The way the word ‘value’ is used in modern economics has made it easier for value-extracting activities to masquerade as value-creating activities. And in the process rents (unearned income) get confused with profits (earned income); inequality rises, and investment in the real economy falls. What’s more, if we cannot differentiate value creation from value extraction, it becomes nearly impossible to reward the former over the latter. If the goal is to produce growth that is more innovation-led (smart growth), more inclusive and more sustainable, we need a better understanding of value to steer us.
**
In 1958, John Kenneth Galbraith put it bluntly: “For the businessman and the political philosopher . . . the appeal of the competitive system was its solution to the problem of power.” But power cannot be solved. It cannot be assumed away. Power can only be dealt with head-on. If today’s problem is that power is increasingly and dangerously concentrated, then the only solution is to build countervailing power. Rather than ignoring, or operating separately from, democracy, the new economics requires a government that is committed to the public good, not corporate interests, and that is accountable to the will of the people.
This is not about throwing out markets. We need markets to do what they do well. But markets are functions of the rules that structure them, and the current broken process of rule-making allows for, and even encourages, corruption. Improving economic performance requires breaking the revolving door practice whereby private sector lobbyists, often former public servants, hold sway. The Trump administration did not cause this corruption, but it is the most egregious example of exploiting it. We now have government agencies that are run by lobbyists and financial executives. We have turned our government over to markets, and our markets over to corporations. Our problems are too big, too deep, and too acute to entrust to companies. We need an economic transformation to meet existential threats. Climate change is the most urgent, overwhelming example, but the ubiquitous surveillance and extraction of the digital economy is up there as well. Markets alone will not help society mobilize in the face of economic change at this scale. Instead, we must reimagine the role of government so that it can do what only it can do: structure the market to perform as it should while also providing some goods and services directly to complement the market and spur competition. Battling and winning against accretive and extractive power also requires the analytical power to see what is going on; the organizing power to elevate, push, demand; and the institutional power to make ideas real. In the process though, it is crucial to both remember and assert that this contest is not radical. Instead it is a reaction to the world as it is—a world that is demanding our attention.
By Mariana Mazzucato, Evonomics, July 2019
We often hear businesses, entrepreneurs or sectors talking about themselves as ‘wealth-creating’. The contexts may differ – finance, big pharma or small start-ups – but the self-descriptions are similar: I am a particularly productive member of the economy, my activities create wealth, I take big ‘risks’, and so I deserve a higher income than people who simply benefit from the spillovers of this activity. But what if, in the end, these descriptions are simply just stories? Narratives created in order to justify inequalities of wealth and income, massively rewarding the few who are able to convince governments and society that they deserve high rewards, while the rest of us make do with the leftovers.
If value is defined by price – set by the supposed forces of supply and demand – then as long as an activity fetches a price (legally), it is seen as creating value. So if you earn a lot you must be a value creator. I will argue that the way the word ‘value’ is used in modern economics has made it easier for value-extracting activities to masquerade as value-creating activities. And in the process rents (unearned income) get confused with profits (earned income); inequality rises, and investment in the real economy falls. What’s more, if we cannot differentiate value creation from value extraction, it becomes nearly impossible to reward the former over the latter. If the goal is to produce growth that is more innovation-led (smart growth), more inclusive and more sustainable, we need a better understanding of value to steer us.
This is not an abstract debate. It has far-reaching consequences – social and political as well as economic – for everyone. How we discuss value affects the way all of us, from giant corporations to the most modest shopper, behave as actors in the economy and in turn feeds back into the economy, and how we measure its performance. This is what philosophers call ‘performativity’: how we talk about things affects behaviour, and in turn how we theorize things. In other words, it is a self-fulfilling prophecy.
If we cannot define what we mean by value, we cannot be sure to produce it, nor to share it fairly, nor to sustain economic growth. The understanding of value, then, is critical to all the other conversations we need to have about where our economy is going and how to change its course.
Why Value Theory Matters
The disappearance of value from the economic debate hides what should be alive, public and actively contested. If the assumption that value is in the eye of the beholder is not questioned, some activities will be deemed to be value- creating and others will not, simply because someone – usually someone with a vested interest– says so, perhaps more eloquently than others. Activities can hop from one side of the production boundary to the other with a click of the mouse and hardly anyone notices. If bankers, estate agents and bookmakers claim to create value rather than extract it, mainstream economics offers no basis on which to challenge them, even though the public might view their claims with skepticism. Who can gainsay Lloyd Blankfein when he declares that Goldman Sachs employees are among the most productive in the world? Or when pharmaceutical companies argue that the exorbitantly high price of one of their drugs is due to the value it produces? Government officials can become convinced (or ‘captured’) by stories about wealth creation, as was recently evidenced by the US government’s approval of a leukemia drug treatment at half a million dollars, precisely using the ‘ value- based pricing’ model pitched by the industry – even when the taxpayer contributed $200 million dollars towards its discovery.
Second, the lack of analysis of value has massive implications for one particular area: the distribution of income between different members of society. When value is determined by price (rather than vice versa), the level and distribution of income seem justified as long as there is a market for the goods and services which, when bought and sold, generate that income. All income, according to this logic, is earned income: gone is any analysis of activities in terms of whether they are productive or unproductive.
Yet this reasoning is circular, a closed loop. Incomes are justified by the production of something that is of value. But how do we measure value? By whether it earns income. You earn income because you are productive and you are productive because you earn income. So with a wave of a wand, the concept of unearned income vanishes. If income means that we are productive, and we deserve income whenever we are productive, how can income possibly be unearned? This circular reasoning is reflected in how national accounts – which track and measure production and wealth in the economy– are drawn up. In theory, no income may be judged too high, because in a market economy competition prevents anyone from earning more than he or she deserves. In practice, markets are what economists call imperfect, so prices and wages are often set by the powerful and paid by the weak.
In the prevailing view, prices are set by supply and demand, and any deviation from what is considered the competitive price (based on marginal revenues) must be due to some imperfection which, if removed, will produce the correct distribution of income between actors. The possibility that some activities perpetually earn rent because they are perceived as valuable, while actually blocking the creation of value and/or destroying existing value, is hardly discussed.
Indeed, for economists there is no longer any story other than that of the subjective theory of value, with the market driven by supply and demand. Once impediments to competition are removed, the outcome should benefit everyone. How different notions of value might affect the distribution of revenues between workers, public agencies, managers and shareholders at, say, Google, General Electric or BAE Systems, goes unquestioned.
Third, in trying to steer the economy in particular directions, policymakers are – whether they recognize it or not – inevitably influenced by ideas about value. The rate of GDP growth is obviously important in a world where billions of people still live in dire poverty. But some of the most important economic questions today are about how to achieve a particular type of growth. Today, there is a lot of talk about the need to make growth ‘smarter’ (led by investments in innovation), more sustainable (greener) and more inclusive (producing less inequality).
Contrary to the widespread assumption that policy should be directionless, simply removing barriers and focusing on ‘levelling the playing field’ for businesses, an immense amount of policymaking is needed to reach these particular objectives. Growth will not somehow go in this direction by itself. Different types of policy are needed to tilt the playing field in the direction deemed desirable. This is very different from the usual assumption that policy should be directionless, simply removing barriers so that businesses can get on with smooth production.
Deciding which activities are more important than others is critical in setting a direction for the economy: put simply, those activities thought to be more important in achieving particular objectives have to be increased and less important ones reduced. We already do this. Certain types of tax credits, for, say, R&D, try to stimulate more investment in innovation. We subsidize education and training for students because as a society we want more young people to go to university or enter the workforce with better skills. Behind such policies may be economic models that show how investment in ‘human capital’ – people’s knowledge and capabilities – benefits a country’s growth by increasing its productive capacity. Similarly, today’s deepening concern that the financial sector in some countries is too large – compared, for example, to manufacturing – might be informed by theories of what kind of economy we want to be living in and the size and role of finance within it.
But the distinction between productive and unproductive activities has rarely been the result of ‘scientific’ measurement. Rather, ascribing value, or the lack of it, has always involved malleable socio- economic arguments which derive from a particular political perspective – which is sometimes explicit, sometimes not. The definition of value is always as much about politics, and about particular views on how society ought to be constructed, as it is about narrowly defined economics. Measurements are not neutral: they affect behaviour and vice versa (this is the concept of performativity which we encountered in the Preface).
So the point is not to create a stark divide, labelling some activities as productive and categorizing others as unproductive rent- seeking. I believe we must instead be more forthright in linking our understanding of value creation to the way in which activities (whether in the financial sector or the real economy) should be structured, and how this is connected to the distribution of the rewards generated.
Only in this way will the current narrative about value creation be subject to greater scrutiny, and statements such as ‘I am a wealth creator’ measured against credible ideas about where that wealth comes from. A pharmaceutical company’s value- based pricing might then be scrutinized with a more collective value- creation process in mind, one in which public money funds a large portion of pharmaceutical research – from which that company benefits – in the highest- risk stage. Similarly, the 20 per cent share that venture capitalists usually get when a high- tech small company goes public on the stock market may be seen as excessive in light of the actual, not mythological, risk they have taken in investing in the company’s development. And if an investment bank makes an enormous profit from the exchange rate instability that affects a country, that profit can be seen as what it really is: rent.
Adapted from The Value of Everything by Mariana Mazzucato. Copyright © 2018 by Penguin Random House UK.
**
Two decades ago, empirical work in economics began to suggest that twentieth century economic theory was wrong. That theory rested on two pillars. First, as economies develop, the worst inequalities will compete themselves away. Rising tides will lift all boats, so focus on the tides. Second, more equality will come at the expense of growth and efficiency. This is known as the “big trade-off.” Taken together, these contentions said that market forces themselves would drive wage increases and prosperity. Any government intervention—or other intervention, such as the power of union workers to bargain collectively—would endanger the market, lowering employment. The new evidence called into question the basics of what we had thought was the American creed—especially our faith in U.S. opportunity and meritocracy.
But in 1997, Alan Krueger and David Card showed, in contrast to all received economic theory, that minimum wage increases do not lead to lower unemployment. Their data looked at 410 fast food restaurants: half in New Jersey, which raised the minimum wage from $4.25 to $5.05, and half in Pennsylvania, which did not raise the wage. Since then, many economists, using new experimental designs, new data sets, and following the advent of massive computing power, have followed suit, and shown compelling results.
Throughout the ’90s and ’00s, empirical economists worked to understand the real-world effects of economic differences. Critics derided the “Freakanomics effect,” lamenting that students in premier economics departments no longer studied “intractable problems—poverty, inequality, unemployment,” but instead “fac[ed] off in what sometimes felt like an academic parlor game.” But many of the new empiricists did tackle economics’ biggest challenges. Larry Katz, Jeffrey Kling, and Jeffrey Liebman studied the 1990s-era federal “Moving to Opportunity” program, sparking a vigorous debate about whether low-income families with children who move to lower-poverty neighborhoods have better life outcomes (the study showed significant improvements in participants’ mental health). In 2001, Daron Acemoglu, Simon Johnson, and James Robinson studied both the division of Korea in the 1950s and European colonization of the globe beginning in the fifteenth century to argue that “economic institutions encouraging economic growth emerge when political institutions allocate power to groups with interests in broad-based property rights enforcement, when they create effective constraints on power-holder, and when there are relatively few rents to be captured.”
Some sub-fields—most notably industrial organization, which studies anti-trust, or the effect of corporate mergers on prices—lagged. But the data-driven research continued, both within and outside of economics. One now-famous set of studies was carried out by Elizabeth Warren and her co-authors Teresa Sullivan and Jay Westbrook. By looking at thousands of records from multiple states, as well as multiple studies of consumer bankruptcy, Warren and her colleagues found, to their surprise, that U.S. families were in grave economic distress. They had anticipated discovering that profligate spenders ended up in bankruptcy, but, as Warren said in 2007, “I did the research, and the data just took me to a totally different place.”
The economic revolution reached a tipping point around 2014. Using data from throughout the OECD, Thomas Piketty, Emmanuel Saez, and Stefanie Stantcheva showed that higher tax rates on the wealthy don’t stifle growth, but in fact are associated with more equality. The most public impact came from Piketty’s 2014 blockbuster, Capital in the 21st Century, which revolutionized the use of tax records to suggest that the capitalist system would destroy itself without systemic checks on its own march to power. Piketty’s proposal was a 2 percent global wealth tax, combined with an 80 percent top income tax. Polite society scoffed, while marveling at the elegance of Piketty’s argument and his worldwide book sales. Perhaps he was on to something.
By 2015 Jason Furman and Peter Orszag, Obama administration economists from the earliest days, were worrying that “superfirms” and corporate concentration across sectors were driving inequality. In 2016 Raj Chetty led a team in investigating new empirics. As part of the long-running debate over the Moving to Opportunity experiment, Chetty and colleagues showed that the structure of a young child’s neighborhood, in fact, does have a deep effect on college attendance rates, incomes, and overall economic mobility.
In 2017, a team of younger labor economists—José Azar, Ioana Marinescu, and Marshall Steinbaum—looked at data from job websites, an entirely new resource, and demonstrated that the market power of large firms wasn’t just bad for prices (which had become the common standard for whether a monopoly was a problem), but that it also suppressed wages. Most recently, J. W. Mason, a young macro-economist, has looked afresh at all of the official unemployment statistics since 1980 and argued that it is far more likely for the economy to have slack—idle resources—than not, suggesting that we can afford more public spending without risking inflation.
The new economics has such momentum that academics who were roundly dismissed just a few years ago are now going straight to politics, either as advisors to presidential candidates or as candidates themselves. Taken all together, this new economics reveals a fundamental shift. Not only is inequality rising, but, in comparison to inequality just a few decades ago, it has changed in character. Modern inequality is not driven by labor disparities (the old common knowledge was that poor skills led to low pay) but by owners of ever-concentrated capital. The evidence over the past twenty years has pointed increasingly to a sclerosis born of elites’ chokehold on power: the problem is at the very, very top—a capital income problem, focused on the one-tenth of the 1 percent.
For a very long time, our basic understanding of increasing inequality did not make economic sense. Suddenly, it did. The problem was not just economic, and it wasn’t just identified by economists. Political inequality, meaning the causal mechanisms linking elite influence and money to politics, became a focus of political science. Nick Carnes measured the effect of wealthier politicians, and the absence of working-class lawmakers, on outcomes. Martin Gilens argued that elites, and often only elites, influence economic policy. In large majorities, the American people support higher taxes on the wealthy, actions to fight climate change, greater regulation of monopoly companies, and higher wages. But, according to Gilens and co-author Ben Page, ordinary voters have no say in these issues, because the structure of our politics is such that the wealthy—and those they fund on their behalf—have tangible political influence, while “the estimated influence of the public is statistically indistinguishable from zero.”
These were not small-bore findings. The new evidence called into question the basics of what we had thought was the American creed—especially our faith in U.S. opportunity and meritocracy. What if the success of large companies isn’t the hard-earned result of business smarts, but instead the result of markets structured to capture and hold on to power and profits? What if tax cuts for the wealthy lead not to productive investment, but to hoarding? What if hard work does not catapult the most talented to well-deserved success, no matter how hard they try?
The new economics will no doubt see pushback from some mainstream academic circles—markets-first thinking enjoys the influence of the habitual, which is not to be overlooked. But by asking new questions of old data, by moving beyond mere puzzle solving to asking about basic rules governing the system, by going back to first principles and fundamentals in the search for answers, and by intellectual experimentation, economists today are drawing a new map. And they are finding overwhelming support in political and social movements.
This is crucial. Paradigm shifting, no matter how powerful the evidence, doesn’t happen on its own. Social pressure and social movements play an important role. Occupy Wall Street elevated inequality to the national debate and gave it a catchphrase—“We Are the 99%”—and the #FightFor15 organizers won nationwide victories by regularly citing and publicizing Card and Kreuger to challenge the pervasive “raising wages kills jobs” argument. Indeed, the new economics has such momentum now that academics are going straight to politics. Emmanuel Saez and Gabe Zucman, whose wealth tax arguments, like Piketty’s, were roundly dismissed just a few years ago, are today directly advising presidential candidates. And Elizabeth Warren’s path is even more direct. An academic turned candidate, her appeal is based at least in part on a career’s worth of accumulated knowledge.
The new worldview makes one thing clear: the problem is power and where it resides. In the labor market, employers set the terms. In the product market, monopolistic firms keep driving profit mark-ups and making unilateral decisions about the products they provide (or don’t). And in the capital markets, the financial institutions that govern your ability to buy a home or go to college are still—a decade after the crisis—too big and too powerful to fail.
If today’s problem is that power is increasingly and dangerously concentrated, then the only solution is to build countervailing power.
For more than a generation, the economics profession dismissed politics as analytically soft; power, after all, cannot be studied rigorously. Karl Polanyi’s 1944 classic The Great Transformation—which showed the inextricable intertwining of politics and economics—was celebrated by historians and sociologists but dismissed by economists. In contrast, Friedrich Hayek’s 1944 warnings in The Road to Serfdom, that government economic planning would lead to tyranny, became the underpinning of market economics in introductory economics classes nationwide.
In 1958, John Kenneth Galbraith put it bluntly: “For the businessman and the political philosopher . . . the appeal of the competitive system was its solution to the problem of power.” But power cannot be solved. It cannot be assumed away. Indeed, it can only be dealt with head-on. If today’s problem is that power is increasingly and dangerously concentrated, then the only solution is to build countervailing power. Rather than ignoring, or operating separately from, democracy, the new economics requires a government that is committed to the public good, not corporate interests, and that is accountable to the will of the people. This is not about throwing out markets. We need markets to do what they do well. But markets are functions of the rules that structure them, and the current broken process of rule-making allows for, and even encourages, corruption. Improving economic performance requires breaking the revolving door practice whereby private sector lobbyists, often former public servants, hold sway. The Trump administration did not cause this corruption, but it is the most egregious example of exploiting it. We now have government agencies that are run by lobbyists and financial executives. We have turned our government over to markets, and our markets over to corporations.
Our problems are too big, too deep, and too acute to entrust to companies. We need an economic transformation to meet existential threats. Climate change is the most urgent, overwhelming example, but the ubiquitous surveillance and extraction of the digital economy is up there as well. Markets alone will not help society mobilize in the face of economic change at this scale. Instead, we must reimagine the role of government so that it can do what only it can do: structure the market to perform as it should while also providing some goods and services directly to complement the market and spur competition.
When put this plainly, the fundamental tenets of the new economics sound basic. In many ways, they are. In part, this is because the new economics did not come out of ideological radicalism. It arose, as emerging paradigms do, out of failures of the old way of thinking. It is also because—cable TV and presidential Twitter hyperventilating notwithstanding—we have been here before.
The popular notion that Roosevelt saved capitalism has much to recommend it. But let’s remember exactly how he did it: through direct government intervention.
As we consider how to reimagine our economy, it is worth remembering that debates about how to structure markets—or whether markets should be structured at all—go back to our nation’s founding. They predate even Alexander Hamilton and Thomas Jefferson. Questions of large federal institutions in a dynamic and changing economy and questions of inclusion as we structure labor markets are age-old.
The last time our country had this full-blown debate was in the 1930s. Then, too, we faced near-failure in the midst of an epochal economic transition. As Bill Leuchtenberg wrote in Franklin D Roosevelt and the New Deal (1963):
As the depression deepened, amorphous resentment finally took form in one overwhelming question: Who was to blame? The answer came readily enough. Throughout the 1920s, publicists had trumpeted one never-ending refrain: that the prosperity of the decade had been produced by the genius of businessmen. If businessmen had caused prosperity, who but they must be responsible for the depression?
Usually the story we tell of Franklin D. Roosevelt and economic recovery is reduced to a one-liner: “he saved capitalism from itself.” If we get a second beat, it’s “and World War II mobilization sealed the deal.” The truth is more complicated, and instructively so for us today: Roosevelt was able to take decisive action even as his advisors debated questions about how and when to utilize the countervailing power of the federal government.
Roosevelt, of course, took office at the depths of the Great Depression—and in the midst of a fierce argument about how the government, built in many ways for an agrarian nation, should respond to growing industry, and in particular the shift from the steam age to the age of electricity. The Depression was the crisis point in a longer-term economic transition. As Roosevelt took the oath of office in 1933, more than 12 million workers had lost their jobs. Business investment had cratered by 90 percent.
What the new president should do, or would do, was not at all clear. For at least a generation, both populists and progressives had argued that in order to stem corporate domination, a new and more robust form of governmental power was required. But how democratic that power ought to be was the essential question of the day. During the long period between his election and inauguration (which, according to the tradition of the time, was held in March), Roosevelt had to sort through the many differing beliefs about the right path forward. He had run for office, after all, on a message of optimism but without a definitive policy platform.
Perhaps the “New Nationalism,” which counseled federal intervention and federal spending, was correct. Or maybe the answer was the “New Freedom,” which focused on trust-busting and encouraging small business. Roosevelt’s brain trust agreed generally on some kind of business-government cooperation, but what that meant in practice was unclear. How much national planning should there be? How much regulation? How much reliance on business vs. the “naked power of the state”? Should rural farmers or urban workers be the political priority? Should they worry excessively about too much “loose money” and deficit spending, or not?
The Roosevelt administration was able to navigate these debates because they had a guiding principle. Central to the FDR agenda was power, specifically a balance of economic and political power. Roosevelt and his advisors agreed on the importance of asserting the force of the federal government for the public good. In his first two terms, this guiding principle resulted in billions spent to prevent home and farm foreclosures, the federal regulation of Wall Street finance, the revitalization of the Anti-Trust Division at the Department of Justice, and crusades against monopolies ranging from aluminum to oil. The Works Progress Administration and the Public Works Administration flexed government power to build roads, bridges, dams, even airports —thus delivering jobs. And the National Labor Relations Act bolstered labor’s power by codifying the right of workers to bargain collectively and prohibiting the blacklisting of labor organizers; within a decade, 13 million Americans belonged to unions.
By the 1940s, during his third and fourth terms, Roosevelt oversaw a wartime mobilization, creating 17 million new jobs, doubling industrial productivity, and creating entire industries based on government spending and government demand. The popular notion that Roosevelt saved capitalism has much to recommend it. But let’s remember exactly how he did it: through direct government intervention.
The point here is not to write an FDR hagiography. Roosevelt, as chronicled by Ira Katznelson, made some terrible political compromises. Most notable, and still harmful, was his concession to white supremacist southerners, who functionally cut black Americans and women out of Social Security, gains from minimum wage laws, and later the GI bill. The point today is to highlight how central the shared mindset about government structure and power was among Roosevelt’s brain trust. These people came from different policy networks: some legal, some economic, some state, some federal, some progressive, some populist. But, ultimately, they agreed on one thing: the need for government action and the need for countervailing power against corporate domination.
As we consider today’s new economics—and the debates that will surely emerge within it—it is worth remembering how beneficial Roosevelt’s guiding principle was. Better outcomes for U.S. workers and families have to be baked into the structure of the economy itself. Institutions, both government and worker, have to be muscular enough to always contest for power.
How far are we, right now, from Roosevelt’s America? A powerful, unapologetic government feels far in the distance, but today, it often feels as if we are living through neoliberalism’s demise. Should we be optimistic?
The current open window in U.S. political belief is unprecedented in our lifetimes. Notably, business titans today, alarmed at the evidence, have joined the left and the intellectuals in deciding that capitalism needs reforming. Whether out of civic duty or fear of the pitchforks, they are producing a jittery criticism of free enterprise—complete with charts and graphs—from Davos to Beverly Hills to Wall Street. Ordinary voters also want more government economic action. And it’s not just Democrats, who are unified in their desire for more aggressive government-driven economic policies. One in five of Republicans and significant numbers of independents agree.
We know today what Roosevelt knew then: any new worldview threatens entrenched power.
All of this might provide an opportunity for the nascent, pro-public worldview to take root and flourish. The new economics, after all, has empirics, morality, and basic honesty on its side. But whether truth-telling will be enough is still unknown.
While the new economics has nothing to do with Trump, Trumpism has grafted itself on to Republican party politics. The alliance is using old, but proven tactics to cling to the status quo. By evoking specters of race and class war, they are proving themselves willing vehicles for a kind of zombie neoliberalism. Last fall, even before the Democratic mid-term victories (which propelled a number economically progressive candidates to power), the White House Council of Economic Advisors issued a report on the dangers of socialism, suggesting that Maoism and collective farming are actual threats in contemporary U.S. politics. This is not really an argument so much as a political epithet. The socialism smear is, in the words of the National Republican Congressional Committee, “a good narrative to get us back to the majority.”
Nor is it just the socialism accusation. Trumpism has proven itself adept at mashing up many long-lived American political subcultures: in addition to red-baiting, Trumpism draws on anti-intellectualism, conspiracism, isolationism, and anti-immigrant, race-baiting. This is a toxic and, so far, durable mix. Combating fear-mongering in an age where paranoia runs deep and has endless megaphones can feel impossible. The communications eco-system now regularly connects social media to outlets, such as Breitbart News, that were once fringe but are now standard.
Increasingly, however, candidates, progressive activists, and people of common decency are calling this out for exactly what it is. And it is worth remembering that Roosevelt faced similar vitriol. Roosevelt turned the tables on his accusers, famously telling a packed crowd at Madison Square Garden at the height of the bitter 1936 re-election campaign: “business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, and war profiteering” are “old enemies of the peace. . . . We know now that government by organized money is just as dangerous as government by organized mob. . . .They are unanimous in their hate for me—and I welcome their hatred.”
We know today what Roosevelt knew then: any new worldview threatens entrenched power.
And the paradigm shift at the heart of the new economics has focused our attention on the profound imbalances of today’s entrenched power. That some leading, mainstream politicians see this for what it is gives some reason to hope.
But, as important as this election cycle will be, battling and winning against accretive and extractive power requires even more. It requires the analytical power to see what is going on; the organizing power to elevate, push, demand; and the institutional power to make ideas real. Some rousing victories will seem sudden, as will some devastating losses. This will take time. In the process though, it is crucial to both remember and assert that this contest is not radical. Instead it is a reaction to the world as it is—a world that is demanding our attention.
**
“On economic policy, Democrats are unified and Republicans are divided.”
That’s one of the summary points from a fascinating new poll by the Democracy Fund Voter Study Group, a political science research group.
The poll shows that Democrats hold consistent views on economic policy across income groups. Both affluent and lower-income Democrats, for example, overwhelmingly favor a higher minimum wage, higher taxes on the rich and paid family leave.
Republicans are different. High-income Republicans tend to oppose these progressive economic policies. But most lower-income Republicans support them.
“About 19 percent of Republicans held economic policy positions closer to the average Democrat than the average Republican, placing them on the ‘economic left,’” write Lee Drutman, Vanessa Williamson and Felicia Wong, in their summary of the poll.CreditVoter Study Group — 2019 VOTER Survey
You can see the pattern in the chart above. It depicts voters, based on both their income and their attitude on economic issues. On the Democratic chart, there are not many blue dots in the lower half of the chart, where economic conservatives show up. On the Republican chart, there are a lot of red dots on the upper half, where economic progressives are. The upper left quadrant of that chart — which depicts economically left-leaning lower-income Republicans — is notably busy.
The political upshot
This pattern explains why I often argue that Democrats have a chance to win over swing voters by running populist, economically focused campaigns.
Many low- and middle-income Republicans — as well as independents and some Democrats — are socially conservative. They’re religious, and they are either conservative or moderate on abortion, immigration and other issues. When political campaigns focus on social issues, these voters are primed to vote Republican.
Yet when campaigns focus on economics and on fairness, these same voters suddenly have reason to vote Democratic. And if even a small percentage of Republicans or independents defect, it can decide an election.
Other tidbits from the new study:
- “Two-thirds (67 percent) of Republicans on the economic left were women.”
- “Republicans on the economic left were distinguished by their concern for Social Security and Medicare.”
- “Lower-income Democrats were nine percentage points more likely than higher-income Democrats to see individual responsibility as being a good explanation for economic inequality (48 percent vs. 39 percent).”
- Democrats won a greater share of economically progressive independents in 2018 than in 2016. The party made no progress among Republicans who lean left on economics. In both years, Democrats won less than 15 percent of this group.
Winning these voters won’t be easy. But a presidential campaign receives a lot more attention than a midterm, which makes national messaging more feasible. Barack Obama did better with swing voters than Hillary Clinton in part because he ran a more populist, economically focused campaign. It really is possible. https://www.nytimes.com/2019/06/12/opinion/republicans-democrats-economic-inequality.html
https://abcnews.go.com/Politics/wireStory/wealth-gap-grown-record-long-economic-growth-64062222 America’s financial disparities have widened in large part because the means by which people build wealth have become more exclusive since the Great Recession.
Fewer middle-class Americans own homes. Fewer are invested in the stock market. And home prices have risen far more in wealthier metro areas on the coasts than in more modestly priced cities and rural areas. The result is that affluent homeowners now sit on vast sums of home equity and capital gains, while tens of millions of ordinary households have been left mainly on the sidelines.
“The recovery has been very disappointing from the standpoint of inequality,” said Gabriel Zucman, an economist at the University of California, Berkeley, and a leading expert on income and wealth distribution.
Household wealth — the value of homes, stock portfolios and bank accounts, minus mortgage and credit card debt and other loans — jumped 80% in the past decade. More than one-third of that gain — $16.2 trillion in riches— went to the wealthiest 1%, figures from the Federal Reserve show. Just 25% of it went to middle-to-upper-middle class households. The bottom half of the population gained less than 2%.
Nearly 8 million Americans lost homes in the recession and its aftermath, and the sharp price gains since then have put ownership out of reach for many would-be buyers. For America’s middle class, the homeownership rate fell to about 60% in 2016 from roughly 70% in 2004, before the housing bubble, according to separate Fed data.
And the sharpest increases occurred in richer cities, like San Francisco, where prices have more than doubled in the past decade, or Phoenix, where they’ve surged 80%. By contrast, in lower-cost Charlotte, home prices have risen by only about a third. In Cleveland, by less than one-fifth.
Overall, in fact, middle-income households on average now have less home equity than they did before the recession, Fed data show .
The other major engine of household wealth — the stock market — hasn’t much benefited most people, either. The longest bull market in U.S. history, which surpassed its own 10-year mark in March, has shot equity prices up more than four-fold. Yet the proportion of middle-income households that own shares has actually declined.
The Fed calculates that about half of middle-income Americans owned shares in 2016, the most recent year for which data is available, down from 56% in 2007. That includes people who hold stocks in retirement accounts.
The decline in stock market participation occurred mainly because more middle-income workers took contract work or other jobs that offered no retirement savings plans, the Fed concluded. In other cases, people who face major expenses for, say, health care or who have heavy student loan debt find it hard to save and invest much even if they do have access to retirement accounts.
“Many households find it challenging to make key middle-class investments because incomes at the middle are not keeping up with the rising costs of education and homeownership, and it is difficult to save enough,” Lael Brainard, a member of the Federal Reserve’s Board of Governors, said in a speech in May.
Hannah Moore, now 37, has struggled to save since graduating from college in December 2007, the same month the Great Recession officially began. She has worked nearly continuously since then despite a couple of layoffs.
Moore, who studied interior design in Chicago at a for-profit college, began job hunting just as many architecture and design firms were downsizing. For several years, she did freelance design projects and worked in retail jobs, sometimes working 30 days without a day off. None provided health insurance or a retirement savings plan.
“I had many jobs, all at the same time,” she said. “It’s just not been the easiest of decades if you’re trying to jump-start a career.”
Her situation stabilized when she found full-time work in 2013. Three years later, she moved to Los Angeles, where she works for a design firm that contracts with luxury apartment developers that build rental housing marketed to high-tech employees. She loves the work. But she struggles with Los Angeles’ high costs.
Moore says she could afford a monthly mortgage payment. But she lacks the savings for a down payment. About half her income, she calculates, is eaten up by rent, health insurance and student loan payments of $850 a month.
As financial inequalities have widened over the past decade, racial disparities in wealth have worsened, too. The typical wealth for a white household is $171,000 — nearly 10 times that for African-Americans. That’s up from seven times before the housing bubble, and it primarily reflects sharp losses in housing wealth for blacks. The African-American homeownership rate fell to a record low in the first three months of this year.
If wealth inequality has worsened because fewer Americans own homes and stocks, should the government try to reverse that trend? President George W. Bush spoke optimistically in the 2000s about an “Ownership Society.” The idea was that a larger proportion of Americans would achieve prosperity by buying homes and investing in the stock market through retirement savings plans.
Such discussion has faded since the housing bust. Many economists argue that what’s needed is simply higher incomes so more Americans can save and build wealth.
Zucman favors a higher minimum wage, cheaper access to college education and more family-friendly policies to enable more parents to work. He and his colleague Emmanuel Saez, also an economist at the University of California, Berkeley, helped formulate Sen. Elizabeth Warren’s proposed wealth tax on fortunes above $50 million to help pay for those proposals.
As the wealth gap has widened, income gains have remained anemic for Americans at all levels for the past decade. That is particularly true relative to the sizable pay gains that flowed to households during the robust expansions of the 1980s and 1990s.
“If you compare the economy now to where it was before the recession, the most important fact has been its relatively slow growth,” said Jason Furman, an economist at Harvard University and a former top adviser to President Barack Obama.
Data compiled by Zucman, Saez and Thomas Piketty show that incomes grew much faster for the top 1% in the 1980s and the 1990s than over the past decade. Yet inequality has captured much more attention now than it did then.
In part, that may be because middle-class and poorer Americans haven’t enjoyed the fruits of this expansion compared with other recoveries. Incomes for middle class Americans grew nearly twice as fast in the 1980s expansion and about 1.5 times faster in the 1990s than in the current recovery. For many people, inequality carries less sting when their own fortunes improve.
“The more people are struggling to make ends meet themselves, the more they may notice inequality,” said Elise Gould, an economist at the liberal Economic Policy Institute.
Income growth has lagged partly because for most of the expansion, employers have had a surfeit of workers to choose among when filling jobs, leaving them little pressure to raise pay.
Not until 2016 did the unemployment rate fall below 5%. Average hourly pay finally began to pick up, with the lowest-income workers receiving the fastest average gains. Though this trend has helped narrow income inequality, vast disparities remain.
“Overall, there’s growing inequality,” Gould said, “with signs of hope at the bottom. It’s just taken a very long time.”
