Everybody knows that the dice are loaded,
Everybody rolls with their fingers crossed.
Everybody knows the war is over,
Everybody knows the good guys lost.
Everybody knows the fight is fixed,
The poor stay poor and the rich get rich
That’s how it goes
Everybody knows.
From “Everybody Knows” by Leonard Cohen
Are the Rich Getting Richer?
Sometimes what “everybody knows” is untrue: witness former President Trump’s use of “everybody knows” when he had no facts whatsoever to back up his many lies. However, the assertion that the rich have been getting richer for the last 40 years is proven by solid statistics. Figure 1 shows the income and wealth shares[1] of the top 1% of households over the last 7 decades of U.S. history. I should note that the top 1% of households in income is not necessarily identical with the top 1% in wealth. However, I’m pretty certain the two sets have large overlap. I should also note that anything I say about the 1% applies even more so to the top 0.1%.
In both curves there is a general decline until 1980, when the “Reagan Revolution” began the steep rise to levels higher than any seen in the last 70 years. The top 1% income share went from 11.2% in 1980 to 20.5% in 2018. The top 1% wealth share went from 22.2% in 1980 to 37.1% in 2018, both nearly doubling in the last 40 years.
FIGURE 1
I have used the term the “Big Rich” to refer to the top 1%. I did not originate the term; it was used as long ago as 1959 by C. Wright Mills[2]. I shall assume that the context will allow the reader to ascertain which 1% I am talking about. Even if the two sets are not identical, at least their variations are highly correlated as shown by Figure 2.
FIGURE 2
The correlation coefficient is r = 0.92. We may conclude that as the income share of the top centile in income increases, so does the wealth share of the top centile in wealth.
Another approach is to look at the actual dollar amounts, adjusted for inflation. Figure 3 shows the average annual income[3] in constant dollars for the middle 40% of households (in income) and for the top 1%. Middle 40% data only goes back to 1962. As you can see, it is difficult to get both variables on the same graph with a linear scale. A logarithmic scale does not do visual justice to the explosion of income for the Big Rich after 1980. Average income for the top centile, fairly constant from 1950 to 1980, has ballooned from $479,749 in 1980 to $1,490,051 in 2018; that is, it has more than tripled. The story is much different for the middle class, whose average income has gone from $48,903 in 1980 to $73,582 in 2018, an increase of about 50%.
FIGURE 3
FIGURE 4
Figure 4 tells a similar story for wealth: more than tripling for the Big Rich 1980 to 2018, but a smaller change for the middle class. The average wealth of the top 1% went from $2,893,154 in 1980 to $13,540,318 in 2018. For the middle class the gain was a less impressive $113,203 to $259,200, probably largely due to an increase in home values. These numbers hardly show up on a linear scale with Big Rich numbers.
The declines shown in Figure 1 for the 1950-1980 period, along with the nearly constant values for the same time in Figures 3 and 4, indicate that the 1% were not really losing income or wealth, but rather that the other 99% were catching up. Then invidious comparison spurred the Big Rich to action.
Yes, the rich are getting richer, and have been doing so for the last 40 years. How do they do it? They do it, in large part, by waging war on labor unions and taxes.
Unions
Labor unions are anathema to the Big Rich. That is why they have labored tirelessly over the last 70 years (and longer) to reduce union membership and power. When and where union density (percent of the employed workforce in unions) is high, unions have the power to increase workers’ pay and benefits, thereby reducing profits for the 1% who hold most of corporate wealth. According to the Current Population Survey, conducted annually by the BLS and Census Bureau[4], the median weekly earnings of full-time employees who were represented by unions was $1042 in 2018, compared to $860 for those not represented, a 21% advantage for the former. Since 2001 that union advantage has ranged between 21% and 29%. The top wealth centile owns 51.8% of stock market value, and most of the rest is owned by the next 9%; the bottom 90% of the wealth scale hold only about 12% of corporate wealth[5] and , of course, the middle class would hold much less than that.
Unions, when strong, have political power to prevent the constant tipping of the playing field in favor of the Big Rich, the political power to replace the loaded dice with fair dice. Unions also were the source of political information for their members, a role taken over by Fox News[6] now that so few of the working class are in unions. Fox News is owned by Rupert Murdoch and family, worth $17 billion in July 2020 according to Forbes 400, making them the 28th richest in the country. It is not surprising that a network owned by a multi-billionaire has a bias in favor of the Big Rich. Figures 5 and 6 show the strong negative relationship between income and wealth of the top centile and union density in the private sector, and also show why the Big Rich hate unions so much.
FIGURE 5
FIGURE 6
Both curves closely fit an exponential curve: as union density goes up, income and wealth of the Big Rich go down exponentially, or, more chronologically, as union density goes down, income and wealth of the 1% go up exponentially. The coefficient of determination is COD = 0.98 in Figure 5 and COD = 0.97 in Figure 6. It is possible that union density has had no effect on the income and wealth of the Big Rich, but it is also possible that it has caused over 95% of the variation seen over the last 70 years.
A similar relation holds between the income and wealth shares of the 1% and union density. Over the seven decade period, the visual fit of exponential decay curves is not as impressive as shown in Figures 5 and 6, but still the COD’s are over 80%. The curve fit is poor for the high end of union density in the 1950 to 1980 period.
The results are much more impressive over the last 40 years, where exponential fits to the data have COD’s over 96%. The last 40 years are of most interest to us here, because that is the period in which the Big Rich have clawed back what they feel is their rightful position of wealth and power.
FIGURE 7
FIGURE 8
We can see from the previous four graphs why the very idea of labor unions is so hateful to the 1%. Therefore the Big Rich, and the conservatives who serve them, have waged a successful, two-pronged attack against unions. One prong is right-to-work (RTW) laws, the other is moving manufacturing jobs overseas or to RTW states. The overall success of their campaign can be seen in the timeline of union density[7], shown in Figure 9. Although there was a plateau in 1975 to 1980, Reagan and his “revolution” put an abrupt stop to that. Union density has hovered at 6% to 7% for the last decade; those are probably the diehards who believe in unions even if there is little membership benefit anymore.
FIGURE 9
“Right-to-work” is a misnomer; “right-to-freeload” would be more accurate. RTW laws prohibit contracts between employers and unions that would require all employees to be union members, or at least to pay the union a fee for representing workers. Such contracts are prohibited by RTW states even if both the employer and all the employees want such a contract, a situation where government intrusion into private contracts does not seem to bother conservatives. They justify such laws using the concept of “liberty” or the “right” to work, a right never denied to anybody in the U.S. The real purpose of RTW laws is to make it harder for unions to recruit members, thereby reducing union density. With their deep pockets, the Big Rich bring up RTW laws year after year in states that don’t yet have them. They can afford to keep trying until they succeed. Once they do succeed, it becomes very hard for unions to recruit new members because, even if a majority of employees have voted for union representation at some company, employees get that representation even if no more join the union or even pay a fee for the service. Remember that there is a 21% wage advantage on average to have such union representation. Thus RTF: the right-to-freeload. The number of RTW (or RTF) states has risen from 12 in 1950 to 27 in 2018. Figure 10 shows the population affected over that time. The real payoff for the conservative efforts to blanket the U.S. with RTW laws is shown in Figure 11.
FIGURE 10
FIGURE 11
The correlation coefficient between the two variables is r = -0.91 and COD = r2 = 0.82. The increase in population under RTW laws can account for up to 82% of the decline in union density. A complicated exponential function called the Boltzmann function can fit the points with a COD = 0.98, but there is no reason to go there; the clear and strong negative relationship is evident in the empirical points alone, without any fitting curve or line.
The other prong of the conservative attack on unions (aside from general and incessant bad-mouthing) is the export of manufacturing jobs, a sector traditionally high in union density, to foreign countries with very repressive policies (including murder) toward union organizing. In 1950 there were a little over 14 million manufacturing jobs in the U.S., but in 2018 there were fewer than 13 million[8] (July numbers) although the population has more than doubled in the same period. As a percentage of the private sector, manufacturing has gone from 35.7% to 10%. Some of that is due to the many new, non-manufacturing jobs added, but some is due to export of manufacturing. Figure 12 illustrates the drop and Figure 13 shows the payoff for the Big Rich in the effect on union density.
FIGURE 12
FIGURE 13
The very strong positive correlation between manufacturing jobs and union density means that reducing the former also reduces the latter (r = 0.98; COD = r2 = 0.97). The loss of manufacturing jobs could possibly account for 97% of the loss in union density.
Of course, it cannot be simultaneously true that RTW laws caused 82%, and export of manufacturing caused 97%, of the drop in union density. The COD values only give the upper limits on such causation; the lower limit is always zero. When both variables are considered together in multiple linear regression[9], it appears that the loss of manufacturing jobs has been the more important factor.
Taxes
Conservatives have found a winning strategy in their promotion of lower income taxes. They can rope in the middle class and lower economic classes with this policy. Who doesn’t want to pay less in taxes? What usually evades general notice is that historical federal tax reductions have benefited the 1% much more than the 99%. For the middle and lower economic classes, sales taxes and payroll taxes make up a larger share of the tax burden than for the 1%; both taxes are regressive (lower income groups pay a higher rate than the rich), as shown by Figure 14[10].
FIGURE 14
On the other hand, income and corporate taxes affect the rich much more, as shown in Figure 15.
FIGURE 15
The actual income tax burden for the middle class has changed very little at all over seven decades, staying between 10% and 15%. However the burden for the top centile has dropped from over 40% to around 25%. These are the tax rates actually paid after all deductions, exemptions, etc. The net result is that total taxes have been going up for the lower economic classes, while coming down for the Big Rich. These movements crush the progressivity out of U.S. tax structure. This collapse of progressivity is shown in Figure 16. Whereas the range between the rate for the lowest decile and that for the top centile was 15% to 45% in 1950, all rates are between about 25% and 30% in 2018. All changes in the tax structure of the U.S. over the last 70 years have greatly helped the Big Rich and almost no one else.
FIGURE 16
Figures 17 and 18 show that tax rates do make a difference for the Big Rich. For real income versus tax rate, r = -0.78 and COD = r2 = 0.6; for real wealth versus tax rate r = -0.72 and COD = 0.51. Both coefficients of correlation are statistically significant at the 0.05 level. Up to 60% of income variation and 51% of wealth variation could be due to the total effective tax rate on the Big Rich.
FIGURE 17
FIGURE 18
Income and wealth shares of the 1% also show statistically significant, negative correlations with the total effective tax rate. For income share r = -0.53, COD = 0.28. For wealth share r = -0.42 and COD = 0.18. Figures 19 and 20 illustrate.
FIGURE 19
FIGURE 20
Conservatives try to convince us that raising taxes on the rich will have dire consequences for economic growth, job growth, etc. There is no historical statistical evidence for that[11]. The Big Rich simply don’t want to pay any more taxes and would like to starve government to crimp social programs, which they also hate.
Is the War Over?
It is ironic that conservatives and the Big Rich, who have waged a successful economic war on the 99% for 40 years and more, now have the effrontery to accuse anyone who draws attention to their victories of waging “class warfare”. This is a classic example of “swiftboating”.
Cohen’s lyrics are probably true: the war is over and the good guys lost, although the 1% will still try to take more. The right-to-freeload population is not going to decrease: no state has ever repealed an RTF law, and the tremendous wealth of the Big Rich (37% of all of it) is always there to make sure that doesn’t happen. Big corporations are not bringing back manufacturing jobs previously exported, or starting new manufacturing jobs in the U.S. The corporations control the government and the Big Rich control the corporations. Everybody knows.
Gary Waldman
April 2021
[1] www.taxjusticenow.org. Click on “More” in the upper right of the opening page, and pick “Technical Appendix”. On the ensuing page click on “Supplementary tables underlying statistics presented in the book”. I used column G and P of Table TA1. [2] C. Wright Mills – The Power Elite – Oxford University Press (1959), New York, p. 95 [3] Data from ref. 1, Table TA2, columns D & G. [4] www.bls.gov – click on Data Tools near the top, choose “top picks, etc.” in the pull-down menu, click on “Tables” under “Union Affiliation Data”, choose Table 41 in the subsequent page. [5] https://www.cnbc.com/2020/08/27/wealth-gap-grows-as-rising-corporate-profits-boost-stock-holdings-controlled-by-richest-households.html [6]I am indebted to my lifelong friend, Ernest R. House, for this insight. [7] Data (1950-1982) from a B. Hirsch article in Journal of Economic Perspectives, Winter 2008 available at www.unionstats.com. Also data (1983-2016) from the U.S. Bureau of Labor Statistics www.bls.gov: use “Data Tools” button and choose Series Report LUU0204906600 [8] www.bls.gov – series report CES3000000001 [9] Such an analysis requires a change of variables to ones that have a more linear relationship with union density. [10] Data from ref. 1, Tables TB2 and TB3 [11] Gary Waldman –www.garywald.net – see the articles in “Taxes and the Economy”. Also see “Who are the Job Creators”.
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