Marc Thiessen–Altered Reality

February 24, 2014

Opportunity–A Concept Abused by the Right

Marc Thiessen, conservative editorialist, speechwriter for George Bush, offers another typical right wing attach on Obama, using the key word “opportunity,” which I commented on in the just previous post.

He titles this opinion piece “Obama’s War on Opportunity.”

“Opportunity” is the preferred term for both the right and the left–neither camp is willing to touch the word “redistribution,” preferring to focus on a word which is deeply embedded in the Horatio Alger ethic of Americanism. The idea from the right is that if government just gets out of the way, anyone (regardless of your lack of advantage) can pull yourself up by the bootstraps and become wealthy. And, if you do become wealthy, the idea is that you did it all on your own–not due to any advantages you had by birth or along the way. Based on this idea, you deserve to keep all that you accumulate. Furthermore, the idea goes, if you are allowed to keep all you accumulate, you will choose to invest it in production which needs workers, and thus you will be creating “trickle down” that the conservatives like to argue as the solution to all the ills of the poor and the middle class.

But…if this is really the way it works, what happened across the last three decades before Obamacare came along? Inequality steadily increased to it’s dangerously high levels–all that increase with several Republican Presidents and without any Obamacare. Wealth for the highest income classes rose astronomically. If they invest in jobs with their added wealth, as goes the conservative argument, then why are we so lacking in jobs now? Could it be because they do not (lately) invest so actively in production, preferring to hoard their wealth in liquid investments, or assets such as lavish homes, and some in foreign bank accounts? Of course, this is not intended to suggest that none of that investment in production is happening. Of course, some is–e.g., Google hired 52,000 workers to date. But, in essence, not nearly enough is taking that route. Much of that added wealth is not adding to growth of the economy.

Thiessen has this to say about the Affordable Care Act (which, of course, he refers to by another intended pejorative name beginning with the demon named Obama): “Obamacare will reduce overall employment by the equivalent of 2.5 million workers by 2021,” claiming to be quoting the Congressional Budget Office. In fact, this is what Douglas Ellendorf, actually explained: “Because the longer-term reduction in work is expected to come almost entirely from a decline in the amount of labor that workers choose to supply in response to the changes in their incentives, we do not think it is accurate to say that the reduction stems from people ‘losing’ their jobs.” So, here is another very selective way of interpreting the analysis–chosen to slant the news in a highly negative manner. On the other hand, if this Act only enables people to make choices–i.e., they don’t have to work quite as much just to pay health care, couldn’t that possibly be a good thing? In the business of our first objective of late, to create jobs, is it necessary for us to force into employment those who do not choose to make more, who are happy to enjoy a more modest life with a little less work?

Thiessen goes on to attach the Obama minimum wage raise proposal, as costing jobs. Here is what the conservative Economist magazine has to say about that (Dec 13, 2013): “[…] a moderate minimum wage [is not] as undesirable as neoclassical purists suggest. Unlike those in textbooks, real labour markets are not perfectly competitive. Since workers who want to change jobs face costs and risks, employers may be able to set pay below its market-clearing rate. A minimum wage, providing it is not set too high, could thus boost pay with no ill effects on jobs.” The analysis goes on to explain that when the new wage is at or below 50% of the median, it does not cost jobs and helps poor people, possibly increasing growth of the economy (they spend the money). So, they conclude, it works for the US, but not for Germany.

For another, more accurate viewpoint, consider Paul Krugman’s opinion of the Affordable Care Act, in the NY Times Feb 23, 2014 ( It looks like the Right cannot find any real examples of people who have been hurt by the new Act.

But let’s acknowledge one thing about this Act: It IS a form of redistribution. There, I said the hated word–redistribution. And a little redistribution is just what we need. Health care is one very good arena in which to do a little redistribution.

I’m waiting for the Right to make their own proposal regarding health care? Are they simply afraid to do so?

Observations on Trade Unions

Observations on Trade Unions

February 19, 2014

George Will, Pulitzer Prize winning conservative journalist, lambasts trade unions, particularly the UAW, which just lost an important vote in Tennessee, in today’s Washington Post (

Steven Pearlstein, also a respected journalist for the Washington Post, presents a contrary argument in his February 14 column (

It’s certainly true that unionism in America has displayed a number of troublesome elements in the past, resulting in most business managers fearing the arrival of the union on their turf.  It’s understandable that there have been many aggressive tactics developed to counter the unions. Actually, on both sides of union votes, there have been inappropriate, illegal, and deadly behaviors used to try to secure the outcome opposing sides desire.

Among the past problems among some unions have been mafia connections, corruption, misspending of union dues, catering to the needs of only certain established segments of labor represented, and, most importantly, failure of the unions to focus on how to make the company more productive and more successful–i.e., focusing only on trying to get more wage and other benefits, sometimes resulting in the bankruptcy of the enterprise, if the enterprise’s costs are highly labor dependent.

So I don’t fault George Will for his concerns, due to the troublesome history we have experienced.
However, he misses several important points in his diatribe against unionism: First, he fails to recommend any approaches to unionism which might make it more palatable, even helpful to American capitalism. Thus, he essentially can be read to view any form of labor representation on a collective basis as inappropriate. He doesn’t say that, but his failure to call for any specific types of union reforms does suggest that.  In that, he chooses not to acknowledge the nature of this particular union vote, as explained by Pearlstein:  It is supported by Volkswagen management, who have been very successful in working with unions in Germany; the UAW has agreed to deep wage cuts which make its Volkswagen wages comparable to non-union foreign auto plants in the US; and the UAW has agreed to turn over future benefits decisions to a council including management.

Will and others on the conservative side fail to see that in certain other parts of the world, such as Germany and other countries in Europe, unions have joined with management to come up with ways to improve productivity–and have sometimes agreed to tie their wages to achievement of increases in productivity. After all, if engaged with management, doesn’t the input of labor add significantly to how to make the production line move faster? Who knows better than the workers?

The other point, perhaps the most important point overlooked by Will and others, is that a major element in the frightening development of high levels of inequality in the US across the last 30 years, is the loss of voice by labor.  If inequality is allowed to continue to increase, or even to sustain at today’s high levels, there are serious risks ahead for the US in sustainable economic development–a problem not only for the poor and the middle class, but also a big problem for the wealthy.

Take a look at Timothy Noah’s The Great Divergence, chapter 8 entitled “The Fall of Detroit.” Noah carefully explains how the Wagner Act and the subsequent Taft-Hartley Act, and especially the Presidency of Ronald Reagan and subsequent Republicans, have been major contributors to stagnating wages for the middle and lower classes across the last 30 years, and the attendant rapid increase in share of income and wealth of the highest earning classes.

Unionism has a ways to go to regain the confidence of Americans, but America needs to create a level playing field for collective bargaining by employees. Who can realistically argue that the power of a giant manufacturing company is equaled by the demands of a single employee acting alone?  That’s a ridiculous match–akin to a sumo wrestler facing off against a 6 year old–the employee will get crushed if she/he doesn’t have the power of collective bargaining–and this is especially true during times such as the last six years, when it was a buyers market for labor. Some argue it’s been a buyers market for the better part of 30-40 years, when offshoring and technological advances have so accelerated.

And, unionism needs to display more effectively just how it can work with management to improve productivity and results, so as to keep us competitive in an increasingly globalizing world.

The Measures of Inequality

The Measure of Inequality

February 16, 2014

To take a position on inequality, most people need a solid understanding of how unequal we are. The only ones who don’t are those who have already decided inequality is not an issue–let the invisible hand rule, let capitalism flourish without restraint, and it will all be ok, they argue. Some feel the theories of Simon Kuznets will recurrently prevail–in each long term cycle there will be an increase in inequality followed by a later decrease in inequality. Others just think property rights are to be honored at all costs, and that includes not imposing higher taxes on the wealthy, or any other form of redistribution (such as the Affordable Care Act)–these feel that the wealthy invest those extra gains, and thus create jobs for the others. This is the basis of the “trickle down” theory. With this theory, the argument goes that we’d be far worse off if we tried even a moderate degree of redistribution.

Well, it turns out there hasn’t been much trickle down in recent decades. Let’s start here:

The two charts below tell the story. Chart 1: As measured by the Gini coefficient, inequality was high in the US before WWII, declined significantly across the period 1940-1960, and then began a steady climb to today’s very high level.

Chart 2 shows that those in the top 90-95%, those in the 95-99%, and especially those in the 99-100%, saw steady increase in their share of earnings. For example, those in the top 1% increased their share from about 6% in 1960, to about 13% in 2000.


Wojciech Kopczuk, Emmanuel Saez, Jae Song,Working Paper 13345, NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue, Cambridge, MA 02138, August 2007 

These are the facts.This is what has happened in America. Scholars like those referenced above have looked at inequality in many dimensions, finding similar results in most developed countries and many developing countries in the world: Since around 1960-70, inequality has accelerated.

As mentioned above and in previous posts, there are those who find no reason for concern with this trend–either feeling it will reverse itself without intervention, or that this is simply how capitalism works, and that it would not work without unrestrained inequality–and definitely no need for any form of redistribution. To those on the right, the word “redistribution” is a gross pejorative. So offensive is this word that it never appears in the political dialogue–not even from those on the left. It’s just too contrary to the Horatio Alger stories of American opportunity of pulling yourself up by your bootstraps.  

There are numerous explanations for what has caused this acceleration in inequality. One of the many attempts to explain it comes form Timothy Noah in his The Great Divergence. In his book, he thoroughly analyzes the many contenders for cause of the rise in inequality. He ultimately settles on four major causes: a shortage of better educated labor, resulting in the increasing value of a college degree, along with no effective pressure on the rising costs of higher education; increased globalization in the form of trade with lower wage nations; changes in government policy and finance (with special focus on Reagan and the Washington Consensus); and the decline of the labor movement. 

One facet of the rapid increase in inequality in the US has been the dramatic rise in CEO pay. See this chart:


THOMAS PIKETTY, EHESS, Paris EMMANUEL SAEZ, UC Berkeley and NBER 2004, Fig. 11.

Regrettably, the modest downturn in the 2001-2002 period in the above chart did not signal a reduction in inequality. It simply reflected the smaller recession experienced in the US at that time due to the “tech bubble.” Since that time, CEO pay has continued to rise. Average wage income for the middle class did not rise. For example, Forbes reports that in 2012, the CEO of McKesson earned $131 million, Ralph Lauren $67 million, Vornado Realty $64 million. Forbes reports (June 27, 2013): “From 1978 to 2012, CEO compensation measured with options realized increased about 875 percent, a rise more than double stock market growth and substantially greater than the painfully slow 5.4 percent growth in a typical worker’s compensation over the same period.”

Inequality varies from city to city in the US. One of the least equal cities is San Francisco, where the earnings of those in the 95th-100th percentile are more than 16X those of the people in the 20th percentile.  During the 2007 to 2012 period, the earnings of those in the 20th percentile declined $4,000 while those in the 95% percentile increased $28,000 (Source: Brookings Institution).a

And, while the above is mostly about US inequality, a similar story is true throughout much of the world since around 1980, thus causing many to question whether this period of economic policy imposed by the IMF and the World Bank, reliant on the neoliberal Washington Consensus, is a significant causal factor in this development.  I believe it is. Most of the wealthy OECD displays similar results, although the US is near the most unequal. And, some developing countries have even higher levels of inequality than the US–e.g., Brazil and S. Africa. A particularly troublesome example is China, one of the most egalitarian countries in 1950. Inequality there has risen rapidly since 1980 and 1990, reaching about the same level as that of the US today.  Today, China has the 2nd largest number of billionaires in the world, and concerns with inequality are now ranked among the most troublesome to Chinese, where a growing number of protests allegedly reaching more than 600,000 annually, focus on inequality, pollution, corruption, and inflation, among other lesser concerns.

This is a short sketch of the reality of today’s level of high inequality. It is something everyone should be concerned about–for both moral reasons and the economic peril it may portend for the future.

Opinions of the Wealthy

February 15, 2014

Understandably, many of the wealthy feel no concern to address growing inequality. Many feel that whatever they earn or have amassed is solely due to their great competence.

Tom Perkins may be one of those. He is an ultra-wealthy private equity investor. He may well have amassed his entire fortune, estimated at $8 billion, in a moral and legitimate way. He is undoubtedly of greater competence than many of us. He has also been philanthropic with his wealth, and the corporations to which he has contributed governance, advice, and capital have been among those which have improved our lives.

So, in all those respects, he is one to be appreciated and admired.

On February 13, at the Commonwealth Club in San Francisco, he had some things to say about inequality, which captured the attention of the media. He reportedly suggested that our American system should be modified such that there is one vote for every dollar of tax paid. He apparently went on to argue against any methods of trying to create more equality (

It’s not surprising. If I had $8 billion, perhaps I would be thinking this way. Perhaps I’d be thinking I am solely responsible for this accumulation, not my heritage, not my parents, not my skin color or religion, not the financial or social connections of my family, not my educational opportunity, not my career and other opportunities, not my timing, not my birth country, not circumstance, not luck, not the mentors who coached me, not even my genetic disposition to good health, not even the support given me by my wife, friends and family. Just me. I did it.

And, to those who want to redistribute my wealth, I might say they simply didn’t take advantage of the talents, hard work, and opportunity which abounds for people of all birth situations in this great country. I can’t be held responsible for that. Indeed, if we were to think that way, we’d be dis-incenting the essence of American capitalism, which is the essence of America.

Of course, I don’t want to accuse Tom Perkins of this thinking. I am not privileged to know him, and I imagine him to be a very decent human being.

But, he must know when talking this way that he will ignite a reaction among those of who who feel that all the elements mentioned above contribute to or provide obstacles to the achievement of many of us who do not achieve great wealth.

But even if this set of contributing factors is dismissed by the wealthy, even if there is no moral feeling of obligation to the lesser privileged, there remain these factors mentioned in the previous post here:

1. There is no argument here to change America to an entirely equal or socialist country. There is no argument with the value of incentives–you should indeed get to keep most of what you earn honestly. There is not even an argument with inequality–up to a point. The argument is with allowing inequality to rise to the present very high level and do nothing to arrest its possible continued rise.

2.  There are many ways to gradually re-distribute, most of them not involving taking anything from what one has earned and accumulated to this point. To mention only one–supporting a system of equal education for all–not just for those who can afford private and Ivy League schools from kindergarden through graduate programs.

3. It is likely that economic growth, GDP, will not grow as fast under conditions of high inequality (as is the case today), as it will under conditions of moderate inequality.  Just consider the additional worker talent available to capitalists like Tom Perkins if we substantially enhance the skills of our educationally motivated youth–and the additional productivity and profit contribution of those skills.

4. Finally, there is the ultimate result to consider–gated communities, guards, vigilantes protecting the wealthy, and potentially, eventually, revolution.

Why not share a little of the wealth?

Part One: Inequality–My Starting Biases

Feb 8, 2014


This will begin a new series of articles about inequality. I’d like to start by confessing my biases:

I’m a Democrat, although I have occasionally voted for Republicans. I come from a long line of North Carolina farm folks, relatively poor, and clearly of a Democratic persuasion.

I do not pretend to be an expert on these matters, but I recently (2013) completed a Masters degree at the University of London, in which a great deal of focus was on the world economy since about 1950, looking at such issues as economic growth, poverty, inequality, and policies and endowments which led to the success or failure of nations. I’ve been assiduously studying these issues since.

I believe the problems of poverty and inequality (and others) are complex. In most cases, there are no effective universal solutions. Best recommendations usually consider local history, culture, endowments, institutions, and politics. What works for China will be different from what works for the US. Both countries’ leaders have made bold promises to reduce inequality.

Also, there are many forms of inequality–income, wealth, racial, gender, and many other ways in which some people feel and find themselves inferior to others.  For example, people who speak only Cantonese find themselves feeling unequal in the US, whereas those speaking only English may find themselves feeling unequal in Hong Kong.  All of these are worthy of attention. Top of my list will be income and wealth inequality, but that’s not intended to diminish the importance of the many other ways inequality is experienced.

I acknowledge that it is not yet clearly determined that the rise in income and wealth inequality in many countries since about 1970, will continue rising (if unchecked), or will level out or reverse without policy change. There are some who argue that it will reverse direction and should be left alone. Inequality improved (moved toward greater equality) in the US between 1925 and 1970. Some think this could happen again.

Nevertheless, I believe that in virtually all cases (and in the case of the improvement between 1925 and 1970), the improvement was not “automatic,” a factor of nothing other than the natural evolution of economics. It was also and largely the product of policy changes. For example, Lyndon Johnson’s “Great Society” program was a major factor during that period of improvement.

I also believe we should be concerned. Very concerned. There are many negative impacts to the high levels of inequality currently experienced in the US, China, most OECD countries, and many other countries in the world. I will discuss these in future articles here.

I applaud the growing array of philanthropic efforts by those in the upper echelons of income and wealth, devoted to a very wide variety of social improvements, many seeking to improve one or another of the many facets of inequality. For example, reducing poverty, improving access to health care, and improving access to quality education for children of lower incomes, all result in improved equality. I do respect that many of these are very well intended and some are effective in improving the lot of many. However, I feel that in the aggregate, they lack the impact of a cohesive set of policies and focus which can only be provided by IGO’s, NGO’s, and by national governments.  With few exceptions, most are a drop in the bucket.  Nevertheless, considering the difficulty of motivating effective government action and adjusting the basics of capitalism, we should aggressively pursue best philanthropic efforts, of course!

But, I hold the view that it is simply not enough for us to allow the continuance of the income and wealth aggregation at the top, and hope that the philanthropy of the ultra wealthy will result in sufficient re-allocation, poverty reduction, and improvement in inequality, etc.  That is good work on the part of the wealthy, to be applauded, but it simply is not remotely sufficient.

For one, I am willing to pay more in taxes. More later on the whole issue of the inefficiency of government, democratic government in particular, in addressing these problems.  There are two major issues here which trouble many–getting agreement on effective policies, and then getting cost efficient administration of those policies. Regrettably, many Americans have lost confidence in both these elements of government.

Nevertheless, I feel government has to be a big part of the solution, both in the host country and also in terms of foreign aid to lesser developed countries. I recognize that the US governmental process is gridlocked at this time, but that doesn’t mean we can allow it to stay that way. Changing government anywhere is tiring and slow, but it is the major element in significant change, I believe.

I also believe that private enterprise is part of the solution. It would be great to somehow motivate and accelerate corporate leadership to take the longer view, to re-set guiding principles around objectives other than only the bottom line–such as providing a living wage, minimizing lay-offs, more emphasis on environment, ethics, morality and corruption, and taking a longer than quarterly view. But these kinds of adjustments expose leaders who would like to make these major adjustments to price competition from those who do not choose to participate. Thus, I place somewhat less emphasis on the practicality of the private industry solution.  I don’t fault our corporate leaders for their focus on the short term bottom line–it’s indigenous to the pure capitalistic system which we are committed to–and I don’t have a better system to recommend.

I do not believe that the current version of the neo-liberal Washington Consensus (open borders, reduced regulation, smaller government, flexible labor policies, etc.), is the solution to worsening inequality and poverty reduction in the world. Simply increasing free foreign trade is not going to solve the problem. It didn’t accomplish that in Sub-Saharan Africa in the 80’s and 90’s. Economic growth is necessary for the alleviation of poverty, but foreign trade is not the only way for economies to continue growing. One evidence of this is the fact that virtually all developed economies protected their infant industries for decades in periods of early development, grew rapidly while doing so, and even now there are substantial protective measures in place in most developed economies. How can the US argue for open borders and free trade, when we subsidize the cotton growers in the US?

I believe that even if there is a possibility of some element of natural correction ahead, we cannot afford to wait for the possibility of that happening.  As Keynes said once, we may all be dead by that time.

I believe we cannot just look at our city, our State, and our country. There are almost 200 countries out there, and another 5.7 billion people or so. I believe we have a moral obligation to concern ourselves with inequality in South Africa and Brazil, as well as in the US.

I believe high levels of inequality, such as we have come to experience in the US and many countries, does restrain economic growth. Thus, inequality actually inures to the disadvantage of the wealthy, who benefit most from economic growth, as well as to the middle class and the poor. This should be a rationale for the conservative right to address the issue. They should remember that the middle and lower classes spend more of their income, thus powering economic growth. Unfortunately, many of the wealthy do not invest their greater savings in job promoting growth, but set it aside in liquid assets or possessions such as art. This is one of the problem with persistent conservative arguments for more tax reduction.

Fundamental to this whole issue is the concept of incentives. Everyone agrees that incentives are important, critical to motivate all of us to try harder to better ourselves. There are many on the right who feel what they have gained is due only to their superior talent and/or hard work, and thus it is only right that they should enjoy it. There should be no obligation to share. Let the “invisible hand” of the market determine each person’s outcome. This view, in my opinion, fails to consider luck, inheritance, and the privilege of social standing and opportunity afforded by parents who pay for private schools and ivy league universities, leaving the remainder of public education with only the “exit voice” (Albert Hirschman, 1970) of the poor, unable to motivate political focus.

I do not dispute the value of incentives. I have enjoyed some of the benefits. I dispute that what I have gained (modest as it is) is entirely the fruits of my own talents and labor. It is also the product of the times we baby boomers grew up in, the totality of national and global policies and developments across that period.  It is the product of my providentially being born a WASP during they heyday of WASPism. It is certainly (and most) a product of my being born in the USA. Branko Milanovic, noted World Bank scholar, has determined statistically that 80% of one’s economic destiny is determined by the country in which one was born and the income class of one’s parents (Milanovic, The Haves and the Haves Not). Furthermore, I believe that if we share, there will be greater good for all, and if we do not, there is a risk of revolution and disaster, eventually.

Finally, I acknowledge that in terms of the language, the term “inequality” has been rejected in most circles, with “opportunity” substituted. I am equally concerned with equality of opportunity, but I do not choose to shy away from inequality. The objection is that when “inequality” is used, it fails to motivate those of wealth. It may imply that their acquisition of wealth may have been illicit or unfairly obtained, or if honestly gained, that they nevertheless have an obligation to share it–none of which is welcomed by the wealthy, who would prefer to consider their philanthropy to be motivated entirely by generosity, preferring to focus on poverty alleviation than on reducing inequality. Focus on equality of opportunity resonates well with both Democrats and Republicans. Even the Conservative Right promotes the Horatio Alger motif.

That’s about it in terms of biases to which I readily admit. I acknowledge that many of the beliefs I have admitted above remain in dispute among respected economists. I will make my own attempt to defend some of them in later posts.

However, I honestly hold that I am open to solid argument and proof, to change any of the above beliefs.  Please post your arguments to the contrary.