Lynn Walsh: Trickle down

[Militant, No. 1265, 1 March 1996, p. 8 and 9]

Making the rich richer benefits the poor, argue right-wing economists. Reality proves otherwise, says Lynn Walsh.

Trickle down

Rich and poor in the USA

In the 1930s, Franklin D. Roosevelt, the United States president who introduced the reformist New Deal policy, in which government money was spent on projects designed to reduce unemployment and stimulate the economy, poured scorn on „the theory that if we make the rich richer, somehow they will let part of the prosperity trickle down to the rest of us.“

Fifty years later, Ronald Reagan revived the „trickle down“ theory. „What I want to see above all is that this remains a country where someone can always get rich.“ Reagan’s policies opened up fabulous opportunities for the big corporations and the super-rich to increase their wealth.

Free market policies, deregulation, attacks on the trade unions, and swingeing tax cuts made the 1980s a decade of unparalleled financial and property speculation. Capital gains tax was slashed from 49% to 20%. Tax on corporations fell to an all-time low of 6.2% of their profits.

It is not surprising that the 1980s saw a tripling of the number of millionaires in the US (rising to 1.5 million), and a quadrupling of the number of billionaires (to 51).

The claim of right-wing politicians and free-market economists was that if the pie gets bigger, everyone gets a bigger slice. They claimed that increasing the wealth of the rich and the super-rich through tax cuts, would result in a surge of growth which would benefit everybody. This „theory“ was enthusiastically embraced by Thatcher and many other capitalist leaders.

What is the truth? In reality, the rich became immensely richer, while the poor became much poorer. Not only that but the living standards of the “average“ layers of workers were also cut.

This widening of the chasm between the wealthy capitalists and the majority of society is the inevitable result of unrestrained free-market policies. The United States starkly reveals the trends which are now developing in all capitalist countries where governments are pursuing similar policies.

Even the leading capitalist paper, The Wall Street Journal, commented that „statistical evidence already suggests that the American dream is fading“ (31 March 1989). Recent research shows that the rich, i.e. the top 20% of wealth holders, received 99% of the total gain in marketable wealth between 1983-89.

At the same time, the bottom 80% of the population received only 1%. The gains for the super-rich, that is the top 1%, were even more dramatic. Between 1983-89 the super-rich received about a third of the increase in real income. They took an even bigger slice of the new wealth (in the form of marketable assets e.g. property and financial assets etc.) that was created – 62%. These trends have undoubtedly continued since then. The super-rich 1% are estimated to have gained 68% of the increase in total household wealth between 1989-92.

The United States is still the richest and most powerful country on earth. Although their living standards are being seriously eroded, most ‚middle-class‘ Americans still enjoy relatively high living standards. But the US also contains some of the poorest ghettoes in the world.

The United States, the richest and most powerful country on earth, contains some of the poorest ghettoes in the world

Officially, 16% of the population, or 39.7 million people, live at or below the government poverty line. Yet on a more realistic estimate of the actual poverty line, it is estimated that nearly a third of the population, or 79.4 million people live in poverty conditions. A high proportion of the poor are black and Hispanic Americans, whose average living standards, according to a recent United Nations report, are no better than those of residents of Trinidad and Tobago.

US capitalism, in fact, has some of the biggest inner-city ghettos in the world. Nearly 60% of poor people live in „poor neighbourhoods” (where 40% or more live below the official poverty line). Most of these neighbourhoods are to be found in just ten metropolitan areas in the North-East and Mid-West.

These stark facts are an expression of the growing crisis in American capitalism, which has entered a period of long-term stagnation and decline. During the long post-war economic upswing, the super-rich 1% possessed about a third of the country’s wealth. Their share rose to a peak of 37% in 1965, but dropped to 22% in 1979. This reflected the increase in taxation on the wealthy and the development of social reform and welfare under the so-called „Great Society“ programmes.

However. since US capitalism has turned back to free-market policies, clawing back the concessions it made during the upswing, the share possessed by the super-rich had almost doubled to 42% of the country’s wealth in 1992.

By the end of the 1980s the US had become one of the most unequal of the advanced capitalist countries in terms of wealth. The top 1% controlled 39% of total household wealth, compared to 26% in France, 25% in Canada, 18% in Britain and 16% in Sweden.

A minority of capitalist economists are beginning to wake up to the fact that the growth of inequality, resulting from a sharp shift in wealth towards the capitalist class, is actually undermining the conditions of capitalist growth. Through cutting working-class living standards, including state welfare provision, the capitalists have seriously undermined the market for their goods and services.

Declining wages

US workers were long seen as the most prosperous in the world. Outside the US it is not widely realised how far the living standards of US workers have been undermined. The median hourly wage rate (allowing for inflation) fell by 6% between 1973-93. (The median is the mid-point of wage levels, with an equal number of workers above and below.)

At the same time, the differential between well educated, high-paid workers and unskilled, low-paid workers has widened considerably. The average real wage of male high school graduates fell 20%, from $14.02 per hour in 1973 (measured in 1993 dollars) to $11.19 per hour in 1993. For males who failed to complete high school, their average wage fell 27% over the same period, from $11.85 to $8.64 per hour.

The steady decline in wages, however, has been partially cushioned by a number of other factors. Above all, a much higher percentage of women are working full time. Most workers work longer hours, and many have two or more jobs to make ends meet. As a result, median family income grew slightly over the 20 years between 1973 and 1993, but only by a meagre 0.2%. This „cushioning“ is now reaching its limits. Workers can only work so many hours a week. At the same time, continued depression of wage levels is sharply increasing poverty levels amongst those in work.

Reagan and Bush continually boasted of the number of jobs created in the US economy – as if unemployment was a thing of the past. It is true that 37 million new jobs were created in the US economy between 1973 and 1994. However, a large portion of these were required simply to provide jobs for new entrants onto the labour market.

It is also true that, according to official figures, unemployment is lower in the US (5.6% or 7.3 million) than in Europe (10.8% or 18 million). Free-market economists argue that this is because US workers have „priced themselves into jobs‘. Compared with Europe, where wage levels are relatively higher and employment benefits (health insurance, pensions. etc.) are more substantial, US labour costs are relatively low, thus promoting more employment.

Once again, the -reality is different. For a start, the official unemployment figures seriously underestimate the real extent of unemployment. At the end of the 1980s it was estimated that about a third of all US workers were “not accounted for“ in the workforce. Because of the lack of entitlement to benefits. they were not counted by any government agency.

At the same time, the borderline between employment and unemployment has become quite fuzzy. There are an enormous number of workers who are employed well below their skill levels. Millions of workers work part time, or in intermittent, casual jobs. The Washington-based Economic Policy Institute describes these workers as „distressed „. They estimate that in 1992 distressed workers totalled 36 million, or 40% of the US labour force.

An increasing number of workers are taking home poverty-level wages. The federal government puts the poverty line for a family of four at about $14,000 a year. But this measure is 30 years out of date. Economists estimate that an up-to-date poverty line, based on current living costs (food, rent, transport, etc.) would be at least $20,000 and more likely $28,000 a year.

Yet currently the median hourly wage for production and non-supervisory workers is only $10.02, or $20,841 a year. Two adults working full time in minimum wage rate jobs will earn only about $16,320 a year before tax. And the Republicans are pushing to abolish the minimum wage.

There is already a guerrilla war, expressed in episodes of riots, urban uprising and continual social tension

About 25% of all workers currently earn $7.50 an hour – only about $14,000 a year, even assuming they are employed full time.

Given this situation, it is not surprising that poverty levels are rising rapidly. While 16% (39.7 million) of the US population live at or below the official poverty line, about 30% (79.4 million) live below the more realistic $28,000 poverty line.

An extremely high proportion of those suffering from severe poverty are black or Hispanic people living in poor inner-city areas. While the median income for white families in 1991 was $37.783 it was only $23,895 for Hispanic families and $21,548 for black families. And of course, half the families are below the median.

Another big factor in the increase in poverty is the increase in the number of single-parent households. In 1992 about 27% of children lived in a one-parent household (mainly headed by women), and 46% of female-headed families are living below the official poverty line. Yet over the last 15 years average benefits (under programmes such as Aid to Families with Dependent Children, Food Stamp programmes, etc.) fell by 20% in real, inflation-adjusted terms. For the 80 million who live in extreme poverty, in a society producing a record number of billionaires, the concept of „trickle down“ is a brutally sick joke.

Growing class divide

Since Reagan gave free rein to the speculators and profiteers. the rich and the super-rich have become intoxicated with the pursuit of undreamed of wealth. They have never had it so good. Yet they are now working for election of a Republican to replace Clinton, a president who will push Reagan’s free market, tax-cutting policies even further.

Some commentators, however, occasionally have a worrying glimpse of the potentially explosive results of digging an even deeper chasm between the rich and the poor, of sharpening the class divide in American society.

„This is a television nation,“ wrote Benjamin Stein, a former White House aide. „Maybe it ’s time for a mini-series about the second American civil war. This time it would not be North versus South. This time it would be the haves versus the have nots: Harlem against the Upper Eastside, Beverley Hills against Compton, the suburbs against the inner cities, the displaced against the entrenched. This time it would not be neat and territorial. This time it would be guerrilla war, in neighbourhoods, in cities, with block against block … “ (1987)

There is already a guerrilla war, expressed in episodes of riots, urban uprising and continual social tension. The growing class divide in US society, reflected in the statistics of wealth and poverty, makes massive social movements inevitable. In fact, the drastic, long-term decline of living standards would already have produced big political movements – if only there were parties or leaders to voice the grievances of the exploited and the oppressed, and demand radical change in US society.

At some times in the past, the Democratic Party put forward reform policies to curb the excesses of the super-rich elite, for instance under Roosevelt and again under Lyndon Johnson in the late 1960s. Today Democratic leaders are almost indistinguishable from Republicans. As one wit put it, the US has one capitalist party with two right wings. Unfortunately, the bureaucratic leaders of the trade unions remain tied to the Democratic Party, and offer no independent representation for the working class.

The fact that the tide of discontent and anger is dammed up, however, will make the impact even greater when it begins to move. In a triumphant mood, the champions of US capitalism are congratulating themselves that the threat of socialism has been buried forever. But Karl Marx will undoubtedly have the last word. As he said, the system digs its own grave – and it is the working class which will be the gravedigger.

The struggle will take many different forms, and pass through various stages. But in the next few years the growing army of the exploited and oppressed within US society will move to overthrow the super-rich parasites who live off their backs. They will have no choice.