# inequality

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## Is Nye Bevan right?

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So the Australia type deal that Britain will flourish under, according to Johnson, is a trade deal that, in fact, Australia is trying to actually improve in the already existing trade talks with the EU, where both sides have agreed that: The discussions confirmed a shared commitment to rules-based trade as well as to helping... Read more

## Support for a wealth tax appears to be higher than I would have expected, but debate on it just distracts attention from the much bigger issues that we face

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In September the FT asked its readers if they supported a wealth tax.

More than 1,000 replied. The result was surprising:

Now of course it is entirely possible that a whole host of tax justice campaigners invaded the FT website and gave these answers. I doubt it, but it is possible. I am saying this simply to make clear that this is not a representative sample. However, the results are still interesting. For example, the idea that the taxable wealth starts at £1 million appears quite strong:

That there are reservations about including tax incentivised assets within the scope of a wealth tax, which I have indicated to be a massive limitation on its potential base, excluding most wealth from any potential charge, is clear:

More than 80% of all wealth is taken out of account if a person's main home, their pensions and their ISAs are excluded from a wealth tax.

Attitudes to capital gains tax reform were interesting:

In our survey, 26 per cent of respondents said they would definitely support lifting CGT tax rates to income tax rates, while a further 26 per cent said they would probably support it. In contrast, 35 per cent of readers registered their opposition — with 24 per definitely against and 11 per cent probably opposed.

Council tax reform was also discussed:

Around 45 per cent of respondents said they were definitely or probably against reforming the valuations to raise more tax and 41 per cent said they would definitely or probably back a revaluation.

Inheritance tax created the same divide:

Possible increases to inheritance tax were also rejected by a modest majority of FT readers. About 48 per cent said they would definitely not or probably not support an IHT increase and/or cuts in exemptions. Some 43 per cent of people said they would definitely or probably support such increases.

So what does this prove? Three things, I suggest. First, such surveys are not representative. Second, opinion is sharply divided. And, third, in that case and given the bias of this government, this is a red herring. There is no chance of a wealth tax at present, and debate on it distracts us from the real issues that are of concern. Maybe that is why the FT is interested in the issue.

## The Theil inequality index: a flexible tool for the modern political economist

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Contrary to the Gini-index, the Theil inequality index enables us to directly tie estimates of inequality to the class and ownership structure of a society. As such, it’s an indispensable tool for the political economist, requiring a-priori knowledge of political economic theory but also an inductive reading of the sources and the situation. So, why […]

## Trump Built His Swamp In A Marsh Of Legalized Corruption

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Trump’s corruption illustrates the kleptocratic system created by a judiciary that would become even worse with Amy Barrett on the Supreme Court. Continue reading

The post Trump Built His Swamp In A Marsh Of Legalized Corruption appeared first on BillMoyers.com.

## What is the real burden that the government’s “hard choices” will pass on to future generations?

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##### Instead of more political rhetoric and more of the same orthodox solutions dressed up as change, we need radical progressive action to pave the way for a kinder, more equable and sustainable future.

Image by Anja from Pixabay

After this crisis, if anybody dares mention a ‘need’ for austerity or tax cuts for ‘wealth creators’ aka useless parasites, or calls for pointless fiscal retrenchment, then ridicule their rank stupidity, economic illiteracy, immorality and their inability to learn simple lessons.’

Phil Armstrong, GIMMS Associate.

The debt warriors are continuing their rear-guard action. In the hope that all is not lost in the battle for minds as people get wiser; the battle to keep people believing that the vital extra spending, which has in effect kept the economy afloat, is going to have to be paid for. Sustaining the illusion is vital for their purpose and the people need reminders and nudges to keep them in the dark and demonstrate that the government is fiscally responsible. Where have we heard this before? And look how that ended up. Ten years of punishing austerity and the killing off of our public services in the name of balanced books.

This week, the Conservative MP Harriet Baldwin said on BBC Politics Live.

‘It’s the right time to talk about [balancing the books] because we have to maintain the confidence of the bond market.’ We have a plan to bring the public finances under control’

This little gem suggesting that government is beholden to the bond markets (when it is not) followed Rishi Sunak who said in his conference speech earlier in the week that he had ‘a sacred duty’ to ‘leave the public finances strong’ hinting that there might be tax rises ahead. He continued by saying that ‘If… we argue there is no limit on what we can spend, that we can simply borrow our way out of any hole, what is the point in us?’

Hard choices would have to be made as he pledged to ‘balance the books’. He posited that the public would accept that taxes would have to rise given the size of public spending during the crisis and suggested that the government might have to break some of its manifesto pledges. Wait for it…it’s coming.

The implication is that those billions of pounds borrowed to keep the economy afloat and functioning will have to be paid for and that the burden, if not addressed, will pass to future generations in the form of higher taxes. Keeping the illusion going was further emphasised at the weekend when the government rejected extra support for workers in lockdown areas because ‘the national debt is rising’ and it would cost too much.

So deeply is the ‘tax pays for spending’ narrative embedded in the public consciousness that research published this week by Ipsos Mori suggested that of those responding almost half favoured raising taxes to fund public services in the context of Covid-19 with the most favoured option being a wealth tax for people earning over £500,000.

Still resolutely stuck in the ‘taxes fund spending’ mode, people implicitly understand that somewhere along the line they have lost out, not just personally but in terms of a public infrastructure which Covid has demonstrated is no longer fit for purpose due to cuts. And, quite rightly they want redress, as long as perhaps it’s not them that have to pay. Whilst there is a big difference in approving a concept and actually accepting it as the reality for one’s own pocket, the government is relying on that false narrative for it to get away yet again with murder.

In the light of monetary realities, knowledge of which is increasingly coming into the spotlight and challenging the status quo orthodoxy, in searching for answers the better questions to ask the public might have been:

Do you want the government to spend more on improving our public services in the interests of the nation?

Do you want to restore those public services to publicly paid, managed and delivered provision?

For the truth is, that these decisions are political ones, not linked to taxes or borrowing or the state of the public finances.

At the other end of the political spectrum, this week on Double Down News Grace Blakely exposed, quite rightly, the increasing horrendous gap in wealth distribution and its damaging effects on society. However, she then went on to suggest that the billionaires should pay the costs.

At a time when the Swiss Bank UBS reported this week that billionaires increased their wealth by more than a quarter at the peak of the crisis when at the same time millions of people were losing their jobs or struggling to get by on furlough schemes and Universal Credit it might seem a just call to ask the extremely wealthy not only to pay what they owe but pay more. After all, over decades, working people have seen their living standards fall, as their share of productivity has ended up in the hands of ever fewer people so it is infuriating to see that the gap between the haves and have nots which was already huge, growing even more rapidly as billionaire’s wealth hits new highs. An increase in the pay of politicians announced late this week (the Tories having already rejected a pay increase for nurses) shows little solidarity with people’s struggles and it must surely start crossing people’s minds that something is seriously awry not just in terms of wealth distribution but also in the way they understand how power works and who pulls the strings.

But it is equally disheartening to note that we have left-wing economists and commentators reinforcing the mantra of ‘tax pays for government spending’ in the daily smoke of mirrors that suggests that state spending is like a household budget and that the solution is to get the filthy rich to pay more.

While our public infrastructure continues to crumble before our eyes and people suffer it’s time for the left to stop talking about getting the rich to pay for it, however much that appeals to a sense of fairness. Only by recognising how government really spends and using that knowledge to propose an alternative vision for the future can we win that battle. If it does not, then any plans that future progressive governments propose will always be constrained by this false narrative.

In the words of Deborah Harrington, who sits on GIMMS advisory board:

‘Billionaires can’t ‘pay for’ the coronavirus crisis. Only governments can. The left should stop promoting the neoliberal theory that we are all dependent on and beholden to the rich for our public services. They are cheering their support for Thatcher, May and all the others who claim the government has ‘no money, only taxpayers’ money’. Tax the rich because they are too rich. Tax the rich because inequality is damaging to a healthy society. Tax the rich because they use their disproportionately accumulated wealth to buy government policy that makes them even richer. Have the courage to say that the extremely wealthy are a drain, not a gain, for society. Stop trying to push the idea that if you could only persuade them to pay their taxes willingly everything would be just fine. Even better, have pre-distribution mechanisms that stop them accumulating so much in the first place.’

The question some might ask is have politicians on any side learned anything? Forty years of economic orthodoxy have left many economies around the world in poor shape and unable to address the crisis. And yet whilst Rishi Sunak considers disingenuously and publicly how he is going to ‘pay for‘ his fiscal injection (to keep the right narrative alive in the public mind) it most certainly will not stop money pouring into the bank balances of private corporations.

And given the Chancellor’s Conference speech it will on the other hand most likely mean that the public sector will once again be squeezed. It is a guise for delivering what they have always intended – to destroy the public sector as publicly funded, managed and delivered infrastructure that serves the public good with no profit motive, through the toxic ideology that business is more efficient. The lie of a so-called small state is smashed by the realities that it increasingly exists to serve global corporate interests.

Whilst government ministers laud their actions and monetary largesse, anyone following media reporting or previous GIMMS blogs will know that the real beneficiaries of public money have been large corporations who have failed to deliver the promised efficiency and worse without public accountability. The prospect of Westminster Plc draws ever nearer.

And the promised levelling up? It will likely be just one more casualty of a wretched economic system, and just more of the typical political rhetoric which politicians are so good at – on both sides.

In the wake of the Chancellor’s speech, the Guardian in its unexpected and timely editorial this week noted ‘it makes no sense to compare personal experience with the economics of a nation’. Quoting the late Labour MP Roy Jenkins who observed correctly that a family budget was not the same as a national budget and said that Margaret Thatcher had traded in ‘lousy economics’, it noted how much of the political economy had been conceded to the right and that the present Labour shadow chancellor still in orthodox mode could not match his ‘unapologetic Keynesianism’.

Sunak’s speech seems indicative of what to expect in the future. Yet more penny-pinching when it comes to our public infrastructure. It suits a carefully crafted narrative to suggest that such spending would bankrupt the economy or burden future taxpayers. A narrative the public continues to buy for now, at least as a reflection of how it believes that government spends.

While our imaginations are still stuck in Mikawber mode, the real threats to the future are being cynically put on the back burner when those threats are the ones that we need to be addressing urgently. It seems that, in political terms, ultimately the quest to balance the books is being made to appear a far more important objective than addressing climate change and politically created and unnecessary inequality. Our planet is to be sacrificed on the pyre of balanced budgets and big business gets to create a greenwashed world in its image – that of profit and greed.

As we watch the fires in South America continue to burn as a result of deforestation to make way for cattle pasture and soy plantations, and the tropical wetlands continue to burn in the Pantanal, a combination of a man-made arson and drought caused by the climate crisis, we need urgently to shift the narrative to one of sustainability and human and planetary health.

This year of environmental disasters – fires, drought, floods and Covid-19 – is a reflection of our failure to act and should be the wakeup call we need. Our leaders, for all their fine words, are complicit in this destruction. Some wilfully and openly ignore the threats, others indulge in ‘environmentally friendly’, rhetoric whilst doing very little, and at the same time global corporations some of the biggest polluters sell us their greenwashing propaganda.

Along with climate change, poverty and inequality continue to rise. It was reported this week by the charity Save the Children that living standards for the UK’s poorest had plunged during the pandemic. It noted that over a third of families on Universal Credit and Child Tax Credits have had to rely on help from charities for food or children’s clothes over the past two months and two-thirds had incurred debt to get by. Half of those surveyed said that they were in rent arrears or behind on household bills. Earlier research carried out by Save the Children and the Joseph Rowntree Foundation in June revealed that 70% of people had cut back on food and other essentials when the pandemic began and the charity warned that the winter will be more difficult for many families as heating and other household costs rise and the prospect of further job losses increase the pressure on overstretched household budgets. With the threat of a cut in Universal Credit next April, the future is looking even more uncertain for some of the poorest people in our communities.

And we cannot ignore the global situation. Save the Children also noted last month in a jointly authored report with UNICEF that the number of children living in multidimensional poverty (access education, healthcare, housing, nutrition, sanitation and water) across the world had soared to around 1.2 billion due to Covid. To put it starkly, an additional 150 million since the pandemic began in early 2020. It also noted that around 45% of children were severely deprived of one of the critical needs mentioned above before the pandemic and that the picture is likely to worsen in the months to come.

While the arguments rage about the size of government, its colossal spending and future tax burdens, the cost of such arguments on human lives and the planet seem of secondary concern as the government continues to pursue its market-driven dogma which is neither free nor fair.

The promised V-shape recovery has not materialised and left prospects bleak for the Covid generation whose employment prospects are quickly vanishing into the mist and threatening their future health, security and livelihoods.

Instead of real jobs with good pay and conditions, Rishi Sunak is offering people ‘job coaches’ to beef up their CVs or training to improve their future job prospects. Never mind that without government intervention in the form of adequate spending and other targeted measures to improve the economic outlook, those jobs will never materialise. Relying on business to find solutions will lead us to a dead end.

Or as earlier this week the Conservative MP Robert Jenrick called for ‘grassroots volunteering and ‘togetherness’. Where was the government when it was telling us austerity was necessary to get the public finances straight as it dismantled our infrastructure and other vital public services? A government that also promoted individualism, greed and selfishness, has overseen huge wealth inequalities and divided our communities. The word ‘togetherness’ doesn’t seem to fit the bill.

Instead of real solutions, the government is offering the usual toxic rhetoric painted as positive proposals for a so-called new normal which aims to consolidate the toxicity, not address it.

At a time when jobs are being lost, GIMMS repeats its question. Why not rebuild our public sector offering good wages and secure employment? Why not introduce a Job Guarantee that provides a living wage, training and good employment conditions to bridge the gap when times get tough and provide a transitional staging post into private sector employment when the economy improves?

Rethinking the sort of society, we would like to live in will be of paramount importance in the coming months. The old model is not fit for purpose and we and the planet deserve something better.

#### Upcoming Event

##### Phil Armstrong in Conversation with Warren Mosler – Online

October 17 @ 17:00 pm – 18:30 pm

GIMMS is delighted to present its second ‘in conversation’ event.

GIMMS’ Associate Member Phil Armstrong whose new book will be published in November (details below) will be talking to Warren Mosler. Warren, who is one of the founding proponents of MMT, has dedicated the last 25 years to bringing that knowledge to a wider audience across the world and authored ‘The Seven Deadly Innocent Frauds of Economic Policy, published in 2010. He also sits on GIMMS advisory board.

Register via Eventbrite

#### Event recording

##### Phil Armstrong in Conversation with Bill Mitchell

Bill Mitchell spoke to Bill Mitchell for GIMMS on 27th September 2020.

#### Support us

The Gower Initiative for Money Studies is run by volunteers and relies on donations to continue its work. If you would like to donate, please see our donations page here

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As part of my PhD thesis, I did some statistical analysis in which I asked the question: “Do higher social assistance benefit levels lead to higher caseloads?”

I have recently updated the data and had it published in a journal.

Here’s a short summary of the journal article’s main findings.

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As part of my PhD thesis, I did some statistical analysis in which I asked the question: “Do higher social assistance benefit levels lead to higher caseloads?”

I have recently updated the data and had it published in a journal.

Here’s a short summary of the journal article’s main findings.

## ‘Rentier Capitalism’: A conversation with Brett Christophers – 8th December

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Rentier Capitalism
Brett Christophers in conversation with Will Davies

### 3-4pm, 8th December

How have economies such as Britain’s become so unequal? As Brett Christophers shows in his new book, Rentier Capitalism, a fundamental driver is the rise of rent-seeking, in which ownership of key types of scarce assets – land, intellectual property, natural resources, digital platforms – is dominated by a few unfathomably wealthy companies and individuals. Profits grow increasingly linked to having rather than doing. With profound lessons for other countries subject to rentier dominance, Christophers’ examination of the UK case is indispensable to those wanting not just to understand this insidious economic phenomenon but to overcome it.

Christophers will join us on Zoom to discuss rentier capitalism with PERC Director, Will Davies. To join, please register via Eventbrite here.

## Is rebellion imminent?

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This moving piece from Channel 4 news and from a real small employer (rather than a grasping rentier capitalist) correctly explains why so many are completely adrift in the government’s occasional, random and unscientific lockdowns. For sure the science is uncertain – but the money creation to ensure both the lady in the interview and... Read more

## How the History of Class Struggle is Written on the Stock Market

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It was a Thursday in August when all hell broke loose. The place was Logan County, West Virginia. The year was 1921. Over the next week, one million rounds of ammunition would be fired. Up to a hundred people were killed. All told, it was the largest armed uprising since the American Civil War. Yet you’ve probably never heard of it. That’s because the battle was a labor dispute.

It was called the Battle of Blair Mountain. On one side were some 10,000 coal miners fighting to unionize West Virginian coal mines. On the other side was Sheriff Don Chafin, who commanded a private army backed by mine owners. The battle resembled modern warfare. Chafin hired private planes to drop poison gas and explosive bombs left over from World War I. Army bombers patrolled the skies.

The fighting ended when Federal troops arrived and the miners fled. In the aftermath, the West Virginian government indicted 985 miners for murder and treason. None of the anti-union militia (to my knowledge) were indicted.

✹ ✹ ✹

The Battle of Blair Mountain is part of a larger history of class struggle in the United States. It’s a history that has largely been forgotten.1 In this post, I’ll jog our collective memories.

True, many histories of working-class struggles have already been written. Howard Zinn’s A People’s History of the United States remains the classic.2 As I tell the story of US class struggle, I’ll be honest. I lack Zinn’s grasp of history. And I’m not blessed with his story-telling talent. I do, however, have one thing on my side — a bold new idea. I’m going argue that the history of US class struggle is written in the most unlikely of places … on the stock market.

### Bichler and Nitzan’s radical idea

The idea that the stock market reflects class struggle is not my own. It comes from political economists Shimshon Bichler and Jonathan Nitzan. In ‘Stocks Are Up. Wages Are Down. What Does it Mean?’, I summarized their thinking (as I understand it). Before you continue here, I recommend reading that post. But if you’re pressed for time, here’s the gist of their argument.

Class struggle, Bichler and Nitzan observe, is a part of all hierarchical societies. But capitalism is the first social order to quantify this struggle. It does so through prices, which Bichler and Nitzan propose indicate power.

Take, as an example, the price of stocks. To mainstream economists, a stock price indicates a firm’s productive capacity. But to Bichler and Nitzan, this price indicates power. Here’s their reasoning. Stock prices are determined by capitalizing a firm’s income stream. But this income stream stems not from productive capacity, but from property rights — the institutional power to exclude.3

So stock prices, Bichler and Nitzan argue, indicate the power of owners to earn income. If we’re interested in class struggle, we want to compare this capitalist power to the power of workers. Here’s a simple way to do so. We compare the price of stocks to the price of wage labor. Bichler and Nitzan call this ratio the ‘power index’:

$\displaystyle \text{power index} = \frac{\text{average stock price}}{\text{average wage}}$

This index quantifies the power struggle between capitalists and workers.4 When applied to the United States, Bichler and Nitzan define the US power index as:

$\displaystyle \text{US power index} = \frac{\text{S\&P 500 price}}{\text{average US wage}}$

My goal here is to test Bichler and Nitzan’s thesis. Does the power index quantify US class struggle? We’ll get to the test shortly. But first, let’s look at the power index itself. Figure 1 shows how the US power index has changed over the last 150 years.

Figure 1: Eras of capitalism, oscillations of power. The blue line shows Bichler and Nitzan’s power index — the ratio of the S&P 500 price to the average US wage. The red line shows the smoothed trend. Shaded regions show four different eras of capitalism. [Sources and methods]

From the oscillation of the power-index, four eras of capitalism emerge. The power index rose in the late-19th century during the era of robber-baron capitalism. It declined in the early-20th century as the labor movement was born and monopolies were broken up. The power index reached a minimum in the decades after World War II — a period known as the ‘golden age of capitalism’. Then, from 1980 onward, the power index rose to new heights. The neoliberal era was born.

Take a mental snapshot of these power-index oscillations. We’ll revisit them throughout the post.

Although a simple ratio of two prices, the power index, Bichler and Nitzan claim, tells us about class conflict at large. When the power index falls, workers are winning the struggle. When the power index rises, capitalists are winning.

Is Bichler and Nitzan’s claim true? In this post, I look at the evidence. I test how three different indicators of class struggle relate to the power index. Here’s what I find. When workers strike more, win a living minimum wage, and get government to progressively tax the rich, the stock market declines relative to wages. My conclusion is that Bichler and Nitzan are onto something. The history of class struggle does seem to be written on the stock market.

### The struggle to strike

When I was a teaching assistant at York University, my extended-healthcare benefits were better than at any job I’ve had before or since. Why? Was I more ‘productive’ as a TA? Doubtful. I’ve worked hard at every job I’ve had. Was York University intrinsically more generous? No. While I was there, the university actively sought to reduce TA benefits. (It didn’t succeed.)

So why the great benefits? The reason is simple. At York, the TA union was militant. We went on strike twice during my 7-year tenure. And one of those strikes (in 2018) was the longest university strike in Canadian history. So the reason I received good benefits was because York TAs were willing to flex their collective muscles. They were willing to strike.

My experience is anecdotal. But there’s no reason that it shouldn’t generalize. The more workers strike, the more power they’ll have relative to capitalists. So striking, I propose, is a key measure of class struggle.

With this idea in mind, let’s look at something I call strike density. This is the portion of the labor force involved in strikes. Figure 2 shows strike density in the United States over the last century and a half. (Note that the vertical axis uses a logarithmic scale.)

Figure 2: Strike density in the United States. I plot here the portion of the US labor force involved in strikes (in each year). [Sources and methods]

With the strike data in hand, let’s review some US labor history. Today the right to strike is protected by the government. But this was not always the case. Prior to 1935 (when the right to strike was first legislated), workers went on strike at their own peril.

The Battle of Blair Mountain was perhaps the most extreme example of this peril. In the melee, one million rounds of ammunition were fired. Up to a hundred people were killed. All for a labor dispute. Today, this level of violence seems unthinkable. But in the early-20th century, US strikes often involved gunfire.

Coal-mine strikes were particularly brutal. Consider another poorly known event — the Ludlow Massacre. In 1914, striking coal miners set up a tent colony in Ludlow, Colorado. The mine owner, John D. Rockefeller Jr., didn’t approve. And so he orchestrated a massacre. On April 20, 1914, the Colorado National Guard and anti-union militia rained machine-gun fire onto the colony. Twenty-one people were killed. Commenting on the massacre, Howard Zinn writes that it was “the culminating act of perhaps the most violent struggle between corporate power and laboring men in American history”. (See his book The Politics of History for an account of the massacre.)

Despite the danger they faced, US workers still managed to strike. In the late-19th century, about 1% of the labor force was involved in strikes (see Figure 2). Unfortunately, there’s a gap in the data from 1905 to 1927, so we don’t know what strike density was like in the early-20th century. But we know that by the mid-1930s, strikes were on the rise.

Strike density peaked in 1946 in a period of raucous labor unrest. Now known as the strike wave of 1945–1946, roughly 6% of the workforce went on strike (at the peak). That’s about 1 in every 16 workers. In response to the unrest, the US government passed the 1947 Taft-Hartley Act. Still in effect today, the act restricted the rights of unions. It banned political donations by unions and outlawed ‘closed shops’ (workplaces that hire only union members). The Taft-Hartley Act also paved the way for the union-crushing … sorry, ‘right-to-work’ laws that are now enacted in 27 states.

Although union rights were restricted after 1947, during the 1950s and 1960s strike density remained high. This fact is worth remembering, as the post-WWII era was not a period of instability. It was the most prosperous era in US history.

By the 1980s, things began to change. The defining event happened in 1981, when 13,000 air traffic controllers went on strike. Ronald Reagan, then president, declared the strike illegal and ordered the controllers back to work. When only 1,300 controllers returned to the job, Reagan fired the remaining 11,000. (He also banned them from government employment for life.) The message from government was clear: strike at your own peril. Given this stark message, it’s no surprise that in the ensuing decades, strike density collapsed.

Let’s reflect on the scale of this collapse. During the strike wave of 1945–1946, about 5% of the labor force was involved in strikes. During the 1950s and 1960s, this figure remained high, at around 2%. Then came the neoliberal drop. By the 2000s, only about 0.09% of the workforce participated in strikes. That’s a 20-fold drop from the 1950s. The absolute minimum came in 2009, when only 0.008% of the workforce participated in strikes. That’s a 700-fold drop from the peak in 1946. (And it’s not like workers were refusing to strike in 2009 because things were great. That was the era of the Great Financial Crisis.)

So we have, in Figure 2, a quantitative history of US strikes. Few people would deny that this history is about class struggle. What’s not clear, however, is that this strike history relates to the stock market. And yet it does.

Figure 3 shows the correlation between strike density and the US power index. When more workers go on strike, the power index tends to fall — meaning stock prices decline relative to wages. When fewer workers go on strike, the power index tends to rise — meaning stock prices grow relative to wages.

Figure 3: The US power index vs. strike density. The vertical axis shows Bichler and Nitzan’s power index — the ratio of the S&P 500 price to the average US wage. The horizontal axis shows US strike density. [Sources and methods]

Here’s the take-home message. When workers flex their muscles by striking, this power seems to be reflected on the stock market. Point for Bichler and Nitzan’s hypothesis.

### The struggle for a living minimum wage

Strikes aren’t the only way that workers can flex their muscles. Another option is for workers to influence government policy. They can get government to set a living minimum wage.5

Think of a minimum wage as setting a lower bound on the price of labor. That’s good for low-wage workers — it gives them a decent standard of living. But it’s bad for capitalists — it raises their costs. So if workers had their way, the minimum wage would be high. But if capitalists had their way, the minimum wage would be low (or not exist). So the size of the minimum wage reflects the balance of power between workers and capitalists.

With this dynamic in mind, let’s look at the history of the US minimum wage. Figure 4 plots the federal minimum wage since its inception in 1938. (The first state minimum wage was set by Massachusetts in 1912.)

Figure 4: The dollar value of the US federal minimum wage. I plot here the value of the minimum wage with no adjustment for inflation. Presidential administrations are shown in red/white. [Sources and methods]

When you look at the dollar value of the minimum wage, the picture looks rosy. Since its inception, the minimum wage has grown by a factor of 29. That’s progress, right?

Maybe.

The problem is that over the last 80 years, it’s not just the minimum wage that’s grown. All prices have increased. So the next thing we need to ask is — what’s the minimum wage’s purchasing power. To measure this purchasing power, we’ll compare the minimum wage to the consumer price index. (The consumer price index measures the average price of frequently-bought commodities.)

When we measure the minimum wage’s purchasing power, the results aren’t as rosy. Figure 5 shows the trend. Instead of a step-wise trend to better wages (as in Figure 4), we now have a saw-tooth dance. It’s composed of two parts. When the minimum wage rises, its purchasing power shoots upward instantly. But then inflation slowly wears away at this gain. The result is a saw-tooth dance between wage policy and inflation.

Figure 5: The purchasing power of the US federal minimum wage. I’ve divided the federal minimum wage by the consumer price index and set the resulting purchasing power to equal 1 in 1938. Presidential administrations are shown in red/white. [Sources and methods]

What’s more interesting than the saw-tooth shape is the long-term trend in the wage’s purchasing power. This trend gives a clear indication of who’s influencing government. For the first 30 years after the minimum wage’s inception, it’s clear that workers got their way. Between 1938 and 1968, the wage’s purchasing power grew by about 250%. Then came the 1970s, which were a period of stasis. Under Nixon, the wage’s purchasing power declined somewhat, mostly because inflation was high and Nixon raised the minimum wage only once. Ford and Carter then held the wage constant (against inflation).

That brings us to Ronald Reagan. As president, Reagan made clear that he was on the side of business. Unsurprisingly, he was the first president to refuse to raise the minimum wage. The result was a massive decline in the wage’s purchasing power during the 1980s. When Reagan left office, the wage’s purchasing power didn’t recover. Instead, ensuing presidents held it roughly constant. Today, the purchasing power of the federal minimum wage is about 40% less than it was in 1968.

Figure 5 tells a dreary tale of minimum-wage workers being beaten back. And yet the tale gets worse. That’s because the most important aspect of the minimum wage isn’t its purchasing power. What’s most important is the relative income it provides.

Here’s the difference. Imagine two people, Alice and Bob. Alice is a cook who earns minimum wage. Her wage grows with time, but just enough to match inflation. Bob, in contrast, is a C-suite executive who earns far more than minimum wage. And to make things worse, his income grows faster than inflation. So relative to Bob, Alice’s income isn’t just staying constant. It’s actually declining.

Sadly, this isn’t a hypothetical example. It’s what has happened in the United States. Since the 1980s, the income of minimum-wage workers has barely kept up with inflation. Yet top executives have seen their inflation-adjusted income skyrocket. So in relative terms, the minimum wage has actually declined.

Here’s one way of quantifying this decline. We’ll assume that a minimum-wage earner works full time — 40 hours per week, 52 weeks a year. We’ll calculate their annual income and compare it to the American average. (We’ll measure average income using gross domestic income per capita.)

Figure 6 shows the resulting trend in relative income. It’s far worse than the trend in purchasing power (Fig. 5). Since the 1970s, the relative income of a full-time minimum-wage worker has plummeted.

Figure 6: The relative income of a full-time minimum-wage worker. I assume here that a minimum-wage earner works 40 hours per week, 52 weeks per year. I compare their annual earnings to US gross domestic income per capita. [Sources and methods]

With Figure 6 in hand, let’s talk minimum-wage history. The federal minimum wage was created in 1938 by Franklin D. Roosevelt as part of his New Deal. Roosevelt had previously tried to legislate a minimum-wage in 1933, but the bill was struck down by the Supreme Court.

At its inception, the minimum wage was \$0.25 per hour. Today, this sum seems meagre. But at the time it is generous, giving a full-time minimum-wage worker about 80% of the average American income. To put this value in perspective, note that after 1940 it was never reached again. This testifies to the progressiveness of Roosevelt’s New Deal.

In the 1950s and 1960s, the relative value of the minimum wage remained high. During this time, a full-time minimum-wage worker earned about 70% as much as the average American. But by the 1970s this income began to decline. When Reagan ushered in the neoliberal era, the decline accelerated. It continued under all subsequent presidents. By 2019, a full-time minimum-wage worker took home just 23% of the average US income. Compared to the wage’s peak in 1939, that’s a near 4-fold drop.

The trend in Figure 6 is a clear indicator of class struggle. The creation of the minimum wage (in 1938) was the result of years of activism. The fact that the wage was ample — and remained so for the next 30 years — testifies to workers’ power during this period. But during the neoliberal era, business seized power. And so the relative value of the minimum wage plummeted.

While the battle over the minimum wage is obviously about class struggle, it’s not clear that this struggle has anything to do with the stock market. And yet it does.

Figure 7 compares the relative income of a minimum-wage worker to Bichler and Nitzan’s power index. When the relative income of a minimum-wage worker increases, the power index decreases — meaning the stock market declines relative to the average wage. Conversely, when the relative income of minimum-wage worker decreases, the power index increases — meaning the stock market grows relative to the average wage.

Figure 7: The US power index vs. the relative income of a full-time minimum-wage worker. The vertical axis shows Bichler and Nitzan’s power index — the ratio of the S&P 500 price to the average US wage. The horizontal axis shows the earnings of a full-time minimum-wage worker relative to the US average income (gross domestic income per capita). [Sources and methods]

Again, it appears that Bichler and Nitzan are onto something. The price of stocks (relative to wages) seems to reflect a wider class struggle. When workers fail to win a living minimum wage, stocks surge.

### The struggle to tax the rich

Think of a generous minimum wage as a social safety net. It stops incomes from getting too small. The corollary for the rich is the social safety whip. If incomes get too large, we whip them down to size. How? Using taxes.

It makes sense then that the history of class struggle should be written in tax rates. Here’s the dynamic at its most basic. Workers want to tax the rich. Capitalists want to tax the poor.

Yes, this is a simplification … but a reasonable one. People who earn income from wages and salaries tend not to be rich, and so favor progressive taxation. But people who earn most of their income from property tend to be rich, and so favor regressive taxation. The structure of taxation therefore tells us who’s winning the labor-vs-capital class struggle.

Let’s have a look at this tax structure. We’ll start with the simplest measure of how the rich are taxed — the top marginal tax rate. Figure 8 plots this rate since the inception of federal income tax in 1913.

Figure 8: The top marginal income tax rate in the United States. [Sources and methods]

When income tax was first introduced, the top tax rate was a mere 7%. This rate was immediately hiked during World War I. But when the war ended, the top tax rate was lowered. By the late-1920s it was down to roughly 25%. During the 1930s, the top tax rate rose again as the New Deal was passed. It stayed high during World War II, peaking at a rate that is today unimaginable. In 1945, the top tax rate was 94%.

When World War II ended, something interesting happened. Instead of plummeting (as it had after WWI), the top tax rate remained high. During the 1950s and 1960s, it averaged 85%. Again, it’s worth remembering that this was a period of unprecedented prosperity. (High taxes, it seems, don’t kill the economy.)

It wasn’t until the 1980s, when Ronald Reagan took office, that taxes were slashed. During his tenure, Reagan cut the top tax rate from 70% to 28%. No president since has managed to raise this rate significantly. Today, the top marginal tax rate is about 37%. That may sound high, but it’s a 2.5-fold drop from the 1945 peak.

Let’s move on to another measure of how the rich are taxed. We’ll look at the tax rate that top earners actually pay. This is called the effective tax rate — taxes actually paid as a portion of total income. The effective tax rate usually differs from the official tax rate because there are many ways of avoiding taxes. Some methods are legal (such as exploiting tax loopholes). Other methods are illegal (such as hiding money in tax havens). Regardless of the method, the rich usually pay less tax than the official tax rate.

In their book The Triumph of Injustice, Emmanuel Saez and Gabriel Zucman estimate what the rich actually pay in taxes. Figure 9 shows their data — the effective tax rate paid by the top 0.1% of US earners.

Figure 9: The effective tax rate paid by the top 0.1% of US earners. [Sources and methods]

The trend in the effective tax rate (an inverted U) looks similar to the trend in the official top marginal tax rate. The effective tax level, however, is quite different. During the 1950s and 1960s, for instance, the official top tax rate averaged 85%. But the effective tax rate was far less — averaging about 54%.

I’ve marked in Figure 9 the 50% tax threshold (the dashed horizontal line). It’s a threshold that is mentally significant. Above this rate, top earners give more than half of their income to the government. An effective tax rate over 50% was first achieved in the 1930s and lasted until the late-1970s. But since then, the effective tax rate paid by top earners has plummeted.

In 2018, US taxation passed a dubious threshold — it became truly regressive. In that year, the 400 richest individuals paid an effective tax rate that was lower than the rate paid by the bottom 10% of earners. (See the data visualized in this New York Times article.) Here’s how billionaire Warren Buffet framed this absurdity. Despite earning far more money, he paid an effective tax rate that was lower than his employees.

Clearly, US workers are losing the struggle to tax the rich. It’s a loss that plays out daily in the media. Any talk of progressive taxation elicits screams of ‘class warfare’. Of course taxing the rich is class warfare. But what goes unmentioned is the opposite class war that’s been waged successfully. For the past forty years, the rich have used tax law to wage war on the poor.

So we have, in Figures 8 and 9, a history of the struggle to tax the rich. It’s a history that’s obviously about class conflict. But what’s not obvious is that this struggle over taxes relates to the stock market. And yet it does.

Figure 10 compares the top marginal tax rate to Bichler and Nitzan’s power index. When the top tax rate increases, the power index decreases — meaning stock prices decline relative to wages. Conversely, when the top tax rate decreases, the power index increases — meaning stock prices grow relative to wages.

Figure 10: The US power index vs. the top marginal tax rate. The vertical axis shows Bichler and Nitzan’s power index — the ratio of the S&P 500 price to the average US wage. The horizontal axis shows the US top marginal tax rate. [Sources and methods]

The same trend appears when we look at the effective tax rate of the rich. Figure 11 compares the effective tax rate paid by the top 0.1% to Bichler and Nitzan’s power index. Again, when the tax rate increases, the power index decreases — meaning stock prices decline relative to wages. Conversely, when the top tax rate decreases, the power index increases — meaning stock prices grow relative to wages.

Figure 11: The US power index vs. the effective tax rate paid by the top 0.1%. The vertical axis shows Bichler and Nitzan’s power index — the ratio of the S&P 500 price to the average US wage. The horizontal axis shows the effective tax rate paid by the top 0.1% of US earners. [Sources and methods]

Again, it appears that Bichler and Nitzan are onto something. The struggle to tax the rich — a clear indicator of class conflict — seems to be written on the stock market.

### Does the stock market reflect class struggle?

Let’s take stock (pun intended). Bichler and Nitzan propose that stock prices, when compared to wages, reflect the class struggle between capitalists and workers. When capitalists win, stocks should go up. When workers win, stocks should go down.

This claim is just a hypothesis. But it’s one that is surprisingly well-supported by the evidence. When we look at indicators that are obviously about class struggle — strike density, the size of the minimum wage, and the taxation of the rich — we find that they correlate well with Bichler and Nitzan’s power index. When workers strike less, fail to win a living minimum wage, and fail to progressively tax the rich, stock prices rise relative to wages.

Does this evidence mean that Bichler and Nitzan are correct? The scientist in me would answer conservatively. The evidence ‘supports’ Bichler and Nitzan’s hypothesis that the stock market reflects class struggle. But the activist in me would answer more boldly. Karl Marx and Friedrich Engels once proclaimed that “the history of all hitherto existing society is the history of class struggles”. The evidence here suggests an equally bold proclamation: ‘In capitalist societies, the history of class struggle is the history of the stock market’.

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[Cover image: ‘Pyramid of Capitalist System’ (an IWW poster from 1911) is from Wikipedia. I’ve overlaid a stock ticker image from pixabay.]

### Sources and methods

In Figures 1, 2, 5, 6, 8, and 9, I calculate the smoothed trend using a locally-weighted polynomial regression.

#### Power index

Data for the US power index is from:

• 1865–2016: Bichler and Nitzan’s A CasP Model of the Stock Market
• 2016–present: S&P 500 price is from FRED, series SP500. The average US wage is from Bureau of Labor Statistics series CEU0500000003, Average Hourly Earnings of All Employees, Total Private

#### Strike density

I calculate strike density by dividing the number of people involved in ‘work stoppages’ by the size of the labor force. I call this the ‘strike’ density’ (not the ‘work stoppage density’), because most work stoppages are strikes, not lockouts.6

Work stoppage data is from:

• 1881–1946: Historical Statistics of the United States Bicentennial Edition, Table D970-985. (I index this data to the BLS values in 1947.)
• 1947–present: Bureau of Labor Statistics, series WSU010

Labor force data is from:

• 1881–1889: Historical Statistics of the United States Bicentennial Edition, Table D11
• 1890–1946: Historical Statistics of the United States Millenial Edition, Table Ba470
• 1947–present: Bureau of Labor Statistics series LNU01000000

I index labor force series backwards in time from the BLS data, and then interpolate linearly to estimate data for missing years.

#### Minimum wage

Data for the US federal minimum wage is from the Department of Labor.

To calculate the wage’s purchasing power, I divide the minimum wage by the consumer price index (Bureau of Labor Statistics, series CUUR0000SA0.)

To calculate the relative size of this wage, I estimate the income earned for a minimum-wage earner working full time. I multiply the federal minimum wage by 40 hours per week × 52 weeks per year.

I then divide this income by gross domestic income per capita. US gross domestic income data is from the Bureau of Economic Analysis, Table 1.10.

US population data is from:

• 1938–1958: Angus Maddison’s Historical Statistics of the World Economy: 1-2008 AD
• 1959–present: Federal Reserve Economic Data, series POPTHM

#### Top marginal income tax rate

Data for the top US marginal tax rate is from the Tax Policy Center.

#### Effective income tax rate of the top 0.1%

Data for the effective tax rate of the top 0.1% is from Emmanuel Saez and Gabriel Zucman, compiled for their book The Triumph of Injustice. You can download the data from Zucman’s website.

### Notes

1. Case in point: before doing the research for this post, I’d never heard of The Battle of Blair Mountain. Given that we share a name, my ignorance is a bit embarrassing.
2. As sign of the times, Donald Trump recently called for Zinn’s text to be removed from high school curriculum. Zinn’s approach to history, Trump declared, is “ideological poison, that if not removed will dissolve the civic bonds that tie us together.”
3. Without the power to exclude, firms would have no income. Commenting on this fact, Nitzan and Bichler observe:

Money spent on having your engineers invent open-source technology or on making your workers create physical capacity that everyone can freely use is money gone down the drain. The only way such spending can become a profit-yielding investment is if others are prohibited from freely utilizing its outcome. In this sense, capitalist investment – regardless of how ‘productive’ it may appear or how much growth it seems to ‘generate’— remains what it always was: an act of limitation.

(Nitzan and Bichler in Capital as Power)

4. Bichler and Nitzan are the first to note that the power index is not the quantification of class struggle. It is a quantification of class struggle — one of many that are possible.
5. Nothing rankles mainstream economists more than talk of a minimum wage hike. “It will increase unemployment of unskilled workers”, they say. “It will distort the labor market,” they continue.

This is no straw man argument. In the 2003 edition of his undergraduate textbook Principles of Economics, Gregory Mankiw notes that 79% of economists agree that a minimum wage ‘increases unemployment among young and unskilled workers’. In the 2011 edition of his textbook Principles of Microeconomics, Mankiw writes:

[A] minimum-wage law distorts the market for low-wage labor.

Mankiw’s language is telling. When you see the word ‘distort’ in mainstream economics, take note. It’s code for ‘the real world ruins my theory’.

6. Regarding work stoppages, the Historical Statistics of the United States Bicentennial Edition has this to say:

Work stoppages include strikes and lockouts. A strike is defined as a temporary stoppage of work by a group of employees to express a grievance or to enforce a demand. A lockout is defined as a temporary withholding of work from a group of employees by an employer (or a group of employers) to enforce acceptance of the employer’s terms. Most work stoppages are strikes rather than lockouts. (emphasis added)

Bichler, S., & Nitzan, J. (2016). A CasP model of the stock market. Real-World Economics Review, (77), 119–154.

Fix, B. (2020). How the rich are different: Hierarchical power as the basis of income size and class. Journal of Computational Social Science, 1–52.

Huber, E., Huo, J., & Stephens, J. D. (2017). Power, policy, and top income shares. Socio-Economic Review, 0(0), 1–23. https://doi.org/10.1093/ser/mwx027

Nitzan, J., & Bichler, S. (2009). Capital as power: A study of order and creorder. New York: Routledge.

Saez, E., & Zucman, G. (2019). The triumph of injustice: How the rich dodge taxes and how to make them pay. WW Norton & Company.

Shogan, R. (2006). The Battle of Blair Mountain: The story of America’s largest labor uprising. Basic Books.

Zinn, H. (1970). The politics of history. Boston: Beacon Press.

Zinn, H. (1980). A people’s history of the United States: 1492–present. Harper & Row.