From 1949 to 1979 the employers shared gains in productivity with all workers until 1980 (see the chart below from Atif Mian and Amir Sufi at the House of Debt http://houseofdebt.org/2014/03/18/the-most-important-economic-chart.html. Since 1980 the wealth from productivity increases are going to higher income families while median family incomes have remained flat.
The dreams of economic success for middle-class to lower income families have been savaged since 1980. There are five reasons according to a book by Hedrick Smith titled Who Stole the American Dream? Smith has won the Pulitzer Prize twice and Emmy awards for producing prime time TV specials.. He wondered why Americans were losing their dreams and he found out why. This article is a summary of his book and I hope to add more details in the coming weeks.
Business Lobbying Resources reduced equitable sharing. In the ‘60s Congress passed pro-consumer legislation, prompting businesses to expand lobbying offices in Washington DC from 175 in 1971 to 2,445 by 1981. In 1977-78 business lobbyists blocked consumer legislation and a plan to close tax loopholes. Instead Congress lowered the corporate tax rate from 49 percent to 28 percent. By 2010 business interests spent $2.3 billion on political elections while unions spent $89 million, $1 for every $25 spent by business.
Large businesses cut American jobs. Job Losses from multinational firms and visa programs cost workers high paying jobs. In 2009 after bank bailouts, Smith said, “3.9 million jobs in finance, IT, human resources, and back office functions have been lost in North America and Europe.” From 2000 to 2009 U.S. multinationals hired 2.4 million people overseas and laid off 2.9 million American workers.
Tax cuts for the wealthy. In 1981 Reagan delivered tax cuts that favored the wealthy, adding $1 trillion dollars for the top 1 percent during the 1980s, 1990s, and 2000s. In 2001-2003 the Bush tax cuts benefitted upper income families because lobbyists claimed tax cuts would spur job growth. Instead, between 2000-2009 the U.S. had the slowest economic growth since WWII.
Stock options for CEO pay reduced family median pay. Businesses began to reduce sharing wealth from increased productivity by awarding stock options to CEOs in 1976. Stock options were not considered expenses that reduced profits according to SEC and accounting regulations. Switching corporate pay to stock options cut corporate expense and increased profits. All cuts in jobs and employee pay increased stock profits and prices. Workers weren’t receiving stocks and their flat incomes restricted stock purchases so weren’t sharing in the wealth. CEOs became so wealthy, Hedrick said, “In 1994 corporate executives overtook the inherited rich as the biggest portion of the nation’s richest 1 percent.”
401(k) Funds Cut Corporate Pension Costs. In 1978 Congress created 401(k) savings plans for supplemental executive compensation. Soon businesses used them to cut pension costs and increase stock prices. Businesses matched deductions from workers not receiving stock options. Employees went from paying 11 percent of their retirement costs in 1980 to 51 percent in 2006. In 2010 workers in their 60s had an average 401(k) worth $84,469. Half of baby boomers faced retirement without funds to cover their basic needs.
Banking deregulation transferred trillions of dollars to banks. In 1980 Regan promoted banking deregulation allowing credit cards to avoid state usury limits on interest rates. Consumers who didn’t pay off their monthly credit card debt began paying much higher interest expense. To make it worse, Reagan’s bill authorized banks to offer minimal payments on credit cards that didn’t cover the cost of the interest. Consumers were not warned that minimum payments increased balances on the credit card, increasing the interest owed the next month.
Regan’s legislation also approved risky mortgage lending options that were used in the subprime lending crisis. Tragically regulators didn’t intervene, because from 2005-06 more than 50 percent of the people who were sold expensive sub-prime loans were qualified for lower cost, less risky prime loans. Homeowner failures, costs of borrowing and fees transferred $6 trillion in value from homeowners to banks.