Evil Geniuses: The Unmaking of America: A Recent History (38 page)

• In 1980 income above $700,000 (in today’s dollars) was taxed at 70 percent by the federal government, but today the top rate is 37 percent. And the richest Americans, who back in the day paid an average of 51 percent in federal, state, and local income taxes combined, now pay just 33 percent.
  

• The richest 0.01 percent of Americans, the one in ten thousand families worth an average of $500 million, pay an effective federal income tax rate half what it was in the 1970s.
  

• Profits from selling stocks (almost all of which go to rich people) are generally taxed at 20 percent, about half the rate they were taxed in the late 1970s.
  

• Stock dividends (half of which go to the richest 1 percent) used to be taxed like salary income, but in 2003 they began getting special treatment—and today the tax on dividend income for the rich is 22 percent, instead of the normal income tax rate of 37 percent.
  

• In 1976 one in twelve American heirs—basically anyone inheriting the equivalent of $1 million or more—paid federal estate taxes, and the maximum rate on the largest of those estates was 77 percent. Heirs today get the first
  $11 million
  tax-free, and the tax on everything above that is just 40 percent. In 1976 taxes were paid on the estates of the 139,000 richest Americans who died; these days fewer than 2,000 estates each year get taxed at all.
  

• During the 1980s, the amount of corporate income tax paid as a fraction of the whole U.S. economy was cut by more than half, and in the years since, that fraction has been kept at half what it was before 1980.
  

• Since 2000, corporate profits as a fraction of the economy have been 50 or 100 percent higher than they’d been for the previous five decades.
  

• Before 1980, all Americans’ incomes grew at the same basic rate as the overall economy. Since 1980, the only people whose incomes have increased at that rate are people with household incomes in the range today of $180,000 to $450,000. People with incomes higher than that, the top 1 percent, have gotten increases much bigger than overall economic growth. (Meanwhile 90 percent of Americans have done worse than the economy overall.)
  

• Since 2000, the salaries of the extremely well-paid ($150,000 or more) have increased twice as fast as the salaries of the well-paid ($100,000 to $150,000).
  

• Since 1980, the income of the wealthiest 1 percent of Americans has almost tripled.
  

• During the 1990s and 2000s, most of the increase in Americans’ income went to the richest 1 percent—and in the years just before and after the Great Recession, they got
  95 percent
  of the income increases.
  

• The share of all income going to the ultra-rich—families making $9 million or more per year—is now 5 percent of the total,
  ten times
  what it was in the 1970s.
  

• During the 2010s, the majority of all personal income in America went to just the top 10 percent, people with household incomes higher than $180,000.
  

• Of all the stocks and bonds and mutual funds and houses and cars and boats and art and everything else that counts as wealth, the richest fifth of Americans, people with a net worth of about $500,000 or more, now own about four-fifths of it, a much larger share than they owned before the 1980s.
  

• The unambiguously rich 1 percent—the million and a half households with a net worth of roughly $10 million or more—own 39 percent of all the wealth, almost twice as large a share as they had in 1980. Since the late 1980s, that wealthiest 1 percent have become $21 trillion wealthier, an average increase of about $12 million per household.
  

• That top 1 percent own an even larger share of all the stock owned by Americans—56 percent, a quarter more of the total than they had in the late 1980s.
  

• Of the wealth owned by the top 1 percent, more than half is owned by just the richest tenth of them. That is, the top 0.1 percent, one in a thousand American families, worth an average of $100 million apiece, own 22 percent of all the wealth—a share more than three times larger than it was in the 1970s.
  

• During the grand decades between World War II and 1980, when U.S. median household income more than doubled, 70 percent of all increases in Americans’ income went to the bottom 90 percent. Since 1980, nobody’s income has doubled except for the richest 1 percent, and the incomes of the entire nonrich 90 percent of Americans have gone up by only one-quarter.
  

• The average monthly Social Security retirement benefit more than tripled from 1950 to 1980, adjusted for inflation, but it has increased by just half in the four decades since.
  

• During the last forty years, the median weekly pay for Americans working full time has increased by an average of just one-tenth of one percent a year—and for men has actually gone down 4 percent.
  

• For the four-fifths of all private sector workers who don’t boss anybody, the average wage today is $23.70 an hour. In 1973, it was $24.29.
  

• Forty years ago, a typical high school graduate working full time could earn an income of twice the poverty level, the equivalent of $56,000, enough to support a spouse and two children. Today the four in ten adults who have no more than a high school diploma and work full time earn a median salary of $39,000.
  

• In 1980, 20 percent of all income went to the less prosperous half of Americans; by 2012, that share had shrunk to 12 percent.
  

• In the 1980s the comfortably middle and upper middle class, the two-fifths of Americans with household incomes that put them below the wealthy top tenth but above the bottom half, earned 37 percent of all the income—almost exactly what their share would be in a perfectly equal society. By 2014, that share had shrunk to 27 percent.
  

• The upper middle class of the 1980s, people who had a nice house and some savings, the 30 percent just below the top 10 percent, owned 29 percent of all the wealth—once again, almost exactly their share in a perfectly equal society. Today that same comfortable 30 percent own only 17 percent of all the wealth.
  

• In 1987 the least-wealthy 60 percent of Americans owned 6 percent of all U.S. wealth. Today that same large majority—people in the middle and the lower-middle and below, households worth less than $175,000—own a third as much, just 2 percent of all the wealth.
  

• The combined wealth ($2.5 trillion) of that same large U.S. majority, the 200 million Americans from just above the middle all the way down to the bottom, is less than that of the 607 U.S. billionaires ($3.1 trillion). Therefore a single average American billionaire owns the same as 400,000 average members of the un-wealthy majority, an entire big city’s worth of Americans.
  

Not
all
the conditions of the U.S. economy are uglier and harder for most Americans today than they were before the 1980s. Although the real costs of most of the most essential things we need to buy—housing, education, healthcare—have increased by 50 to 200 percent, since 1981 we haven’t had high inflation, when the prices of
everything
go up noticeably from season to season and even month to month.
It’s too bad your wages haven’t gone up for forty years,
goes one common argument from the right and well-to-do concerning the economic condition of the American majority,
and that pensions and unions and millions of good jobs disappeared, but, hey, haven’t we let you eat cake?
That is, they say, in all seriousness, that income inequality isn’t as bad as it looks because some things, like milk and eggs, are actually less expensive now, and TVs are gigantic
and
inexpensive, and all the other stuff at the Walmarts and dollar stores is
so cheap,
thanks to Chinese imports. As two influential papers by a pair of University of Chicago economists put it in 2009, the “prices of low-quality products” that “poorer consumers buy” such as “ ‘cosmetics,’ ‘toys and sporting goods,’…‘wrapping materials and bags,’ ” and “squid frozen filets,” fell during the 1990s and 2000s.
^*1

Yet even that booby-prize rationale for the post-1980s social contract—
most
pay won’t go up, but some costs won’t either!
—is no longer operative. The prices Americans now pay for various basic goods and especially services have gone way up thanks to one big change in the political economy made by the right and big business.

I’ve talked about the legal right’s struggle from the 1960s through the ’80s—Robert Bork, the Law and Economics movement—to narrow and undermine antitrust, how they weakened the underpinnings and enforcement of the laws against excessive corporate economic power. They also helped transform the conventional wisdom about antitrust, to make people think setting and enforcing limits on such power was outmoded, too cumbersome for the age of Google and Facebook, and even to recast monopolistic domination of an industry as the unabashed corporate
goal,
the dream, a measure of ultimate success. Since 2000 that very long anti-antitrust game by the economic right has been paying off fantastically for big business in America. It’s a different, subtler theater of the class war.

The overall trend line in the number of Justice Department antitrust cases has sloped downward since the 1980s, and in 2018 the lawyers there initiated only a small fraction of what they had been doing even as recently as the early 2000s, the fewest since 1972. Thanks to this permissive approach, it became easier and easier for large companies to grow extremely large, making for many fewer and much larger corporations. In 1995 about half the profits earned by public companies went to the hundred biggest ones; in 2015 the hundred biggest are
much
bigger and took in 84 percent of the profits.

Except for Google, Facebook, and Intel, cable TV and high-speed Internet providers, and Monsanto in much of agribusiness—a very large
except—
few of the resulting corporate giants are literal monopolies, one company absolutely dominating a given sector. Instead, most major American industries have rapidly turned into oligopolies, where two or three or four big companies run their show and tend not to compete fiercely. It’s like how smart mob families peacefully coexist.

During the 1990s and 2000s, three-quarters of all U.S. industries became more concentrated, and their average level of concentration doubled. Oligopoly is now the American way in mobile and landline phone service, airlines, credit cards, meat and poultry, beer and soft drinks, breakfast cereal, and more. In the 1990s the six biggest banks held only one-sixth of all Americans’ financial assets, but by 2013, five years after the crash, that share had grown to 58 percent—the year the Democratic U.S. attorney general said that while he’d
wanted
to prosecute big banks for their role in the crash, he didn’t dare because, in addition to their being too big to fail, the legal trouble might have had “a negative impact on the national economy.”

And so even if we’re still able to buy low-quality cosmetics and toys and frozen squid cheaply, we’re now definitely paying more than we should for more essential things. As a result of looser, lavishly big-business-friendly government policies, every piece of the U.S. medical-industrial complex became much more concentrated during the 1990s and 2000s—hospitals, health insurance companies, large physicians’ groups—and prices increased as a result of the greater market power. A conservative estimate is that since 1980, government policy changes have caused Americans to spend an extra $130 billion every year for healthcare. For instance, why are prescription drug prices routinely two and three times as expensive in the United States as in other countries? A big reason is that in the 1980s and afterward, Congress and federal antitrust enforcers gave away the store to pharmaceutical companies by letting them control patents longer and set minimum prices.

Study after study has found conclusively that mergers and fewer companies result in higher prices in every business. The average price for U.S. cable TV service, paid in most places to a literal monopoly, rose by half just between 2010 and 2018. “The evidence strongly suggests,” the NYU economist and Federal Reserve Bank adviser Thomas Philippon wrote in 2019, “that increasing concentration in the U.S. is responsible for an excessive increase in prices.” He estimates that “this very new era of oligopoly costs each typical American household more than $5,000 a year.”

It’s really pretty simple: effectively extinguishing antitrust allowed companies to become excessively large and powerful, which relieved them of pressure to compete on price, which has in turn made them more profitable than ever. The public justification for merger mania, of course, is efficiency, economies of scale—that because bigger companies can negotiate better deals from their vendors, and because after mergers they can get rid of their employees doing redundant jobs, corporate earnings increase. But the scholarly research suggests that’s mainly bullshit.

During the 1990s, as U.S. banks merged and acquired, their number was reduced by almost a third—yet according to Philippon, there’s “little evidence of cost efficiency improvement.” A recent study by economists at Princeton and University College London traces this rigging directly back to the 1980s. From 1950 until 1980, they found, American companies’ ability to set prices, their market power, was steady—in 1980, they were marking up sales prices by an average of 18 percent over their costs. But then came the 1980s, and so today, amazingly, the average markup by U.S. companies is a
sweet
67 percent.

Another recent paper by three finance professors found that when a U.S. industry becomes lots more concentrated, the fewer, bigger remaining companies’ efficiency does increase by 6 percent. But their profit margins go up by
142 percent,
mainly as a result of charging higher prices because, without so much competition…they can. In addition, oligopoly breeds oligopoly because investors approve of it. Money’s all green, and higher profits based on unfairly (or illegally) higher prices make stock prices rise even more in more concentrated industries.

Simply put, those unnecessary thousands of dollars you now pay each year to companies with unfair market power are making the shareholders of those companies, mostly rich people, richer. Which is how this postmodern class war has worked.

After Warren Buffett first called it a class war fifteen years ago, he was not immediately joined by a throng of fellow famous billionaires and thousands of the superrich in a great public display of blunt candor and contrition about having been on the winning side of America’s new Raw Deal.

But in this Fantasyland age, with its accelerating denial of undeniable facts by people with power, I welcome on this subject any honesty and clarity and wisps of apology from the rich and from people who were, it could be said, American capitalism’s leading apparatchiks and propagandists in the early decades of the class war. “I don’t see a relationship between the extremes of income now and the performance of the economy,” said Paul Volcker in 2007, for instance, after a decade serving as chairman of a Wall Street investment bank and for a decade before that as Fed chair. In his memoir the year before he died, Volcker wrote that in the 1980s and ’90s he and his fellow lords of the political economy “failed to recognize the costs of open markets and rapid innovation to sizable fractions of our own citizenry. We came to think that inventive financial markets could discipline themselves.” A son of one of the original evil geniuses who went into the family business, Bill Kristol is still a conservative, but has turned on his lifelong associates of the elite right who’ve stuck with Trump simply out of greed because they’re permitted to continue maximizing their wealth and power. It is they, Kristol says, “business leaders, big donors, and the
Wall Street Journal
editorial page,” who should have and “might have rebelled” if they hadn’t been kept on board by a key evil genius, Mitch McConnell.

Even Richard Posner, the pioneering conservative scholar and senior federal judge who we last saw celebrating the right’s economic victory with some of his fellow masterminds just before the turn of the century, admitted in 2017 that it has all gone too far. During a conference on corporate concentration at the University of Chicago, he was his bracingly candid self. As a member of Congress, he said, “you are a slave to the donors. They own you. That’s [the] real corruption, the ownership of Congress by the rich.” And the Supreme Court’s
Citizens United
decision in 2010, the conservative majority’s view that “there’s no such thing as spending too much money to support a political candidate, because your money is actually speech—that’s all nonsense,” but as a result, apart from passing a constitutional amendment, “there isn’t anything the government can do [about regulating campaign finance] now.”

Then there’s the remarkable apostasy of the neoconservative political economist and Reagan administration official Francis Fukuyama.
The End of History
and its celebration of the permanent global triumph of U.S.-style capitalism in the 1990s got him an endowed public policy professorship at George Mason University, the Koch academic headquarters, and although he moved on to Stanford, he remains conservative in some ways. But when he was asked recently what he thought of the apparent new U.S. vogue for social democracy, even
socialism,
he said, “It all depends on what you mean by socialism,” and then he went off.

If you mean redistributive programs that try to redress this big imbalance in both incomes and wealth that has emerged then, yes, I think it ought to come back. This extended period, which started with Reagan, in which a certain set of ideas about the benefits of unregulated markets took hold, in many ways it’s had a disastrous effect. It’s led to a weakening of labor unions, of the bargaining power of ordinary workers, the rise of an oligarchic class that then exerts undue political power. In terms of the role of finance, if there’s anything we learned from the financial crisis it’s that you’ve got to regulate the sector like hell because they’ll make everyone else pay. It seems to me that certain things Karl Marx said are turning out to be true…that workers would be impoverished.

Earlier in this chapter I referred a couple of times to a “perfectly equal society,” an imaginary United States with a Gini index of zero, in which every adult citizen had exactly the same income and/or exactly the same wealth. That’s an impossible dream. I’m not even sure it’s a desirable dream. But I wondered how that hypothetical America would look.

The absolutely middle American economically, somebody with more than the poorer half of Americans and less than the richer half, lives in a household where the earners earn $64,000 a year and have a net worth of $100,000.

In a U.S. society of perfect economic equality, all the money would instead be divided equally among Americans—the total income of $19 trillion (according to the Bureau of Economic Analysis)
and
the U.S. personal wealth of about $100 trillion (according to the Federal Reserve), all parceled out equally to each of the 129 million U.S. households.

In this imaginary America 2, every household has a net worth of $800,000 and an annual income from all sources of $140,000.

Those numbers shocked me. They shocked me so much I had a long correspondence with a Harvard economics professor about them to make sure I wasn’t misunderstanding something.
^*2

In this leveled-out America 2 not only would nobody be poor (or rich), but
everyone would be upper middle class.
Everyone would have an income and net worth that would put them, in today’s actual America, well within the most affluent top fifth of the population. It would almost be as if the American Dream tagline of the fictional town in
A Prairie Home Companion,
“all the children above average,” came true for the whole country economically.