Life Isn't Fair | Maggie Dowling

July 1, 2022

Life Isn't Fair

America's economy has been rigged against everyday Americans.

Life isn’t fair.

This has become a big conservative talking point in recent years. Top conservative think tank PragerU lectures that “life isn't fair. And you know what? It can't be.” The Right says “the word fair has become a whine,” and that “nothing is free in life,” to quote Senator Rand Paul. Top political commentator Ben Shapiro echoes “reality isn’t fair,” and to “get over it.”

They beat this drum for one reason: to justify the unfairness in our society today. To make it seem as though it’s okay, natural in fact, for things to be unfair – and that as a result, we have no responsibility to help others. Republicans are far less likely to view it as the government’s job to help with economic inequality (44% vs. 75% of Democrats), and are more likely to view inequality as acceptable in our society. Less than half think the government has any responsibility to provide the social programs that level the playing field. These views stem from their party’s overarching belief that life being unfair isn’t a problem, or at least not one we have to fix. Sorry guys, that’s just how the cookie crumbles! Nothing we can do about it!

It’s true that life isn’t always fair. But that’s just a saying to lament things like kids getting cancer, or the Kardashians becoming billionaires, or people being born with disabilities. Not an excuse, a political weapon, to normalize and uphold the blatant unfairness in our society today…

Economic inequality in America, “on the rise for decades, is now highest since 1928.” The wealth of our top-earners “now surpasses Gilded Age levels, while the ultra-conservative RAND corporation reports that “the top-1% of Americans have taken $50 trillion from the bottom-90%” over the past half-century. Employee wages are lower than ever, while corporate profits and top-earners’ incomes are higher than ever. The Council on Foreign relations writes that "income and wealth inequality is higher in the United States than almost any other developed country, and it is rising." The US ranks 4th out of 34 OECD countries on income inequality. Even Jamie Dimon, King of Wall Street, says “wealth inequality is a huge problem in our country. The wealthy have been getting too much wealthier, so middle class incomes have been flat and that's not good.”

Employee wages are low as ever, while corporate profits soar. Top-earner incomes have grown far more than the bottom-90%.

Despite the Right’s claims that there’s no place for fairness in our society, we know on a basic human level this isn’t true. As Harvard professor Joshua Buckholtz writes, humans have evolved “specific prosocial norms that operate to promote cooperation, including prohibitions against cheating in economic exchanges, as well as resource distribution norms pertaining to equity and fairness.” Per Science Journal, “the evolution of our society has required norms and institutions that maintain fairness,” and the NIH echoes, “cooperation could not have evolved without mechanisms to ensure the sharing of payoffs.” A healthy society needs some basic enforcement of fairness, because there will always be people in power trying to make it unfair.

And while it’s bad enough that our economy has become so unfair today, what makes it even worse is that it was rigged this way on purpose. Make no mistake: inequality today is the direct product of a toxic ideology and its toxic policies that have steered the Republican political agenda for a half-century now. As David Stockton, Ronald Reagan’s own Director of Management and Budget says, “this growing wealth gap is not the market's fault. It's the decaying fruit of our bad economic policy."

So let’s unpack their policies, and the ideology that fueled them, to understand how our economy has gotten so crooked today – and how we fix it. There are three disturbing forces to dissect:

A dangerous new economic philosophy, the gospel known as Profits Over People
Anti-people policies charmingly packaged under “Reaganomics,” and that continue today
Deregulation, AKA the unchaining of Wall Street

These may not sound sexy at first, but they’re the things that actually impact our daily lives. They’re the things that make life unfair, and are the things we must now confront.

The New Gospel: Profits Over People

Our inequality problem can be traced back to the 1970s, thanks to a few quack economists in the Reagan administration who pushed a new economic philosophy for America – something called the Shareholder Theory. The article introducing it was written by a man named Milton Friedman, described as "the most influential economist of our time." The article itself has become "one of the most famous and widely cited academic business articles of all time.”

Friedman’s argument was this: that a company's shareholders (the people who own stock in it) are actually employees of that company. As a result, the company has a responsibility to them – their ‘employees’ – first and foremost. That means maximizing profits first and foremost, because those profits result in stock returns for their shareholders. Friedman said that companies who didn’t single-mindedly pursue profits were “puppets of the intellectual forces that have been undermining our society.” Fellow Reagan economist Art Laffer echoed that “corporate social responsibility is detrimental” to our society.

Before anything else, let's just establish that the basis of Milton’s argument is nonsense. Shareholders are not employees. They do not punch the clock, fill out timesheets, receive wages, or file employee taxes. If anything, they’re outside consultants. His whole argument is "mere legal fiction.” And even if we were to accept the whole 'shareholders are employees' thing... companies have other employees too, like their actual workers. Who Friedman conveniently left out of his equations. As Steve Dennings writes in a great article, The Origin of the World’s Dumbest Idea,

"The success of Friedman's article was not because the arguments were sound or powerful, but rather because people desperately wanted to believe. At the time, [businesses] were starting to feel the first pressures of global competition and executives were looking for ways to increase returns. The idea of focusing totally on making money, and forgetting about any concerns for workers, customers or society seemed like a promising avenue worth exploring, regardless of the argumentation."

Friedman’s Profits over People gospel doesn’t hold water. But it came out at exactly the right moment. When Milton wrote his article, our economy was struggling. After thirty years of unprecedented postwar growth – known as America’s Golden Age – GDP growth stalled out, culminating in a mid-decade recession. The postwar generation had been “the wealthiest in US history” and didn’t like feeling poor… and it made our people, especially our business leaders, amenable to Friedman’s arguments. We don’t like feeling unsuccessful. Let’s just make our money back real quick, and then we can worry about looking after people later.

This mindset has, and continues to, dictate Republican economic policy. And it’s had devastating consequences for both inequality, and the overall health of our economy.

First, it led to the party’s obsession with corporate tax cuts – i.e., giving more money to corporations – which have only enriched our Big Business elites. From 1950-1979 (our Golden Era), the average corporate tax rate was around 50%; from 1980-2010 (the Profits Over People era) it dropped to 38%. As mentioned earlier this has driven corporate profits to an all-time high today. More for them, less for the rest of us.

But Friedman’s philosophy didn’t just drive inequality by inflating corporate profits; the other side of the coin was suppressing workers’ wages. It’s simple: the more that companies pay their workers, the more they’re spending and the less profit they make. Once Friedman normalized not paying workers fairly, businesses stopped paying their workers fairly. Workers wages are lower than ever, the minimum wage hasn’t been raised in 12 years (the longest period in its history), and now it doesn’t even cover the cost of living for most Americans – as MIT reports, “$15 an hour isn’t enough; US workers need a living wage.”

And despite the Right’s belief that inequality isn’t a problem as long as Big Business is booming and our economy is growing… our economy hasn’t even grown under their policies.

The Right justifies giving all this money to Big Business by saying that a high corporate tax rate hurts our economy. They say it limits the resources that Big Business has available to invest and innovate, which hamstrings us. They believe our business elites have some infinite, infallible ✨wisdom✨ that will create great wealth for us all if we’d just unchain them. But it turns out lowering taxes on Big Business isn’t associated with enduring economic growth. During the Golden Era, when corporate taxes were highest, GDP growth averaged 3.9% per year; from the 1980s on, it only averaged 2.7% (see below). Correlation doesn’t equal causation, but it casts doubt on the Right’s claims that a responsible corporate tax rate hurts our economy.

But the Profits Over People philosophy didn’t just infect the hearts and minds of our business leaders – it infected other economic policies. Slashing corporate tax rates and creating loopholes for Big Business to dodge taxes was just the tip of the iceberg. The elitist doctrine also led our leaders to redirect government spending away from people-power programs and straight into the pockets of the super-rich. This is part two of our inequality problem.

Reaganomics: Putting Profits Over People into Practice

When Ronald Reagan – architect of the modern Republican party – came to power in 1980, he rolled out a grand new economic agenda for America: “Reaganomics.” The (alleged) basis of his platform was this:

Lower taxes in order to put more money in Americans’ and businesses’ pockets – enabling us to spend and invest more, stimulating and growing our economy
Reduce government spending in order to pay for those tax cuts, and
Roll back financial regulations designed to rein in Wall Street (we’ll focus on this in the next section)

Their logic sounded simple and appealing: America’s money should go straight into our pockets, not the government’s. Business should steer the economy, not the government. Reagan and his cronies like Friedman promised that not only would this make things fair, it would be good for our economy.

But unfortunately they didn’t deliver on their promises. And their failure to do so has only spiked inequality and produced a less stable economy. As economist John Komlos writes,

"There have been many big promises made since Reagan's 'It's Morning Again in America.' But in the end, they all left the middle class staring into empty wallets as their manipulators lived high on the hog. The failed big ideas began with Reaganomics."

Let’s break it down. First, Republicans’ whole ‘lowering taxes’ thing was really only for the super-rich (and large corporations, as we’ve established).

"With Reaganomics, the super-rich had their taxes cut sharply – by about half. A millionaire who was paying $700,000 in taxes in the 1970s saw his taxes cut to $350,000 in the 1980s. The tax cuts started a vicious cycle where the wealthy keep more wealth,” writes Komlos. From 1950-1979, the average top-earner tax rate was around 80%; from 1980-2010 it dropped to 40%. Working Americans’ taxes didn’t drop like that. And the legacy lives on: Trump's administration spent $2.3T on tax cuts that the Congressional Budget Office wrote "primarily benefited the wealthy and corporations." In 2018, “US billionaires paid a lower tax rate than the working class for the first time in history.” So now the rest of us pick up their slack.

Bill Gates, the 3rd richest man in America, wrote a famous op-ed in 2009 – Stop Coddling the Super Rich – on our rigged tax policy:

“While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get extraordinary tax breaks… These blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were some other endangered species. It’s nice to have friends in high places.”

Just as lowering corporate tax rates put more money in corporations’ pockets, lowering tax rates on the wealthiest Americans has put more in theirs. Despite Republicans’ promises that their tax policies would produce greater wealth, and that that wealth would “trickle down” to all Americans for all our benefit, they weren’t. A landmark study from the London School of Economics found that “reducing taxes on the rich leads to higher income inequality,” adding that their findings “support the growing pool of evidence from studies that show trickle-down economics only increases top income share.” Or as Warren Buffet, 4th richest man in America says, “the wealth hasn’t trickled down. It’s surged upward.” Cutting rich people’s taxes only helps the rich. Not the rest of us, or our larger economy. During the Golden Era, when taxes were highest on our top-earners, GDP growth was higher than it’s been since the 80s.

But it wasn’t just Reaganomics’ crooked tax policies that have driven inequality (and harmed our economy), it was also that its second promise, to reduce overall spending to pay for the tax cuts… never came to pass. Per Brookings, "most of the top Reagan officials didn't think the tax cut would pay for itself. They planned to cut spending to avoid blowing up the debt. But that never happened." The only spending that went down was on social programs that empowered everyday people.

Reagan – and all Republican administrations that followed – have driven up spending every time they’ve held office. Our national debt tripled from one to three trillion dollars under Reagan. Per Komlops, the Reagan tax cut “was huge and didn't pay for itself.” Towards Data Science found that Republicans add 1.2% more to our national debt each year they're in office than Democrats do. Reagan’s own Director of Management and Budget says the GOP has “destroyed the U.S. economy” by spending “beyond our means as a nation.” He continues, “Republicans used to believe that prosperity depended upon regularly balancing the budget” and that our obscene national debt today stems directly from “the Republican Party's embrace, three decades ago, of the insidious doctrine that deficits (debt) don't matter if they result from tax cuts."

But not only have Republicans spent beyond our means on tax cuts and corporate favors and a bunch of other things that only give more money to the rich (see: an $800 billion military “that is a huge source of unjustified profits for weapons CEOs”; $290 billion spent on elitist ‘capital gains’ tax cuts that the Congressional Research Services found “show no relationship with economic growth”; or $145 billion on “deeply skewed” estate tax cuts that only benefit super-rich heirs). They gutted spending on social programs that help everyday Americans. They stole from the poor to give to the rich.

Reagan kicked off the trend, cutting $140 billion in social spending once he took office. Bush soon followed. Spending on social programs has “fallen to its lowest level as a share of the economy in 50 years.” The Center on Budget and Policy Priorities writes that in 2016, “62% of the Republicans’ budget cuts were from low-income social programs.” In 2018, when Republicans last controlled our budget, they “cut programs aiding low- and moderate-income people by $2.9 trillion over the next decade.” Some of the things they cut:

Cut Medicare by $470 billion
Cut Medicaid by $1 trillion
Cut education grants by $90 billion
Cut child care assistance by billions
Cut affordable housing funding by $37 billion
Cut nutrition assistance for families by $150 billion
Cut health grants for children by $15 billion
Cut public transportation funding by $200 billion
And cut roughly $500 billion in “other low-income support programs”

These social programs aren’t just crucial for people to live with dignity – they’re crucial for a fair and healthy economy. MIT crunched the numbers and found “it would be good public policy to expand access to higher education” as it “makes sense on social and civic grounds as well as for the needs of the U.S. economy.” The President’s Council of Economic Advisers found that for every $1 invested in child care and early education, we get $8.60 in returns. The Bureau of Labor Statistics found that “well-functioning systems of public transportation are important for the growth of urban economies… infrastructure decay in existing systems remains a serious threat.” Research shows that nutrition assistance programs “pay for themselves in the long-term by reducing food insecurity,” which correlates with greater economic equality. It is mind-blowing that we’re not only refusing to invest in these things, but actively cutting them.

Funneling resources away from social programs and dishing it out to the super-rich is obviously going to widen the gap between the haves and have-nots. And despite the Right’s argument that social spending hurts the economy, again the evidence isn’t there. In analyzing 20 years of social spending across 36 OECD countries, I found that higher spending on social programs is correlated with higher GDP. Again, correlation isn’t causation, but it casts doubt on the Right’s claims.

But this upward transfer of wealth hasn’t just been about stealing from the poor to give to the rich. It’s also a product of something called ‘financial deregulation’ – which has exploded the size of Wall Street, and allowed them to further tip the economic scales in favor of our business elites. In really creepy ways.

Mass Deregulation: Wall Street Unchained

‘Deregulation’ means getting rid of government rules that control how our financial sector (Wall Street) operates. Regulatory rules and policies are put in place to protect consumers’ investments; they’re designed to limit the risks banks and other financial institutions can take with our money, enforce transparency around their practices, and prevent financial fraud (more on this shortly).

Republicans argue that regulating the finance sector is bad for our economy. They say that government restrictions limit Wall Street’s ability to invest and grow, that they act as a “hidden tax on the market” because of compliance costs, and that they bias our economy towards the government’s interests, instead of letting our economy unfold naturally. The Right says that no regulation – unchaining Wall Street – is the natural, fair state of things.

But their arguments don’t hold water, either from an economic or historical perspective.

First, their whole argument for deregulation rests on the idea that all Americans have equal power in the market (our economy). They claim that our economy bends according to all of our will and that we’ll all get what we deserve if the government just leaves it alone (doesn’t regulate it). They say “the free market alone will give everyone the same rights.” But this is not true, because we do not all have equal power. Our business elites and the super-rich hold all the power in our economy; they have more money, which gives them more influence on how the market performs and more influence on policy. If they aren’t held to some basic legal and ethical standards (regulations), they gain even greater ability to manipulate the scales in their favor. And since these are people who have spent their lives obsessed with money, they are going to try to tip the scales. Think back to Buckholtz’ prosocial norms about cheating in economic exchange – regulation is inherently fairer to the vast majority of Americans.

Nor do the Right’s arguments align with America’s historical perspective on regulation. At our best, we’ve always recognized the need to regulate our financial sector. From the Cambridge Journal of Economics:

“In the aftermath of the Great Depression, it was almost universally believed that unregulated finance is unstable, subject to fraud and manipulation by insiders, and capable of triggering deep economic crises… To protect the country from these dangers, the US government created a strict financial regulatory system that worked effectively from the 1930s until the 1970s.”

During this, our Golden Era, we passed comprehensive protections from the Glass-Steagall Act (ending risky speculation) to the Securities Act (protecting investors against fraud), and formed the Securities & Exchange Commission (enforcing laws against market manipulation). And these things worked for us: “the period following the banking reforms of the New Deal up until about 1980 was marked by a relative degree of banking stability and economic expansion.”

But Reagan Republicans’ new 1980s obsession with wealth generation – at the reckless expense of all else – blinded them to these realities. They went on a deregulation spree that exploded the wealth of our financial sector… but that never trickled down to the rest of us. “The late 1970s and 1980s brought a wave of deregulation” where “those laws were largely undone. The most obvious consequence has been the tremendous growth of the financial sector.”

By repealing these policies that kept things fair, the Right blew open the door for Wall Street to manipulate the markets and funnel profits into their pockets. Per Harvard Business professor Gautam Makunda, “the largest US banks grew rapidly after financial deregulation and got even bigger after the crisis. In 1995 the six largest U.S. banks [accounted for] 17% of the country’s GDP. By 2013 it was 58%.” While “financial and nonfinancial sector profits previously grew at the same rate, in the 1980s financial profits took off into the stratosphere.” Reagan’s own OMB director refers to this, "the vast, unproductive expansion of our financial sector," as "the third most ominous change in the American economy."

So how did Republicans’ “pervasive” deregulation enable the finance sector to unjustly enlarge and enrich itself at our expense? A few examples:

Allowing greater “speculation,” enabling Wall Street to take bigger bets with our money
Allowing greater “leveraging,” enabling them to riskily borrow beyond their means
Removing mortgage lending standards, enabling them to package bad loans people can’t cover
Failing to enforce disclosure, enabling them to make backroom deals without reporting them

There are countless other forms deregulation takes, but the common thread is: give Wall Street as much power as they want to reshape our economy in their image. Risks to the rest of us be damned. And needless to say, reshaping our economy around unrestricted gambling has only helped them, because the house is rigged in their favor. See below:

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But Wall Street’s reign of terror hasn’t just involved a massive upward transfer of wealth by allowing them to manipulate the markets to their advantage. It’s also caused serious instability in our economy that’s led to serious financial crises. Crises that hurt everyday Americans the most. Per Makunda, “once the finance sector becomes too large it actually inhibits growth and increases volatility.” A landmark FCIC investigation “concludes that widespread failures in financial regulation and supervision prove devastating to the stability of the nation’s financial markets and puts the financial system on a collision course with crisis.”

The hallmark example of this is the 2008 financial crisis. The FCIC asserts that “deregulation of the financial industry was the primary cause of the 2008 crash. It allowed speculation on derivatives backed by cheap mortgages, available to even those with questionable creditworthiness.” They continue that

“The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire. The captains of finance ignored warnings and failed to understand and manage evolving risks [to protect] the well-being of the American public… More than 30 years of actively pushing the powerful financial industry at every turn had stripped away key safeguards, which could have helped avoid catastrophe.”

But perhaps even more harmful than these policies themselves is the culture that deregulation has created. A culture where Wall Street’s outsized wealth and influence ensures they face no accountability for the inequality, instability, and damage they cause. They’ve become above the law, and we pay for it.

After the 2008 crisis, our government (disgustingly) declined to prosecute the bank leaders that sabotaged our economy. Federal investigations found “overwhelming evidence that felonies were committed by Wall Street.” The Justice Department found that the banks’ “conduct sowed the seeds of the mortgage meltdown” by “knowingly bundling toxic loans to sell to unsuspecting investors.” The FCIC echoed that “major financial institutions knew a significant percentage of their loans did not meet their own underwriting standards. Nonetheless, they sold them.” The FCIC attributes their behavior to “a systemic breakdown in accountability and ethics” across the industry. Even Alan Greenspan, notorious Wall Street apologist, testified to Congress that “a lot of this stuff was just plain fraud.”

Instead of holding these crooks accountable though, our government bailed them out. Our government gave the banks a $700 billion bailout so they didn’t have to declare bankruptcy, which would collapse our economy. And instead of making them pay us back, instead of forcing any oversight with the money we gave them, we let Wall Street use it as yet another opportunity to funnel our taxpayer dollars into their pockets. These banks spent our money on things like “lavish bonuses during the bailouts” – Wall Street paid their top execs “bonuses of more than $1 million apiece” for their 2008 performance. “About 700 employees of Merrill Lynch received bonuses in excess of $1 million in spite of the fact that the firm lost $27 billion that year.” That was our tax money they were taking from. That was working Americans’ money that they ‘lavished’ on themselves after sabotaging our economy. That they can get away with this is a cultural issue.

Our economy will never be fair when we’re blindly deferring to the people who want nothing more than to manipulate it to their advantage. As Harvard Law’s Lawrence Lessig says, “we live in a world where the architects of the financial crisis regularly dine at the White House.” The economic meltdown we’re seeing isn’t just from a half-decade of bad policy, but from the culture attached to it. A culture that glorifies the elites whose “stupidity and greed” have hurt our country. It’s time we rein their influence in.

Restoring Sanity

Former Supreme Court clerk Louis Brandeis – known as “the People’s Lawyer” – said it best:

“We can either have democracy in this country or we can have great wealth concentrated in the hands of a few, but we can’t have both.”

It’s time we reverse course on Republicans’ whole ‘let’s give more money to rich people so they can give it back to us later however they see fit’ thing. The only thing that happens when we give our elites extra cash is they hold onto it. They do not multiply it in their infinite wisdom for all our benefit. They do not show one inkling of concern for working Americans. So we must take matters into our own hands.

We can make rich people actually pay taxes (by reforming capital gains tax, estate taxes, wealth taxes). We can make corporations actually pay their taxes (by restoring previous corporate tax rates and closing offshore loopholes). We can raise the minimum wage, profoundly overdue. We can stop spending on garbage, and return to investing in programs that strengthen our workers. Especially education, which has become more important and less accessible than ever. Per CNBC, “America’s largest and fastest growing sectors – business services, finance, healthcare – have little room for high-school educated workers,” and now they’re being left behind in our knowledge-based economy. We can stop waging the war on unions, which are historically associated with greater equality. We can reinstate basic regulations that keep our economy fair; 91% of Americans believe it’s “important to regulate financial services,” while 3-in-4 support reinstating Dodd-Frank and the Consumer Protection Act (critical regulations killed in the 2010s).

We can chart a new course, if we care enough to. We can return to the Golden Era philosophy that made our country great, or continue regressing back to the Gilded Age. We can prioritize human dignity and basic fairness again, or we can prioritize profits at the expense of all else. But we can’t do both.