How the 1% Destroys Jobs and the Real Heroes are Everyday People

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Conservative economic policies are often aimed at concentrating wealth into the hands of the few. Does that create jobs? If you look at the Congressional Budget Office’s analysis of income distribution in the U.S. through 2007, you can see that the concentration of wealth in the 1 percent has reach a 100 year high, and that the concentration of wealth has really taken off in the last couple of decades.

So why didn’t job creation take off, too? The fact is that whatever role of capital plays in job creation, concentration of wealth is not necessary – and may even be counter-productive. In a modern economy, capital comes from a variety of sources including internal funds of corporations, the banking system, and the financial markets. Rich people really only play a substantial role in the last source – financial markets. When more and more money is funneled into the hands of the rich, they tend save and invest in financial assets, rather than in job creating businesses. Concentrated wealth has been directly associated with causing wages in America to stagnate and has resulted in wealthy people shipping jobs overseas to improve their personal profits. In reality, it has been a job destroyer.

The rich have largely gotten richer through an explosion in the compensation of CEOs and other high ranking corporate officials – which the very same people who controlled publicly held companies in the U.S. awarded to themselves in the form of outlandish “performance” bonuses. The companies justified these levels of compensation to their shareholders and to the public by relying on increases in the price of their companies’ stock and the corresponding increase in shareholder value of their companies. And, indeed, the period starting in the 1980s corresponded to an historic bull market run in U.S. stock markets.

The single most important factor determining the level of stock prices is corporate earnings. That's why the historic increase in stock prices also corresponded to the highest recorded levels of corporate profits in U.S. history. And how did corporate management in the U.S. increase corporate earnings during this period? By strictly controlling labor costs, the biggest single factor in the cost of production. The corporateers held down labor costs by subjecting U.S. operations to foreign competition and by outsourcing production to foreign countries. So, at the same time that corporate compensation was sky- rocketing, salaries and wages to rank and file workers were stagnating or declining. As an economist might say, the economic return to capital went up at the expense of economic return to labor. Corporate chieftains cleverly camouflaged the situation and made it more palatable to shareholders and regulators by paying the bonuses in the form of stock options which corporate management liberally priced (in many cases after the fact, illegally and adversely to the interests of then-existing shareholders ) to take full advantage of stock market increases. 

Bottom line: Rather than creating jobs and raising all boats, all this 'trickle down' economics has benefited the 1 percent only – and tends to sink everybody else. That's why the rich are now flush with private jets and more money than they can possibly spend, while ordinary Americans have been left with flat wages and food stamps.

America's DNA

So why does the trickle-down myth hang on? President Obama recently suggested it's because this fairy tale “speaks to our rugged individualism and our healthy skepticism of too much government.” The President thought that this was "in America's DNA." But the President seems to have forgotten that Roosevelt's New Deal, a series of programs designed to promote economic equality and benefit ordinary people rather than the rich, was the most popular political program in the history of the United States. If we remember that, it becomes very clear that there is something else in our DNA -- a sense of fairness and a notion that the hard work of honest citizens is worth more than fatcat financiers hoarding resources and shipping jobs overseas.