2013 Was a Banner Year for the Upward Redistribution of America’s Wealth

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Trader Peter Tuchman reacts as he looks at the numbers during the closing bell on the floor of the New York Stock Exchange, Friday, Oct. 19, 2012. (AP Photo/Mary Altaffer)

This post originally appeared at RobertReich.org.

One of the worst epithets that can be leveled at a politician these days is to call him a “redistributionist.” Yet 2013 marked one of the biggest redistributions in recent American history. It was a redistribution upward, from average working people to the owners of America.

The stock market ended 2013 at an all-time high — giving stockholders their biggest annual gain in almost two decades. Most Americans didn’t share in those gains, however, because most people haven’t been able to save enough to invest in the stock market. More than two-thirds of Americans live from paycheck to paycheck.

Even if you include the value of IRAs, most shares of stock are owned by the very wealthy. The richest one percent of Americans owns 35 percent of the value of American-owned shares. The richest 10 percent owns over 80 percent. So in the bull market of 2013, America’s rich hit the jackpot.

What does this have to do with redistribution? Some might argue the stock market is just a giant casino. Since it’s owned mostly by the wealthy, a rise in stock prices simply reflects a transfer of wealth from some of the rich (who cashed in their shares too early) to others of the rich (who bought shares early enough and held on to them long enough to reap the big gains).

But this neglects the fact that stock prices track corporate profits. The relationship isn’t exact, and price-earnings ratios move up and down in the short term. Yet over the slightly longer term, share prices do correlate with profits. And 2013 was a banner year for profits.

Where did those profits come from? Here’s where redistribution comes in. American corporations didn’t make most of their money from increased sales (although their foreign sales did increase). They made their big bucks mostly by reducing their costs — especially their biggest single cost: wages.

They push wages down because most workers no longer have any bargaining power when it comes to determining pay. The continuing high rate of unemployment — including a record number of long-term jobless, and a large number who have given up looking for work altogether — has allowed employers to set the terms.

For years, the bargaining power of American workers has also been eroding due to ever-more efficient means of outsourcing abroad, new computer software that can replace almost any routine job, and an ongoing shift of full-time to part-time and contract work. And unions have been decimated. In the 1950s, over a third of private-sector workers were members of labor unions. Now, fewer than 7 percent are unionized.

All this helps explain why corporate profits have been increasing throughout this recovery (they grew over 18 percent in 2013 alone) while wages have been dropping. Corporate earnings now represent the largest share of the gross domestic product — and wages the smallest share of GDP — than at any time since records have been kept.

Hence, the Great Redistribution.

Some might say this doesn’t really amount to a “redistribution” as we normally define that term, because government isn’t redistributing anything. By this view, the declining wages, higher profits, and the surging bull market simply reflect the workings of the free market.

But this overlooks the fact that government sets the rules of the game. Federal and state budgets have been cut, for example — thereby reducing overall demand and keeping unemployment higher than otherwise. Congress has repeatedly rejected tax incentives designed to encourage more hiring. States have adopted “right-to-work” laws that undercut unions. And so on.

If all this weren’t enough, the tax system is rigged in favor of the owners of wealth, and against people whose income comes from wages. Wealth is taxed at a lower rate than labor.

Capital gains, dividends, and debt all get favorable treatment in the tax code – which is why Mitt Romney, Warren Buffet, and other billionaires and multimillionaires continue to pay around 12 percent of their income in taxes each year, while most of the rest of us pay at least twice that rate.

Among the biggest winners are top executives and Wall Street traders whose year-end bonuses are tied to the stock market, and hedge-fund and private-equity managers whose special “carried interest” tax loophole allows their income to be treated as capital gains. The wild bull market of 2013 has given them all fabulous after-tax windfalls.

America has been redistributing upward for some time – after all, “trickle-down” economics turned out to be trickle up — but we outdid ourselves in 2013. At a time of record inequality and decreasing mobility, America conducted a Great Redistribution upward.

Robert B. Reich is the chancellor’s professor of public policy at UC-Berkeley and former secretary of labor under the Clinton administration. His new film, Inequality for All, opened in September.
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  • Anonymous

    None of them can curtail flaunting. :/

  • Baron95

    What an absurd position. At best this is DISTRIBUTION of economic gains. RE-distribution is getting the government to take from so to re-distribute to others.

    Redistribution is what Robert Reich seems to be advocating, not what the article reported on.

    And on top of that, his facts are wrong. Average hourly wages and average hours worked all went UP in 2013, not down. So there was no decrease in wages.

    And if it were true that unemployment and a poor economy drive corporate profits, then 2009 (10% unemployment) corporate profits would have been better than now (7% unemployment).

    I generally like Prof. Reich. But this article is gratuitous and baseless inflammatory rhetoric.

    Corporate profits are up because the economy is performing better here and on a global scale. Stock prices are up primarily because small investors, foreign investors have been net buyers of US stocks. The 10% of Americans trading stock among themselves are a zero sum gain.

  • Marty Lisi

    Baron95, I question your premise that wages in 2013 are up. In my circle of professional friends, neighbors, and colleagues, we are all working harder–and longer–for less. Take a survey of your friends and neighbors–if you know people who support themselves on earned wages rather than investment income–and let me know what you find out.

  • http://albatross.org/ Albatross

    It’s almost as if you’re ignoring the content of the article itself by puffing a single term or concept up into a straw man to use to distract from the point of the article.

  • Anonymous

    Wages keep going up for most (not all) government workers. For us in the private sector, wages have been following the profile of a major Depression (once known as a Panic), not a “recovery” (whatever that’s supposed to mean).

  • Anonymous

    And that doesn’t even touch on the theft of equity from the banks using MERS in their crooked little shell game of theft of property by deception. MERS alone cost counties many millions in revenue. Much of that was invested overseas, largely untaxed. Those mortgage trusts were allowed to keep tax breaks their own actions made illegal to take that amounted to billions. To allow a segment of the population to get paid several times over for a “defaulted” loan and then get the property as well is beyond crooked.

  • nan

    My husband works for the V.A., in the hospital, and his wages have been frozen. Even if you work for the government, the employees don’t get paid that much, their wage increase is minimal, but they do have a pension, insurance, benefits which are a blessing. He’s 65 and needs to keep working.

  • Anonymous

    It is painfully ironic that we are bombarded with the daily news of the ” records” being broken on Wall Street and with corporate earnings. Is that supposed to distract us from the realities of the eroding middle class?

    I do not understand why the majority of working class and middle class folks still defend these practices as the ” American” way. Folks think running a small business has the same challenges and benefits as running a multi-national corporation…nothing could be further from the truth.

    As most small business owner know the tax code, tax breaks etc. are not there to support the middle class and if a politician proposes it its marked with the Scarlet letter of ” entitlement.” or it is ” redistribution” of wealth or the final kicker it has to be off set with spending cuts.

    So it will never happen. You wonder if 2014 will be the year America finally wakes up from the war party of the last twelve years and realizes how much blood, honor , and treasure we simply wasted abroad why tens of millions struggle here at home.

    Take that Mr. Gates and put it in your pipe and smoke it.

  • Anonymous

    Yeah borrowing money at zero percent interests has nothing to do with it either. Lets see you try to get a zero percent interest loan from JP Morgan Chase…It even more ironic that Chinese investor are riding this gravy train too.

    I guess investing corporate profits, even some, into raises is a bad investment in your eyes?

  • Anonymous

    Sorry to hear that, Nan. The most important jobs, directly tackling some of the biggest problems, get paid the least. I don’t know that is. I know some local teachers are being asked to take a 10% cut. Meanwhile, others in administration continue to build their “empires.” Thanks for the post. Please tell your husband to hang in there. I appreciate his service. All the best.

  • Dude

    Mr Reich wrote:

    “For years, the bargaining power of American workers has also been
    eroding due to ever-more efficient means of outsourcing abroad, new
    computer software that can replace almost any routine job, and an
    ongoing shift of full-time to part-time and contract work. And unions
    have been decimated. In the 1950s, over a third of private-sector
    workers were members of labor unions. Now, fewer than 7 percent are

    I more or less agree with the forgoing. If you don’t have in demand skills its hard to make a good wage. There is a whole class of people making a lot of money because they have in demand skills and because of this they are not negatively impacted by a world that changed. I tire of the implication that this group has somehow done something wrong by being successful. Its misdirected anger and it solves nothing.

    Its not that wages are being redistributed from the middle class to the upper class. Skilled people are getting paid well because their skills are in demand. They can demand high wages because they offer high value services in return. There are too few of them and excess demand for their services. Its basic economics -. supply and demand.

    Its simply not in the economic interest of corporations to over pay people who lack skills. The solution is not wealth redistribution. The solution is getting our population educated and retrained.

    We are competing in a global market. We need to fully understand what that means. The world changed. Low skilled work can get done overseas for very low wages. Getting more people into unions will not solve the problem. Forcing employers to overpay for work can seem like a good idea until the workers get priced out of the market.Then they have no job. Its a short term fix. That said the minimum wage is too low.

    Also, the heavy handed tactics of many unions had a very negative impact on union membership and status in this country. That is a major part of the drop in union membership and the reason many manufacturers moved jobs overseas and down south.

  • Anonymous

    If you do a little, just a little on a search engine of your choice and go for an unbiased source that gives facts you will see wages have went down. You didn’t notice the rise of living costs.

  • Dude

    Its up to the shareholders to make decisions concerning who serves on the board. Whether or not the executives are overpaid is also a function of what the board of directors decides. The shareholders vote on the board of directors.

    That said, yes there are executives that are grossly overpaid for their performance just as there are athletes that get hired and end up not performing up to expectations, but that should be of concern to the shareholders of the publicly held corporations. The shareholders are punished financially when they own shares in companies that do not perform and conversely they make money when the companies perform well. Whether or not they are overpaid should only be important to the owners of the company.

    Are you proposing that the “workers” control the companies? Are you proposing that the average worker in a company get to vote on executive pay? That would be a socialist / communist model of government. That model has worked very poorly historically.

    I do not agree that the “10 PCT” control everything. There are elections that provide Americans with a vote. It seems to me that 90 pct is a much bigger block than 10 pct.

    Why do you think kids with computer science degrees come out of school making $50K – $70K. Could it be because they have skills that are in great demand? If someone has a high school diploma and doesn’t write well or speak well, do you think they are going to be able to perform at the same level as a kid coming out of a major business school hired to write business strategy papers?

    Wealth follows skills. Its been that way forever in this country. Its what parents have been telling their kids growing up for centuries. “Do your homework, get good grades and work hard and you will be able to earn a decent living”. Most parents have given their kids that lecture. The ones that followed that advice, in general, are now occupying the jobs in the top 10 pct. Should they feel bad about what they have accomplished? Are they obligated to give their pay to those that did not pursue age old advice?

    Computers and automation and the exportation of low skill jobs has reduced demand here for low skill jobs. The jobs are gone. Companies cant compete if they overpay for work that can be done for a fraction of the cost somewhere else. It’s just that simple. Its not because the top tier make a lot of money. Again, they make a lot of money because someone wants what they have to offer. It really is that simple. Its not a conspiracy. There is no conspiracy of one percenters or ten percenters. The world changed. people can choose to blame others for their circumstances or they can seek more constructive courses. Its a personal decision.

    There is no magic solution. Its very enticing,it seems, to look for a class of people to blame, but blame does not result in solutions. It results in animosity and sometimes violence and political demagogs. We need to concentrate on solutions.

  • Dustymack

    Its hardly a wage increase with inflation.