Over at The New York Times today, David Leonhardt and Kevin Quealy wrote an excellent article, The American Middle Class Is No Longer the World’s Richest. The only thing that really surprised me in it was that the median income in Canada is now greater than it is in the United States. It’s pretty hard to explain that in any way but that we simply have a political system that is controlled by the rich who have managed to make economic policy that pushes money from the poor to the rich.
It’s actually shocking when you consider that by and large the upper class (top 20%) minus the rich (top 1%) get screwed compared to how the rich alone are treated. But they actually have political power and I’m surprised that they haven’t revolted against the system. These, after all, are the people who pay income tax rates around 30%. The rich don’t; they pay half that much because most of their income in unearned. The upper class also pay a high percentage of their incomes in payroll taxes. The rich pay a tax rate that approaches zero the more they make. I understand that the rest of us are even more screwed, but we’ve long known our government isn’t interested in us. But revolutions are usually fought between the upper class and the rich. Why is our upper class so complacent?
Of course, the problem is more than just tax policy. The truth is that even forgetting about the government, American workers don’t do as well as they do in Canada and many other advanced economies. (Although that’s getting less and less true.) And the reason for that is very simple: unions have been effectively destroyed in this country. This started in a big way in 1947 with the Taft–Hartley Act. And then Reagan signaled open season on them in 1981. (This was no surprise; what was surprising was that many unions endorsed Reagan.) The only reason that capital ever shared any of the benefits with labor was that it was forced to. Unions don’t have the power they once had so workers haven’t seen any part in productivity gains over the last 35 years.
I keep returning to what Milton Friedman always claimed: the rich were getting far richer but the poor were also getting richer. I often fantasize about having him before me and asking him today, “The poor are actually doing worse. So what do you think of your laissez faire now?” Of course, it’s a hollow fantasy. I know exactly what he would say. Like all libertarians, he would retreat into theory and tell me it was still best to have our winner-take-all society because: freedom! He would also prevaricate and claim that the poor losing ground is just the product of us not yet having the libertarian utopia. It is at this point in my fantasy that I beat the poor man to death with my bare hands.
The two issues—unionization and taxes—go hand in hand. The more money the rich have, the more they can lobby the government to destroy unions and lower the raxes of the rich. This feeds back to give the rich even more power and great incentive to use it to destroy unions and lower the taxes of the rich. And it is all done in the name of making America richer. But now with Canada getting ahead of us (and other countries sure to follow), what will be the rationalization? Because I’m sure there will be a rationalization. A change in the facts is not going to stop the power elite from pushing policies that make then more powerful and more elite.
Cenk Uygur provided a great overview of the NYT article on The Young Turks:
Update (23 April 2014 5:44 pm)
Dean Baker once again proves that as bad as anyone says it is, he can always show that it is worse, The American Middle Class Is Doing Much Worse Than the NYT Says: