The Death of Trickle-Down Theory
Let's start with a cartoon:
House Democrats are in a tussle with Speaker Paul Ryan over who is the best poverty warrior. First lets look at Ryan's somewhat stunning announcement that he was wrong to think of poor people as "takers" in a speech he gave lambasting the state of American political discourse:
There was a time when I would talk about a difference between “makers” and “takers” in our country, referring to people who accepted government benefits. But as I spent more time listening, and really learning the root causes of poverty, I realized I was wrong. “Takers” wasn’t how to refer to a single mom stuck in a poverty trap, just trying to take care of her family. Most people don't want to be dependent. And to label a whole group of Americans that way was wrong. I shouldn’t castigate a large group of Americans to make a point.
Ryan joins a number of moderate conservatives backing away from the Reagan-era notion of trickle-down economics. Former Republican Congressman Joe Scarborough recently said this on MSNBC:
“We talk about getting rid of the death tax,” he continued. “The death tax is not going to impact the 10,000 people in the crowd for Donald Trump. We talk about how great free trade deals are. Those free trade deals never trickle down to those 10,000 people in Donald Trump’s rallies.”
“You sound like Bernie Sanders,” NBC’s Chuck Todd pointed out.
“But herein lies the problem with the Republican Party,” Scarborough complained. “It never trickles down! Those people in Trump’s crowds, those are all the ones that lost the jobs when they get moved to Mexico and elsewhere. The Republican donor class are the ones that got rich off of it because their capital moved overseas and they made higher profits."
And completing this bewildering set of admissions in changing world views, we have David Brooks:
For decades now the Republican Party has been groaning under the Reagan orthodoxy, which was right for the 1980s but has become increasingly obsolete. The Reagan worldview was based on the idea that a rising economic tide would lift all boats. But that’s clearly no longer true. We’ve gone from Rising Tide America to Coming Apart America. Technological change, globalization and social and family breakdown mean that the benefits of growth, to the extent there is growth, are not widely shared.
Not everyone is buying into this change of heart. Ryan's proposed poverty task force has been met with skepticism and in some cases outright derision. In the Huffington Post, Tyler Tynes reports that some House Democrats view the effort as a "sham":
“You cannot put forward a task force on poverty and have people who are serving on that task force who have consistently voted against every opportunity to provide people with the services that they need to keep them out of poverty,” said Rep. Rosa DeLauro (D-Conn.), one of Congress’ most ardent advocates for the poor. “It is incongruous. It is a sham.”...
Rep. Jim McGovern (D-Mass.) said everyone under the Capitol dome should already be ashamed of the nation’s struggle with poverty, but he characterized the speaker’s task force as a new low, warning that no Democrat will be “silent in the face of Republican attempts to bring to a halt the war on poverty.”
In the Atlantic, Russell Berman reports on what he says is a brewing turf war:
Democrats appear uncertain about just how seriously they should take Ryan’s effort. Is it aimed at producing legislation that (at least some) members of both parties can support? Or is this a bid to slash federal spending, kick people off the welfare rolls, repackage conservative proposals, and call it an anti-poverty agenda?
“At best, this task force could at least expose where Republicans will go when it comes to the safety net,” Representative Xavier Becerra, the chairman of the House Democratic caucus, told me. “At worst, this partisan task force could prove to be a front for a different motive: to dismantle the safety net.”
Meanwhile, Paul Krugman throws up his hands at what he sees as continuing disdain of Republican elites toward the working class:
Stripped down to its essence, the G.O.P. elite view is that working-class America faces a crisis, not of opportunity, but of values. That is, for some mysterious reason many of our citizens have, as Mr. Ryan puts it, lost “their will and their incentive to make the most of their lives.” And this crisis of values, they suggest, has been aided and abetted by social programs that make life too easy on slackers.
The problems with this diagnosis should be obvious. Tens of millions of people don’t suffer a collapse in values for no reason. Remember, several decades ago the sociologist William Julius Wilson argued that the social ills of America’s black community didn’t come out of thin air, but were the result of disappearing economic opportunity. If he was right, you would have expected declining opportunity to have the same effect on whites, and sure enough, that’s exactly what we’re seeing.
You might be interested in taking this quiz from PBS on whether you live in a bubble of social status "disconnected from American culture at large."
Part of what is driving politicians toward poverty and low-income work issues are basic changes caused by globalization. In the American Interest, David Brady discusses the way in which political instability in the United States can be tied to globalization:
[T]he number of industrial workers in the United States has declined from more than 40 percent to less than 20 percent. The disappearance of blue-collar jobs has been slower in most other Western democracies, but by the 1980s others showed declines similar to the United States. Thus, in Europe today, the percentage of the labor force in blue-collar or industrial jobs is well below half of what it was in the 1950s. In short, industrial workers no longer dominate political parties. They have become just another interest group...
In sum, as economic modernization decreased the number of manufacturing jobs that paid middle-class wages, political stability declined. Over time, the Left could not win with its labor base alone and had to modify its appeal in order to create majorities. Parties on the Right benefited early on, but over time also had problems creating majorities with old policies. The type of political system and electoral rules affected the strategy of political parties. In first-past-the-post, two-party systems like that of the United States, parties have to scramble for majorities. Thus, in the United States, Republicans picked up some blue-collar workers who had guns and traditional values, as well as voters who opposed abortion. Democrats picked up minorities and pro-choice voters who had been Republican, but neither party has created a stable majority.
Over at FiveThirtyEight, Ben Casselmann looks at the campaign promises of GOP front-runner Donald Trump and argues manufacturing jobs are not coming back:
Whether or not those manufacturing jobs could have been saved, they aren’t coming back, at least not most of them. How do we know? Because in recent years, factories have been coming back, but the jobs haven’t. Because of rising wages in China, the need for shorter supply chains and other factors, a small but growing group of companies are shifting production back to the U.S. But the factories they build here are heavily automated, employing a small fraction of the workers they would have a generation ago.
(FYI, our Heron team wrote about reshoring jobs from China back in 2014.)
In this Medium article, Scott Santens argues that routine work should now belong to machines but that does not bode well for the middle class:
Distressingly, it’s exactly routine work that once formed the basis of the American middle class. It’s routine manual work that Henry Ford transformed by paying people middle class wages to perform, and it’s routine cognitive work that once filled US office spaces. Such jobs are now increasingly unavailable, leaving only two kinds of jobs with rosy outlooks: jobs that require so little thought, we pay people little to do them, and jobs that require so much thought, we pay people well to do them.
If we can now imagine our economy as a plane with four engines, where it can still fly on only two of them as long as they both keep roaring, we can avoid concerning ourselves with crashing. But what happens when our two remaining engines also fail? That’s what the advancing fields of robotics and AI represent to those final two engines, because for the first time, we are successfully teaching machines to learn.
In a bit of good news we have this story about the FCC capping the telephone rates for calls from prison, but author Chandra Bozelko says this does not go far enough in dismantling the predatory fees throughout the "prison commercial complex":
Unless they’ve known someone who’s been incarcerated, most people don’t know that the corrections system has an entire commerce arm of its own. Everything an inmate can buy — phone calls, commissary, copays for substandard medical care, video visitation or the new email service — is purchased through a special account created by the prison or a private company...
It’s not just that this system is exploitative and cruel, taking from those who have little enough already. But this profiteering is also imposing costs on society. It’s been established that regular contact between inmates and their friends and family on the outside lowers the rate of reoffending upon release. So, if that contact is rationed because of phone company profiteering, the result is more recidivism.
In the Atlantic, Mike Konczal looks at the conservative view of whether a safety net can be built on charity alone:
[T]here did exist a system of voluntary social insurance during the turn of the century. In From Mutual Aid to the Welfare State, historian David Beito writes that there were thousands of fraternal societies across America during the late nineteenth and early twentieth centuries. These societies were organized by religion, ethnicity, and other similar affiliations. They were also the most common provider of insurance and relief before the New Deal. In general, they would cover funeral costs and provide some sick pay. These were particularly important for low-wage workers, and played a bigger role in insurance than charity or welfare institutions. Politically and socially fragmented, they played no part in calling for a public role in social insurance. These institutions continue to be a focus of celebration for conservatives...
One reason Progressives looked to the state to provide social insurance was that it was seen as necessarily compulsory. By making it universal, low-wage workers could be included. Also, forcing employers to participate was fair because they would directly benefit from such coverage. As Rubinow argued, American workers “must learn to see they have a right to force at least part of the cost and waste of sickness back upon the industry and society at large, and they can do it only when they demand that the state use its power and authority to help them, indirectly at least, with as much vigor as it has come to the assistance of the business interests.” Because of all this, insurance had a direct public purpose, and should in turn be publicly provided.
You might be interested in this video with Fran Seagull on why impact investing would be good for both sides of the aisle.
In the Wire, Urvashi Aneja looks at the philanthrocapitalism of the Gates Foundation:
While such philanthrocapitalism undoubtedly injects the much-needed financial resources into global development programs, it is important to pay attention to the kind of development paradigm that is promoted as a result and the broader implications of such philanthrocapitalism.
BMGF’s philanthrocapitalism, like much of private sector investments for development, tend to promote vertical, issue-based solutions that are often rooted in new technologies and innovation. As the Global Health Watch reportargues, “The Foundation’s corporate background and its demand for demonstrable returns on its investments appear to have resulted in a bias towards bio-medical and technological solutions.” Vaccination, for example, is considered a “catalytic” intervention that can simulate major progress in health. However, this vertical approach does not contribute to building urgently needed health systems in the developing world.
Meanwhile in this rather harsh critique of nonprofits, Mark Henderson discusses nonprofit ire over philanthrocapitalism and basically says get over yourselves:
These critics are blind to history. Investments of capital, not philanthropy or foreign aid, propelled the economic development that replaced widespread poverty with widespread affluence in the U.S. and other developed countries...
The petulant attitude of some members of the non-profit community is that they just want capitalists to donate money and then shut up and disappear. Some of them are positively churlish about it. Their ingratitude toward and resentment of capitalists who want to exercise some control over how their billions are spent evoke images of Nabal in the Bible and Philip Rearden in “Atlas Shrugged.”