Inside Job (45 page)

Apple’s decisions in this regard are no longer motivated entirely by labour costs. The infrastructure and skills to manufacture its products no longer exist in the US. American schools no
longer produce enough people with enough skill to enable such manufacturing facilities to be designed, constructed, and operated in the US. But Apple doesn’t need its products to be
manufactured in the US; in fact, its use of Chinese manufacturing is critical to obtaining full access to the Chinese market. And Apple, like other US high-technology companies, is now far
less dependent on the US market than previously. In 2011 less than 40 percent of Apple’s revenues, and less than 20 percent of its growth, came from North America.

So Apple, Hewlett-Packard, and Dell are not going to declare war on Wall Street over the future of the American labour force. Indeed, some high-technology companies share the financial
sector’s interest in gutting regulation and antitrust enforcement. Everyone likes lower corporate taxes. Google now holds over 60 percent of the US Internet search market, and its share is
growing, so they’re not so excited about strong antitrust policy, either. So American high technology may not always like how the financial sector behaves, but it won’t wage war against
it. Similarly, the technology sector isn’t going to go to war over universal high-speed broadband service or public education.

America’s new money-driven political system also has strong self-reinforcing characteristics. The more wealthy, concentrated, and powerful the financial sector and wealthiest families
become, the more they affect policy in their favour; the more policy tilts in their favour, the wealthier and more powerful they become. Similarly, the system makes it difficult to mount truly
effective third-party challenges or insurgencies within the two major political parties. The US electoral college system in presidential elections makes it difficult for a third party to become the
deciding swing vote for the presidency. Nor does America have a parliamentary system that might give a new third party a critical swing vote in choosing a leader. Similarly, very few American
cities or states have ranked-order voting, which would prevent third party votes from being wasted. Over the last quarter century, gerrymandering of election districts (engineering their borders to
control voting outcomes) has produced increasing “security” of congressional districts, with incumbents rarely unseated. And, as a major fundraiser for the Democratic Party recently
told me, the one thing that both parties can always agree on is the undesirability of third parties.

There is still
some
difference between the two parties. The Democratic Party is still more progressive than the Republicans on matters of
individual
economic opportunity,
education, personal taxation, the
social safety net, environmental policy, and safety regulation. And for now, disbelief in evolution, vaccines, and climate change remains a
uniquely Republican aberration. But the margin of difference between the two parties, at least on economic issues important to business and finance, as opposed to individuals, has narrowed sharply.
As the power of the financial sector and the wealthy has increased, the entire political spectrum has shifted toward the wealthy on economic issues, and the Democrats have shifted along with
it.

And thus, American voters are stuck. There is now little difference on where the parties stand towards regulation of Wall Street or other concentrated and regulated industries
(telecommunications, energy, the media), or the role of money in politics, including the revolving door. America is increasingly in the hands of a cynical political duopoly whose policies are
antithetical to economic progress and fairness.

Obama’s failure to act has been blamed on his inexperience, his unfamiliarity with finance and business, and a personal tendency to avoid conflict (or, to be blunt, on his being a coward).
Some, including my colleague Charles Morris, also feel that the political system is now so gridlocked and dysfunctional that transformative policy changes are simply no longer feasible by anyone,
so that Obama really couldn’t have done anything even if he had tried. If so, then we’re
really
screwed. But if anyone had a shot, it was Barack Obama in 2009, and he
didn’t
try. Admittedly, it would have taken real personal courage, and it would have been a hard fight—Wall Street would not have just rolled over. The logic and incentive
structures of America’s political duopoly are such that in taking the path of least resistance, Obama was surely acting in his, and his party’s, rational self-interest. But whatever
Obama’s personal motivations, America (and indeed the whole world) will pay dearly for his failure for a long time.

BOTH IN PERSONAL
conversations and in the statistics, I sense a change among America’s young, who increasingly display both a pervasive cynicism
about politics (particularly after Obama turned out to be business as usual) and also, unless they are in the upper 5 percent or so, a fatalism about their personal career prospects. Their general
view is: if you have rich parents, a computer science background, or an MBA, you’re okay; otherwise, you’re not okay, and if you want to change that and make some money, you had better
concentrate really hard on pleasing the boss. Outside of Silicon Valley and Wall Street, the America of possibility, openness, progress, and opportunity seems increasingly distant. Most older
Americans, in contrast, still do not seem to realize how unfair their society has become over the last generation unless they have become victims of it themselves.

First, the numbers. Since 1980, there has been a pronounced shift of taxable income towards the top tenth. As the top chart on the next page illustrates, their share of all reported income,
including capital gains, grew from a bit over a third in 1980 to virtually half (49.7 percent), in 2007. The top tenth’s share of income in 2007 is the highest on record, just above the 49.3 percent share garnered by the top tenth in 1928, the year before America entered the Great
Depression.

Even more remarkable, however, is the growth of inequality
within
the top tenth, as the bottom chart shows. Since 1980, the top tenth has increased its share of income by about half. But
the share of the top 1 percent of taxpayers more than doubled, from 10 percent of total income in 1980 to over 20 percent in 2010. And what is truly stunning is that by 2007, the top one-hundredth
of the
top 1 percent
, less than twenty-five thousand households, earned more than 6 percent of all national income—nearly $1 trillion. This percentage was considerably higher than the
previous record, also set in 1928. This striking divergence of share gains within the top tenth is shown in the second chart on the next page, taking the respective shares in 1980 as 100.

Facundo Alvaredo, Tony Atkinson, Thomas Piketty, and Emmanuel Saez,
World Top Incomes Database
, http://g-mond.parisschoolofeconomics.eu/topincomes/

Facundo Alvaredo, Tony Atkinson, Thomas Piketty, and Emmanuel Saez,
World Top Incomes Database
, http://g-mond.parisschoolofeconomics.eu/topincomes/

US Census bureau, http://www.census.gov/hhes/www/income/data/historical/household/index.html, Table H-3

But this graph, disturbing as it is, conceals a far worse reality. The top 10 percent did much better than everyone else; if you remove them, the numbers change dramatically. Economic analysis
has found that “only the top 10 percent of the income distribution had real compensation growth equal to or above . . . productivity growth.”
¹⁴
In fact, most gains went to the top
1 percent
, while people in the bottom 90 percent either had declining household incomes or were able to increase their family incomes
only by working longer hours. The productivity of workers continued to grow, particularly with the Internet revolution that began in the mid-1990s. But the benefits of productivity growth went
almost entirely into the incomes of the top 1 percent and into corporate profits, both of which have grown to record highs as a fraction of GNP. In 2010 and 2011 corporate profits accounted for
over 14 percent
of total GNP, a historical record. In contrast, the share of US GNP paid as wages and salaries is at a historical low and has not kept pace with inflation
since 2006.
¹⁵

As I was working on this manuscript in late 2011, the US Census Bureau published the income statistics for 2010, when the US recovery officially began. The national poverty rate rose to 15.1
percent, its highest level in nearly twenty years; median household income declined by 2.3 percent. This decline, however, was very unequally distributed. The top tenth experienced a 1 percent
decline; the bottom tenth, already desperately poor, saw its income decline 12 percent. America’s median household income peaked in 1999; by 2010 it had declined 7 percent. Average hourly
income, which corrects for the number of hours worked, has barely changed in the last thirty years.

Ranked by income equality, the US is now ninety-fifth in the world, just behind Nigeria, Iran, Cameroon, and the Ivory Coast. The UK has mimicked the US; even countries with low levels of
inequality—including Denmark and Sweden—have seen an increasing gap since the crisis. This is not a distinguished record. And it’s not a statistical fluke. There is now a true,
increasingly permanent underclass living in near-subsistence conditions in many wealthy states. There are now tens of millions of people in the US alone whose condition is little better than many
people in much poorer nations. If you add up lifetime urban ghetto residents, illegal immigrants, migrant farm-workers, those whose criminal convictions sharply limit their ability to find work,
those actually in prison, those with chronic drug-abuse problems, crippled veterans of America’s recently botched wars, children in foster care, the homeless, the long-term unemployed, and
other severely disadvantaged groups, you get to tens of millions of people trapped in very harsh, very unfair conditions, in what is supposedly the wealthiest, fairest society on earth.

At any given time, there are over two million people in US prisons; over ten million Americans have felony records and have served prison time for non-traffic offences. Many millions more now
must work very
long hours, and very hard, at minimum-wage jobs in agriculture, retailing, cleaning, and other low-wage service industries. Several million have been
unemployed for years, exhausting their savings and morale. Twenty or thirty years ago, many of these people would have had—and some
did
have—high-wage jobs in manufacturing or
construction. No more.