I was thinking about the government and wondering why some people favor policies designed to make the rich richer, when many of the people voicing conservative opinions aren’t particularly rich, and don’t benefit from the policies they defend. That’s a real riddle to me. Are the wealthy such skillful propagandists that people who don’t know better just get scammed, to not only go along with policies that subsidize the wealthy at everyone else’s expense but also, to voiciferously defend them? “Don’t take money from the business tycoons! They worked hard building their businesses making products we all need, and they deserve to wallow in their opulence!” Is there a misplaced identity in the factory worker, toiling away while listening to hate mongering against the lower classes on her radio, thinking, as oppressed as she is, at least she’s better off than someone else? Or is it like the victim of a kidnapping who comes to take on the opinions of his captors? Is there brain washing going on? I just can’t believe that the 99% are letting the 1% get away with what they’re getting away with! Do we really think that we are just one lucky gamble away from joining the super-rich? We don’t want to destroy that lifestyle, because there’s chance we’ll get there too?
I read, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer, by Dean Baker. The ebook is available at deanbaker.net in a variety of formats for free. I didn’t realize that until after I had bought my copy from Amazon for $1.99. The author explains how a laissez faire economy is impossible because there has to be rules of some kind that will effect the outcome in some way. These rules will benefit one class of people to the detriment of another. The people benefiting don’t want the rules to change, unless they can skew them to benefit themselves even more. They protest any attempt to change the rules for a more agrarian outcome by screaming, “Free market economy!”
“There is no scenario in which the market works alone. Government policies will affect the level of output in the economy. The only question is whether we want to design these policies explicitly to meet certain goals or if we want to pretend we don’t notice the impact of the policies we have put in place.” Dean Baker, Rigged, 11%.
Baker examines five areas in which policies deliberately set by the government, or left in place by the government, have had the effect of ratcheting up the wealth of a small group of people, while the majority have watched their own standards of living plummet, within the last four decades in the United States. The book implies that a more equal distribution of wealth can be achieved by the adoption, by the government, of different policies in those five areas. I read it twice, taking notes the second time, because I really want to understand this.
“In the case of macroeconomic policy, the United States and other wealthy countries have explicitly adopted policies that focus on maintaining low rates of inflation. Central banks are quick to raise interest rates at the first sign of rising inflation and sometimes even before. Higher interest rates slow inflation by reducing demand, thereby reducing job growth, and reduced job growth weakens workers’ bargaining power and puts downward pressure on wages. In other words, the commitment to an anti-inflation policy is a commitment by the government, acting through central banks, to keep wages down. It should not be surprising that this policy has the effect of redistributing income upward.” Dean Baker, Rigged, 5%.
According to Baker’s Rigged, there is a cluster of consequences to keeping interest rates high. They include:
- Low inflation
- Rise in the value of the dollar relative to other currencies
- Upward redistribution of wealth
- Reduced consumption or demand
- Slow job growth
- High unemployment
- Downward pressure on wages
- Weakened worker’s bargaining power
- Longer hours for those who remain employed (if company provides benefits)
- High US trade deficit (we are importing goods faster than we are paying for them with either exported goods or money)
- Manufacturing jobs are lost
Why the government has set these scenarios as priorities has to do with the goals of the people making the decisions.
The second area in which, according to Baker, wealth is being redistributed upward, is the structure of the financial industry and it’s regulation. Baker compares the financial industry to the trucking industry in that as the trucking industry moves goods from place to place, the financial industry handles capital and securities. The financial industry has undergone a rapid growth in the last few decades, “from 4.5 percent of GDP in 1970 to 7.4 percent in 2015.” (Baker 19%). He points out that all of this growth does not seem to improve the effectiveness of the industry in serving it’s function and, “waste in the financial sector provides income for some of the highest earners in the economy.” Dean Baker, Rigged, 19%.
“Excessive trading is the greatest source of rents in the financial sector, and subjecting it to a financial transactions tax (FTT) would go a long way toward bringing taxation in the financial sector in line with the rest of the economy.” Baker, Rigged, 20%
Government policy has been to guarantee the solvency of huge banks. The solvency of huge banks is guaranteed at tax payers’ expense, too big to fail (TBTF) insurance. Baker believes that the banks should be asked to downsize themselves, break themselves up to their size of the 1990s or 1980s. (Baker, Rigged 25%)
The third area covered in Rigged to explain why wealth has been redistributed upward toward the already wealthy during the last few decades, is patent and copyright protection. Protections for pharmaceutical products are more important to the government than preventing the loss of manufacturing jobs.
“When government officials sit down with their counterparts from China and other countries, they can negotiate over the currency policies that these countries are pursuing. If negotiators opt to make currency a priority, they can likely get these countries to agree to increase the value of their currencies relative to the dollar… There will be a trade-off for focusing on currency values, meaning that other items will be given lower priority. For example, the United States has pressed China for increased access for the financial industry, the telecommunications industry, and retailers, and it has pressed China and other developing countries to devote more resources toward enforcing U.S. patents and copyrights.” Baker, Rigged, 17%
“Over the last four decades these protections have been made stronger and longer. In the case of both patent and copyright, the duration of the monopoly period has been extended. In addition, these monopolies have been applied to new areas. Patents can now be applied to life forms, business methods, and software. Copyrights have been extended to cover digitally produced material as well as the Internet. Penalties for infringement have been increased and the United States has vigorously pursued their application in other countries through trade agreements and diplomatic pressure” Dean Baker, Rigged. 5%
So basically we say to China, “We’ll keep our currency high relative to yours so you can have us as a market for your manufactured products. We just ask that you honor our patents on our pharmaceuticals to protect the exorbitant income of our 1%”
The 4th way income has been redistributed upward during the past several decades, according to Dean Baker in Rigged, is the pay of corporate executive officers (CEOs).
“The CEOs who are paid tens of millions a year would like the public to think that the market is simply compensating them for their extraordinary skills. A more realistic story is that a broken corporate governance process gives corporate boards of directors — the people who largely determine CEO pay — little incentive to hold down pay. Directors are more closely tied to top management than to the shareholders they are supposed to represent, and their positions are lucrative, usually paying six figures for very part-time work. Directors are almost never voted out by shareholders for their lack of attention to the job or for incompetence.” Baker, Rigged 5%
The 5th way that the wealth gap has increased within the last few decades, according to Dean Baker in Rigged, is by protections to the pay of doctors, dentists and lawyers.
“Finally, government policies strongly promote the upward redistribution of income for highly paid professionals by protecting them from competition. To protect physicians and specialists, we restrict the ability of nurse practitioners or physician assistants to perform tasks for which they are entirely competent. We require lawyers for work that paralegals are capable of completing. While trade agreements go far to remove any obstacle that might protect an autoworker in the United States from competition with a low-paid factory worker in Mexico or China, they do little or nothing to reduce the barriers that protect doctors, dentists, and lawyers from the same sort of competition. To practice medicine in the United States, it is still necessary to complete a residency program here, as though there were no other way for a person to become a competent doctor.” Dean Baker, Rigged, 5%
“The United States will spend more than $3.3 trillion in 2016 on health care…, more than $10,300 per person and roughly twice the average for other wealthy countries. But for all this extra spending it is not clear that we get better quality health care. By some measures, like life expectancy and infant mortality rates, the United States ranks low among rich countries. While treatment for some conditions is better here, we cannot say that the quality overall is better.” Dean Baker, Rigged 55%
I had a few skin cancers treated with liquid nitrogen by a dermatologist. Medicare paid for 80%, but this dermatologist did not accept Medi-Cal, which would have covered the other 20%. When I received the bill I realized I could not afford this treatment. I may need to spend a day interviewing dermatologist’s offices by phone until I find one that takes both Medicare and Medi-Cal, or find another alternative.
A promising treatment for me, that came in the mail, was a preparation called Blood Root Paste. This product does not have a huge intellectual property markup, because it is an herbal preparation. No one has, as of yet, found a way to patent a plant without genetically modifying it. This means that no one, other than perhaps wealthy governments, can run the expensive testing to prove (or disprove) effectiveness and safety of herbal products. The salve, for which I paid something like $12, which included shipping from Equator, actually removed two skin cancers that the dermatologist had refused to treat with the liquid nitrogen, had biopsied, and recommended that I get surgery. The surgeon she recommended does not accept Medi-Cal either, and there is no way I can afford the 20% of the cost of surgery that Medicare won’t pay. But, thankfully to the bloodroot salve, now I won’t need it.
“The low density of doctors in the United States might … be a factor in the pay gap. The United States has 2.6 physicians per 1,000 people …, compared with 2.8 in the United Kingdom, 3.3 in France, and 4.0 in Germany. But the relatively low density in the United States is a matter of deliberate policy. In 1997, the Accreditation Council on Graduate Medical Education decided to limit medical school enrollments in the United States, which had previously been growing more or less in step with population growth. Dean Baker, Rigged 57%
I learned the difference between the cost of dental care in the United States and in Mexico when I decided to have my mercury filings replaced with composite, since I live about an hour away from Tijuana. The difference in cost is so substantial that I thought Mexican dentistry must be inferior in some way. I have had dental work done in Mexico and in the United States and I can’t say that it is any better in the United States. Why the difference in cost?
“[T]he average pay of U.S. dentists is almost 40 percent higher than in the next highest country (Japan) and more than twice as high as in the United Kingdom, Italy, or Finland,… [T]he law requires that dentists graduate from an accredited dental school in the United States (an exception for Canada began in 2011). Dentists protect themselves from domestic competition by limiting the scope of practice of dental hygienists, who often have the skills to perform many of the tasks performed by dentists.” Dean Baker, Rigged 58%
I learned a lot from this book. I used to think that boycotting Chinese manufactured goods would do some good. I even tried to do that, but it is next to impossible. A cell phone, DVD player, or almost anything you need, is made in China, Vietnam, Malaysia etc. It is not true that people over there will work for less and accept substandard working conditions. Even if that is part of the truth, it’s not the whole truth. The truth is the decision makers have decided to protect the pay of CEOs, doctors, dentists, lawyers, Pfizer, Microsoft, Disney and Chase Manhattan, and let the rest of our jobs go overseas. We should demand that provisions be put in place to limit the pay of CEOs, that the interest rate be lowered, that a system be set up to finance research and development that is less costly and more efficient than patents, that a trading tax be levied on stock exchanges, that the large banks be broken up, that general practitioners, nurses, medical assistants, dental assistants and paralegals be allowed to do work they are educated and qualified for, that limits to the number of doctors and dentists being allowed to practice in this country end, that the tax codes be simplified and loopholes be done away with.
“[M]ost high-end earners are probably not like the counterfeiter who does nothing productive, but insofar as they are paid more than is necessary for their services, their excess pay does come at the expense of the rest of us. This means that if a CEO is paid $30 million, but someone else would do as good a job for one half or one third of the pay, then the rest of us are effectively subsidizing this person’s pay. The channels through which the money goes from the rest of us to the high-end earners may not always be clear, but their good fortune nonetheless imposes a cost on the rest of us.” Dean Baker, Rigged, 8%.
You might also like to check out Dean Baker’s blog.