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Morning Feature: Winner-Take-All Politics, Part II: Hats Black and Gray

June 3, 2011

Morning Feature

Morning Feature: Winner-Take-All Politics, Part II: Hats Black and Gray

Has Washington fueled the explosion of wealth for the top 1%? Or was it Wilmington? Republicans? Democrats? Yes, Yes, Yes, and Yes, some…. (More)

Winner-Take-All Politics, Part II: Hats Black and Gray

This week Morning Feature reviews Paul Pierson and Jacob Hacker’s Winner-Take-All Politics. Yesterday we looked at rising income inequality and the conventional wisdom causes: the rising value of education and technical skills, and natural forces of a modern economy. Today we consider political causes: action, drift, and the “black hats” and “gray hats” of the two major parties. Tomorrow we’ll look at Pierson and Hacker’s solutions.

The Road to Richistan: Turns made …

In 2006, Treasury Secretary Hank Paulson said growing income inequality “is simply an economic reality, and it is neither fair nor useful to blame any political party.” That’s a convenient argument for the extremely wealthy, as it implies nothing can or should be done to change it. Even Nobel Laureate Paul Krugman wrote that he “can’t figure out a plausible mechanism” for why pre-tax income inequality grew under Republican administrations.

In Winner-Take-All Politics, political science professors Paul Pierson and Jacob Hacker offer two such mechanisms. The first are policy changes that favor the concentration of income. Some are obvious, such as the 1999 Gramm-Leach-Bliley Act that repealed the Depression-era Glass-Steagall Act and allowed the merger of consumer banks, investment banks, and insurance companies. That both enabled the formation of “too big to fail” behemoths, and encouraged the growth of the highly-speculative financial instruments that led to the 2008 financial meltdown.

But the obvious policy changes are the exception. More often, the changes are subtle nudges. For example, most U.S. corporations are based in Delaware. In a decision last March, a Delaware judge wrote in a footnote that corporations might amend their charters to require shareholder actions to be filed in Delaware courts. Many corporations are now attempting to do that, because Delaware corporate law is both sophisticated and generally favors management over shareholders, albeit with some exceptions. Pierson and Hacker present data showing that most of the beneficiaries of rising inequality are corporate and banking executives. Legal changes that make it harder to file and win shareholder lawsuits reduce the limits on astronomical executive pay and perks.

… and Turns not made.

The other mechanism Pierson and Hacker offer is one they call drift, the failure of policy to keep pace with changing economic conditions. If laws like Gramm-Leach-Bliley are government choices to turn onto the road to Richistan, examples of drift are choices not to turn off of that road. Pierson and Hacker cite many examples, such as not updating labor laws in response to new corporate anti-union tactics, not enacting stock option regulations in response to changing executive pay packages, and not updating securities regulations in response to the growth of risky but profitable Wall Street speculation.

Drift is failure to maintain our legal infrastructure, and its effects can be just as devastating as failing to maintain a bridge or water main. For example, although Pierson and Hacker cite polls that show more American workers want to belong to unions today than wanted to in the mid-1970s, private sector union membership to shrink from 25% to 7%. Unions not only benefited their members, but other workers as well. Union contracts lifted non-union wages, and limited slippage in health insurance and other benefits. Unions also informed and mobilized their members and others in their communities on issues that affect workers. Pierson and Hacker cite the successful filibuster of a 1978 labor reform bill among several examples of drift in labor law. Their most recent example was Democrats’ inability to break a filibuster on the Employee Free Choice Act from 2007-2010.

“Black hats and gray hats?”

Both the failure of the 1978 labor reform bill and the failure of EFCA in 2009-2010 happened under Democratic presidents, and with substantial Democratic majorities in both the House and Senate. Does this mean “the Democratic Party has abandoned the middle class,” as Kevin Drum argued in Mother Jones? Not exactly. While Drum cites many of the same sources as Pierson and Hacker, and their book as well, his argument is not their argument. Instead, Pierson and Hacker say, when on issues that pit our archetypal wealthy Charles against our archetypal median Fred, “Republicans wear black hats and Democrats wear gray hats.”

Even that goes too far, as it implies all Democrats stand somewhere in the middle between Charles and Fred. However, Pierson and Hacker present data showing that, on any given bill, almost every House and Senate Democrat votes with Fred. But the key word there is “almost,” as on any given bill you usually find a handful of Democrats voting with Charles. Sort of.

Pierson and Hacker offer the example of Sen. Chuck Schumer (D-NY), a reliably pro-Fred vote on any issue except Wall Street regulation. As it happens, Wall Street is a huge slice of the New York state economy, providing both secondary jobs and tax revenues that benefit many New York workers. In that respect, Sen. Schumer votes with New York Fred. Similarly, California Democrats Dianne Feinstein and Barbara Boxer have been reliably pro-Fred on most issues, except proposed stock option regulations that would impact Silicon Valley workers’ pay packages. Pierson and Hacker suggest that pattern holds on issue after issue: Republican “black hats” vote in ideological lockstep for Charles, and there are usually just enough Democratic “gray hats” voting for Local Fred – their constituents – but against All-American Fred.

And that analysis presumes Fred has advocates who know about a pending issue. Progressives are supposed to be pro-Fred – we are here at BPI – yet how many of us knew about the pending changes in Delaware corporate charters? I didn’t until this morning. But the well-funded think tanks and lobbyists who advocate for Charles knew about that Delaware law, and they have been weighing in. If lawmakers and judges hear only Charles’ side of the argument, Fred has no chance.

Tomorrow we’ll see why Pierson and Hacker identify that organizational mismatch as the key issue, and what we can do about it.


Happy Friday!

  • winterbanyan

    The Delaware charters thing is very upsetting.

    My question is this, though: if we want representatives to actually represent our districts, then how can we expect the “gray hats” to act differently? In part, they’re doing what they were elected to do.

    So I guess we have to get the larger message out to Fred: this kind of stuff is killing the economy. But Fred is already in a world of hurts. How is he going to react to stuff that may make things harder for him than they already are?

    Almost everyone running for elected office is running on a platform of creating jobs in their districts. And part of doing that will almost invariably be to give corporations various breaks. I’m looking forward to tomorrow to see how this all ties up into messaging and organization that will win Fred’s support as well as the support of the “gray hats.”

    • NCrissieB

      I agree that the Democratic “gray hats” are often serving the Freds in their states or districts. Consider the example of Delaware. Both U.S. Senators and the state’s House Representative are Democrats. So are the governor and majorities of in both chambers of the state legislature. But don’t expect them to support bills to block exclusive forum clauses in corporate charters or bylaws. Incorporation fees alone provide almost 20% of Delaware’s budget. Add in corporate taxes and other revenue, and protecting Delaware’s corporate law status helps Delaware Fred.

      But it also helps Charles … and a lot more.

      To convince Delaware’s elected Democrats to support All-American Fred, progressive organizations must research, offer, and advocate policies that serve both Delaware Fred and All-American Fred. As we’ll see tomorrow, building organizations that can and will do that is the key.

      Because you’re right: we can’t expect elected Democrats to vote against their Local Fred.

      Good morning! ::hugggggs::

  • LI Mike

    Very interesting, Crissie. And this is so true.

    As it happens, Wall Street is a huge slice of the New York state economy, providing both secondary jobs and tax revenues that benefit many New York workers.

    As goes Wall Street, so goes Manhattan and environs.

    My dtr had her Manhattan co-op on mkt for a while, when it became clear that the banksters emerged unscathed from the financial debacle they wrought, especially in terms of compensation, real estate mkt perked up and dtr now in contract to sell her place.

    • winterbanyan

      When Bear-Stearns went under it cost 35,000 jobs. Of course Schumer would be protective. And herein lies our big problem, I guess.

      Glad your daughter sold her co-op. But right now I’m feeling a little overwhelmed by all of this…

    • NCrissieB

      The Frustrati often complain about DINOs: Democrats In Name Only. Pierson and Hacker use a different term: Republicans For A Day.

      But their examples point to another factor that better explains why almost all Democrats vote with All-American Fred on any given issue, yet there are so often just enough Democrats who don’t: Democrats voting with Local Fred.

      On high-profile issues with an extensive national debate and substantial progressive organization – such as health care – Democrats voted together. Yes, the ACA included compromises, and most came to get the votes of Democratic Senators whose Local Freds were unconvinced. But in the end, they voted with All-American Fred.

      To win more of those policy battles, we need progressive organizations who can create and influence a national debate like we had on health care. That’s what we’ll discuss tomorrow.

      Good morning! ::hugggggs::

  • addisnana

    If we can see the drift looking in the rear view mirror, I am hoping that such knowledge will allow us to drive forward more conscious of needing some course corrections.

    The repeal of Glass-Steagall struck me as really stupid at the time. A major Wall Street bank was a client. When they tried to explain the “Chinese firewall” between traditional banking and investment banking I realized how deluded they were and how dangerous it was. I remember saying to them, “You have got to be kidding me.” They were not kidding. Much of the rest I did not notice as it was happening. This is fascinating stuff.

    • winterbanyan

      After the repeal, I noticed a change at my bank. Any time I made a large deposit (and back then I was in my glory days, income-wise) the banker would ask me to talk to their investment advisor. That made me feel hinky, to say the least, and I never did.

      Quietly, about a year before the economy crashed in a big way, my bank was bought out by another. This new one never suggested I speak with their investment advisor. Not once.

      Which is probably why they’re still around and my former bank isn’t.

      Also creepy, about four months before the crash, WaMu was trying to get me to move my accounts to them. Their rep waxed rhapsodic about how they were growing and that unlike other banks they had excellent reserves, and their growth wasn’t outpacing them.

      Sounded good, but I didn’t move anyway. Needless to say, WaMu went under. Almost without a whimper.

    • NCrissieB

      This is a key point, addisnana:

      Much of the rest I did not notice as it was happening.

      Most of us didn’t notice, and tomorrow we’ll see it’s not merely individual apathy or inattention. Like Fred, we’re busy with our lives. Labor unions used to be Fred’s primary advocates. With unions comprising 25% of the private sector workforce, the media sought and reported on union leaders’ views. But unions did not rely solely on the media. They also had their own institutions to educate and mobilize Fred. Even if you weren’t in a union, you probably knew someone who was and heard about those issues.

      You can bet Charles’ advocates knew all about those changes you missed, because conservatives developed a well-funded network of think tanks and lobbyists to follow such changes. They can also unleash P.R. campaigns that try to sway Fred … like the pro-fracking ads running almost non-stop on TV now.

      Progressives can’t match them dollar-for-dollar, but we can more than match them person-for-person … if we organize our efforts. When we do, we can win not only elections but also policy battles between elections.

      Good morning! ::hugggggs::

  • LI Mike

    I think the thing that is very different now, compared to in the past, is the willingness to 1) believe that our ticket be stamped — laissez-faire capitalism, 2) blame everything on government, 3) accept those RW conventions via fox-like propaganda.

    I know that’s an oversimplification, but the fact that it isn’t more accepted that excessive deregulation, de-industrialization, de-unionization, globalization and an economy reliant on FIRE (finance, Insurance, real estate) lead to this mess — is troubling.

    My platform would include state banks to invest in a green economy and infrastructure projects, tax the wealthy to support higher pay for teachers, and some good new deal type programs, raise the minimum wage, single payer health insurance.

    I bet a lot of people would support that. But it is more likely that the tooth fairy will leave a million dollars under my pillow.

  • Hoghead99

    Thanks Crissie. Sounds like Pierson, Hacker, and Hoghead are pretty much on the same page. Re: drift, it often seems to me that our Federal agencies are what I call “Reluctant Policemen.” I’ve also heard this called, “Captive Regulators.”

    We can be certain that somewhere, deep inside the agencies presumably responsible, someone is aware of the shenanigans, and trying desperately to get something done about it. Probably the experience is much like conducting a fistfight from inside a sleeping bag. Against multiple opponents yet! Sheesh…….

    Best, HH99

    • NCrissieB

      This is true, HH99:

      We can be certain that somewhere, deep inside the agencies presumably responsible, someone is aware of the shenanigans, and trying desperately to get something done about it.

      There are people who see drift happening and try to correct it. Far too often, they must feel as lonely as your excellent description implies. Polls suggest Fred would have their back, if only Fred knew what was happening. We progressives must get better at knowing what’s happening, and educating and mobilizing Fred about it.

      Good morning! ::hugggggs::

  • Roby NJ

    I haven’t read the book, but I’m guessing that it builds on Robert Frank’s “Winner Take All Society” (1995). Frank is an economist and writer who identified that allocation of social resources are increasingly shaped by a proliferation of inefficient winner-take-all markets.

    Which are, as Crissie describes, markets where inordinate rewards go to a select few, skewing allocation and participation. (think: basketball players, hedge fund managers, entertainment industry).

    When I heard him talk about his book, Frank was concerned about the social costs, not as much the political or economic implications. And so tax policy was a reasonable and plausible remedy — if not to correct the imbalance directly, at least to capture some of the wasted surplus and redirect resources toward our social values.

    But in the fifteen years since Frank’s book, reward in financial markets is even more starkly skewed, enough so to drive a massive distortion in national wealth distribution.

    By “winner-take-all politics“, do Pearson and Hacker mean an alarmingly narrow aggregation of wealth and power?

    And maybe Pearson and Hacker are saying this also, but I think two separate phenomena are occuring:

    1. The rich are getting richer thanks to the self-propagating power of money. There is a bit of a naturally rapacious effect to rapid accumulation of wealth — given a bit of rope it tends to overwhelms the defenses of social systems designed to regulate and control. Economic and political historians would say this effect is inevitable but cyclical.

    2. The poor are getting poorer due to political maneuvers to circumvent the inevitable cyclical backlash.

    The poor don’t HAVE to become poorer for the wealthy to get more pie. We are, fortunately, a wealth generating society, and it should be sufficiently greedy for the top 1% to capture all of the increase in the size of the pie. The rest of us would still get the same slice of pie we had before.

    But to ensure that they can keep getting ever more and more pie, we see, especially in 2011, political and media machinations to disempower the social institutions that could most effectively counter the rapid concentration of wealth and power. And by “disempower” I mean “eviscerate and rob”.

    Looking forward to tomorrow’s conclusion.

    • NCrissieB

      Pierson and Hacker do mention Robert Frank’s book and thesis, but they evaluate the data differently. Specifically, they dispute this:

      1. The rich are getting richer thanks to the self-propagating power of money. There is a bit of a naturally rapacious effect to rapid accumulation of wealth — given a bit of rope it tends to overwhelms the defenses of social systems designed to regulate and control. Economic and political historians would say this effect is inevitable but cyclical.

      This is the “natural market forces” explanation, and Pierson and Hacker challenge that with data showing the hyperconcentration of income has not happened in most other wealthy, modern economies. Public policy gave America’s top 1% that “bit of rope,” by weakening institutions and mechanisms that had limited executive pay, by creating opportunities for speculative gambling that shifted risk from Charles to Fred, and by failing to adapt to changing economic conditions in ways that favored Charles over Fred.

      Good evening! ::hugggggs::

  • Roby NJ

    Good point about the ‘rope.’ I would agree that there were specific (regulatory) lapses and (policy) circumventions that opened the barn door, to mix metaphors. But I’m curious about how far they take their rejection of “natural market forces”. I think greed can be relentless and powerful, given an inch. (yay 3 metaphors!)