Economist Proves: Reagan’s Deregulation caused Today’s Income Inequality.

[riqster]

https://bluntandcranky.wordpress.com/2015/02/27/economist-proves-reagans-deregulation-caused-todays-income-inequality/

Source info aplenty at the link.

Finally, the root cause is revealed. Plenty of talk has been talked on the topic, by experts, data wonks, and politicians. But nobody was able to say why the 1% started f***ing the rest of us to an even greater extent than hitherto, from the 80’s through the present day. Not until a few months ago, that is:

There are many gauges of the depth and breadth of economic inequality, and they often measure what middle-income working people have today against what they had prior to 1980 – that time when homes were affordable, along with doctor visits and college educations. Yet few of the astonishing charts and metrics that have captured this widening gulf explain how it all came about. So when economist William Lazonick pointed a finger at a very specific aspect of corporate behavior, people took note.

Lazonick’s 4,900-word piece, titled Profits Without Prosperity, focused on the 449 companies in the Standard & Poor’s 500 index that were publicly listed from 2003 to 2012. Lazonick found that from the end of World War II until the late 1970s, corporations generally took a “retain-and-reinvest” approach to profits. That is, they kept their earnings and reinvested them – first and foremost in pay raises and job benefits for the employees who helped make the firms more competitive, but also in business expansion, research and new technologies.

But starting in the early 1980s, after the Securities and Exchange Commission removed limits on companies’ power to buy back their stock, these large, publicly traded companies began spending a portion of their net income on stock buybacks. The trend was exacerbated in the 1990s, when the compensation packages of corporate chief executives were linked directly to the stock value, and has accelerated in recent years – even though it’s been little noticed and rarely discussed as a prime driver of economic inequality.

THIS IS HUGE, Gentle Reader. Huge. It proves what everyone except Teapubbies and all the other “small government” and supply-side eedjits have known for decades: the Reagan Revolution was a huge mistake, a f***-up for the ages, even worse than when the Senate handed Rome to Caligula. The nation’s woeful retreat from its former stability to the shambles of the present day is, once and for all: The. Fault. Of. Reagan. Era. Republicans.

And the longer America keep electing these criminally idiotic, venal, fact-challenged, big-mouthed-but-walnut-brained f***wits, the worse it’s gonna get. We need to vote each and every “Republican” who is currently IN office OUT of said office. And that soon.

Maybe someday, when Repubs go back to the pre-Reagan days of ideological and political sanity; then, and ONLY then, can we allow them back into power. But frankly, friends, we can’t AFFORD these Teapublican nitwits any longer. They have cost us dearly, far too dearly, and done far too much damage to be trusted now.

Now you know who to blame. Time to do something about it.

[abelenkpe]

1. K&R

[riqster]

2. T&Y

[deutsey]

3. "the Reagan Revolution was a huge mistake, a f***-up for the ages..."

I've been saying that since 1980 (although I've always called it the "Reagan Reaction", not "revolution&quot .

[riqster]

12. I love throwing their phrase back in their faces.

Because it points out the oxymoronic nature of the Neocons. After all, a "conservative revolution" is a contradiction in terms.

[AlbertCat]

36. The Reagan Revolution meme:

"Greed is good"


which enabled the Bush meme:

"We make our own reality"


Both equally insane.

[riqster]

45. True.

[hifiguy]

56. But it wasn't a fuckup. It was a carefully planned strategy

to rape and destroy the middle class and create a feudal/royalist society. It has worked exactly as its creators intended it to.

[deutsey]

62. Maybe the fuck-up was that so many in the middle class

voted for and cheered Reagan on.

[riqster]

72. +1

[appalachiablue]

103. That was bad & a big part of it. Never met anyone who switched thank God, or admitted it.

[KatyMan]

78. Yep, "welfare queens" and abortion...

very carefully planned.

[daredtowork]

92. Yet if there were jobs

we wouldn't need all that money for welfare. There's the rub.

The great cognitive dissonance in the GOP is the idea that jobs spontaneously generate when the welfare rug is pulled out from under people. It actually works the other way around. When people have jobs, they don't fall back on welfare, which is a very sucky way to live even when it's maintained at survivable levels. This is such a "no duh" idea that it astounds me that it takes a fancy Harvard professor article to back up any policy moves.

When people are able to support themselves, they don't fall back on welfare. <<<<<<<<<<<THIS!

[riqster]

97. Very true!

[appalachiablue]

104. +10

[ladjf]

4. Good piece. nt

[riqster]

13. Thanks.

Found the economist's article and went "wow". Light bulb time.

[stillwaiting]

5. But stock buybacks are good for workers I've been told on DU.

Last edited Fri Feb 27, 2015, 03:41 PM - Edit history (1)

All of that money that's spent to buyback stocks is actually benefitting the workers. It's not to benefit the investors and the corporate executives (thus contributing to income and wealth inequality). It's the workers that benefit, and so it's not a bad thing!!

What to believe?!

K&R.

[riqster]

16. Lol!

[brush]

30. Hope so!

I just wanted it to be clear.

[stillwaiting]

34. riqster is correct. I know it's impossible to tell these days around here.

That's very unfortunate, and it does not bode well for the future.

I did have 2 posters tell me yesterday or the day before that stock buybacks are for workers/employees, and it's not a bad thing. Of course, neither are huge increases in dividends apparently according to them.

How a corporation allocates its funds is important, and when so many of these massively profitable corporations pay their workers so poorly these issues are important to address.

Glad that you seem to agree.

[riqster]

35. Modern corporate governance is misguided.

The near-total fixation on "shareholder value" at the expense of quality, consumer satisfaction, B2B relationships, infrastructural equity etc. is closely related to the issue covered in the OP. In time and degree.

[amandabeech]

66. Yes, "shareholder value" above all.

Some of the problem came from the rise of management consultants with their one size fits all, like McKinsey & Co. and Romney's Bain, the top B-schools and some courts.

As you have pointed out, any number of other important business functions fall by the wayside. I'd add to your list employee training and R&D.

[riqster]

69. And employee retention.

Best bang for the corporate buck comes from hiring and keeping good people.

[amandabeech]

71. Absolutely! But they don't teach you that at the big B-schools.

We're all identical grains of human wheat to them.

[riqster]

73. Just so.

I was trained in management by mentors. Then when I studied it in school, I knew what bits to ignore.

[brush]

17. The OP states the stock buybacks (allowed under Reagan) benefit the CEOs and investors

401ks where workers could own company stocks weren't that prominent in the early to mid-eighties so the buyback of stock, which drove up their value, clearly was geared to benefit company executives not workers as executive compensation was tied to the worth of company stock.

Also, CEOs for the most part, did their 5-7 year stint with big compensation packages that they were able to manipulate even higher by buying back the stock, then retired and cashed out with even more humongous compensation via golden parachutes.

When 401ks became more prominent and started to replace worker pensions, the workers who owned company stock through 401k plans were at the mercy of their company CEOs' managerial competency, anticipation of new industry and market development and, quite frankly, honesty — not to mention the ups and downs of the stock market (remember the disasters of Intel, Worldcom and Tyco).

IMO it's pretty clear who the buybacks are intended to benefit.

[riqster]

27. I interpreted stillwaiting's post as ironic.

[hifiguy]

58. Trolls and apologists gonna troll and apologize

especially when some of them are almost certainly paid to do so.

[riqster]

64. See post 34.

[stillwaiting]

74. Pretty sure hifiguy wasn't calling me a troll.

I read it as calling out the posters I highlighted in my post.

Again, it's very hard to tell sometimes!!

[riqster]

75. Amen. I use the sarcasm icon. A lot.

Because you never can tell.

[stillwaiting]

76. I almost always do. Updated my orig. post to clear up any confusion.

Thanks for the OP!

[riqster]

77. Thanks back atcha.

This is a lot more important than my usual posts.

[hifiguy]

80. You are correct!

[Dustlawyer]

6. All true except just getting Republicans out! Corporations and the 1% own quite a few

Democrats too. The root problem is the legalized bribery in the form of campaign contributions, Super PACs and the Revolving door! We get Publicly Funded Elections and we can solve most of our problems!!!

[riqster]

10. That is true, and I completely agree.

However, re-regulation is also required.

[BlancheSplanchnik]

7. must read later.

Please, whoever's in charge of these things...don't let me forget. Really want to read this.

[riqster]

9. It's worth it.

The blog site has links to the research. Fascinating stuff.

[greatauntoftriplets]

8. Never thought anything different about his crackpot economic theories.

[riqster]

15. Nor I.

But it is instructive to see the cause linked to the effect.

[AlbertCat]

39. Never thought anything different about his crackpot economic theories.

How often have you heard this:


"Ahhhh... but it's SO COMPLICATED you don't understand.... you have to be an economist to get it....."

[riqster]

48. Laffer was and is laughable.

[AlbertCat]

60. Laffer was and is laughable.

Yes. Mathematician Martin Gardner destroyed the "Laffer Curve" the minute it "came out" with his "Neo-Laffer Curve"

[riqster]

63. A thing of positively Gordian beauty!

[blackspade]

93. That looks like Reagan's dick, fucking the American citizenry

[riqster]

98. Brain Bleach!

[blackspade]

100. He he

[SoLeftIAmRight]

11. The turn back to oil, deregulation, disengagement from third world development

and more has resulted in many of conditions that are breaking this nation.

Everyone for themselves is not a sustainable system.

[riqster]

14. S'truth.

Libertarians are eedjits.

[freebrew]

40. The idjuts that call themselves libertarians, for sure...

yet, the opposite of that is authoritarians.

Too many folks can't discriminate between the 2.

The Pauls(Ron and Rand), and their followers are of that stripe for pure greed, plainly.

Yet, civil libertarians(I think) want to preserve the freedoms that we're(the people, not corporations) supposed to have FROM the government.

I'm not trying to argue with you, I agree with you. There needs to be a distinction, however.
Most of the liberals and 'far leftists' I know are of that type.
Maybe we should just call the Paulists greedheads?

Just wonderin'

[riqster]

41. Fair point.

[freebrew]

43. Thx..

[wouldsman]

18. Piketty supports this also

SPecifically regarding this quote:
"when the compensation packages of corporate chief executives were linked directly to the stock value, and has accelerated in recent years – even though it’s been little noticed and rarely discussed as a prime driver of economic inequality. "
From page 264-265 of 'Capital':
"The second way of achieving such high inequality is a relatively new. It was largely created by the United States over the past few decades. Here we see that a very high level of total income inequality can be the result of a 'hyper meritocratic' society…..a society of superstars…or perhaps super managers……"

These super meritocrats Piketty refers to are these overpaid CEO's who are using their position (and stacking of their board with friends) to siphon a disproportionate amount of wealth out of the company and stockholders hands and into their own. He is not stating that they "merit" this, just that they do it.

"Regular Joe Citizen" really needs to read this article and grasp some of these complexities or we will never create the positive change our society needs.

Thanks for the article OP!

[riqster]

22. Piketty I respect.

Not sure I agree with the characterization of "meritocrats" in this case. In my experience, many of these profiteering bastards did not rise to their positions solely on merit. Rather, such ascension depends on relationships and influence.

[Hissyspit]

19. That was the whole idea.

[riqster]

23. Yep.

Nice to have proof, though.

[jwirr]

20. First things first. Everyone who reads this needs to forward this and the evidence to the WH with

their request to stop TPP. If he receives all kinds of copies maybe he will read it.

[riqster]

24. Good idea.

And not just the Prexy, and not just TPP.

[jwirr]

28. He should get that idea from the article. Time to realize that playing ball with the Rs is not the

right way.

[riqster]

31. Yep. I meant that we also need to pass this along to others as well.

Senators, congresscritters, pundits, voters, newsies and so on.

This is critical info, and the more people that know it, the better.

[jwirr]

32. Yes. It is time to use the DU activist abilities. We are good at this kind of action.

[riqster]

33. Agreed.

Hammer time!

[GusBob]

21. Instead of investing in their companies they cashed out

Thom Hartmann has rang this bell often.

My feeling is NAFTA made things worse as well

[riqster]

25. Oh hellz yeah.

[freebrew]

42. When the gov't proclaimed we were to go metric...

I saw the manufacturers put a seemingly total stop to retooling/investing in our factories.
Not sure if it was Carter or Nixon that started it. It was well past time anyway.

Since then, all of the factories I've worked have even refused to do regular maintenance on equipment.

Cheaper to buy new than to maintain the old? Tax breaks?
Seems the only investments they were interested in were for bonuses for firing labor.

And yeah, NAFTA didn't help anyone but the bosses.

[riqster]

47. It goes back to the 19th century here, but...

The efforts we would remember started under Nixon and continued under Ford and Carter.

[prairierose]

26. Did anyone find a link to Lazonick's paper?

The charts are incredible and the explanation makes sense but I would like to the see the whole paper.

[riqster]

29. It's buried in the blog post.

Here it is again. Sorry about that: https://hbr.org/2014/09/profits-without-prosperity/ar/1

[prairierose]

37. Thank you rigster....

this is an important post, I hope more people read it.

[riqster]

38. Me too.

A pity so many peeps have me on ignore. Ah well.

[One_Life_To_Give]

44. "first Wall Street insider to lead the commission (SEC) in 50 years"

Very relevant still today. Do we really want more insiders guarding the HenHouse?

[riqster]

46. That's MISTER Fox to you!

[Octafish]

49. Reaganomics worked great for those with Big Money.

For the rest of the nation, not at all.

Thank you for the heads up on "Profits without Prosperity," riqster. This is a big deal.

[riqster]

50. Quite welcome.

Now that we have proof, it's time to make sure everyone knows about it.

[draytontiffanie]

51. Lost cause?

Even after identifying "the root" of the issue, considering so much damage has been done, isn't it just a lost cause?

[riqster]

52. My occupational therapist told me to specialize in lost causes.

Besides, the only causes that are truly lost are those that we gave up on.

[One_Life_To_Give]

53. While Blaming Regan may feel good, the truth is nowhere near as simple.

Took a whole lot more than one person or administration to get us here. Often times the choices seemed benign when first proposed. Allowing Radio and TV manufacturing to be taken over by Japan. Ostensibly so we could focus on more high tech items, made a certain amount of sense. Yet that trend from the 60's is referenced in this report as well.

Clearly we see financial deregulation ushered in with the modern conservative movement exemplified by Regan created much of the mess. But it was also a Clinton administration that in search of short term gains, repealed Glass-Steagall. And more recently has failed to put any of the 2008 disaster culprits behind bars. Even Regan/Bush 1's justice department put almost 900 S&L culprits in prison.

[riqster]

55. Point taken. Inequality as a phenomenon goes back millennia.

However, that was not the topic of my OP. The post-1979 explosion in income inequality is directly tied to Reaganista policies.

If deregulation can be proven to be the cause, we can now more effectively push for reregulation.

[One_Life_To_Give]

59. Weakening the 1930's reforms was huge, but still only a part.

Trouble is many policy changes have weakened the original reforms created in the wake of the 29 crash. Additionally to changes there over the last 50 yrs, those being regulated have also evolved. Having a revolving door between the regulator and regulated undermines what re-regulation we put back in place. In the end the "system" has to work, individual pieces can break a system but by themselves won't fix it.

[riqster]

61. Can't quarrel with that.

Thing is, we cannot let the inability to completely fix a problem whose origins lie in antiquity stop us from diagnosing and fixing such parts of the problem as we can.

[ND-Dem]

54. kr

[riqster]

57. ty

[Initech]

65. Another thing we can thank Reagan for.

The Reagan "revolution" and the Southern Strategy were the two single biggest mistakes we ever made as a country and we're going to be paying for them for centuries. Fuck Reagan.

[riqster]

67. Ike was the last decent Republican Prexy.

I doubt there will ever be another.

[TheKentuckian]

68. No shit and fucking DUH, now are we going to fix it or are we going to keep "meeting in the middle"

to seek "bipartisan consensus" or more accurately actually just embracing the paradigm (along with Bush's counter constitutionalism and interventionism) and focus on the remaining distinctions to the exclusion of what we know here?

[riqster]

70. Having an academically sound case can help us fix the problem.

If, and only if, we demand it.

[TBF]

79. While I agree that Reagan was a supreme asshole,

you've got to add repeal of portions of Glass Steagall and NAFTA to your list of things that are wrong.

And Citizen's United.

Plenty of blame to go around if you look at TPTB. I will say, however, that the so-called Reagan Revolution got the wheels spinning in the wrong direction.

[Yorktown]

81. Reagan was good, but imperfect

To make an economy progress, it's a bit like skiing, you need both the Left and the Right.

True, Reagan launched the rise of deficits by cutting taxes. But that was unintended. As he confessed to Laffer, Reagan never believed Congress would be foolish enough not to match the tax cuts with spending cuts. That's not saying Reagan was blameless, and the fault was that of Congress, just that Reagan satisfied himself with just the easy sell and not the hard preaching.

But it should also be acknowledged that Reagan helped break the dangerous path toward overadministration and regulation. And let's be honest, there was also a problem of national ego. It's probably not going to be very DU-Correct to say, but after VietNam + Watergate, Carter hadn't been precisely boosting up the morale of the country. Reagan did break the USSR's back, but, here again, by overspending.

In short, Reagan brought back morale and broke some rigidities and overadministration, correcting some Left foot mistakes.

But, launching deficit spending and rising inequalities, he ushered in some Right foot mistakes, not corrected by Clinton and worsened by that genius, GW Bush.

Obama did some nice re-centering with the ACA, but didn't make a dent in inequalities or deficit spending.

[riqster]

84. I disagree.

In this case at least, the deregulation effort cited has been proven to have a deleterious effect.

So cheering him for deregulation seems quite odd.

[cui bono]

91. What "dangerous path toward overadministration and regulation" was that? n/t

[riqster]

101. Evidently, Carter was a Marxist or something.

[cui bono]

107. And Reagan lifted morale by firing all the air traffic controllers.

Or something.

I notice that poster hasn't returned to continue the discussion. Just a hit and run of right wing bs. But then we have a president who admires Reagan as well. Ugh.

[blackspade]

96. Um, no. Reagan was not good.

Your skiing analogy is false. Equating sound economic regulations with massive deficit spending as merely left vs right misses the greater point that the 'right' is bankrupt of ideas to effectively govern. This started with the Reagan administration.

And to say that Carter was not boosting moral? Really? So telling the truth about the future of energy security and the problems with the corporate system was bad for moral? Are we a nation of children? Reagan 'boosted moral' based on lies.

And over administration and regulation? Provide some examples please.

[JEB]

82. Kick this into the faces of the corporatists.

[riqster]

83. That's the idea.

[daredtowork]

85. That Paper is Months Old - Why Haven't We Seen Action?

Like immediate restoration of limits on corporate stock buy backs? If there is general agreement this is the "cause", shouldn't we be seeing remedies applied to encourage a return to R&D, investing in employees, etc.?

[riqster]

88. Probably because nobody made noise about it.

Thus my posting it. Let's start making the noise.

[JonLP24]

86. No shit

The African American population has been in a recession since the Reagan administration and hit hard by the housing crisis in the "Great Recession".

[riqster]

89. Yep. This shows us what started the income inequality explosion of our times.

That is the only unique element.

[cui bono]

87. Thom Hartmann talks about this a lot, and says this is why the tax rate needs to be higher

on higher incomes so that there's less incentive to take the money and run. If it's going to be taxed higher it makes more sense to put it back into the business than pay it in taxes.

[riqster]

90. It's the rate and the accompanying regulations.

[raouldukelives]

94. K&R Some labor for it, some against. nt

[riqster]

95. And those who labor against are losing.

Have been.

[AZ Progressive]

99. More proof that America was hijacked by economic terrorists / insurgents

Anti-American 1%ers who hate democracy and America's forefathers.

[riqster]

102. Yep. This proof needs spread far and wide.

[appalachiablue]

105. 1980s Sherman Anti Trust Act (anti monopolies) & Fairness Doctrine not enforced-

IT'S THE STOCK OPTIONS, STUPID. Not just for the main, ogre CEO (Jack Welch type) but the many layers of senior execs. VPs, junior execs. VPs and some Directors that are granted stocks that count on healthy annual stock option awards with their salaries. Employees get wind and want to catch a ride up.
The stock value is what they talk about at Xmas parties in anticipation of their salary news that month, from what I know. 100k-300k of options on top of 75-150k salary is real nice if you can get it, and quite the motivator. Sister in law was admin. asst. to a VP, said much about all this.

[riqster]

106. Yep, that is another bit of Reaganism that caused a lot of damage.

Good point!