the next election. Fortunately, in this regard, the normally obsequious Republicans have opposed the two unqualified people he’s suggested to date.

      As for the deficit, it increased to $779 billion in this fiscal year, according to the Treasury Department, largely due to the Trump tax cuts, which led to a sharp drop in corporate tax revenues. That was about a 17% increase since last year. Conservative economics? I think not.

      The idea that raising wages will automatically hurt businesses is not as valid as some insist. David Cooper, who is a senior economic analyst with the Economic Policy Institute, says research indicates most businesses don’t have to worry about an increase in the minimum wage: “Raising the minimum wage tends to increase tenure, reduce turnover, and can induce productivity improvements–either because employees work harder, since their job his now more valuable to them, or because managers and business owners expect more from them since they’re paying them more.”
      As Nick Hanauer points out, raising the minimum wage in Seattle to $15 an hour hasn’t stopped Seattle from becoming one of the fastest growing cities in the US. Cooper says something similar: small or medium-sized businesses can get more customers, and it may help low-income workers make larger purchases that they need.

      As to the plutocrats doing what they choose, that was the whole point of my post. They have had free rein recently in a way that hasn’t occurred in this country for many decades, and so they must bear some responsibility for addressing the inequities that are, as you agree, leading to the likelihood of greater unrest. Otherwise, our democracy may well suffer.

      It may be hard for you, living in Canada, to imagine people working several jobs and still being unable to afford the medication they need for their diabetes. But while the top .01% increase their largesse at the expense of their workers, more people file for bankruptcy in the US because of health care costs due to illness than for any other reason. That, to me, is unconscionable.

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  3. There are so many factors that determine economic growth, wealth distribution, etc. Let me suggest a few points .
    1. Is it possible for corporate capitalism as we have in the US to effectively compete with centralized or more socialist economies? One of the strengths of centralized economies is the ability to plan and organize various elements of an economic system to achieve long term goals. While corporate capitalism focuses on short term profits for shareholders, planned economies focus on long term success. These two systems are now operating in the world side by side. This is a relatively new experience for corporate capitalism which, until recently was the dominant economic system. Times have changed.
    2. Basic economic theory (very basic) suggests that every economy has 4 elements: land (or resources);labor; capital; and management. Corporate capitalism focuses on maximizing profit for only one of those elements. Profit for the capitalist. Maximizing profits for the investors. This means minimizing the costs related to land, labor and management. Although the highest levels of management may be highly rewarded if they are able to keep the costs of labor low.To put it bluntly. Raising pay for workers who produce the wealth minimizes the profits for capitalists who provide investments.
    Now, in much of the history of the growth of capitalism there existed very cheap (or free) land and resources as well as very cheap (or free) labor. For example, the silver mines of Bolivia were a major source of capital for Spain and other European nations. The labor to provide that wealth was slave labor and the mines which held the wealth were simply stolen form the native peoples. The same can be seen in the development of the worldwide oil industry. In the middle east oil was simply taken from the land with little or no cost, except that of exploration and drilling. It was not until the creation of OPEC that oil producing nations began to have some economic and political power based on that essential resource.
    In summary, until recent times,the rules of the game (cheap or free labor or resources) made corporate capitalism a very effective economic system, at least for investors. But the rules have changed. We now have socialist societies which engage in long term planning to varying degrees. In Europe they provide guaranteed benefits (health care, retirement ) which makes them better able to compete with systems that do not provide those guarantees. In China the system is still based on cheap labor which keeps the cost of good low, at least for now. These semi-centralized economies are much better able to adjust to the ups and downs which every society faces.
    3. In the 1950s and 1960s, corporate capitalism needed labor. Labor costs rose, but so did profits. (Resources were still very cheap or free). However, with the emergence of OPEC and other nationalist movements (often labeled as “communist”) in what was called the “Third World”, the availability of cheap resources dwindled. Oil producing nations demanded more income for their oil. Newly independent African nations demanded more income for their resources. In response , since the cost of resources had increased, the capitalist system responded by lowering wages. It was the only way to keep profits high. So, since the 1970s wages have been relatively stagnant at the lower levels, while management salaries have risen as a reward for keeping this wages low. Of course, the government has been instrumental in this by refusing to raise the minimum wage and through “right -to work” laws, which are really anti-worker laws.
    I know this oversimplifies the history but my basis point is this.
    The rules of economic activity have changed. The basic conditions under which corporate capitalism thrived no longer hold. Other systems are better able to organize the economy to serve the interests of all members of society. I do not know what the future holds, but corporate capitalism’s inherent weaknesses are being exposed by the socialist systems which are better able to provide economic stability to more people in their societies.

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    1. Thanks for this lengthy response. Of course, you’re right to add the international element to this discussion; I noted in my post that I was limiting myself–not deliberately ignoring important factors.

      I agree with you that “the rules of economic activity have changed” and “the basic conditions under which corporate capitalism thrived no longer hold.” But I can’t see Americans embracing a planned economy in a big way any time soon–not when Trump and his minions make it sound as though socialism is the end of life on earth. That “rugged individualism” built into the American ethos is quite formidable.

      I do think many Americans are open to more progressive answers at this time, however. “Medicare for All” may be a bridge too far at this time, but even AOC, an avowed Democratic Socialist, sees fixes to Obamacare including a buy-in to Medicare through a public option as a realistic approach.

      My point is that, as many including you have said, our current capitalistic structures are unsustainable. But at this point, I think we have to put our energy into improving those structures so that we’re living in a more equitable and enlightened society.

      Annie

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    1. Hi, Daedalus Lex—
      I responded to your most recent post about progressives’ falling into unfortunate self-identified groups. One of your followers responded to me, and I am hard-pressed to comprehend where he’s coming from. If you have insights to help me understand, I would appreciate your emailing me at annie@annieasksyou.com. Thanks in advance.
      Annie

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  4. Hello, Annie. I’m no economist, so I certainly appreciate your work here breaking down concepts into the understandable analysis someone like me needs to follow the conversation. Thanks, too, for the links, which are always instructive. Politics, it’s said, is the art of the possible. I put faith in that and if we elect decent people, the economics will follow, or so I hope. Otherwise, I am expecting pitchforks on my lawn . . . D.

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