Thursday, February 19, 2015

The Intelligent Design of America's Income Inequality

Today, America’s income inequality problem is as bad as it has ever been, and for a number of reasons it's only getting worse. This fact guarantees that the check writers will continue to appoint the law makers they pay for. And by doing so, these “principle architects of policy,” as Adam Smith referred to them, will continue to make certain “that their own interests are "most peculiarly attended to,” no matter how grievous the effect on others.”
Naturally, the most important aim of the check-writers is to ensure their own checking accounts continue to grow as much as possible. To do that, they use a variety of “invisible hands” to help pilfer the checking accounts of everyone else. By one measure, doing so has contributed to making U.S. income inequality the highest it’s been since 1928, according to the PEW Research Center. Worse still is the fact that wealth inequality is even greater than income inequality. NYU economist Edward Wolff, for example, found that, while the highest-earning fifth of U.S. families earned 59.1% of all income, the richest fifth held 88.9% of all wealth. 

One explanation for this growing income inequality comes from James Pethokoukis of the American Enterprise Institute. He claims that “Democrats, quite predictably, will blame the growth in high-end inequality on greedy CEOs and bankers — and on their tax-cutting, union-smashing, minimum-wage-suppressing Republican allies in Washington.” His response to such claims is a flat “Well, no.” Instead, he points out how “inequality has increased across advanced economies,” and that “most — but maybe not all — of the “blame” comes from “macro factors such as globalization and technology.”[i] As he sees it, there’s no one to blame for income inequality, it's just as natural to a global economy as climate change is to the globe.

To use his words, “Well, no.”

Part of the “macro” factors Pethokoukis is ‘blaming’ here comes from a number of globalizing trade agreements like NAFTA, passed in 1993. NAFTA, which was America’s trade agreement with Mexico and Canada, was voted for by 75.79% of all Republicans in congress. Republicans gave their overwhelming support for this agreement despite the Labor Advisory Committee concluding that it would result in directly increasing income inequality. As the report stated, NAFTA would “be a bonanza for investors but would harm U.S. workers and probably Mexicans as well.” This was due in part to the fact that, as LAC analysts and others noted, while property rights were well protected, worker’s rights were altogether ignored.

The LAC report further concluded that, while "U.S. corporations, and the owners and managers of these corporations” stood to reap enormous profits, “the United States as a whole … stands to lose, and particular groups stand to lose an enormous amount.” NAFTA supporters were also aware of a report issued by the Congressional Office of Technology Assessment in 1992 that reached similarly ominous conclusions. A "bare NAFTA of the form now on the table,” COTA warned, would ratify "the mismanagement of economic integration" and could "lock the United States into a low-wage, low-productivity future." The New York Times dubbed this finding the "Paradox of `92: Weak Economy, Strong Profits."

Despite all of this, NAFTA proponents promised that the agreement would produce a rise in incomes and create a number of new jobs in the United States alone. In fact, it had the exact opposite effect. As Leo W. Gerard, International President of the United Steelworkers Union, pointed out, NAFTA “made Wall Street happy. It made multi-national corporations obscenely profitable. But it destroyed the lives of hundreds of thousands of American workers.”[ii]  Twenty years later, Public Citizen released a detailed report that described the extent of the destruction that Republicans "quite predictably" chose ignore.

According to that report, NAFTA has left America with a $181 billion trade deficit with Mexico and Canada, and resulted in $360 million being paid out to corporations through “investor-state” suits attacking domestic policies such as toxic bans, land-use rules, water and forestry policies, and other such policies geared toward environmental protection and public interests.

Although supporters promised that NAFTA would create 200,000 jobs by 1995 alone, a study done by the Economic Policy Institute found it cost America as many as 1 million jobs by 2004 instead. Worse still, those who lost their jobs were forced to take jobs working for at least 20% less than they had been making before NAFTA, according to the U.S. Bureau of Labor Statistics. The report also highlighted how US. Companies like Chrysler and Caterpillar, who promised to create a specific number of jobs upon NAFTA's approval, quickly fired U.S. workers and relocated to Mexico.

It’s side agreement on labor standards failed, too, according to a Communications Workers of America study, entitled “A Broken Record of Broken Promises.” In it, the U.S. State Department conceded that forced labor in industrial and agricultural sectors persisted in Mexico, where there was no enforcement of child-labor laws. Labor rights and working conditions have eroded in the United States as well. Intimidation was found to be twice as likely when workers organize, and employer threats to close during unionization doubled, from 29% to 57%.

NAFTA trade and investment trends,particularly with the displacement of manufacturing jobs, have unquestionably contributed to downward wage pressure and growing inequality. So much so, in fact, that today, proponents of NAFTA admit that such trade pressures “have likely contributed to today’s historic degree of inequality.” Indeed, even the “pro-NAFTA PIIE has estimated that as much as 39 percent of the observed growth in U.S. wage inequality is attributable to trade trends.”[iii] The report from Public Choice further explained how NAFTA directly contributed to the rise in income inequality:

NAFTA-style trade helps explain the soaring inequality. NAFTA has placed downward pressure on wages for the middle and lower economic classes by forcing decently-paid U.S. manufacturing workers to compete with imports made by poorly-paid workers abroad. The resulting displacement of those decently-paid U.S. workers has further depressed middle class wages by adding to the surplus of workers seeking service sector jobs. NAFTA also contributes to rising inequality by enabling employers to threaten to move their companies overseas during wage bargaining with workers. For instance, a Cornell University study commissioned by the NAFTA Labor Commission found that after the passage of NAFTA, as many as 62 percent of U.S. union drives faced employer threats to relocate abroad, and the factory shut-down rate following successful union certifications tripled.

Mind you, a number of Democrats voted for NAFTA as well, with 27 voting for it and 26 against in the Senate, and 102 for, 156 against, in the House. Even more "predictably," however, is continued Republican support for similar such international agreements, and the growing inequality such agreements help to produce.  Just a few such examples include: 

-          The United States Colombia Trade Promotion Agreement Implementation Act passed the House 262 to 167. House Democrats, however, opposed it 158 to 31.It passed the Senate 66 to 33. However, the members of the Senate Democratic caucus opposed it 31 to 22.
-          The United States-Panama Trade Promotion Agreement Implementation Act passed the House 300 to 129. However, House Democrats opposed it 123 to 66. It passed the Senate 77 to 22. Democratic caucus support was the inverse of what it was for the Colombia deal: 31 to 22 in favor.
-          The United States-Korea Trade Agreement Implementation Act passed the House 278 to 151. However, House Democrats opposed it 130 to 59.[iv]

NAFTA and other such trade agreements force countries to accept imports from US, European, and Canadian agribusinesses which are subsidized to the tune of nearly a billion dollars a day. This, of course, wipes out production of domestic crops and impoverishes the indigenous farmers who are unable to compete. Many of these farmers then flee to the cities for work (sometimes even heading to the US) which increases the supply of available labor in those cities, driving down wages in the process. This allows US/Euro manufactures to put plants abroad so they can benefit from the ever growing source of cheap labor.

The “rational peasant” left on his farm is then forced to produce something in order to avoid becoming simply part of a growing impoverished working class.Out of pure necessity, then, that "something" consists usually of things like poppy seeds or coca. This is because, in places like Columbia for example, the loans supplied by the World Bank or the IMF are used to pave streets from the manufacturing plants of international corporations to the airports. Such loans are certainly not used to pave roads to the peasant farming areas, however, which would at least give indigenous farmers a fighting chance by providing them with the ability to transport their goods to market.

Unable to do so and faced with the difficult task of finding work in cities overrun by throngs of other recently unemployed farmers, they are forced to try and produce something that can be sold at a price that still puts food on their table while being transported more easily. That something comes in the form of coca paste, for example, which is used to make cocaine. That paste is then sold to drug lords who make the cocaine which - sometimes with the help of the CIA (as was the case during the Vietnam War and the Iran-Contra affair) - makes its way into the United States.

Although it is sold around the country, the cheapest forms of it carry ten times the penalty. This has lead America to try and combat its addiction rate by surpassing China's incarceration rate. In the process, the War on Drugs provides the Prison Industrial Complex with a continual supply of cheap labor, which is  subsequently farmed out to everyone from Boeing to Victoria Secret for as little as 23 cents per hour. All the overhead costs for these modern day slaves are covered by John Q. Taxpayer, of course.

Such a limitless supply of prison labor not only drives down labor costs even further, it also drives up taxes on the middle class who pay for the health care, food, housing, education, etc., of America's newest system of slave labor. Most of this, of course, flows directly into the "invisible hand" of a growing number f privately owned and operated prisons, which today constitutes the second fastest growing segment of the U.S. economy.

What is amazing about all of this is how so many conservatives can claim that something as infinitely complex as the universe must be the result of “intelligent design” while at the same time insisting that America’s growing income inequality is simply the result of the random chance that comes from "macro factors like globalization and technology." Indeed, such a belief only suggests that perhaps "income" is not the only growing "inequality" America needs to be worried about.

[iii] 37 William Cline, Trade and Income Distribution, (Washington, D.C.: Peterson Institute for International Economics, 1997).  

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