A Graph Demonstrating the Difference in Wage Earnings Increases Since 1980 as the US Economy has Grown. Adjusted for Inflation, the Lowest Quintile's Earnings have Remained Stagnant.

The US economy is geared towards benefiting the top 1% of US earners, while the bottom 99% struggle to pick up the scraps. This is popularly known as trickle-down economics, or Reaganomics.

Whether a Democrat or a Republican is in control of the country and its policy-making, this trickle-down motif is in effect. And it has been in effect since the early 80's when Reagan began to roll-back Roosevelt's "New Deal" policies which had successfully taken the US out of the Great Depression and into relatively uniform prosperity (both the poor and the rich benefited from the "New Deal"). The modern difference between the two major US political parties in regards to economic benefit is minor, but significant. To mention them in brief:

Democrats tend to subsidize high-tech industry and other corporations via domestic social improvement programs, spending on education, and government contracts for building up the infrastructure of the nation. These efforts are of course expensive and recent Democratic leaders (Clinton, essentially) have elected to attempt to balance the budget and pay off the national debt, and therefore they pay for these subsidies with higher taxes in general. The higher taxes are especially weighty for the wealthy, since they benefit the most from these efforts.

Republicans, on the other hand, subsidize high-tech industry and other corporations through a combination of military spending and tax cuts. Military spending is just as expensive to maintain as any domestic social program, but its much simpler to justify for a politician. First: your average US citizen isn't going to notice what impact, if any, military spending has on national defense-- all he'll know is that the US needs a national defense to protect him from the "others", be they Commies, terrorists, immigrants, or any other boogie-men he doesn't want to see in his neighborhood. Meanwhile, the US military can be deployed to make sure natural resources are secured and business interests are satisfied in foreign markets. Second: its harder to muster an argument against increased military spending-- even unnecessary increased military spending-- if that spending isn't having any immediate affect on your pocketbook. Hence, lower taxes and let the other party be the "bad guys" as they try to balance the budget and pay off the national debt while spending tax dollars on "frivolous" social programs that make sure homeless children don't die from starvation, etc.

So those are the key differences, really. The end result in regards to the defacto corporate welfare program is the same, but the long- and short-term impact on the citizenry is different enough to be worthy of some attention.

This, in a nutshell, is how the US economy became and remains an international juggernaut. Good or bad, it is the not-so-secret secret to our success.

Unlike when the "New Deal" economic policies were meaningfully applied, these days when the US economy does well, US citizens on the whole don't really notice any benefit. The highest quintile of US earners can expect to be rewarded a bit for any boom in the economy, but the top 1% are the real beneficiaries of this economic system. This is where things get interesting for me. There's no real trickle-down, so to speak.

Income mobility decreases, the rich get richer, the poor stay poor, and somehow the US economy is worthy of celebrating-- we should all go out and buy new luxury vehicles 'cause we're, like, days away from that trickle-down income feeding our bank accounts!

Except, not really.

I'm not sure I have any concrete solution to this inequality. I'm not even sure it's a problem when thinking of it in terms of "the big picture." It cannot be doubted that the US of today is the most dominant and wealthy superpower the world has ever seen.

However, I do feel significant guilt and even some anger for how little that wealth is being redistributed. I'm, frankly, baffled by how easily big business has prevented employees from demanding larger wages more representative of the value of their work. Unions, minimum wage laws, etc, exist and are there to prevent poor working men/women from living in complete poverty (for the most part), but its remarkable how ineffectual they are. Unions are constantly haggling for better pay and benefits and overtime/holiday pay and safe working conditions; and yet they haven't managed to raise the wages of the lowest quintile at all since the late 1970's (adjusted for inflation). Meanwhile top CEOs and hedge-fund managers write themselves annual checks in excess of a quarter of a billion dollars (last year one hedge-fund manager took home a paycheck for 1.7 billion dollars). That's simply astonishing.

Link to the article that got me thinking about this.

geometryb

United States1249 Posts

June 09 2007 04:45 GMT

is steve jobs replaceable? how about warren buffet? bill gates?

the reason top CEOs make so much money is because they have the skill and abilities that others don't have to lead the companies the way they do. when talent and skilled workers are limited, their wages go through the roof.

it's like you pay the CEO 50million/year, but his ideas and leadership have increased profits by 200 million, then wouldn't it be a good idea to keep him or maybe even give him a raise?

hedgefund managers take home 1.7billion because they generate even more absurd returns for their investors.

meanwhile, there is not as much competition over unskilled labor so their wages do not sky rocket that much.

but i also understand your point. it's a lot easier to make money once you have a lot of money. :O

geometryb

United States1249 Posts

June 09 2007 04:46 GMT

i guess what i wrote is kind of unrelated to what you said

Tadzio

3340 Posts

June 09 2007 05:47 GMT

Yeah, what you wrote didn't have much to do with what I wrote, but you brought up some interesting questions. There are very few people that are not replaceable. And usually the ones that are not replaceable lose any legitimate immunity from competition within a few years. Bill Gates, to use one of your examples, maintains his position primarily because of brand recognition, patent and copyright laws, farming of employee talent and employee product creation, and a slew of unfair business practices for which his company has been sued on numerous occasions. You could argue that he manages to maintain his position, and therefore he deserves whatever he gets-- that's the common argument anyway-- but I don't think it's reasonable to say he's been "irreplaceable" since DOS slid into obsolescence. Similar things can be said of any other multi-billionaire. Most of what's "irreplaceable" about these people isn't who they are or even what they do... it's their money and how well they protect it once its attained.

To give a general example: a top CEO is hired at some major corporation or another. This corporation employs mostly skilled workers (say its a tech business), but as with most corporations, there's some fat around the edges. The CEO trims the fat by laying off something like 50,000 productive employees with seniority, hiring on new part-time unskilled workers that they will train with the remainders of their old workforce, switching many secure, skilled jobs to salary pay (to dodge overtime pay), and outsourcing jobs to India if they don't need to be done in-house. As a result of his amazing leadership, this CEO's corporation sells nothing more than it used to, its market share doesn't increase, and in fact this fat-trimming will likely reduce the corporation's ability to react to fluctuations in the marketplace and retard any efforts to grow the business. But relative productivity sky-rockets and along with it, profits. The CEO gets to write his own check after all is said and done and the stockholders sign off on whatever outrageous sum he asks for because they look at the bottom line, and they're happy for the time being.

This isn't some imagined nightmare scenario, either. It's common practice, and the U.S. Department of Labor estimates that by 2015 over 3 million skilled US jobs will move out-of-country as a result.

Rather than reward general employees for their increased productivity, stockholders reward CEOs for moving a few jobs around and overworking an under-compensated workforce. And the CEO and stockholders pocket the fruits of that extra productivity, having done nothing to improve actual market share or sales.

Top CEOs do more than this, sure... they assist in decisions to buy-out competitors, which actually does increase marketshare, though not in a way that creates growth or stimulates innovation.

But anywho... the point of my blog was just to get people thinking about how things work and whether it can work better to benefit more people. Thanks for your contribution.

hasuprotoss

United States4612 Posts

June 13 2007 14:02 GMT

You also fail to point out the hardships of taxation upon the poor, who also have to share the burden. Unfortunately, unfair tax brackets cause most of this. Of course, Reaganomics have not really worked out as planned, and that should also be addressed.

Of course, there is no easy answer. If this world was good enough, the top 1% would care about internal welfare and attempt to employ all Americans. As we know, the bottom line of a company is, unfairly, the most dominant swaying factor in any business decision.

Also, no matter what, the burden is always on the middle class. Whether capitalist or socialist, the middle class always feels the most change from any changes in the economy.