Carlos Oronce, Christopher Scannell , Ichiro Kawachi, and Yusuke Tsugawa, Association Between State-Level Income Inequality and Covid-19 Cases and Mortality in the USA, Journal of General Internal Medicine. States with higher income inequality, a new medical study finds, have experienced a higher number of Covid-19 deaths.
Matt Bruenig, The Racial Wealth Gap Is About the Upper Classes, People’s Policy Project. Overall racial wealth disparity reflects almost entirely the disparity between wealthiest 10 percent of white and Black households.
The Neoliberal Looting of America
The private equity industry, which has led to more than 1.3 million job losses over the last decade, reveals the truth about free markets. By Mehrsa Baradaran, author of “The Color of Money: Black Banks and the Racial Wealth Gap.” July 2, 2020, NYTimes.com
“It’s hard to separate what’s good for the United States and what’s good for Bank of America,” said its former chief executive, Ken Lewis, in 2009. That was hardly true at the time, but the current crisis has revealed that the health of the finance industry and stock market is completely disconnected from the actual financial health of the American people. As inequality, unemployment and evictions climb, the Dow Jones surges right alongside them — one line compounding suffering, the other compounding returns for investors.
One reason is that an ideological coup quietly transformed our society over the last 50 years, raising the fortunes of the financial economy — and its agents like private equity firms — at the expense of the real economy experienced by most Americans.
The roots of this intellectual takeover can be traced to a backlash against socialism in Cold War Europe. The Austrian School economist Friedrich A. Hayek was perhaps the most influential leader of that movement, denouncing governments that chased “the mirage of social justice.” Only free markets can allocate resources fairly and reward individuals based on what they deserve, reasoned Hayek. The ideology — known as neoliberalism — was especially potent because it disguised itself as a neutral statement of economics rather than just another theory. Only unfettered markets, the theory argued, could ensure justice and freedom because only the profit motive could dispassionately pick winners and losers based on their contribution to the economy.
Neoliberalism leapt from economics departments into American politics in the 1960s, where it fused with conservative anti-communist ideas and then quickly spread throughout universities, law schools, legislatures and courts. By the 1980s, neoliberalism was triumphant in policy, leading to tax cuts, deregulation and privatization of public functions including schools, pensions and infrastructure. The governing logic held that corporations could do just about everything better than the government could. The result, as President Ronald Reagan said, was to unleash “the magic of the marketplace.”
The magic of the market did in fact turn everything into gold — for wealthy investors. Neoliberalism led to deregulation in every sector, a winner-take-all, debt-fueled market and a growing cultural acceptance of purely profit-driven corporate managers. These conditions were a perfect breeding ground for the private equity industry, then known as “leveraged buyout” firms. Such firms took advantage of the new market for high-yield debt (better known as junk bonds) to buy and break up American conglomerates, capturing unprecedented wealth in fewer hands. The private equity industry embodies the neoliberal movement’s values, while exposing its inherent logic.
Private equity firms use money provided by institutional investors like pension funds and university endowments to take over and restructure companies or industries. Private equity touches practically every sector, from housing to health care to retail. In pursuit of maximum returns, such firms have squeezed businesses for every last drop of profit, cutting jobs, pensions and salaries where possible. The debt-laden buyouts privatize gains when they work, and socialize losses when they don’t, driving previously healthy firms to bankruptcy and leaving many others permanently hobbled. The list of private equity’s victims has grown even longer in the past year, adding J. Crew, Toys ‘R’ Us, Hertz and more.
In the last decade, private equity management has led to approximately 1.3 million job losses due to retail bankruptcies and liquidation. Beyond the companies directly controlled by private equity, the threat of being the next takeover target has most likely led other companies to pre-emptively cut wages and jobs to avoid being the weakest prey. Amid the outbreak of street protests in June, a satirical headline in The Onion put it best: “Protesters Criticized for Looting Businesses Without Forming Private Equity Firm First.” Yet the private equity takeover is not technically looting because it has been made perfectly legal, and even encouraged, by policymakers.More from “The America We Need”Women Ask Themselves, ‘How Can I Do This for One More Day?’By Leah NashAmerica Needs Some Repairs. Here’s Where to Start.By The Editorial Board
According to industry experts, 2019 was one of the most successful years for private equity to date, with $919 billion in funds raised. The private equity executives themselves can also garner tremendous riches. Their standard fee structure involves collecting around 2 percent of the investor money they manage annually, and then 20 percent of any profits above an agreed-upon level. This lucrative arrangement also lets them tap into the very favorable “carried interest” tax loophole, allowing them to pay much lower capital gains tax rates on their earnings, rather than normal income taxes like most people.
An examination of the recent history of private equity disproves the neoliberal myth that profit incentives produce the best outcomes for society. The passage of time has debunked another such myth: that deregulating industries would generate more vibrant competition and benefit consumers. Unregulated market competition actually led to market consolidation instead. Would-be monopolies squeezed competitors, accrued political power, lobbied for even more deregulation and ultimately drove out any rivals, leading inexorably to entrenched political power. Instead of a thriving market of small-firm competition, free market ideology led to a few big winners dominating the rest.
Take the banking sector. For most of American history, banks were considered a public privilege with duties to promote the “best interest of the community.” If a bank wanted to merge or grow or offer new services, the regulators often denied the request either because a community could lose a bank branch or because the new product was too risky. During the neoliberal revolution of the 1980s and ’90s, Congress and bank regulators loosened the rules, allowing a handful of megabanks to swallow up thousands of small banks.
Today, five banks control nearly half of all bank assets. Fees paid by low-income Americans have increased, services have been curtailed and many low-income communities have lost their only bank. When federally subsidized banks left low-income communities, vulture-like fringe lenders — payday, title, tax-refund lenders — filled the void. As it turns out, private equity firms are invested in some of the largest payday lenders in the country.
Faith in market magic was so entrenched that even the 2008 financial crisis did not fully expose the myth: We witnessed the federal government pick up all the risks that markets could not manage and Congress and the Federal Reserve save the banking sector ostensibly on behalf of the people. Neoliberal deregulation was premised on the theory that the invisible hand of the market would discipline risky banks without the need for government oversight. Even a former Fed chairman, Alan Greenspan, the most committed free market fundamentalist of the era, admitted in the understatement of the century, that “I made a mistake.”
We can start fixing the big flaws propagated over the last half century by taxing the largest fortunes, breaking up large banks and imposing market rules that prohibit the predatory behaviors of private equity firms.
Public markets can take over the places that private markets have failed to adequately serve. Federal or state agencies can provide essential services like banking, health care, internet access, transportation and housing at cost through a public option. Historically, road maintenance, mail delivery, police and other services are not left to the market, but provided directly by the government. Private markets can still compete, but basic services are guaranteed to everyone.
And we can move beyond the myths of neoliberalism that have led us here. We can have competitive and prosperous markets, but our focus should be on ensuring human dignity, thriving families and healthy communities. When those are in conflict, we should choose flourishing communities over profits.
Mehrsa Baradaran (@MehrsaBaradaran) is a professor of law at the University of California, Irvine, and the author of “The Color of Money: Black Banks and the Racial Wealth Gap.”
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Shrink Wall Street to Guarantee Good Jobs
A new House proposal would ensure that all Americans in hard-hit areas could have a job. A tax on Wall Street windfalls would pay for it.
BLOGGING OUR GREAT DIVIDE
JULY 06, 2020
The pandemic has claimed nearly 15 million U.S. jobs. Meanwhile, high flying financial traders are making a killing off the market volatility caused by the crisis. A new House bill would tax Wall Street windfalls to guarantee good jobs for people in high unemployment areas.
The Workforce Promotion and Access Act would ensure employment in jobs that pay at least $15 per hour with benefits and address local needs, such as childcare, eldercare, and infrastructure. Democratic Representatives Bonnie Watson Coleman and Ilhan Omar are the bill’s lead sponsors.
In 2018, Watson Coleman joined with Senator Cory Booker to introduce the first federal jobs guarantee bill. The new proposal differs from the original model in two important ways.
First, while the 2018 bill aimed to create pilot programs in no more than 15 communities and regions, the new bill expands the scope to respond to the scale of the current economic crisis. It would provide job creation grants to states and localities where the unemployment rate is higher than 10 percent or 100 percent of the national unemployment rate.
Every adult in these hard-hit areas would have the opportunity to have a job, something Erica Smiley, Executive Director for Jobs with Justice, sees as a way to reduce the excessive power corporations hold over their employees.
“Working people who stand up to corporate bosses and get fired as a result face loss of income, loss of housing, loss of medical care, and food insecurity,” Smiley said in a press release. “The Workforce Promotion and Access Act blunts the threat of firing and allows working people to demand a role in our economic system.”
Smiley also noted that Black people and other communities of color that have been most affected by the twin pandemics would benefit most from the bill. A recent report by the Institute for Policy Studies and the National Community Reinvestment Coalition listed a federal jobs guarantee as one of eight solutions to the racial wealth divide. As of July 2, the Black unemployment rate was 15.4 percent, compared to 12.4 percent for whites.
A second difference in the new bill over the 2018 model is that it includes a mechanism for covering the cost of the jobs program. While lawmakers shouldn’t wait to take crisis response action until they can pay for every dime of spending, this particular “pay for” is worth pursuing because it would have multiple benefits.
The proposal would apply a tax of 0.1 percent on each trade of stocks, derivatives, and other financial instruments. The Congressional Budget Office estimates that such a tax could generate $777 billion over 10 years.
Because the tax applies to every Wall Street trade, high frequency traders who flip stocks every second or even millisecond would pay the bulk of the tax. For pension holders with ordinary turnover rates in their portfolios, the cost would be negligible.
By elevating market volatility, the crisis has increased profits for fast traders who use advanced technologies to spot market movements and capitalize on them before traditional investors. As the Wall Street Journal explains it, “High-frequency traders, which typically deploy sophisticated algorithms and powerful computers to move in and out of markets at lightning speeds, tend to do well when markets are volatile.” High levels of market volatility are expected to continue throughout 2020.
A financial transaction tax would significantly reduce high frequency trading, which has no real economic value, drains profits from traditional investors, and benefits only the wealthy.
Susan Harley, deputy director of Public Citizen’s Congress Watch division, applauded the inclusion of the tax, which has garnered support over the past year from Democratic Presidential candidate Joe Biden and former Treasury Secretary Robert Rubin.
“By implementing a Wall Street tax, the Workforce Promotion and Access Act both provides a focus on equity and redistributing tax responsibility while making real progress on the road to relief for families in America by providing a job to those who need it,” Harley said.
