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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 Some are obvious, such as the 1999 Gramm-Leach-Bliley Act that repealed the Depression-era Glass-Steagall Act and allowed the merger of consumer banks, investment banks, and insurance companies.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!