Covering Unit #3: Economic Issues and Global Income and Wealth Inequality Flashcards
(42 cards)
What is a democracy? If U.S. individuals have generally had a near-zero influence in democracy both historically and now, then how was democracy working well for the majority of Americans in the 1940’s-1960’s?
Democracy is defined as the control of an organization or group by the majority of its members, or a system of government by the whole population of eligible members. Ideally, democracy includes rules that generally reflect the values of most citizens when it is working well.
Although US individuals have traditionally had a near-zero influence in democracy both historically and currently, democracy was working well for the majority of Americans in the 1940s-1960s because when individuals group together with others who have similar interests, they can pool their voices and strengthen their influence. This concept is called interest group pluralism, and when working well, it channels the views of individual citizens and makes American democracy function in a way that reflects the values of most citizens. In the period after World War II, until about the 1970s, the political power of big corporations and Wall Street was offset by the power of labor unions, farm cooperatives, retailers, and smaller banks, referred to as “countervailing power”. These alternative power centers helped ensure that the vast middle and working classes received a significant share of the gains from economic growth. During this time, which some sources refer to as a “golden age,” there was significant, relatively egalitarian economic growth, with the economic situation of most people (rich and poor) growing together, due in part to strong labor unions and government investments funded by high taxes on the rich and corporations. This was an example of organized and embedded capitalism working with democracy to achieve sustainable growth that benefited all.
What is interest-group pluralism and what are some examples?
Interest-group pluralism is a concept where individuals group together with others who have similar interests, pooling their voices to strengthen their influence. This collective action channels the views of individual citizens and, when working well, makes American democracy function in a way that reflects the values of most citizens.
Examples of the types of organizations involved in interest group pluralism include:
* Interest groups * Membership organizations * Clubs * Associations * Political parties * Unions *
Specific examples mentioned include the National Rifle Association, the California Nurses Association, AARP, the California Association of Realtors, and the Sierra Club. Labor unions, farm cooperatives, retailers, and smaller banks were also noted as examples of alternative power centers that offset the power of big corporations and Wall Street.
What profound change happened beginning around 1980 that had a big effect on democracy in the U.S.? What were the characteristics of those changes, and what effect did it have on interest group pluralism, inequality, democracy, unions, corporations, etc.?
Beginning around 1980, a profound structural change occurred in the U.S. economy, described as the “great U-turn”. This period saw the rise of neoliberal capitalism, marked by major shifts including the financialization of the economy, the offshoring of production, extensive deregulation, lower taxes on the rich and corporations, and the dismantling of social programs. Antitrust enforcement also all but disappeared.
These changes had widespread effects:
*Interest Group Pluralism: Other interest groups began to wither and their power weakened.
*Inequality: Inequality soared. While the rich continued to see economic gains concentrated at the top, the economic situation of most people, including the middle and working classes, stagnated or declined after growing together for decades post-WWII.
*Democracy: The system of democracy began to be undermined and eroded. Concentration of wealth led to concentration of political power. Lawmakers increasingly responded to the demands of wealthy individuals and monied business interests. The preferences of the average American were found to have a “miniscule, near-zero, statistically non-significant impact upon public policy”, especially exacerbated after decisions like Citizens United allowed unlimited political spending by corporations and unions. This created a vicious cycle where concentrated power was used to gain advantages (like tax cuts) that further concentrated economic gains at the top, granting even more power to moneyed interests. Policy no longer reflected the values of most citizens.
*Unions: Union membership plunged as corporations sent jobs abroad and fought unionization aggressively. Organized labor, which had been a key part of “countervailing power” offsetting corporate influence, saw its strength and financing decrease substantially, dissolving a usual counterforce to business power.
*Corporations: Corporations became bigger, more powerful, and more politically potent. Deregulation sealed the fate of smaller competitors. Corporate lobbying skyrocketed and money poured into politics, with corporations and wealthy individuals gaining tremendous influence over politicians and legislation. Corporations gained legal rights and protections, being declared as persons with free speech rights that allow unlimited spending in elections. The focus shifted from stakeholder capitalism to prioritizing shareholder profit.
What is capitalism? In order to have a free market, decisions must be made about the five building blocks of capitalism. What are those five building blocks?
Capitalism is an economic and political system where countries’ trade and industry are controlled by private owners for profit rather than by the government, allowing for the ownership of property and the free exchange of goods and services. It is a global, predominant system that can work with democracy. In order to have a “free market” within capitalism, decisions must be made about five building blocks:
- Property: What can and cannot be owned. This includes things like land, cars, or homes, but also complex ideas like intellectual property, or historically, even people. Decisions determine exactly what counts as property and for how long it can be owned.
- Monopoly: What degree of market power is permissible. This defines how large and economically potent a company or small group of firms can become, or to what extent dominance over a platform restricts competition. It addresses situations where one provider might control a market like internet service.
- Contract: What can be bought and sold, and on what terms. This includes defining what transactions are not allowed (like buying votes or dangerous drugs) and which contracts are not enforceable (like those based on coercion or fraud), while also defining what “coercion” or “fraud” mean.
- Bankruptcy: What happens when purchasers can’t pay up. Rules govern how unpaid debts are handled, such as corporations using bankruptcy to shed pension obligations while homeowners might not have the same options.
- Enforcement: How to make sure no one cheats on any of these rules. This involves establishing the mechanisms and authorities that ensure the other rules of the market are followed. These decisions do not “intrude” on the free market; they constitute the free market itself, as without them, there is no market.
Explain the three types of capitalism. Which one strengthens democracy? Which one fits with Milton Friedman-style economics and politics? Which one fits with FDR’s “New Deal”? Which ones increase social tensions vs. reduces them?
1.
Market Liberal Capitalism: Dominant in North America and Europe in the 1800s, characterized by the government being hands-off and not interfering with markets or economic policy.
2.Organized and Embedded Capitalism: Involves companies forming associations and governments interfering in the economy and society with labor laws, selective subsidies, regulation, a welfare state, and expanded social policy. This type was prevalent in the United States after World War II.
3.Neoliberal Capitalism: Emphasizes market self-regulation and minimal government involvement, characterized by deregulation and privatization. This type became dominant starting around the 1980s.
*Organized and Embedded Capitalism is the type that strengthens democratic institutions because it is likely to achieve sustainable growth from which all benefit. Neoliberal capitalism, conversely, is described as turning into a crisis of democracy.
*Neoliberal Capitalism fits with Milton Friedman-style economics and politics. Friedman advocated for deregulation, privatization, and minimal government interference, often exploiting crises to impose rapid, irreversible free-market changes.
*Organized and Embedded Capitalism fits with FDR’s “New Deal” of the 1930s and 1940s. The New Deal era, and the subsequent period until about the 1970s, saw strong labor unions and government investments funded by higher taxes on the rich and corporations, contributing to broad economic growth that benefited most people.
*Market Liberal Capitalism increased social tensions. Organized and Embedded Capitalism was associated with a period of marked reduction in inequality and economic growth where most people’s situation grew together. Neoliberal Capitalism, since its rise around 1980, has been linked to soaring inequality and stagnation or decline for the majority, contributing to economic instability and social unrest.
Which can function with extreme wealth and concentration of capital and power — capitalism or democracy or both?
capitalism can function with extreme wealth and concentration of capital and power. However, democracy cannot. Concentration of wealth yields concentration of political power, and as Supreme Court Justice Louis Brandeis noted, “We may have a democracy, or we may have wealth concentrated in the hands of a few, but we cannot have both”. The increasing concentration of money and power in the hands of a wealthy elite undermines and erodes democracy.
What are the characteristics of a corporation? What rights does a corporation have? What are the goals of a corporation, and why is it a threat to democracy?
A corporation is a state-created legal entity that is separate and distinct from its owners (shareholders). It functions legally as an individual person. Historically, corporations were associations chartered for specific functions and considered subordinate entities serving the public good.
Corporations have acquired many of the legal rights of a person, primarily through interpretations of the 14th Amendment, originally intended to protect newly freed slaves. These rights include the ability to buy and sell property, borrow money, sue and be sued, hire employees, and own assets. However, unlike a person, a corporation cannot vote and is considered immortal. A significant distinction is that while owners direct the corporation, they often have limited responsibility for the bad things the corporation does. Corporations also lack a moral conscience or social responsibility.
The primary goals of a corporation are the accumulation of wealth and maximizing profits. This is the sole driving force, often without other considerations. They are legally bound to place the financial interests of their owners (stockholders) above competing interests, even the public good.
Corporations pose a significant threat to democracy because their increasing power and influence undermine democratic processes. The concentration of wealth in corporations and the wealthy elite translates directly into concentration of political power. Corporations wield this power through corporate lobbying, funding politicians, establishing think tanks to influence legislation, and pouring large amounts of money into politics, which the working class cannot compete with. Decisions like Citizens United v. FEC further eroded democracy by ruling that the free speech of corporations (interpreted as spending money in elections) cannot be curtailed, allowing them to effectively buy elections with no constraints. This results in politicians responding to the demands of moneyed interests rather than the values of most citizens, creating a vicious cycle where power is used to gain advantages that further concentrate wealth and power, ultimately turning democracy into a crisis. Democracy cannot function with such extreme wealth and power concentrated in the hands of a few.
Explain the characteristics of the two big structural changes to the economy beginning in the 1970’s, and the effects of those changes on the share of the economy in manufacturing vs. finance.
Beginning around the 1970s, the U.S. economy underwent two major structural changes. These shifts, described as the “great U-turn,” contributed significantly to economic issues like growing income and wealth inequality.
The two big structural changes were:
1.The Financialization of the Economy: This involved an increasing role for financial institutions like banks, investment firms, and insurance companies. It saw a shift from traditional banking towards risky investments, complex financial instruments, and money manipulations. The focus shifted from producing goods and materials to generating profit by moving investments and manipulating money on paper for short-term gains and quarterly returns. By 2010, corporations like General Electric, which traditionally produced goods, made a large percentage of profit simply by moving money around.
2.The Offshoring of Production: This involved shifting the production of goods to places with cheaper labor, low or no health and safety standards for workers, and fewer environmental protections. This put working people in different parts of the world in competition with one another.
These changes had a dramatic effect on the shares of manufacturing and finance in the economy:
*In the 1950s, manufacturing was a large part of the U.S. economy, around 28%, while finance was much smaller, about 11%. Banks were regulated and commercial and investment banking were separated.
*By 2010, after these structural changes took hold, the share of manufacturing in the economy plummeted to just 11%, while the share of finance more than doubled to over 21%. Deregulation around the same time also “sealed the fates” of smaller competitors.
This restructuring contributed to a vicious cycle of concentration of wealth and power.
What did “free trade” do to working people all over the world?
“free trade” has put working people in competition with one another all over the world. This was part of a restructured trade system explicitly designed for this purpose.
This global competition means that a worker in one country, such as an American auto line worker who previously earned a living wage with benefits, is now in competition with a “super exploited worker” in another country, like China. Because capital is free to move to seek the lowest labor costs, but workers are not free to move, workers are left with fewer comparable job options and suffer as production shifts abroad.
The effect has been a reduction in the share of income for working people worldwide. While the wealthy and privileged are protected, policy, including free trade agreements, has increased insecurity for workers. This shift of production to places with cheap labor, low safety standards, and weak environmental protections ultimately contributes to a vicious cycle of wealth and power concentration.
What is ALEC, and what does it do?
ALEC (American Legislative Exchange Council) is described as a private club and a political lobbying group whose members are politicians and corporations.
ALEC functions as a partnership between state legislators and leaders from the corporate and business community. Through ALEC, corporate members propose laws to their political counterparts, and corporate lobbyists secretly vote as equals with lawmakers on bills. These bills are then introduced by the lawmakers in state legislatures. This process gives corporations a huge say in lawmaking, and nearly every bill that ALEC writes benefits one of its corporate funders. Corporations have been influencing laws for decades through ALEC. The organization makes writing legislation troublingly easy for politicians, providing model bills. A co-founder noted that their leverage in elections increases as the voting populace goes down, which is characterized as a direct attack on democracy.
Explain Citizens United vs. Federal Election Commission. What did it provide, and what impacts has it had?
The Supreme Court case Citizens United v. Federal Election Commission, decided on January 21st, 2010, reversed a century of law. Before this ruling, Congress had banned corporations from funding federal campaigns since 1907 (the Tillman Act) out of fear that those with more money would have an unfair advantage in swaying elections. The Taft-Hartley Act in 1947 extended this ban to labor unions.
The Citizens United decision allowed corporations and unions unlimited spending on political campaigns. It held that the free speech of corporations, interpreted as spending money in elections, cannot be curtailed. While unions were also granted this right, they generally cannot compete with the vast wealth of the corporate elite. This ruling also set a precedent, via the speechnow.org case, that eliminated limits on contributions to groups making independent expenditures, which led to the creation of Super PACs able to donate unlimited sums to fund campaigns.
The impacts of this decision have been significant:
*It caused the amount of money poured into campaigns to skyrocket.
*A very select few global wealthy elite are now influencing democracy in significant ways, with a large percentage of Super PAC money coming from a small number of wealthy individuals and their spouses. For example, the Koch Brothers planned to spend a record-setting $400 million on a campaign cycle after the ruling.
*Corporations are effectively able to buy elections with no constraints.
*This greatly extended business power and is seen as a tremendous attack on the residue of democracy.
*Politicians become reliant on this big money for election and continue to do favors for corporations.
*Funding a candidate buys access to them once elected, allowing corporate lobbyists and lawyers to influence legislation and even write laws.
Ultimately, Citizens United is described as an example of the further erosion of democracy, contributing to the vicious cycle where political power is concentrated in moneyed interests and the wealthy elite, leading to politicians responding to wealthy demands rather than citizen values.
What is “Shock Doctrine” and what are the details of the example given in class involving Milton Friedman and New Orleans?
Shock Doctrine is a core tactical nostrum articulated by Milton Friedman, described as the strategy of waiting for a major crisis (actual or perceived), then selling off pieces of the state to private players while citizens are still reeling from the shock, and then quickly making the “reforms” permanent. Friedman believed that “only a crisis… produces real change” and that swift, decisive action during such a period was crucial to impose rapid and irreversible change before society returned to the status quo. This method is also referred to as economic “shock treatment” or “shock therapy”.
A classic example discussed in the sources involves Milton Friedman and New Orleans following Hurricane Katrina in 2005.
*Shortly after the levees broke, the 93-year-old Friedman wrote an op-ed for The Wall Street Journal, observing the tragedy of ruined schools and scattered children but also seeing an “opportunity to radically reform the educational system”.
*Friedman’s “radical idea” was to use the billions of dollars in reconstruction money to provide families with vouchers to attend private institutions (many run for profit and subsidized by the state) rather than rebuilding the existing public school system. He insisted this fundamental change be a “permanent reform”.
*A network of right-wing think tanks and the George W. Bush administration supported this plan with tens of millions of dollars to convert New Orleans schools into privately run charter schools.
*While repairs to levees and the electricity grid were slow, the privatization of the school system occurred with “military speed and precision”. Within nineteen months, most of the public school system was replaced by privately run charter schools, with the number of public schools run by the board dropping from 123 to just 4, while charter schools increased from 7 to 31.
*The teachers’ union contract was shredded, its 4,700 members were fired, and while some younger teachers were rehired by the charters, it was at reduced salaries.
*For Friedman, the state’s role was limited to providing “police and soldiers” to preserve law and order, enforce contracts, and foster markets; anything else, including free education, was seen as an “unfair interference in the market” and reeked of socialism.
*This was characterized by public school teachers as an “educational land grab” and is presented as an orchestrated raid on the public sphere, treating the disaster as an “exciting market opportunity”. New Orleans became a “preeminent laboratory” for charter schools.
This example illustrates the Shock Doctrine’s application: exploiting a major crisis to quickly and irreversibly implement free-market policies, particularly privatization, while the affected population is vulnerable.
How much was the private bank bailout package in total in U.S. taxpayer-funded dollars in the wake of the 2008 financial crisis? How many years could that same amount of money generate a world without hunger?
in the wake of the 2008 financial crisis, the U.S. Treasury provided massive bank bailouts using trillions of dollars of US taxpayer money to prop up failing financial institutions. This program, known as the Troubled Asset Relief Program (TARP), was created by the Bush administration in 2008 to keep banks afloat despite engaging in fraud and gambling. The sources describe these bailouts as happening repeatedly, with the taxpayer being called on to rescue increasingly large financial institutions.
The provided sources do not contain information on how many years that same amount of money could generate a world without hunger. The sources discuss the scale and nature of the bailouts and their consequences, but do not link the bailout amount to the cost or timeframe for ending global hunger.
Are the developing and poor countries that have integrated themselves more completely into the global economy (by adapting to a number of rules and restrictions established by international organizations like the WTO and World Bank) seeing increases in income at comparable rates to the developed countries? Explain why.
developing and poor countries that have integrated into the global economy under the current system are not seeing increases in income at comparable rates to developed countries for their working populations.
This is primarily because the restructured trade system, including “free trade” and the offshoring of production, was explicitly designed to put working people in competition with one another all over the world. Production shifts to places with cheap labor, low or no health and safety standards, and fewer environmental protections. This puts workers in developed countries in competition with “super exploited workers” elsewhere, driving down wages globally. While capital is free to move to find the lowest costs, workers are not, leaving them with fewer comparable job options and less leverage.
International financial institutions like the IMF and World Bank have also played a role by imposing conditions on loans that prevent increases in worker salaries, even forcing countries like Mexico to break their own labor laws. This system effectively turns areas like Northern Mexico into cities of cheap labor where unskilled workers are exploited, and the promised “trickle-down” benefits to the local economy are limited because wages are kept too low. Ultimately, this global competition contributes to a reduction in the share of income for working people worldwide, favoring the concentration of wealth and power at the top.
Corporations don’t advertise products particularly. What are they advertising?
Instead, they are advertising:
*A way of life and a way of thinking.
*A story of who we are as people, including ideas about liberty and freedom.
*Themselves, their domination, and their rule.
*The idea that the corporation is inevitable, indispensable, efficient, and responsible for progress and a good life.
*Brand meaning and the idea of themselves.
*A corporate worldview.
*“Created wants” and a “philosophy of futility” to make people focus on superficial things like fashionable consumption.
*The social role of the “good consumer”.
This advertising relies on propaganda and psychological manipulation to create uninformed consumers who make irrational choices, including in elections, effectively manufacturing consent.
What did Walmart do instead of paying a living wage or providing healthcare for their employees (provide specific examples)? And, how much is it costing California taxpayers to subsidize the low Walmart wages?
Instead of paying a livable wage or providing affordable healthcare, Walmart promoted employees to use taxpayer-funded government assistance programs. This included encouraging workers to go on welfare, seek aid for utility bills, apply for food stamps (like WIC), and utilize housing subsidies like Section 8. A regional personnel manager explicitly stated that the state should take care of Walmart associates’ healthcare needs, directing employees to available government assistance using taxpayer dollars. Many employees found Walmart’s health insurance too expensive and relied on Medicaid or other state programs. The sources describe this as Walmart “using the system”, and that their “everyday low prices are based on taxpayer subsidies”.
Regarding the cost to California taxpayers, the sources cite a UC Berkeley report concluding that Walmart costs state taxpayers $86 million dollars per year, and county taxpayers as much as another $25 million, to cover public healthcare, income tax credits, housing subsidies, and food stamps for their workers.
What is the T.B.L.?
The Triple Bottom Line (TBL) is a model for sustainability that proposes companies prioritize three different components of success instead of profit as the sole priority. These components are known as the “three Ps”: Profit, People, and Planet.
*Profit is the traditional financial bottom line.
*People is a measure of how socially responsible an organization has been throughout its operations, including ethical standards for suppliers and worker treatment.
*Planet is a measure of how environmentally responsible a company has been, taking into account impacts like logging, hydrocarbon use, and other environmental costs.
The aim of the TBL is to measure a company’s financial, social, and environmental performance to capture a more realistic full cost of doing business. The underlying principle is that what is measured is what receives attention, thus encouraging socially and environmentally responsible organizations.
According to Thomas Piketty and Emmanuel Saez, income and wealth inequality occurs when?
Thomas Piketty and Emmanuel Saez, income and wealth inequality occurs when the rate of return on capital is greater than the rate of growth of output and income. Their research, which involved analyzing IRS tax data going back to 1913, showed peak years for income concentration where the top 1% took a significantly large share of total income, notably in 1928 and 2007. This concept, particularly highlighted in Piketty’s book Capital in the 21st Century, illustrates that when returns on investments and assets (capital) grow faster than the overall economy, wealth concentrates more rapidly at the top.
What is trickle-down economics and what does it do for inequality and democracy?
trickle-down economics is the idea that giving more money to the top (e.g., the wealthy and corporations) will benefit everyone because it would lead to more growth and that these benefits would “trickle down” to middle and lower-income workers.
However, the sources state that this idea is discredited and has not led to more growth or benefited most people. Since its implementation around the 1970s, it has resulted in the opposite: wealth and income have accrued to the top at the expense of those below, causing most Americans’ incomes to sink or stagnate. This has led to a polarization of the labor force, with more money going to the top and more people pushed toward the bottom. It is a major contributor to the historic and growing income and wealth inequality seen today.
Regarding democracy, the concentration of wealth promoted by trickle-down economics is seen as directly undermining it. Money equals power in politics, and when wealth is concentrated in the hands of a few, that small group gains excessive political power. This means that policy becomes correlated with business interests rather than public attitudes, leading to an erosion of democracy. The sources suggest that vast wealth concentration and a functioning democracy cannot coexist.
Define income inequality. What has been happening to it over the past 40 years, and what are the two points in time in the last century that it was at it’s highest?
Income inequality is the extent to which income is distributed in an uneven manner among the population, creating a gap between the rich and everyone else.
Over the past 40 years, income inequality in the United States has grown dramatically, reaching a historic and growing level that is at an all-time high and comparable to levels seen just before the Great Depression. This trend began around the late 1970s or early 1980s. During this period, wealth and income have increasingly accrued to the top at the expense of those below, causing the incomes of most Americans to sink or stagnate. For instance, the income of a typical full-time male worker has stagnated for well over a third of a century, and the bottom 90% have seen only around a 15 percent growth in their wages, while the top 1 percent have seen increases of almost 150 percent and the top 0.1 percent over 300 percent. The middle class is being hollowed out.
According to the sources, the two points in the last century when income concentration was at its highest level before recently exceeding them were 1928 and 2007. In both these years, the top 1% took home more than 23% of the total income.
Define wealth inequality. What nation has the greatest wealth inequality today?
Wealth inequality is the extent to which net worth (the sum of your assets minus your liabilities) is distributed unevenly among the population, creating a disparity between the rich and everyone else.
Among major developed nations, the United States has the greatest wealth inequality today. The disparity of wealth between rich and poor is wider in the U.S. than in any other major developed country. The median top 5% of U.S. households have more than 90 times the wealth of the median U.S. family. The middle class share of national wealth in America is about 20%, significantly lower than in most other developed countries.
What are the two solutions to the potential for the poor getting together and taking away the property of the rich in a free democracy? Who suggested those solutions, and which one is better and why?
the potential for the poor getting together and voting to take away the property of the rich in a free democracy has been addressed with two main solutions:
1.Reduce democracy: James Madison suggested structuring the system to put power in the hands of the wealthy elite. The rationale was that this would protect the property of the rich minority from the poor majority by placing power in the hands of those with “sympathy for property owners and their rights”, thus preventing democracy from functioning in a way that could redistribute wealth.
2.Reduce inequality: Aristotle suggested creating a welfare state that provides public meals, education, healthcare, and other support for the less fortunate. His idea was that by reducing the disparity and addressing people’s needs, the fear that the poor would want to take money from the rich is lessened, making them less likely to do so.
The sources present these as opposite solutions to the same dilemma. While Madison’s approach aims to prevent the conflict by limiting democratic power for the majority, Aristotle’s approach is presented as better within the context of the sources’ overall discussion because it seeks to reduce the underlying tension by lessening inequality, thereby making the conflict less likely without undermining democracy itself. The sources repeatedly emphasize that vast wealth concentration and a functioning democracy cannot coexist, implying that solutions that reduce inequality support democracy, whereas those that concentrate power in the hands of the wealthy erode it.
Define egalitarian
An egalitarian idea is the idea that all people are equal and have the same rights and opportunities.
Explain Louis Powell’s memorandum of 1971
Louis Powell’s memorandum of 1971 was a document sent to the Chamber of Commerce, the major business lobby. Powell, who would later become a Supreme Court Justice, warned them that business was losing control over society. He argued that something had to be done to counter these forces that were promoting egalitarian efforts and public welfare advances. While presented in terms of defense, the memorandum was seen as a call for business to use its resources to carry out a major offensive to beat back this democratizing wave.
