Economy

How Inequality is Crushing Workers, Families and Communities

The "winner-take-all" system turns the rest of us into losers.

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The debate over inequality has shifted. It is no longer whether greater inequality exists (it indisputably does) or whether it is a good thing (even David Brooks and Marco Rubio concede that it is not).  Instead, the big issue is whether the rise of the top one tenth of one percent with their extraordinary concentration of wealth has anything to do with the rise of inequality between the middle and the bottom. The answer is, of course it does, in ways that are both simple and complex.  Let us begin to count the ways...

First, the rise of winner-take-all compensation systems creates incentives to short-change the center.   Empirical correlations and studies in undergraduate psych labs show that the more the CEO makes, the greater his willingness to lay off workers and to refuse to invest in employee training or retention. It is not just that greater pay makes top executives greedier, though it does seem to do that among undergraduates in lab experiments given a role to play. It’s also that the increase in top salaries and bonuses tend to be justified by a focus on short term earnings that influence stock prices.  The competitive pressure to increase earnings and the focus on the short term rather than the long term health of the company increases the pressures to shortchange worker interests – and to rig the system more generally.  (Lynne L. Dallas, Short-Termism, The Financial Crisis, and Corporate Governance, 37 J. Corp. L. 265, 316 (2012), also available on ssrn)

Second, winner-take-all-politics has produced class warfare and as Warren Buffett commented, his class won.  Paul Pierson and Jacob Hacker explain in Winner Take All Politics that the conservative movement took hold in 1978, before Ronald Reagan’s presidency, and it began with the Chamber of Commerce’s single-minded effort to marshal campaign contributions to fight for business interests.  Over the next decade, conservatives won a remarkable number of closely contested elections through the ability to shift resources to the electoral contests in play.  These successes ultimately increased the influence in both parties of the wealthiest campaign donors while declining voter turnout has lessened the influence of those outside the elite.  The difference between the 2008 election, which Democrats dominated, and the 2010 election, which Republicans swept, was a difference in who showed up at the polls, with dramatically higher turnout by wealthier voters in the Republican sweep.  Political scientist Larry Bartels concludes that today no one in Congress consistently votes to advance the interests of the bottom third of the country.  Politics has become a game in which the wealthy advance their interests not only at the expense of the poor, but at the expense of any pretense to democratic (with a small “d”) governance.

Third, winner-take-all systems produce winner-take-all families.  Naomi Cahn and I argue in Marriage Markets: How Inequality is Remaking the American Family (Oxford: 2014) that what greater inequality does is to change the ways men and women match up.  There are more high income men than high income women.  Indeed, women college graduates as a group have lost ground to college graduate men even as the gendered wage gap has shrunk for other women.  At the same time, more unequal societies in the United States and elsewhere write off a high percentage of low income men as unmarriageable due to the chronic unemployment, mass incarceration and high rates of substance abuse that correlate with greater inequality.  (The Spirit Level).  The result: more stable marriages and two parent families at the top and greater family instability at the bottom.  Impressive cross-cultural studies indicate that when family behavior at the top and bottom move in divergent directions, the contrasting patterns typically reflect differences in the availability of jobs and the different availability of marriageable men in different communities.  Family differences in turn affect the resources available for investment in children, which increase differences in educational performance.

Fourth, winner take all systems undermine communities.  Studies show that when a plant closes in a community, it affects the educational performance both of those children whose parents lost their jobs and those children whose parents were not laid off.  American Apartheid showed in the eighties that the loss of jobs in inner city communities disproportionately affected African-American neighborhoods, increasing crime rates, teen births, and community health more generally.  Today, new studies show the same consequences for all communities.  In contrast, greater societal equality creates more resilient communities.

Finally, these effects are synergistic.  Greater conservative success at the polls did produce class warfare.  Taxes fell for the top while regressive sales taxes born disproportionately by the poor have risen.  Conservatives have slashed support for public education, infrastructure improvements, food stamps and unemployment assistance while fighting tooth and nail to protect farm subsidies for big agriculture, a health care system that gives the greatest tax subsidies to those in the top tax brackets and a host of mostly invisible measures that benefit hedge funds, oil companies, “too big to fail” banks, and other business interests.  These measures simultaneously protect entrenched interests and make social mobility that much more difficult.  Business lobbyists have undermined the measures that once produced greater economy stability for the country as a whole.  These include, as Paul Krugman emphasizes, countercyclical government spending that produces the stimulus needed to encourage full employment.  The efforts extend to structural measures such as repeal of the requirement that investment banks be held as partnerships that retrained financial risk-taking.  Perhaps most critically, greater inequality undermines any sense that we are in this together.  Mitt Romney dramatically underscored that point when he described 47% of the country as moochers.

The one percent are responsible for the fate of the country and the decline of the middle class. Their failure to accept responsibility for the consequences makes it impossible to address the country’s needs.  It is time for everyone else to fight back.  “Class warfare” in the sense of objection to the course of events that undermines our institutions, our families and our communities is the necessary order of the day.