As our economy recovers ever so slowly, only the wealthy have recovered at all. Between 2009 and 2011, the top one percent saw their incomes increase by 11.2 percent, while the incomes of the bottom 99 percent actually declined on average by 0.4 percent according to the most recent data compiled by economist Emmanual Saez from the UC Berkeley.
Why are the rest of us left behind?
1. The bailouts primarily flowed to the super-rich: Federal money and guarantees poured into Wall Street during the crisis (and beyond). Some also flowed to Main Street in the form of the stimulus programs, tax relief and mortgage adjustment programs. But who got how much? The best data we have is produced by Nomi Prins and Krisztina Ugrin that tracks the myriad of grants, loans and guarantees through the bewildering maze of government programs. It shows that approximately $4.8 trillion went to Wall Street. Another $2.8 trillion went to Fannie and Freddie, (which should be viewed as vital support group to Wall Street.) And only $1.2 trillion went to Main Street. Much of the Wall Street/Fannie/Freddie money protected and built up the incomes and assets of the top of the top 1 percent.
2. Sky-high corporate salaries are not capped as promised: To receive bailout funds, companies were required to live under salary caps, and any salary increases were to be approved by the U.S. Treasury. However, the Special Inspector General for the Troubled Asset Relief Program released a report on January 28 that "found that once again, in 2012, Treasury failed to rein in excessive pay." In fact, of the 18 requests for raises it received, Treasury approved them all: "In 2012, [Treasury] approved pay packages of $3 million or more for 54 percent of the 69 Top 25 employees at American International Group, Inc. ("AIG"), General Motors Corporation ("GM"), and Ally Financial Inc. ("Ally," formerly General Motors Acceptance Corporation, Inc.) - 23% of these top executives (16 of 69) received Treasury-approved pay packages of $5 million or more, and 30% (21 of 69) received pay ranging from $3 million to $4.9 million. Treasury seemingly set a floor, awarding 2012 total pay of at least $1 million for all but one person." Here was a golden opportunity to do something about the growing income gap. Instead, the Wall Street-infested Treasury Department made it worse.
3. Unemployment is not adequately addressed: It is a cruel economic fact of life that high unemployment causes downward pressure on worker wages. We are in the 5th year high unemployment -- the longest such streak since the Great Depression. While Wall Street received all the money it needed, job creation efforts have been paltry despite the conservative howling about the stimulus programs. Furthermore, the administration along with state and local governments actually froze public employee wages and cut government jobs in the name of austerity, which further exacerbated the unemployment problem. Little wonder that the average income for the bottom 99 percent is shrinking.
4. Unions are battered: No matter what you may think about labor unions, there is an objectively true inverse relationship between income inequality and union membership. As unions membership rose from the New Deal through the post-WWII era (peaking at approximately 21 million workers in 1979) income inequality declined. The top 1 percent saw its share of income drop from a high of 24 percent in 1928 to less than 9 percent during the 1960s. As unions declined, in large part due to changes in government policies and court rules than limited union efficacy, income inequality skyrocketed again. (For more on unions and inequality, please see "What's it going to take to claw back middle-class wealth." )
In the past two years, there have been increasing attacks on unions as conservative politicians take advantage of the negative economic conditions to pit private and public sector against each others. ("Why should you private sector workers pay increased taxes for public sector wages and benefits that you don't have?") As a result, we are seeing state legislative assaults on public employee wages, benefits and bargaining rights, as well as an increase in attacks on private sector unions through the creation of "right to work" states in the mid-west.
5. Wall Street is not significantly re-regulated. The driver of income inequality is the growth of financial sector compensation. When New Deal era financial controls were abandoned, starting in the 1980s, compensation in the financial sector began its meteoric rise. Soon Wall Street drew our most talented college graduates who sought to make tens of millions of dollars per year in trading, mergers, acquisitions, hedge funds, private equity, and venture capital firms. Along the way, Wall Street compensation became the benchmark for all corporate salaries. "Greed is good" was in.
The results are startling. In 1970, for every dollar earned by the average worker, the average top 100 CEO earned $40. By 2006, that ration had jumped to a whopping $1723 to one. In the first two years after the crash, the ratio declined to $726 to $1 in 2010. But as the recovery it's heading back up as it reached $788 to $1 in 2012. By failing to fundamentally restructure Wall Street during the crisis, Washington ensures that the upward pressure on all CEO pay will continue.
6. The Ayn Rand effect: My insightful editor is encouraging me to write about the impact Ayn Rand is having on our politics and economy -- especially on the rise of the"maker-taker" divide that encourages executives to believe they are like sun gods to be worshiped while the rest of us mooch off their brilliance. At first I was entirely resistant -- I couldn't bear the thought of carefully studying her philosophic musings and her ponderous dystopian fiction. Then I saw this little snip Wikipedia:
Sales of Atlas Shrugged have increased since the 2007 financial crisis, according to The Economist magazine and The New York Times. The Economist reported that the fifty-two- year-old novel ranked #33 among Amazon.com's top-selling books on January 13, 2009 and that its thirty day sales average showed the novel selling three times faster than during the same period of the previous year. With an attached sales chart, The Economist reported that sales "spikes" of the book seemed to coincide with the release of economic data. Subsequently, on April 2, 2009, Atlas Shrugged ranked #1 in the "Fiction and Literature" category at Amazon and #15 in overall sales.Total sales of the novel in 2009 exceeded 500,000 copies.The book sold 445,000 copies in 2011, the second-strongest sales year in the novel's history. At the time of publication the novel was on the New York Times best-seller list and was selling at roughly a third the volume of 2011.
What's going on here? One observation is obvious: There are a sizable number of people who hate government more than Wall Street. This means that any and all efforts to tame financial capital will be met with extreme resistance. At the same time, many Democrats also have no difficulty at all working arm and glove with elite financiers in order to raise cash for electioneering. (Maybe we should call this the "Brave New World effect.")
7. Occupy Wall Street disappears and is replaced by... nothing: Political movements can create pressure for policies that impact income distribution. The combination of the rising labor and civil rights movements contributed heavily to increased equality in the post-WWII era.
Occupy Wall Street certainly moved the national discourse, at least for a time. In the summer of 2011, before the demonstrations began, the Washington conversation was all about grand deficit reduction bargains that would include serious cuts, for the first time, in Social Security. After Occupy Wall Street hit, the conversation shifted swiftly to income distribution and Wall Street's responsibility for the economic crash. As soon as OWS faded, the conversation shifted back to austerity discussions. Except for the efforts by National Nurses United to demand a financial transaction tax on Wall Street, no sustained mass movement to tackle fundamental inequality has emerged.
Will all future economic growth continue to go to the super rich?
It depends in large part on what we do. If we do nothing, there is little reason to believe that the economic and power arrangement that currently exist will deliver increased real incomes for the 99 percent. Also, there's little reason to believe that the political parties as currently constructed will significantly re-regulate Wall Street, redistribute income, encourage unionization, launch massive jobs programs, or significantly raise the minimum wage. (And god knows they're not about to end drug prohibition and empty our prisons of nearly 40 percent of the young, male African-American population.)
The pressure for fairness must come from the outside the normal political channels -- from an aware and mobilized mass movement for economic justice. As we celebrate the 50 year anniversary of so many key civil rights struggles, let's remind ourselves that movements can and do make an enormous difference. It's a long-term project that hopefully is well underway, flying below the media radar screen.
Les Leopold is the Executive Director of the Labor Institute and author of How to Make a Million Dollars an Hour: Why Hedge Funds get away with Siphoning off America's Wealth (John Wiley and Sons, 2013)