Growing inequality in the United States shows that the game is rigged.
On August 1, 2018, Annie Lowrey writes in The Atlantic:
Last month, Bloomberg reported that Jeff Bezos, the founder of Amazon and owner of the Washington Post, has accumulated a fortune worth $150 billion. That is the biggest nominal amount in modern history, and extraordinary any way you slice it. Bezos is the world’s lone hectobillionaire. He is worth what the average American family is, nearly two million times over. He has about 50 percent more money than Bill Gates, twice as much as Mark Zuckerberg, 50 times as much as Oprah, and perhaps 100 times as much as President Trump. (Who knows!) He has gotten $50 billion richer in less than a year. He needs to spend roughly $28 million a day just to keep from accumulating more wealth.
This is a credit to Bezos’s ingenuity and his business acumen. Amazon is a marvel that has changed everything from how we read, to how we shop, to how we structure our neighborhoods, to how our postal system works. But his fortune is also a policy failure, an indictment of a tax and transfer system and a business and regulatory environment designed to supercharging the earnings of and encouraging wealth accumulation among the few. Bezos did not just make his $150 billion. In some ways, we gave it to him, perhaps to the detriment of all of us.
Bezos and Amazon are in many ways ideal exemplars of the triumph of capital over labor, like the Waltons and Walmart and Rockefeller and Standard Oil before them. That the gap between executives at top companies and employees around the country is so large is in and of itself shocking. Bezos has argued that there is not enough philanthropic need on earth for him to spend his billions on. (The Amazon founder, unlike Gates or Zuckerberg, has given away only a tiny fraction of his fortune.) “The only way that I can see to deploy this much financial resource is by converting my Amazon winnings into space travel,” he said this spring. “I am going to use my financial lottery winnings from Amazon to fund that.”
In contrast, half of Amazon’s employees make less than $28,446 a year, per the company’s legal filings.* Some workers have complained of getting timed six-minute bathroom breaks. (Amazon said it
The impoverishment of the latter and the wealth of the former are linked by policy. Take taxes. The idea of America’s progressive income-tax system is that rich workers should pay higher tax rates than poor workers, with the top rate of 37 percent hitting earnings over $500,000. (The top marginal tax rate was 92 percent as recently as 1953.) But Bezos takes a paltry salary, in relative terms, given the number of shares he owns. That means his gains are subject to capital-gains taxes, which top out at just 20 percent; like Warren Buffett, it is possible he pays effective tax rates lower than his secretary does.
Moreover, Amazon itself paid no federal corporate income taxes last year, despite making billions of dollars in profits. It has fought tooth-and-nail against state and local taxes, and has successfully cajoled cities into promising it billions and billionsand billions in write-offs and investment incentives in exchange for placing jobs there. (Given that Bezos is a major Amazon shareholder, such tax-dodging redounds directly to his benefit.)
Or consider the country’s low minimum wage, a policy that again benefits corporations at the expense of workers. Amazon’s starting wage is about $5-an-hour below the country’s national living wage, and its median full-time wage is a full dollar below it as well: The company is profitable and has money to invest in operations and expansions because its labor force is so cheap. Of course, it is not cheap for the taxpayer, which ameliorates the effects of poverty wages with policies like the Earned Income Tax Credit, Medicaid, and the Supplemental Nutrition Assistance Program. One in three Amazon employees in the state of Arizona is reportedly on food stamps.
Noncompete agreements are another tool Amazon and other big companies use to suppress the costs of labor and to bolster their bottom lines, to the benefit of major shareholders. Amazon’s contracts have required employees to promise that they will not work for any company that “directly or indirectly” competes with Amazon for 18 months after leaving the firm. Given the breadth of the Amazon’s business, that means taking a job with Bezos might have meant turning down a future job not just at Walmart, but also at postal companies, logistics businesses, warehouses, and retailers. “Amazon appears to be requiring temp workers to forswear a sizable portion of the global economy in exchange for a several-months-long hourly warehouse gig,” The Verge, which reported on the contracts, argued. (
Such non-compete and no-poaching clauses used to be common only among executives and other high-income workers, but now roughly one in five workers are covered by them; more than half of major franchise businesses, like McDonald’s, include no-poaching agreements in their contracts. This suppresses wages by reducing competition for workers—and is now seen as one of several reasons wage growth has been so sluggish during the recovery.
Stripping workers of the right to move among employers is just one way that Amazon and other big businesses are flexing their monopoly and monopsony power—again with Uncle Sam helping companies at the expense of workers. Amazon’s dominance in e-commerce, particularly in markets like book-selling, has given it pricing power to squeeze both the companies it purchases goods from and its own employees. A recent study by The Economist found that Amazon opening a fulfillment center in a given community actually depresses warehouse wages: In counties without an Amazon center, warehouse workers earn an average of $45,000 a year, versus $41,000 a year in counties with an Amazon center. The data also show that in the two-and-a-half years after Amazon opens a new fulfillment center, local warehouse wages fall by 3 percent.
“In local labor markets that are highly concentrated, concentration contributes to lower wages,” said Sandeep Vaheesan, policy counsel at the Open Markets Institute, a Washington think tank that studies market competition. “Amazon wields a great deal of power over both its workers and its suppliers. Where Amazon distribution centers are located, especially in rural and more exurban areas, they are one of the powerful local employers and likely have a great deal of wage-setting power—and so they can depress wages below what would exist in sort of more competitive and less concentrated market.”
Finally, there is the decline of unions. Since its founding nearly three decades ago, Amazon has again and again sought to prevent the unionization of its workforce, a development that would likely bolster wages and improve working conditions. Amazon has reportedly shut down operations where workers were seeking to organize, fired employees advocating for unionization, hired law firms to counter organizing drives at warehouses around the country, and given managers instructions on how to union-bust. (It has denied retaliating against workplaces seeking collective bargaining.) At the same time, the government, in its regulatory bodies and the courts, has again and again sided against unions and in favor of business owners.
All of these trends have have shifted income upward, suppressing worker power and helping people higher up on the income ladder turn simple earnings into self-perpetuating, ever-growing wealth. “The period since 1973 has been characterized by falling purchasing power of the minimum wage,” said Mark Price, a labor economist at the Keystone Research Center. “It’s been characterized by a rapid decline in union density and by the falling top tax rate. It’s been characterized by no-poaching agreements among low-wage service employees.” As such, he said, it has been characterized by spiraling wealth and income inequality.
In recent months, the Trump administration has tilted policy to enhance these decade-long trends, rather than to counter them. President Trump himself has hammered Amazon for not paying high enough postage rates, and taken Bezos to task for the Washington Post’s Pulitzer-winning coverage of his administration. Yet his White House has slashed taxes for corporations and the rich, rather than for middle-income workers, all while preserving loopholes and deductions for investment income. It is now reportedly seeking to give away another $100 billion to investors via a capital-gains tax cut. It has reduced companies’ regulatory burdens and appointed the most pro-business Supreme Court in history. It has declined to push for higher minimum wages, or stronger workplace protections.
The result of these decades of trends and policy choices is that Jeff Bezos has accumulated a $150 billion fortune while the average American family is poorer than it was when the Great Recession hit. Concerns about such astonishing levels of inequality are not just about fairness, nor are they just sour-grapesing about runaway success. The point is not that Jeff Bezos himself has done wrong by accumulating such wealth, or creating such profitable and world-changing businesses. But wealth concentration is bad for the economy and the country itself, and the government has failed to counter it. Rising inequality fuels political polarization and partisan gridlock. It slows economic growth, and implies a lack of competition that fuels economic sclerosis. It makes the government less responsive to the demands of normal people, potentially putting our very democracy at risk. Bezos’s extraordinary fortune shows that the game is rigged. He just happened to play it better than anyone else.
Gary Reber Comments:
Jeff Bozos is a “hogist” in that he represents the essence of concentrated productive capital asset ownership. He is not one to advocate or seek to see his fellow men and women achieve wealth-creating, income-producing capital asset ownership. Bozos seizes any opportunity to substitute human labor with the non-human factor of production (production technologies).
The Effect Of Advancing Technology
My colleague, Michael D. Greaney, at the Center for Economic and Social Justice explains as follows: “As technology advances, the effect is to reduce the role of labor and decrease its value as a factor of production relative to technology. Advancing technology also spurs economic growth in general, which creates new jobs and increases the demand for, and thus the real value of labor overall…up to the point when the added value of the general economic growth spurred by advancing technology is less than the cost of the labor required for new jobs, or other new technology costs less than creating new jobs. Then labor will decrease in value in both relative and absolute terms to technology. Real income to labor will decrease at the same time the demand for labor declines, while real income to owners of capital will increase at the same time that the demand for new technology grows. That is, up to the point when the decrease in real income to labor is such that overall demand decreases enough to render new capital formation financially unfeasible, i.e., new capital won’t pay for itself out of future profits because future profits are either insufficient to repay the debt, or there aren’t any profits because the owners of capital can’t meet the costs of production out of sales to a diminished customer base.
“So what happens? Governments try to encourage new capital formation in order to create jobs by messing with the tax system, and to increase effective demand to make the new capital financially feasible by messing with the monetary system. Producers get favorable tax treatment to form new capital, and punitive tax treatment to redistribute the income from capital. The government creates massive amounts of debt-backed money to stimulate or increase effective demand, which redistributes demand by inflating the currency, decreasing effective demand and discouraging production.
“If we were thinking logically, we might reason that, if capital is producing the bulk of marketable goods and services in the world, the obvious solution is not to create fake jobs so people can have enough income to consume all that was produced by avoiding producing anything more to add to the presumed problem of market gluts. No, given that production equals income, the “demand” needed to clear “supply” already exists. It’s just in the wrong hands, i.e., of people who will reinvest it instead of spending it on consumption.
“The problem then becomes figuring out some way that people who don’t own capital can own capital and become productive once more, bringing supply and demand back into balance.”
It is the exponential disassociation of production and consumption that is the problem in the United States economy, and the reason that ordinary citizens must gain access to productive capital ownership to improve their economic wellbeing.
Nearly 60 years ago, binary economist Louis Kelso postulated: “When consumer earning power is systematically acquired in the course of the normal operations of the economy by people who need and want more consumer goods and services, the production of goods and services should rise to unprecedented levels; the quality and craftsmanship of goods and services, freed of the corner-cutting imposed by the chronic shortage of consumer purchasing power, should return to their former high levels; competition should be brisk; and the purchasing power of money should remain stable year after year.”
Without this necessary balance, hopeless poverty, social alienation, and economic breakdown will persist, even though the American economy is ripe with the physical, technical, managerial, and engineering prerequisites for improving the lives of the 99 percent majority. Why? Because there is a crippling organizational malfunction that prevents making full use of the technological prowess that we have developed and are developing. The system does not fully facilitate connecting the majority of citizens, who have unsatisfied needs and wants, to the productive capital assets enabling productive efficiency and economic growth.
Kelso said, “We are a nation of industrial sharecroppers who work for somebody else and have no other source of income. If a man owns something that will produce a second income, he’ll be a better customer for the things that American industry produces. But the problem is how to get the working man [and woman] that second income.”
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