A Democratic Agenda

The Democratic Party lacks a cohesive message encompassing a strategic vision that captures the many disparate interests of its constituency,

This was clear in the scattershot platform put forward by Hillary Clinton in her Presidential campaign. Rather than having a driving focus, it consisted of a laundry list of issues with no apparent central theme.

Despite the current chaos surrounding the Presidency of Donald Trump, the core Republican agenda, while slowed, remains in force. It’s key, two-pronged objective is the neutering of the Affordable Care Act and so-called “tax reform”. Both are little more than a furthering of the same goal they have pursued for over thirty-five years, the enhancement and entrenchment of the interests of the wealthiest Americans at the expense of the vast majority of citizens.

In order to oppose this trend Democrats must forcefully assert that the fundamental role of government pertains to the distribution of wealth. 

Adopting this focus would lead to putting the spotlight on two areas that have been the core of Republican efforts since the 1980’s that have resulted in the staggering growth in economic inequality in the U.S. over the same period.

The first of these is the decline in the stringency in enforcement of federal antitrust statutes.

The second is the rollback in the progressive nature of the federal income tax code.

The primary obstacle to this program is the extent to which the American public has been brainwashed by almost four decades of propaganda that has persuaded them that such policies are inherently “un-American”.

Back at the beginning of the 1970’s it was widely accepted that the United States had a mixed economy, consisting of elements that were capitalistic as well as socialistic. Since the beginning of the 1980’s, however, there has been a concerted effort to portray any economic or public policies that were not “pure capitalism” or “free market based” as inherently subversive. This tendency was accelerated in the mid 90’s with the birth of the Fox News Network that merged a hardline Conservative message with a populist marketing strategy.

Republicans merged this economic policy message with a set of social issues ranging from conservative Christianity to right-to-life that served to constitute a coalition that crossed numerous class lines and provided a strong recovery from the ignominy of the Nixon years.

This assemblage of interest groups also served to fragment traditional Democratic class elements leaving them with little more in the way of reliable voting blocs other than those consisting of racial minorities.

It also served to create an incentive for many so-called “Democrats” to adopt positions contrary to Party mandates to preserve their appeal to local voters while also adopting conservative, “blue dog”, policy positions in order to assure their access to increasingly concentrated sources of financing their campaigns. This resulted in a far more fragmented Party apparatus than that which existed among Republicans.

While this brief (and incomplete) summary of the last thirty-five years political developments indicate that messaging a policy of addressing the issue of income distribution will face serious difficulty, the reality is that the current environment is as opportune as it is ever likely to be.

As Gallup reported in April, approval of the Affordable Care Act reached 55%. Increasingly, Americans have become more accepting of the idea of a universal, single payer health care system. Especially after President Trump congratulated the Australian Prime Minister on having a superior health care system to ours – which is a single payer system.

It is incumbent upon the Democratic Party to focus on this issue in terms of it historical denunciation by Republicans (notably Ronald Reagan) as socialized medicine.

They should then use this as a lead-in as to how the American middle class has been screwed by thirty-five years of Republican “trickle-down economics” linking the dramatic scaling back of progressive tax rates to the rise in income inequality.

Take a moment to study the following charts comparing the changes in the top personal income tax rates from 1946 to the present in comparison to the rise in income inequality in the U.S.

Top Tax Rate

[years covered, top income tax rate, income tax rate applied to and above (2013 constant dollars) ]

1946 91%  2,354,810    to  1963   91%  3,001,229

1964 77%  2,962,503

1965 70%  1,457,740     to  1981  70%     544,054

1982 50%     203,661     to  1986  50%     367,120

1987 38.5%  181,897

1988 28%      57,738       to  1990  28%      57,003

1991 31%     138,481      to  1992  31%    141,553

1993 39.6%  397,221      to  2000 39.6%  384,457

2001 39.1%  385,457

2002 38.6%  391,867

2003 35%     389,245      to  2012  35%    388,350

2013 39.6%  440,876      to  2017 39.6%  444,550

           Source: Striking it Richer: The Evolution of Top Incomes in the United States, Emmanuel Saez, June 2015

The top 1 percent of America’s income earners have more than doubled their share of the nation’s income since the 1980’s. American top 1 percent incomes peaked in the late 1920s, right before the onset of the Great Depression.

From the post-war period to the 1980’s higher marginal tax rates served to redistribute income from upper income groups to lower economic strata through a variety of public programs (federal highway program, rural electrification, space program, college loan programs) as well as direct aid programs (welfare programs, social security, Medicare, Medicaid, etc. ) Since the 1980’s the funding of these programs have relied increasingly on deficit financing.

Whatever the initial rationale might have been for the progressive tax rates during the period from the 1940’s to 1980, the data from that period contrasted with the experience since then illustrates a fundamental reality. Just as antitrust laws seek to constrain the influence of corporate entities on society, so progressive tax policies restrict the ability of concentrated private wealth to disproportionately influence public policy.

That consequence has been manifest in the way that increasingly wealthy conservative interests and their political functionaries have used the declining size of the discretionary portion of the federal budget to set various interest groups against one another. Further, it has enhanced their rationale for the privatization of a variety of functions ranging from prisons to public education.

In similar fashion there has been an increasing concentration of business in virtually all industries. This pattern was starkly noted a year ago by Senator Elizabeth Warren. "Today, in America, competition is dying," Senator Warren said. "Consolidation and concentration are on the rise in sector after sector. Concentration threatens our markets, threatens our economy, and threatens our democracy."  

Noting examples of significant concentration in various industries, the senator identified five specific consequences of this trend: less consumer choice, barriers to industry entry for smaller and newer companies, the collapse of small businesses, concentrated political power for large corporations, and a declining middle class.

Indeed, in the years after officials in the Reagan administration radically altered how our government enforces our antimonopoly laws, the American economy underwent a truly revolutionary restructuring. Four great waves of mergers and acquisitions—in the mid-1980s, early ’90s, late ’90s, and between 2003 and 2007—transformed America’s industrial landscape at least as much as globalization. Over the same two decades, meanwhile, the spread of mega-retailers like Wal-Mart and Home Depot and agricultural behemoths like Smithfield and Tyson’s resulted in a more piecemeal approach to consolidation, through the destruction or displacement of countless independent family-owned businesses.

The financial crisis taught us how dangerously concentrated our financial sector has become, particularly since Washington responded to the near-catastrophic collapse of banks deemed “too big to fail” by making them even bigger. Today, America’s five largest banks control a stunning 48 percent of bank assets, double their share in 2000 (and that’s actually one of the less consolidated sectors of our economy). Similarly, the debate over health insurance reform awakened many of us to the fact that, in many communities across America, insurance companies enjoy what amounts to monopoly power. Some of us are aware, too, through documentaries like Food, Inc., of how concentrated agribusiness and food processing have become, and of the problems with food quality and safety that can result.

Even so, most Americans still believe that our economy remains the most wide open, competitive, and vibrant market system the world has ever seen. Unfortunately, the stories we have told ourselves about competition in America over the past quarter century are simply no longer true.

America’s problem in recent years has been a fall-off in job creation. Consolidation causes problems here, too, in a variety of ways. First, it can reduce the impetus of big firms to invest in innovation, a chief source of new jobs. The Austrian economist Joseph Schumpeter famously theorized that monopolists would invest their outsized profits into new R&D to enable themselves to innovate and thus stay ahead of potential rivals—an argument that defenders of consolidation have long relied on. But numerous empirical studies in recent years have found the opposite to be true: competition is a greater spur to innovation than monopoly is. In one widely cited study, for instance, Philippe Aghion of Harvard University and Peter Howitt of Brown University looked at British manufacturing firms from 1968 to 1997, when the UK’s economy was integrating with Europe and hence subject to the EU’s antitrust policies. They found that on balance these firms became more innovative—as measured by patent applications and R&D spending—as they were forced to compete more directly with their continental rivals.

The opposite trend took place in some of America’s biggest industrial firms in the years after 1981, when the Reagan administration all but abandoned antitrust enforcement. Many of the most successful U.S. companies adopted a winner-take-all approach to their industries that allowed them to shortchange innovation and productive expansion. Prior to 1981, for instance, General Electric invested heavily in R&D in many fields, seeking to compete in as many markets as possible; after 1981 it pulled back its resources, focusing instead on gathering sufficient power to govern the pace of technological change.

Consolidation in the retail sector can also inhibit job growth. As behemoth retailers garner ever more power over the sale of some product or service, they also gain an ever greater ability to strip away the profits that once would have made their way into the hands of their suppliers. The money that the managers and workers at these smaller companies would have used to expand their business, or upgrade their machinery and skills, is instead transferred to the bottom lines of dominant retailers and traders and thence to shareholders. Or it may be simply destroyed through pricing wars. A good example is the pre-Christmas book battle between Amazon and Wal-Mart, in which the two giant conglomerates pushed down the prices of hardcover best sellers to lure buyers into their stores and Web sites. In many cases, the two companies actually sold the books for less than they bought them, treating them as “loss leaders” and expecting to recoup the loss through the sale of other, more expensive products. Although consumers welcomed the opportunity to pay $9.99 for the latest Stephen King novel priced elsewhere above $30, the move caused a near panic among publishers. Even though the low prices may have resulted in the sale of more books, the longer-term effect is to radically lower what consumers will expect to pay for books, which will in turn reduce the funds available to publishers to develop and edit future prospects.

Another way that monopolization can inhibit the creation of new jobs is the practice of entrenched corporations using their power to buy up, and sometimes stash away, new technologies, rather than building them themselves. Prior to the 1980s, if a company wanted to enter a new area of business, it would typically have had to open a new division, hire talent, and invest in R&D in order to compete with existing companies in that area. Now it can simply buy them. There is a whole business model based on this idea, sometimes called “innovation through acquisition.” The model is often associated with the Internet technology company Cisco, which, starting in the early ’90s and continuing apace afterward, gobbled up more than 100 smaller companies. Other tech titans, including Oracle, have in recent years adopted much the same basic approach. Even Google, many people’s notion of an enlightened, innovative corporate Goliath, has acquired many of its game-changing technologies—such as Google Earth, Google Analytics, and Google Docs—from smaller start-ups that Google bought out. As the falloff in IPOs over the last decade seems to confirm, one practical result of all this is that fewer and fewer entrepreneurs at start-up companies even attempt any longer to build their firms into ventures able to produce not merely new products but new jobs and new competition into established companies. Instead, increasingly their goal, once they have proven that a viable business can be built around a particular technology, is simply to sell out to one of the behemoths.

Finally, dominant firms can hurt job growth by using their power to hamper the ability of start-ups and smaller rivals to bring new products to market. Google has been accused of doing this by placing its own services—maps, price comparisons—at the top of its search results while pushing competitors in those services farther down, where they are less likely to be seen—or in some cases off Google entirely. Google, however, is a Boy Scout compared to the bullying behavior of Intel, which over the years has leveraged its 90 percent share of the computer microchip market to impede its only real rival, Advanced Micro Devices, a company renowned for its innovative products. Intel has abused its power so flagrantly, in fact, that it has attracted an antitrust suit from New York State and been slapped with hefty fines or reprimands by antitrust regulators in South Korea, Japan, and the European Union.

The foregoing has been merely an outline of a general theme to serve as a focus for a Democratic platform around which the Party can organize. The key message is that the economic policies of Republicans over the last thirty-five years have fostered the decline in jobs as well as the inequality in the distribution of wealth that have begun transforming America from a democracy to a plutocracy. If we are to restore a thriving economy and equality of access to opportunity for all Americans then we must recognize the role of government in leveling the distribution of wealth in the system.