American middle class crisis (Part 1)
Is Noam Chomsky correct about wealth inequality?
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And now to the topic at hand.
A little background…
I majored in Sustainable Economic Development at Whittier College. Their Whittier Scholars Program allows students to put their own majors together after faculty approval, of course. Mine combined political science with economics and business. Basically, I tried to kill myself with the load. That's when I first heard of Noam Chomsky. Upon surviving the academic portion of the experiment, I decided that my senior project, which is like defending a thesis for grad school, had to be figuring out what the United Nations was doing, economically speaking, all around the world. Off I went to New York and spent just about a year compiling a report on the economic activity of the 26 UN agencies at the time and figuring out areas of overlap, inefficiencies, etc. I am sure no one read it. But it opened my eyes to how world economics actually works.
The professor supervising my work at the UN and Whittier College warned me that I might come out of this a depressed alcoholic. "World economics are not based on economic principles," he said to me, the idealistic student wanting to make the world a better place and considering making my gig at the United Nations a permanent thing. "It's all politics and of the worst kind." I didn't listen. No one in their twenties listens. It's a rite of passage to try to reinvent the wheel.
Well, I didn't. I returned to California and hid from that same world in a little town called Cambria. Call me lame. I deserve it. Instead, I opened a yoga studio and told everyone I was changing the world one person at a time. But that was just advertising. I had seen the writing on the wall 23 years ago and decided to fortify my own life so that when the rest of society finds out how bad things can get, I could be outside that apocalyptic reality. Yep, selfish. But also "personally responsible." It all depends on how you look at it. For the most part, I've succeeded. But more on that another time.
Recently, this documentary of Noam Chomsky's ideas of the "why" and the "how" of wealth inequality popped into my feed. At first, I wasn't sure I wanted to look at it. Let sleeping dogs lay, kind of thing. I knew what he was likely to say. But I couldn't resist. Misery loves company? Or just the creeping feeling that, as a society, we've gotten so much closer to that apocalyptic dysfunctionality I intuited in the halls of the United Nations talking to world economists, diplomats, agency directors, lobbyists, and so on.
Watch the documentary yourself if you are curious. This writing will consist of quotes from this documentary and my commentary on what he says. Noam Chomsky is a well-known liberal. I don't swim in the same waters as he does. Well, not entirely. I do keep a foot in as part of being a “moderate,” I suppose. But he's also a brilliant thinker who raises some interesting arguments and historical trends of how America ended up where we are, the implications for democracy, and the future of our nation.
Just for good measure and a world perspective, the United States is NOT even in the top 10 most unequal countries, in terms of income inequality. Our Gini Coefficient is approximately 50%. This puts us in the middle of the spectrum, with primarily African and Arab countries leading the world's most unequal countries in the world. In case you're wondering, Slovakia has the lowest income inequality. That's just embarrassing for us Americans. Evan Norther Macedonia and Bulgaria have us beat! Seriously, people. Jeff Bezos's wealth is higher than the GDP of these countries.
(Eye roll and a facepalm)
The USA does lead all of the OECD countries as the most unequal, income-wise. The top 1% of the population in the US earn about 40 times more than the bottom 90% of earners. According to 2020 census data, roughly 33 million people earn less than $10/hour, which would make a family of four live below the poverty line. That's about 10% of the population… Let this sink in for a second.
Income is not the same as wealth, though, and it does not portray the severity of inequality. Wealth includes investments, bank account balances, collectibles, cars, jewelry, and other assets. It defines financial security, growth opportunities, and standard of living. The wealthiest Americans in 2023 are 40 times richer than in 1982. The top 0.1% of the population owns about 12.8% of the wealth but pays just about 4% of all taxes. The bottom 50% of the population owns 2.4% of the wealth[1]
The share of American adults who live in middle-income households has decreased from 61% in 1971 to 51% in 2019. (Pew Research)
In the 2020 pandemic fiasco, US workers lost $4 Trillion in wages, while billionaires gained $4 trillion in wealth. Meanwhile, out of the $5 Trillion stimulus money spent by the government, $1.8 trillion went to individuals and families, $1.7 trillion to businesses, and the rest to states, healthcare, and "other." You don't need a degree in economics to immediately notice that somehow the numbers don't end up to an $8 trillion gap.
You get the picture. Let's see what Chomsky says.
NC: During the Great Depression, which I'm old enough to remember, there was an expectation that things were going to get better, that there was a real sense of hopefulness. There isn't today.
It's hard to measure "hopefulness." But one would think that the less hopeful people there are, the more suicides there will be. Suicide rates during the Great Depression went from 18 per 100,000 to 22 per 100,000. In 2022, they were 14.5 per 100,000, although there was an increase of 2.6% from 2021[2].
On September 5, 2019, the United States Congress Joint Economic Committee said this about "deaths of despair"—deaths by suicide, drug and alcohol poisoning, and alcoholic liver disease and cirrhosis:
Mortality from deaths of despair far surpasses anything seen in America since the dawn of the 20th century.
Self-reported unhappiness probably has been on the rise since around 1990 (though not all sources agree). That predates the increase in deaths of "despair" by a decade. Moreover, unhappiness likely fell over the 25 years preceding 1990, while deaths of despair rose and then plateaued. And one data source suggests stable levels of unhappiness over the long run.
A Gallup poll from October 2022 found that
42% say today's youth are likely to have better life than their parents
Optimism is down 18 points since last reading, in 2019
Republicans' optimism has fallen 33 points since 2019; Democrats' is flat
What do you think? Are you more or less hopeful today than you were earlier in your own life?
NC: Inequality is totally unprecedented... this period is extreme because if you look at the wealth distribution, the inequality mostly comes from Super wealth, literally, the top 0.1% are just super wealthy. Not only is it extremely unjust in itself, but inequality also has highly negative consequences on society as a whole because the very fact of inequality has a corrosive, harmful effect on democracy.
Declines in real income at the bottom of the income distribution resulted in increased income inequality.
It appears that we have another subject of polarization as people clump up at the two extremes, mostly at the bottom, a few at the top, with a dwindling middle.
As for "unjust," is it? "Just" and "fair" are not the same thing. Most people will say it's "unfair." But life is NOT fair. Period. End of story. However, we strive for justice. We want to live in a just society.
If you win the $1 billion MegaMillion lottery, you will join the company of other super wealthy individuals. Does this make you "unjustly" wealthy?
I'd feel better if these super wealthy individuals paid their taxes instead of paying tax attorneys to hide their money in offshore companies.
"Just" and "democracy" do go hand in hand. So, if inequality has a corrosive effect on democracy, that will make it unjust, correct? The idea that it has corrosive effects on democracy is very interesting.
NC: In a democracy, public opinion is going to have some influence on policy, and the government carries out actions determined by the population. It's important to understand that privileged and Powerful sectors have never liked democracy and for very good reasons. Democracy puts power into the hands of the general population and takes it away from them. Now it's kind of a principle of concentration of wealth and power.
Concentration of wealth yields concentration of power. Particularly so as the cost of elections skyrockets which kind of forces the political parties into the pockets of major corporations. This political power quickly translates into legislation that increases the concentration of wealth. Fiscal policy like tax policy, deregulation rules of corporate governance, and a whole variety of political measures designed to increase the concentration of wealth and power which in turn yields more political power to do the same thing and that's what we've been seeing.
Think Big Pharma, the financial sector getting government bailouts through “Too big to fail” legislature, “corporate welfare,” tax loopholes, subsidies, favorable treatment to big companies, and deregulating industries. Yep, that’s what we’ve been seeing.
Then, he goes on to outline 10 Principles of Concentration of Wealth and Power. Today, I will focus on the first two. The discussion of the rest will come out over the next two weeks. Subscribe and don't miss out!
1) Reduce Democracy
NC: There has been an enormous concentrated, coordinated business offensive beginning in the 70s to try to beat back the egalitarian efforts (of the 50s and 60s) that went right through the Nixon years… over on the right, you see it in things like the famous Powell Memorandum sent to the Chamber of Commerce, the major business Lobby, by a later Supreme Court Justice Powell, warning them that business is losing control over the society and something has to be done to counter these forces… if you look at it it's a call for business to use its control over resources to carry out a major offensive to beat back this democratizing wave.
In 1971, Lewis F. Powell Jr., who later became a Supreme Court Justice, wrote a memo to the U.S. Chamber of Commerce. In it, he expressed concerns about what he saw as a growing anti-business sentiment in America and urged the business community to take a more active role in shaping public policy.
The Powell Memorandum argued that businesses should engage in politics, fund think tanks, and use their influence to shape regulations and public opinion. It's often seen as a pivotal moment that helped fuel the rise of corporate political activism and lobbying in the United States. Some view it as a turning point in the relationship between business interests and government policies. It's like a piece of the puzzle that helped shape the landscape we see today.
2) Reshape Ideology
NC: Over on the liberal side, there's something exactly similar. The first major report of the Trilateral Commission is concerned with this… also appalled by the democratizing tendencies of the 60s and thought we have to react to it. They were concerned that there was an
The Trilateral Commission is like a club for influential folks from North America, Europe, and Asia to get together and chat about global issues. It was founded in 1973, and its goal is to encourage cooperation and understanding among these three major regions. Think of it as a meeting ground for people from different parts of the world to discuss everything from politics and economics to culture and security.
Some see the Trilateral Commission as a way for elites to shape international policies behind closed doors, while others view it as a platform for brainstorming solutions to complex global challenges.
The introductory note to the Crisis of Democracy report, says:
The report which follows is not a pessimistic document. Its authors believe that, in a fundamental sense, the democratic systems are viable. They believe, furthermore, that democracies can work provided their publics truly understand the nature of the democratic system, and particularly if they are sensitive to the subtle interrelationship between liberty and responsibility. Their discussion of "The Crisis of Democracy" is designed to make democracy stronger as it grows and becomes more and more democratic. Their conclusions-doubtless in some respects provocative— are designed to serve that overriding objective.
But… BUT!
Chapter III – The United States, Part III - The Decline of Government Authority, Point 1) states:
The essence of the democratic surge of the 1960s was a general challenge to existing systems of authority, public and private. In one form or another, this challenge manifested itself in the family, the university, business, public and private associations, politics, the governmental bureaucracy, and the military services. People no longer felt the same compulsion to obey those whom they had previously considered - superior to themselves in age, rank, status, expertise, character, or talents. Within most organizations, discipline eased and differences in status became blurred.
Authority based on hierarchy, expertise, and wealth all, obviously, ran counter to the democratic and egalitarian temper of the times, and during the 1960s, all three came under heavy attack.
The sequence and direction of these shifts in public opinion dramatically illustrates how the vitality of democracy in the 1960s (as manifested in increased political participation) produced problems for the governability of democracy in the 1970s (as manifested in the decreased public confidence in government).
At the end of the 1950s, for instance, about three-quarters of the American people thought that their government was run primarily for the benefit of the people and only 17 percent thought that it primarily responded to what "big interests" wanted. These proportions steadily changed during the 1960s, stabilizing at very different levels in the early 1970s. By the latter half of 1972, only 38 percent of the population thought that government was "run for the benefit of all the people" and a majority of 53 percent thought that it was "run by a few big interests looking out for themselves."
Sound familiar??? That’s when it all started…
In VI. CONCLUSIONS: TOWARD A DEMOCRATIC BALANCE, the report concludes:
Predictively, the" implication of this analysis is that in due course the democratic surge and its resulting dual distemper in government will moderate. Prescriptively, the implication is that these developments ought to take place in order to avoid the deleterious consequences of the surge and to restore balance between vitality and governability in the democratic system. Al Smith once remarked that "the only cure for the evils of democracy is more democracy." Our analysis suggests that applying that cure at the present time could well be adding fuel to the flames. Instead, some of the problems of governance in the United States today stem from an excess of democracy— an "excess of democracy" in much the same sense in which David Donald used the term to refer to the consequences of the Jacksonian revolution which helped to precipitate the Civil War. Needed, instead, is a greater degree of moderation in democracy.
You should read this again. “Prescriptively,” the democratic surge should moderate or it will have “deleterious consequences” to the status quo and cause trouble to authority. I just summarised it for you.
Noam Chomsky has really read the papers, apparently.
Sorry, if this was too dry. But it is important to understand how we got to where we are. It didn’t happen overnight.
But wait, there’s more! Eight more principles are to be discussed. Subscribe to read what’s coming.
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I'm still that naive person who believes in helping people one person at a time.