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August 10, 2007
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Transcript - August 10, 2007

BRANCACCIO: Welcome to NOW.

We've been hearing a lot about how the gap has been widening between rich people and ...everyone else in America. Here's some numbers that show just how dizzying that vast chasm has become...lets do some visuals here so you can really see what we're talking about. Ok, here goes: take a look at the very richest people in America—the top one-tenth of one percent of earners. Turns out this relatively small bunch makes about the same money per year as the millions of Americans in the bottom fifty percent of the income spectrum.

We'll talk with two writers who've been reporting on the growing income divide and look at how the middle class is getting squeezed.

First off, David Cay Johnston is a Pulitzer Prize winning financial reporter with the New York Times.

David Cay Johnston, good to see you.

JOHNSTON: Good to see you, David.

BRANCACCIO: Well, the summer's been rocked, as you've seen, by some pretty swift kicks to the stock market. All right. From your reading, from your reporting, how are we, as a people, doing?

JOHNSTON: Well, the economy's quite strong. We've been doing very well for a couple of decades now, with only two little blips along the way. The problem is that the benefits of all the economic growth are flowing to the top. And especially to the very top.

And—and here's a—a telling number about that. If you—if you take the number of taxpayers and then apply how many people live in each household of a tax unit, essentially, the top 300,000 American's—that's one tenth of one percent—have almost as much income as the bottom 150 million Americans, about 62 million taxpayers.

And—that—that—these numbers are just incredible, in terms of how much income there is here, at the very top. The top tenth of one percent, have their largest share of income since 1928 and 1929.

BRANCACCIO: Oh yeah?

JOHNSTON: Just before the Great Depression.

BRANCACCIO: Yeah, we know how that ended.

JOHNSTON: Right.

BRANCACCIO: So an uneven distribution of this stuff. Does that help explain statements, for instance, from the head of the president's Council of Economic Advisors, Edward Lazear? He said recently, "We've seen strong jobs growth, wage growth," which is very important for the average American.

JOHNSTON: Well, very recently, there has been wage growth. So that's true. But even the president, in January of this year, said that inequality has been going on for years in this country—about 20 years, I believe he said—and it's a growing and serious concern.

BRANCACCIO: I saw, not too long ago, that—income for Americans went up 12 and a half percent in the most recent year from which we have statistics. But it turned out, if you factored out the top five percent of rich people in America from those statistics, it only went up 1.5 percent.

JOHNSTON: That's right. And in several recent years—incomes actually fell. That's something we haven't had before. People made less money in 2001 than in 2000, less money in 2002 than in 2001, less in 2003. And during that period, there were people who had gains. But they were entirely at the top. The gains were not going on at the bottom.

BRANCACCIO: But people who are not in the highest income categories, they can, as my grandmother would say, kvetch. They can complain. They can be resentful. Well, what is actually the problem here? Is there a problem here? When—

JOHNSTON: Well—

BRANCACCIO:—some people are very successful and maybe, the rest of us, not so much?

JOHNSTON: Well, there's a group of people who want to apply this to virtue. If you're wealthy, it's because you worked hard; you did the right things. But, you know, all things depend on rules.

What have we been doing for the last 25 or s—years or so, in this country? "Let's have less regulation." That is, fewer limits on the things that business wants to do. "Let's lower the taxes on people who are at the very top." And the net effect is, that it's been government policy now, for a good, long time, to make the wealthy in America wealthier.

BRANCACCIO: There's some very smart people who think it's actually signs of a good thing. Gary Becker won the Nobel Prize for Economics, no slouch there.

JOHNSTON: Yep.

BRANCACCIO: He says—I've been reading some of his stuff—he says the widening gap between rich and poor is a sign that people who invest in their own education, who invest in their own skills, are finally getting a decent payback for all that effort and investment.

JOHNSTON: But in many cases, what we're seeing is markets that are rigged. For example, you go on—go to negotiate, if you're a worker, for your pay. Well, we've—effectively reduced unions to being insignificant in the private sector, in this country.

Which has reduced the bargaining power of workers to collectively ask for their pay. On the other hand, if you're a CEO, your pay is set in the market that—that is designed to pay the highest possible wage—not the lowest possible wage—to keep you. And they operate under a set of rules that the government sets, on how we determine pay. So to suggest that this is all a matter of, you know, your virtue, is—it's just utterly ridiculous.

BRANCACCIO: Do you see this issue of, "It all depends on how the rules are—are drawn up," playing out in the tax code?

JOHNSTON: There's a lot more to the tax code than the stated rates. Warren Buffett has been going around showing people a little experiment he did.

BRANCACCIO: The extraordinarily rich Warren Buffett.

JOHNSTON: Asked his managers to put down what percentage of their income they were paying in taxes. And then he put down his. Well, they're paying roughly a third. And he's paying 17 percent.

BRANCACCIO: So Warren Buffett, the legendary investor, who—is he the richest guy in the country?

JOHNSTON: Second richest.

BRANCACCIO: Second richest—is paying a lot less than his typical manager?

JOHNSTON: Well, in dollars, he's paying a lot more. But as a percent of his income, he's paying a—he has a much lighter burden.

BRANCACCIO: Well, if guys like Warren Buffett, by his—by his own admission, aren't paying all that much, percentage wise, in taxes, then who's paying the freight here? Lot to pay for. Got a war going on, for instance.

JOHNSTON: Well, first of all, we're borrowing a lot of money. Remember that since 1969, we've only had two years we balanced the budget, the last two years of the Clinton administration.

BRANCACCIO: So people who lend us money, often abroad, are the ones paying a lot of the freight. Who else?

JOHNSTON: Well—workers—who are in the wage system, are very effectively taxed by the government. The government has got a very effective system. Your employer tells the government how much you make. Your banker tells you how much the mortgage interest was on your home. So the government very effectively collects that money. And—and that's a very major portion of it. The tax system for very wealthy people doesn't require them to report all their income. Whereas, you and I, as wage earners, we have to report all our income. Structurally, we keep spending more and more money and not paying attention to balancing these—the income and the outflow here. And I don't think you'll see anything significant happen, by the way, for this admini—the rest of this administration. The Bush administration has done what it's going to do on—

BRANCACCIO: On tax policy?

JOHNSTON: Yeah. And—but it's going to become crucial. When you see that American corporations are moving jobs and assets and intellectual property offshore just as fast as they can, that should be a signal that something is wrong.

And that we need to fix it. But the solutions that are being proposed right now, principally, are, "Well, just let us live tax free." Or, "Give us a rule that—we'll work it out. So we live close to tax free." Well, that doesn't work either. You do have to pay for having civilization. You know, you—somebody's got to provide the roads, the education. You can't have a wealthy society with people who are not well educated.

BRANCACCIO: Well, that's interesting. Because the very same Nobel Prize winner, Gary Becker, who saw some virtue in the widening gap of rich and poor, did have this bit of advice in his—same analysis. He said, quote, "Policies designed to deal with inequality must take account of its cause." And some of this may, in fact, be, "Are we investing enough in education?" If lack of education is causing the widening gap.

JOHNSTON: Well, education—we need to think about very deeply. Fundamentally, education is to the modern world, the equivalent in the Bible of giving a man—lessons in how to fish instead of giving him a fish. When we don't provide adequate tools for education to people, we limit their ability. When we think about those issues, we have to think about them not just in terms of the raw commercial value. "How do I make this worker more valuable?"

But, "How do I make my society a more valuable place?" And, "How do I have people participate in that?" So that the ideals we f—started this country for—you know, to form a more perfect union, to promote justice, to provide the common defense, to provide domestic tranquility, to provide for the common wealth, the general welfare.

Those are the reasons we created this country. And those should be the focus of what our policies are, it seems to me. And it will lead us somewhere. But if our policies are simply pecuniary, "How do we get more money today? How do we get the gross domestic product to add one more dollar?" Then we're gonna go down the wrong path.

BRANCACCIO: But where are we on the arc of understanding about the—this state of affairs? We're sort of not headed toward any near-term, solutions. Are we?

JOHNSTON: Well, I—I—my view about that's changed recently. I do a lot of—radio shows where people call in. And I noticed something—recently. I've gotten very few hostile callers.

BRANCACCIO: And you've had them in the past.

JOHNSTON: Oh, (LAUGHS) oh. Goodness—you should see my mail. I've been promised, come the revolution, I'll swing—from a tree. Just for reporting the government's official numbers. But I—there's no—there's a shift going on.

I think enough people, now, are seeing that they've played by the rules. They've worked hard. And things aren't working out the way they heard, that they're beginning to say, "Wait a minute." And some people have said to themselves already, "Well, I've been sold a bill of goods." I think it's very clear that a growing number of people believe that the rules are not fair. They don't understand what happened. But I think there's a lot of hunger to find out about that.

BRANCACCIO: You've that book coming out at the end of the year. What's it called, "Free Lunch?"

JOHNSTON: "Free Lunch." It's about how the wealthiest Americans are enriching themselves at government expense. If you're already rich in America, the best way to get really rich, is through the government.

BRANCACCIO: I'll look forward to reading it. Well, David Cay Johnson, New York Times, thank you very much.

JOHNSTON: Well, thank you.

BRANCACCIO: So how does this income inequality play out for people trying to make ends meet in this economy? Our next guest traveled from coast to coast to better understand what so many hard working Americans are up against.

Beth Shulman is author of "Betrayal of Work: How Low Wage Jobs Fail 30 Millions Americans." Beth, welcome.

SHULMAN: Thanks. It's great to be here.

BRANCACCIO: When you talk about 30 million Americans, or so, that the economy is really failing, you're talking about the poorest of the poor in America?

SHULMAN: These are people working hard. These are workers. These are people that we rely on everyday, you know, like, maids, and janitors, and childcare workers, and nursing home workers, and teaching assistants. They're the mainstream of our economy. But one out of every four workers makes less than $9 an hour today.

More and more of them don't have healthcare. They can't have the time off to spend with their family, or if a child or themselves get sick. And at the very end of their lives, they don't have the pension that they thought they were gonna have. But this is a problem that's far greater than just even the low wage workers.

BRANCACCIO: Well, people might be watching saying, "Well, I went to college. This means nothing to me."

SHULMAN: Well, it should mean something. Their wages have stagnated as well. And more important, they're facing cutbacks in healthcare coverage. They're facing cutbacks in leave. They're facing pension plans that don't measure up. We've got a situation in which work is not providing what we assumed it would provide. We've broken the promise of America.

BRANCACCIO: Well, give us a picture of a family who you've actually met, who are struggling with these issues.

SHULMAN: There was a family I interviewed in, actually, Selma, Alabama. And I'll never forget it, because I thought this kind of era was over. She was a nursing home worker doing everything she could to make a life for herself and her children. But she is living in a shack, and she didn't healthcare, even though she was providing it. And it struck me that this was crazy.

BRANCACCIO: You're talking about a shack?

SHULMAN: A shack. It was plywood. And the only thing that was standing between, you know, us standing there and the ground was a thin piece of plywood.

BRANCACCIO: And this is headed by—and this is a family headed by a person who's working many hours?

SHULMAN: Many hours. She was working actually double shifts many time, and a nursing home worker caring for the elderly. Again, had all kinds of dreams for her children, but just didn't have the means the provide it.

BRANCACCIO: What keeps many of us moving forward is the thought that ultimately over time, our wages will go up. And maybe, in fact, as previous generations in America saw, maybe we'll beat out our parents in terms of our standards of living. What are you seeing based on your—examinations of this?

SHULMAN: What we're seeing is almost like a caste-like system developing in the United States, where one's parent's resources are dictating how children are gonna do. So, instead of being able to provide what all children need, is good quality childcare, preschool, a good public education and ability to go to college, that's really only the wealthy that can afford that today. So, what we're seeing is a kind of a perpetuation of a financial system from one—one generation to the next.

BRANCACCIO: You know, it's a picture that's so at odds with the official view. Couple times a year the Federal Reserve, what passes for our central bank in America—comes out with a report. Has a horrible name. It's called the "Beige Book." Who would ever read the Beige Book? But I did. The latest one doesn't show the U.S. economy going gangbusters. But the general view is things are pretty solid out there. You keep seeing references in different regions of the country to wage growth. You see—demand for jobs in certain skilled areas. That's the picture drawn officially.

SHULMAN: Absolutely. I mean, there's no doubt productivity is up, you know. We've seen it go up by 80 percent. But—

BRANCACCIO: That's a good thing.

SHULMAN: That's a great thing. It's—it's great to have increased productivity. The problem is we don't have broadly shared prosperity. The top one percent is garnering about 80 percent of the income gains. So, the rest of us are just trying to make it, and we're really falling through the cracks.

BRANCACCIO: We're talking about healthcare. We're talking about pensions. But then there's this single silver word, "leave." That's time off from work, if maybe you want, and as European people are doing even as we're speaking in August, a vacation.

SHULMAN: Right.

BRANCACCIO: But it's also, you know, if you get sick, somebody in your family gets sick. What do we know about the state of time off in America?

SHULMAN: The state of time off is deplorable. It's not just vacation. Half of Americans don't get one paid sick day. We don't have paid family leave, so that if you have a newborn child, or a very sick—relative, you can't take the time, 'cause most Americans can't take it, 'cause they can't afford to—to lose a paycheck. And if their children get sick, if you don't have paid sick days, what happens is either a child stays home alone, or you lose your paycheck, or even your job.

I had a situation where I interviewed a worker, and what were they concerned about? That they—they had to go to work, because they needed the money. So, who was staying home? An older brother. Missing school to take care of a child who was sick. That's crazy. That shouldn't happen in America.

BRANCACCIO: It's a real wakeup call, if you look at a graph of different countries, industrialized countries, richer nations around the world, and how much time they have to give you by federal law for vacation and other issues that come up. What does the graph look like for America?

SHULMAN: We—we're way off the graph.

BRANCACCIO: I mean, I think it's flat right there, right?

SHULMAN: It's totally flat.

BRANCACCIO: Zero.

SHULMAN: Zero. There's no requirement whatsoever of any vacation days. There's no requirement whatsoever on any kind of sick days.

SHULMAN: We talk about being a family friendly nation, but we're not giving people time to be with their families. When someone's working two or three jobs, they don't have time to be with their family. If we don't allow people vacation, they don't have time to spend with their family.

BRANCACCIO: Just reading The Economist magazine, and there was an article about Germany. Germany, often criticized by many economists for having the big social welfare system. Look at these crazy pensions they give people. Big social safety net that's not sustainable. They're gonna lose jobs. Yet, currently, German economy is actually doing pretty darn well.

SHULMAN: Absolutely. It's got nothing to do with competitiveness. The most competitive countries actually have a very broad social safety net. They provide healthcare. They provide good retirement. They provide time off and good vacations. We're the ones who haven't caught up with the realities of what Americans need to be productive, and to be good family members, and—and take part in our society in a real way.

BRANCACCIO: Economists spend a lot of time sitting around trying to get to bottom of this idea of are American standards of living really rising significantly? And some people come at it in terms of, well, they're certainly rising at the top income levels. But, actually, you have to look at the broader picture, which is are people who's living a fulfilling life, a healthy life.

SHULMAN: You really have to look at what people need and what they're not getting right now. I mean, what—what all of us, I think, want is some basic security in terms of our financial situation. Some basic time off to be with ourselves, and to take care of our family.

BRANCACCIO: But, Beth, this is America. We are descended from English Protestants who preferred our nose to be at the grindstone as much as possible. Can these kind of more worker friendly policies find traction?

SHULMAN: They are finding traction. They're finding traction at the state and local level. You know, the minimum wage passed in 30 states before we ever even took action at the federal level. States are looking at—at healthcare coverage. For instance, Massachusetts, California, others. San Francisco just passed a paid sick days ordinance making sure people had paid sick days. It's happening all over the country, you know. It's more the federal level that we haven't caught up with what people need. It's at the local level where people understand what families need to survive and thrive.

It's really pretty basic. People aren't asking for anything fancy. Yet, we're not providing it in this country. We're the richest country on earth, yet we can't provide and—the basics of a decent life. Not that we can't provide. We're not providing it, 'cause we can do it.

BRANCACCIO: Well, Beth, thank you very much.

SHULMAN: My pleasure.

BRANCACCIO: Beth Shulman is with the Social Inequality Project at the Russell Sage Foundation in Washington. She's also author of the book "Betrayal of Work: How Low Wage Jobs Fail 30 Million Americans."

This is the time when many public television stations are asking for your support. We at NOW could not bring you unvarnished voices like David Cay Johnston and Beth Shulman without your help. Now is the time to give generously to your local public television station.

And that's it for NOW. I'm David Brancaccio. We'll see you next week.



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