January 30, 2016
John Judis has an interesting piece in Vox on the success so far of Donald Trump and Bernie Sanders. They have garnered the support of large numbers of voters who are disaffected with the agenda pushed by the mainstream in both parties. Judis argues that this agenda, which he alternatively describes as “neo-liberal” or “free market,” has been responsible for the rising economic insecurity of the white middle class. This insecurity has led Republicans to embrace Trump’s nationalistic and often racist agenda as well as Sanders’ openly left-wing agenda of a radically expanded welfare state.
There is an important point that Judis leaves out of his story. The policies that have led to so much upward redistribution were not simply “free market,” they were policies that were designed to redistribute income upward.
Starting with trade, the agreements pushed by presidents from both parties did not subject all areas equally to international competition. They quite explicitly put less-educated workers in direct competition with low-paid workers in the developing world by making it as easy as possible to set up factories in Mexico, China, and elsewhere and ship the products without barriers back to the United States. The predicted and actual effect of this sort of trade is to reduce the number of jobs and wages for manufacturing workers. And, by denying workers opportunities in manufacturing, this also puts downward pressure on the wages in the service sectors where former manufacturing workers then looked for jobs.
Real free trade agreements would have made it easier for people in India, China, and elsewhere to train to U.S. standards and then work as doctors, dentists, lawyers and in other highly paid professions in the United States. Instead, the barriers in these professions were largely left in place or even increased.
Driving down the wages of these high-end professionals would have reduced the cost of health care, dental care, and legal services. This raises the real wages of other workers. If the wages of doctors in the United States were reduced to the level of doctors in Europe, it would reduce what we pay our doctors by roughly $100 billion a year. This would be sufficient to add almost $1,000 a year to the paycheck of every worker in the bottom 70 percent of the workforce.
In the same vein, these trade deals, along with domestic legislation, strengthened and lengthened copyright and patent protection. As a result, we pay more for everything from recorded movies and video games to smartphones and fertilizer. The biggest impact is on prescription drugs, where we spend over $400 billion a year. This figure would probably be close to $40 billion annually without patent and related protections. The difference of $360 billion a year comes to more than $2,500 a year for every worker in the country. Without patent protection we would have to find an alternative mechanism to finance research, but we could almost certainly replace existing research and still have plenty of money left over to put in workers’ pockets.
A third area in which the upward redistribution had nothing to do with free market policies was the decision by the Federal Reserve Board to maintain higher unemployment rates in the decades since 1980. This was done in order to reduce the bargaining power of workers. This put a check on wage increases, which was an insurance policy against inflation. In my book with Jared Bernstein, Getting Back to Full Employment: A Better Bargain for Working People, we show that higher rates of unemployment have disproportionately hurt those at the middle and bottom of the income distribution.
In these and other cases, policies that had nothing to do with the free market were put in place by elites to redistribute income upward. (A fuller story can be found here.) This matters because our elites were not simply following some grand principle like free market economics, they were crafting policies to give themselves more money at the expense of ordinary workers.
Does this matter to the angry throngs backing Trump and Sanders? Well, many of these people believe that something was actively done to screw them and they are right, even if some of them adhere to nutty conspiracy theories that have nothing to do with the real world.
The elites would prefer to have people believe that inequality was just something that happened, “the evolution of the world economy” as the Washington Post put it last week. The Post even tells us they feel really badly about it.
But the reality is that inequality is not something that just happened, it was about the elites rigging the deck. And before we can have effective political action, we must have a clear understanding of what is going on here.
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