America’s Anger – Income Inequality

Obama and Trump have one thing in common – angry Americans. Americans hostile towards a government of the wealthy, by the wealthy and for the wealthy.

The most memorable course I took at Harvard Business School was the History of Managerial Capitalism. Whether in Europe or Amercica, at the core of every free market economy is a battle between Labor (workers) and Capital (business owners). When the balance of interests gets severely lopsided, political systems collapse.

If we look over the past 35 years in America, Capital is crushing Labor by a score of 708 to 15. Adjusted for inflation, business valuations have increased 708 %, while labor wages have increased just 15%. This agony is shared equally by Americans on the left and right of the political spectrum.

This unbalanced scorecard is driven by a digital revolution that is making a small part of America very rich, while everyone else stresses over job security, healthcare costs and retirement savings. The changes in modern America are just as draconian as during the Industrial Revolution 150 years ago when factories replaced the manual labor of farmers and seamstresses ….and social tensions boiled as Americans seeking employment were forced to migrate from farms homes into flithy big city tenements.

Here are some simple figures that tell the story of the American economy during my 35 year business career.

Thanks to technology driven productivity, machines have replaced people in factories and offices. As a example, it took 10.1 man hours to produce a ton of steel in 1980, compared to 1.9 man hours today. Put another way, 4 out of 5 jobs have been lost to automation.

Source: http://www.steel.org/about-aisi/industry-profile.aspx

The workers that kept their jobs have NOT shared in financial rewards of technology enabled productivity gains. Over the past 35 years, real wages for American workers have increased a TOTAL of just 15%.

With no wage growth and in many cases, no employer paid health insurance, Americans can no longer afford the 330% real dollar increase in healthcare costs since 1980.

Source: https://www.thebalance.com/causes-of-rising-healthcare-costs-4064878

Business owners have been the big winner over past 35 years. Since 1980, the inflation adjusted stock market is up 708 %

Source: http://www.1stock1.com/1stock1_139.htm

When trying to solve any significant problem, a good place to start is by following the money. The 19th century Industrial Revolution created a massive concentration of wealth which controlled the political processes and put the interests of capital above labor. In 1904, President Roosevelt called “to end political corruption by forbidding all business contributions to political activity.” But change comes slowly when battling big money and it took 70 years for Congress to pass the Federal Election Campaign Act in 1971 to limit political contributions.

Sadly, the laws limiting political campaign contributions by wealthy individuals and businesses on lasted only 39 years. In 2010, the Supreme Court’s Citizens United decision removed any limitations, put Congress back in the hands of big business and rich families, leaving Americans without a political voice for higher wages, affordable healthcare and job security.

We need to restore the campaign finance laws that gave Ronald Reagan a voice. Going back to 1980, I remember when California Governor Ronald Reagan entered the Presidential race with just $43,497 to challenge incumbent President Gerald Ford, who had 15 times as much money. In January 1980, things looked very grim for the politcal outsider from California. But Federal Campaign Laws allocated his campaign $2.2 million in January and February 1980. It was enough for Reagan to share his message with voters in the spring primaries. The rest is history.

It is time that the wealthy in America understand that their success has less to do with themselves and more to do with institutions and values that our forefathers built for us. For the rich Americans who threaten to invest their money elsewhere if they don’t get lower taxes – let them! Let them taste the poisons of corrupt governments, unreliable judicial systems, weak supply chains, employee brain drain and geopolitical uncertainties when they stretch beyond the safe borders of our American military.

America needs higher wages, not protectionism or nationalism. And we need to restore the campaign finance system that allowed Ronald Reagan to stand up for the economic well being of all Americans and freedom around the world.

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