Opinion

Nicholas Wapshott

Bill de Blasio and the politics of inequality

By Nicholas Wapshott
January 6, 2014

The election of a new New York mayor usually has little political significance for the rest of the nation. Often it is a local anomaly in a city that makes its own political weather and does not follow trends found in the rest of America. Sometimes it is an expression of private grief. But the inauguration of Bill de Blasio was different.

Not only did he win handily on an unapologetically progressive ticket, his installation was presided over by President Bill Clinton and endorsed by the presence of Hillary Clinton, whose failure to declare whether she will run in 2016 is causing all other Democratic wannabes to stay their hand. The Democrats appear to be saying that if Mrs. Clinton wants the job, it is hers, so until she decides, donors won’t waste a single cent on backing anyone else.

Ever aware of the latest undercurrents of Democratic thought, President Clinton alluded to the debate that is gaining traction among not only Democrats but among Independents and even some Tea Party members, too: the gap between the rich and the poor is too much to bear and must be addressed.

Referring to “this inequality problem [that] bedevils the entire country,” President Clinton described income inequality as “not just a moral outrage. It is a horrible constraint on economic growth. … We cannot go forward if we don’t do it together.” It echoes President Obama’s belief that “dangerous and growing inequality and lack of upward mobility” is “the defining challenge of our times.”

The Democrats think they are on to a winner. Poll after poll after poll shows that Americans of all stripes are appalled by what they perceive as income inequality and what that is doing to the American dream of being able to rise from nothing through the ranks if you have the ability and the persistence and are willing to work hard. While Republicans think they can win by harking on past events, exploiting the inadequacies of Obamacare and resurrecting the raid on Benghazi, Democrats think they will prosper by highlighting the twin evils of greed and inequity.

Is it true that America has become an unjust place that threatens the American dream? Here is President Obama. “Since 1979, when I graduated from high school, our productivity is up by more than 90 percent, but the income of the typical family has increased by less than 8 percent. Since 1979, our economy has more than doubled in size, but most of that growth has flowed to a fortunate few.”

“The top 10 percent no longer takes in one-third of our income — it now takes half. Whereas in the past, the average CEO made about 20 to 30 times the income of the average worker, today’s CEO now makes 273 times more. And meanwhile, a family in the top 1 percent has a net worth 288 times higher than the typical family, which is a record for this country.”

On the face of it, that is an enormous indictment of the way the rich have arranged matters to keep more of the nation’s wealth for themselves. But does the indisputable increase in inequality of incomes of the last 25 years, as President Clinton argues, threaten general prosperity? What are the economic implications of inequality? Does it matter that the ratio of wealth in poor to rich families is now 1:288?

The ratio of incomes — even as large and memorable as 1:288 — is a great campaigning gimmick but something of a red herring. It matters far less how much the rich are snaffling than how little the poor are earning. Or, more importantly, whether they are earning at all. Unemployment is a drain on growth, on the economy, and on the public purse. The jobless do not add to the wealth of the nation, they pay no taxes, and by taking assistance — so long as the hard-hearted Congress provides it — they merely add to government spending and the nation’s debt.

The most commonly recommended remedy for raising incomes of the lower-paid is to increase the minimum wage. The standard riposte from conservative economists is that there is only a certain amount that businesses set aside for labor costs and that if everyone has to be paid more, fewer will be employed. In brief, they argue, the minimum wage causes unemployment.

That is a canard. While in theory it appears to make sense, in practice the sort of businesses that employ people on the minimum wage — unskilled workers in restaurants, warehouses, security, and the rest — long ago reduced the numbers they employ to a bare minimum. They have sent what jobs they can abroad and mechanized human labor out of existence. For those businesses there is no alternative but to pass on the added costs to customers, which they successfully do.

Such firms could reduce their labor costs by reducing the remuneration of their senior employees, but that would entail treading on the sacred right of America’s rich to vastly overpay themselves. The cry always goes up that executives who lift seven or eight figure sums, plus bonuses, plus equity options, plus benefits, plus expenses, plus a golden handshake and a golden parachute, need every penny because there are so few of them sufficiently talented to perform the tasks allotted to them.

That is hard to credit. In 2012, Lawrence J. Ellison of Oracle Corp was paid $96,160,696 to perform his duties; Elon Musk of Tesla Motors, $78,150,010; Mario J. Gabelli of Gamco Investors, $68,970,486; Robert A. Kotick of Activision Blizzard, $64,942,306; Les Moonves of CBS, $62,157,026. Good luck to them.

But their Croesus-like annual haul does not suggest they are so valuable and so uniquely gifted that only they can achieve their company’s aims. If any of them were, heaven forfend, abducted by Martians, it is inconceivable that their successors would be hired for what they are currently paid.

There is a long line of alpha males (and females) ready to step into the boss’s shoes if only he were foolish enough to step out of his corner office for too long. When it comes to labor, there is a free market for those at the bottom and the middle and a snug old-boys’ secret-handshake fix for those at the very top.

Which leads to the overriding reason that income inequality is bad for the economy. In the days of Ronald Reagan it used to be argued it was fine for some to be paid way beyond their genuine commercial value because everything came out right in the end thanks to “trickle down.”

Using a Keynesian notion that when applied to public spending they dismissed as nonsense, conservative economists suggested that a multiplier or waterfall effect operated from the top to the bottom. As the rich bought goods, the cash was passed on from hand to hand and, like the miracle of Scrooge in Dickens’s Christmas Carol, the wealth was passed down the line until everyone was comfortably well off.

Perhaps in the days of the robber barons this contained an element of truth. The rich hired large numbers of skilled construction workers to build large and lavish homes where they employed dozens of upstairs and downstairs maids, indoor butlers and cooks, nannies and governesses, outdoor grooms, gardeners and chauffeurs.

Now the rich are so cheap they appear to resent paying anyone, except perhaps their personal trainer, even the going rate. The days of the personal valet are long gone. If you want to watch trickle down freezing to a halt before it even starts, listen to the ignominious sounds of Upper East Side New Yorkers haggling over every last dime with those who try to serve them.

Nor do the rich invest as they should. Too often their wealth is stashed in dead-end commodities like useless gold, or tasteless Hamptons real estate, or banal contemporary art — stores of value that have little or no productive capacity, employ few or no workers, and only change hands between the ultra-rich. The problem with giving money to the rich is that too often they simply hoard it rather than spend it or risk it in a venture that may employ others.

So de Blasio’s arrival in New York’s City Hall may prove the beginning of something big. It certainly heralds the launch of a campaign theme that will blossom in the 2016 White House race. It is not only an economic argument, it is a moral issue, too, that rings true as much among Tea Party members as on the redistributive left. It is an issue that puts to the test whether the Latin words e pluribus unum that grace the seal of the United States are a democratic rallying cry or an elitist empty phrase.

PHOTO: New York City Mayor Bill de Blasio (R), with his family (front, L-R) daughter Chiara, son Dante and wife Chirlane McCray, waves after his formal inauguration ceremony on the steps of City Hall in New York January 1, 2014. REUTERS/Adrees Latif 

Comments
17 comments so far | RSS Comments RSS

The actions of the politicians will determine our opinions of them. Obama has basicly carried on the Bush agenda. Do we expect de Blasio, or Hillary to be any different? The democratic party is dead.

Restore habius corpus

eliminate citizens united

End the war on terror

Posted by brotherkenny4 | Report as abusive
 

Everyone talks about how much some corporate CEO’s make and income inequality together. Do you suggest that these CEO’s should make less or that their money be taken away and given to those who don’t make as much? What would be the point and how would that fix anything? Or is the solution to find ways to provide educational opportunities to those at the lower income levels so that they can eventually earn more? Giving money to the poor is only a short term solution, and doesn’t induce any incentive to work hard to be productive. I listen to people I know who are living from paycheck to paycheck talk about the new HD TV they want or bought and not about saving that money to pay for education or training to improve their employment opportunities. There is no quick fix to improving your lot in life–it takes diligence and commitment.

Posted by WorkingWoman | Report as abusive
 

Term limits for congress and campaign finance reform. Nothing else will have any affect. Those two things will allow moral and ethical people to retake our government from corporate America.

Posted by tmc | Report as abusive
 

darn, didn’t look to see that this was a Mr. Wapshott piece. Should have realized as it gave no opinion, no facts, just a hot-button issue from the left side. The man does not print his opinion. Just what pays.

Posted by tmc | Report as abusive
 

Following words from Bill Clinton are in stark contrast to his getting million dollar payments from various investment bankers to give a few hour speeches around the world after he left office of the President. Seems the Clinton royalty wants to be thought of as advocates for those at the opposite end of their economic level while maintaining their lofty position.
>>>> Referring to “this inequality problem [that] bedevils the entire country,” President Clinton described income inequality as “not just a moral outrage.

Posted by SeekingLeaders | Report as abusive
 

Free Land.. kickstart. the economy and homestead this bountiful country and create wealth intrinsically. Trickle down will seep to the foundation as homes are built farms are cultivated and goods and services produced. Or rather attempt to wrangle power from the elite and privileged who write the laws and pull the strings.

Posted by Z.Daggs | Report as abusive
 

CEO-To-Worker Pay Ratio Ballooned 1,000 Percent Since 1950
The ratio of CEO-to-worker pay has increased 1,000 percent since 1950, according to data from Bloomberg. Today Fortune 500 CEOs make 204 times regular workers on average, Bloomberg found. The ratio is up from 120-to-1 in 2000, 42-to-1 in 1980 and 20-to-1 in 1950. – http://tinyurl.com/cbem3xy

Top War Contractors Among The Nation’s Wealthiest
There’s the top 1% of wealthy Americans (bankers, oil tycoons, hedge fund managers) and there’s the top 0.01% of wealthy Americans: the military contractor CEOs.  http://tinyurl.com/3ptzve7 

Report: Firms spent more on CEO pay than taxes
Twenty-five of the 100 largest U.S. corporations paid their chief executives more than they paid the government in federal income taxes last year, according to a report released Wednesday.

The nonprofit Institute for Policy Studies says the 25 CEOs averaged $16.7 million in salary and other 2010 compensation. Most of the companies they ran, meanwhile, came out ahead at tax time, collecting tax refunds that averaged $304 million, according to its review of public filings. http://tinyurl.com/3qnyamm

Posted by DurtBagg | Report as abusive
 

Nice to know New York has another idiot.

Posted by hatecyberspace | Report as abusive
 

Rubbish. Nobody is paid above his commercial value, nor he can be by law. And there is a complete and dishonest misunderstanding of the “trickle down” argument, which refers to how much the risk takers should be taxed, and how this affects the creation of jobs. The whole argument that “inequality” is a problem “to address” is a scam by itself. There is an underlying reality that you (De Blasio, Obama, Clinton) cannot change by fiat. You are not God.

Posted by dsimonc | Report as abusive
 

Talk about political buffoonery – sure there is an issue that boards of corporations are stuffed with insiders but this is all part and parcel of the crony capitalism. Political favors at the expense of the taxpayer and the benefit of the politician is the root of all corruption in the system. Government is not the solution – it could be if it played the role it is supposed to – keeping the markets competitive, fair and their hands out of the cookie jar. This article is another fleecing of the public – looking everywhere other than where the issues lie. Obviously the author is another literary genius without a clue to how the economy – business and government don’t work…..just watch the money Wapshot and you’ll find who is playing with our tax dollars.

Posted by xit007 | Report as abusive
 

Trying to make NY like Detroit. Rob the rich and give to the poor after he gets his cut.

Posted by notfooled2 | Report as abusive
 

I’ve been wondering how much to make of this. I’m thinking, not much. Di Blassio benefitted from a weakish field — Christine Quinn was never forgiven for giving Bloomberg a third term, Anthony Weiner was a human implosion (who’s anti-halo effect made politicians in general seem sleezy-er), John Catsimatidis was as colorless as a chalk board. In other words, he’s a de facto winner, not a trend setter.

Posted by johncabell | Report as abusive
 

“Is it true that America has become an unjust place”

has become? ‘was founded as’ is more like it… or did that slavery system slip by you in history class?

the productive people who engage in transformative labor (you know, they actually make things) that creates value are the ones who are paid little and tossed out of work when the economy tanks. paying out little to them is, as John D. Rockefeller famously opined, is how men (and now women) like him got to be men like him.

Posted by wilhelm | Report as abusive
 

De Blasio’s election is not different, and like all other NYC Mayors will soon fade into insignificance. Poll 100 random voters around this country in 6 months and I’ll bet virtually none of them will remember who he is. This election is only important to those Progressives who want to make it a defining issue for 2014.
Dems know they are staring a very poor mid term election in the face 10 months from now; they are desperately trying to ‘manufacture’ a public relations campaign based on ‘inequality’ to ‘paint’ their opposition.

Posted by willich6 | Report as abusive
 

Stop the rhetoric and just look at the tax system.

The wage and salary class have seen their taxes (Income, Social Security, Medicare, Sales, Excise, Real Estate, etc.) increase by more than four fold, and even higher. Yet since Reagan the asset owners have seen their taxes drop by nearly 70%. Dividend income taxes as low as 15% (now 20%), capital gains as low as 15% (now 20%). Trusts, off-shore accounts, etc. protect the zillionaires from estate taxes. And we haven’t even touched on corporate taxes which are near -0- for many of America’s largest.

Conservatives constantly say the rich pay all the taxes. Far from it. The tax system of today ensures that that the rich get richer and the middle class gets poorer.

One simple solution to reverse this trend is to have a wealth tax: Tax all persons, trust, corporations, partnerships, etc. worth over $10 million a 3% annual wealth tax (roughly what they pay to a hedge fund). Within ten years of a 3% wealth tax the US deficit would be eliminated.

However, try to find a US Senator that would even broach the subject. Impossible. America is ruled by the 1%. Welcome to the USA Oligarchy.

Posted by Acetracy | Report as abusive
 

Just look at China. When they had more equality and more government control under Mao Zedong the country was stagnant.
Now they have big inequality and less government control while the economy is booming.
Government has proven an ability to reduce inequality by making everyone poorer.

Posted by Andujar | Report as abusive
 

Inequality has many sources that neither the Department of Labor or the Census Bureau properly report, including:

1) Couples that divorce have the Household Income statistic often go from ‘one’ household above the poverty line, to ‘two’ households below the poverty line.

2) People marry at a much ‘older’ age then decades ago. This keeps the household income statistic lower than in years past.

3) The ‘underground’ economy accounts for an estimated $825 billion. This income is not factored into the household statistic.

4) Immigration lowers wages for American-born men and women. This often changes the statistic from ‘one’ household above the poverty line to ‘two’ households below the poverty line.

5)Obama’s Blue Ribbon bipartisan Commission on Fiscal Responsibility & Reform recommended, it should be through the elimination of tax loopholes. Obama ignored this advice.

6) Obama totally ignored similar advice from his Council on Jobs and Competitiveness. That council also recommended starting with changes to the tax code.

7) The two fastest growing segments of our population have graduation rates of only 61.5% for Blacks and 63.5% for Hispanics.

8) Most higher paying jobs require better English that many in the ghettos simply don’t have. Communications skills and reasonable computer skills are required more and more in our advanced industrial society.

Personally, I believe that ‘progressive taxation’ should not stop at an AGI of $380K for married couples. Obama can rant and rave over the plight of his people, but this will do absolutely nothing for them. They need not only better education, but that education must match the skills of employers. Generations of Blacks will suffer because Obama considers income equality a matter of race. Unfortunately, it will require ‘contributions’ from every segment of our population.

President John F. Kennedy said it best in his Inaugural Address, “Ask not what your country can do for you. Ask what you can do for your country”.

Posted by neilc23 | Report as abusive
 

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