Media and Politics

 

Spencer Graves¹

 

Abstract

 

A simplified model of the political economy of the US considers 4 sectors, Government, business, the media, and the public, with each controlling the next in an unending circle. This oversimplification may nevertheless provide a useful analytic tool. This framework is used to study several issues including the evolution of income inequality in the US since 1947. Increasing inequality documented in these data is correlated with media consolidation and runaway inflation in the costs of political campaigns. Nearly everyone complains that the system is broken but no one of sufficient stature understands it well enough to lead an effective change effort.

 



Figure 1. Four puppets in a circle with government² officially controlling everyone else but especially business, which (through advertising decisions) controls commercial media,³ which controls the public, which officially controls the government through the democratic process

 

 

Introduction

     The political system in the United States might be described in terms of the “Four Puppet” diagram in Figure 1: (1) Government¹ officially writes and administers the rules to be followed by the governed, including individuals and economic, social and political groups. (2) Corporations, through their extensive advertising budgets exercise substantial control over any organization that accepts advertising. (3) The mainstream media⁴ provides the news and fiction from which the public develops a major portion of its world view. In the US, this includes the Public Broadcasting System, which gets much of its funding from corporate sponsors and therefore must moderate what it presents to avoid losing revenue from unhappy executives. (4) In officially democratic countries the public theoretically controls the political process through elections.

     Individuals and groups might see themselves as autonomous -- no one wants to be considered a puppet. However, this figure may be a useful metaphor, in part because we are all influenced by others in varying degrees, with part of these influences matching the strings in Figure 1. Of course other influence paths exist between the four actors in Figure 1 beyond those marked. The most important such connection today may be the massive influence of business on government. In the US, this takes the form of lobbying, made exceptionally effective by private financing of political campaigns, kept largely invisible to the public through editorial decisions of media executives. Wealthy interests often contribute to both sides in contested elections and often get much of what they want in legislation with impressive returns on those contributions and lobbying expenses. Occasionally, events require the media to demonstrate their independence on a particular issue. However, that is relatively rare, as noted below.

     Governmental decisions largely determine whether there is economic growth,⁵ how much, and how the benefits of that growth are distributed. As indicated in Figure 2, the US GDP per capita (adjusted for inflation) has grown roughly 1.7 percent per year from 1790 (the year of the first US census and the earliest time for which we have data) to the 2010.⁶

We plot GDP per capita (average annual income per person), because it is a measure of productivity: When this number doubles, as it did from 1971 to 2010, it means that there was twice as much economic activity per person (employed or unemployed) in 2010 as in 1971. Some of this increase is due to an increase in the percent of women working outside the home. Most of this, however, is actual improvement in productivity, with the average labor year in 2010 producing almost twice as many goods and services as the average labor year in 1971. If the benefits of these improvements were broadly shared, people in the US today could on average afford twice as many goods and services as 40 years ago. This is, however, not what has happened, as explained below.

 

Figure 2. Growth in US Gross Domestic Product per Person⁷

 

 

     Figure 2 shows a relatively steady increase averaging 1.7 percent per year except for 1929 through 1946: These 17 years show the worst of times and the best of times, with by far the largest decline in this series followed by an equally spectacular growth period. There seems to be a broad consensus among economists today that the primary causes of the Great Depression were misguided policies of the US Federal Reserve System, including especially tightening policies in 1928 and 1929. These and other policies produced the stock market crash of 1929 and the massive economic decline that continued until 1933, after Franklin Delano Roosevelt (FDR) was inaugurated as President of the US.⁸ There is less consensus on the reasons for the impressive growth of 1933-1944. Some argue that the New Deal programs prolonged and deepened the Great Depression.⁹ As a child, I heard many times from my parents and their peers that the New Deal did not eliminate the Great Depression; World War II did.

     During the last 5 or 6 of FDR's 12 years as President, US economic growth was driven by the demands of World War II. However, there have been many other wars in US and world history and none seem to have contributed to an economic boom comparable to that of FDR so visible in Figure 2. Certainly, the war helped provide demand and a consensus for action that boosted the economy. However, there have been other wars and other similar periods without a similar impact on the US economy. World history records many ways to destroy an economy and many fewer ways to make one work.¹⁰

     In particular, this growth rate dramatically outperformed any other twelve-year period in US history, as is obvious from Figure 2. Moreover, an analysis of growth rates internationally identified 98 twelve-year periods where other nations outperformed this growth record of the Roosevelt administration. Two ended in 1853 and 1854 when Australia led the world in both GDP per capita and growth. The other 96 were countries with lower GDP per capita closing the gap with the US. Almost half were benefiting from an oil bonanza (e.g., Libya, Venezuela, and Saudi Arabia in various years). A few were centrally planned (e.g., North Korea in 1973 and 1974), but most seem to have grown based on the commonly lauded political economic virtues of rule of law providing a stable environment for market economics, business formation and growth, often coupled with recovery from war (e.g., Western Europe and Japan after World War II) as an educated work force repaired their infrastructure.¹¹

     Unemployment in the US during the FDR presidency roughly mirrors the economic growth, increasing from 3.2 percent of the civilian labor force in 1929 to 24.9 percent in 1933, then declining to 14.3 percent in 1937 before the recession of 1938 raised it back to 19.0 percent, then declining again to 1.2 percent of the civilian labor force in 1944, according to Lebergott (1957).¹²

While FDR does not deserve credit for the increased demand created by the war, he does deserve credit for restoring the US economy from the damage it suffered before and during the Hoover administration and for keeping the country united for the war effort while covering a large portion of the cost of the war by taxing the ultra-wealthy,¹³ as discussed in the next section.

     The world needs a broad, public debate and more quantitative research to understand what policies created this relatively high rate of economic growth -- and what policies created the higher growth rates of countries that now lead the US in GDP per capita.

The next section discusses income inequality in the US, which is very much a product of governmental policies, including but not limited to income tax. The image in the accompanying Figure 3 suggests that the benefits of productivity growth were widely shared between 1947 and 1970 and have largely been captured by the ultra-wealthy since. This latter period coincides with the rise of right-wing think tanks that produce reports claiming that the poor will benefit from making the rich richer, in spite of substantial contrary evidence. This latter period also includes a massive consolidation in ownership of the mainstream media in the US, combined with a substantive shift to the right in their editorial policies, supported by a phenomenally successful propaganda campaign claiming that the media have a liberal bias (McChesney, 2004; Potter and Kappeler, 1998).

 

 

Income Inequality in the US

     Nobel Prize Economist Paul Krugman described the evolution of income inequality in the US from 1917 to 2005 (Krugman, 2007). Until 1940, the top 10 percent of the US in income received roughly 43 percent of the national income (excluding capital gains). He called this period, “The Long Gilded Age”, suggesting that, “In many important ways, though, the Gilded Age [of the late nineteenth century] continued right through to the New Deal.” This ended abruptly in 1941-1943 as the FDR administration began to tax the wealthy after the initiation of World War II in Asia and Europe, generating “The Great Compression” (Goldin and Margo, 1991) in income distribution. Krugman calls the period from 1943 to the late 1970s, “Middle Class America”, during which the income distribution in the US was stable with the top 10 percent receiving roughly 32 percent of the national income. Since the 1970s, income inequality has mostly been increasing, with the wealthiest 10 percent receiving over 40 percent of national income every year since 1995, reaching 44 percent in 2005 (the last year in Krugman's article; Krugman, 2007). Krugman calls this latter period “The Great Divergence”.¹⁴

     Piketty and Saez (2006) report that Canada, England, France, and Japan experienced compressions in the income distribution during World War II similar to that in the US. Switzerland, the only other country discussed by Piketty and Saez, stayed officially neutral during that war and has not so far adopted progressive taxation, sustaining the high income inequality of their “long Gilded Age”. Canada and England experienced “Great Divergence” phenomena similar to the US, while France and Japan so far had not.

Figure 3 plots the 20th, 50th, 80th, 95th, 99th, 99.9th and 99.99th percentiles of the distribution of annual family income in the US from 1947 to 2009 adjusted for inflation to constant 2009 dollars. The scale (logarithmic) is chosen so that constant percentage increases over time appear as straight lines (as with Figure 2).

     The first thing to notice in Figure 3 is that from 1947 to 1969, the five lines in Figure 3 had the same slope at different levels. This shared slope was estimated at 3.16 percent per year. Since then, the only time that all 5 lines grew at comparable rates was during the presidency of Bill Clinton.

 

Figure 3. Changes in Income Distribution in the US, 1947-2010. The numbers on the right are cumulative and annual percentage growth 1970-2008.¹⁵

 

 

     The bottom line from this analysis is that the US economy has continued respectable economic growth since World War II. It grew equitably from 1947 to 1969. Between 1970 and 2008, the GDP per family (adjusted for inflation) increased by 104 percent. If these gains had been broadly shared, as they were between 1947 and 1969, the median family income would have been roughly $38,000 higher. In essence, the median family in the US today pays over $3,000 per month in lost income for their failure to demand honest reporting of political events and fund alternatives when the commercial media did not provide adequate information.

This whole analysis seems to contradict the standard conservative mantra that we should focus on making the pie bigger, assuming it will get bigger for all (sometimes called “trickle down economics”). Evidently, we need to focus on both growth and how the benefits are shared -- AND when we do so, we will NOT necessarily suffer a decline in growth, as claimed by the standard right wing ideology common in the US.

     It is impossible to know everything that went into creating the changes documented in Figure 3. However, it seems likely that a substantial portion of these changes are due to decisions made by governmental officials, including changes in governmental policies that favor selected groups, e.g., tariff and non-tariff barriers and the selection of key appointees who make and administer policy implementing legislation. In particular, changes affecting the financial sector of the economy may have produced the most dramatic and problematical effects for everyone else, as discussed in the next section.

 

 

Finance

     Over the past decade, the financial sector of the US economy (finance, insurance, banks and other holding companies) averaged almost $300 billion profit per year, just over 32 percent of US domestic corporate profits. As indicated in Figure 4, this percentage jumped dramatically after the 1999 repeal of the Depression-era Glass-Steagall act, having averaged just over 25 percent the previous decade and 14 percent from 1934 to 1989. Some of the increases in financial sector profits over the past 20 years may be due to improvements in efficiency and cost reductions from improved computer processing and associated bank consolidation. However, if there were honest competition for financial services, consumers would likely have gotten more of this money with the financial sector getting less.

 

Figure 4. US Financial Sector Profits as a Percent of Domestic Corporate Profits¹⁶

 

 

     The jump following 1999 represents just over $64 billion per year. This is approximately $200 per year for each of the roughly 300 million people in the US or roughly $800 per family. This is one small part of the $38,000 in income lost by the median family discussed above with Figure 3.

     This represents profits the financial sector likely would not have gotten without its investments in political campaigns. This increase in profits for the financial sector would be wonderful if the vast majority of the public also benefited, as the standard right-wing dogma would have us believe. The weight of the evidence is exactly the opposite: Banks foreclosed on a million homes in the US in 2010, and “more than five million homeowners nationwide are at least two months behind in their mortgage payments.” (Cowen, 2011) Millions more people are unemployed, and national and local governments worldwide are being forced to adopt draconian austerity measures.

The repeal of Glass-Steagall is not the only contributor to the current Great Recession (Wesel, 2010; Smith, 2010). Joseph Stiglitz, Nobel prize winning economist,¹⁷ cited other reasons behind the long-term trend displayed in Figure 4. He said the financial sector has innovated to increase costs to consumers. They've done this in part by increasing the complexity of services they offer to make it more difficult for consumers to compare different financial services and institutions (Stiglitz, 2010, esp. ch. 6). In a market with perfect information, consumers would know when they are being misled.

     With rare exceptions, nearly all consumers today could improve their lives through more careful financial planning. However, it is not easy to get the information needed to do so. Leading financial sector executives see this as an opportunity for excess profits, which they eagerly exploit. Virtually everyone who carries credit card debt would be better off being more frugal and shopping more carefully for financing when they need it. Few consumers shop effectively for financing when buying a car or a home or obtaining loans for education. Most suffer financially by accepting the financing options most easily available. Stiglitz says consumers should shop for mortgages when they consider buying a home and refuse to sign a contract where they do not understand all its implications. This includes avoiding mortgage brokers, who claim to shop for a better mortgage for a customer, but whose substantial fees, officially free to the consumer, are added to the amount the customer must ultimately pay in ways that few consumers recognize.

     Better financial options are usually available. People who consider alternative financing tend to obtain a handsome return for the time spent looking (e.g., Stanley and Danko, 2002). Those who fail to do so are often victimized by unscrupulous automobile sales people or real estate agents and banks or other credit agencies. Financial sector executives justify their multimillion dollar bonuses in part by making financial services more complicated than necessary to exploit this widespread skill deficiency among consumers.

Also, the contract between credit card companies and retailers require the retailers to keep secret the credit card fees (Stiglitz, 2010). This should be a clear violation of antitrust, but there is no political drive to prosecute such cases. These antitrust violations are not prosecuted in part because the dominant media in the US would likely lose advertising if they reported too much.

     Whatever the causes, the financial sector's share of US domestic corporate profits has increased substantially over the past 20 years, as documented in the data collected by the US Bureau of Economic Analysis plotted in Figure 4. These changes seem largely attributable to favorable legislation including the repeal of Glass-Steagel. Meanwhile, our so-called watchdog press was carefully looking elsewhere, having no appetite for exposing questionable practices of major advertisers.

     Other examples of welfare for the wealthy may not be as dramatic as the changes evident in Figure 4 but are nevertheless real and substantive. For example, sugar prices in the US over the past half century have on average been double the international price.¹⁸ Around 1990, it was estimated that this netted US sugar producers roughly $3 billion annually in excess profits. During this period, US sugar producers contributed roughly $430,000 per year to political campaigns.¹⁹ The $3 billion excess profits represent a $7,000 return on each $1 invested in campaign contributions. Numbers like this $3 billion and $430,000 per year are not easy to get, and different sources give different numbers. For example, the US Government Accountability Office and others estimated excess profits at only $1.5 billion annually (US Government Accountability Office, 2000; Beghin et al., 2001). Whether the number is $3 billion or $1.5 billion, it is still real money paid by the public as a result of governmental policies but not counted as a “tax” because it is collected by private companies, not the US government.

     The return on investments in political campaigns received by sugar interests are consistent with what is known about returns received by other special interests. A similar estimate for dairy concluded that consumers in 1990 paid 60 cents per gallon more for the milk in dairy products, netting the dairy lobby $3,500 on each dollar contributed to political campaigns (Stern, 1992, p. 171).

     Beyond these sugar and dairy examples, recent news reports indicated that Steve Westley, who helped raise $500,000 for the Obama campaign, got over $500,000,000 in public funds funneled into some of his projects (Ross et al., 2011). If Westley and friends are able to net 10 percent of that, it will represent $100 return for every $1 invested in the Obama for President campaign.

    This is not unique to Westley nor the Democratic party. As Vice President of the US, Dick Cheney is alleged to have helped secure billions of dollars in contracts for Halliburton under questionable circumstances. During this period, Cheney maintained substantial financial interests in Halliburton, in spite of calls that he put those securities into a blind trust, as is common for public officials wishing to avoid the appearance of a conflict of interest. The primary result of numerous allegations of Halliburton overcharging the government was the demotion of “a civil servant with 20 years of contracting experience [who] had complained to Army officials on numerous occasions that Halliburton had been unlawfully receiving special treatment” (Murphy, 2003). These and similar cases involve real money that US residents pay.

     A more subtle issue is the selection of governmental appointees based more on ideology and their ability to make the system work for the wealthy campaign contributors at the expense of everyone else. For example, Stiglitz noted that Paul Volcker, Chairman of the US Federal Reserve beginning in 1979, “had earned high marks as a central banker for bringing the US inflation rate down from 11.3 percent in 1979 to 3.6 percent in 1987. Normally, such an accomplishment would have earned automatic reappointment. But Volcker understood the importance of regulations, and [then-President] Reagan wanted someone who would work to strip them away.” Volcker was replaced by Alan Greenspan (Stiglitz, 2010, p. xvii), under whose watch the rich have gotten richer at the expense of everyone else, as documented in Figure 3.

     Why does the US public tolerate this? Part of the answer is that it is currently extremely difficult to get information that would allow people to make better choices during elections. Why is it so difficult to get that information? The problem has multiple parts. First, few people hunt for better information because they fail to appreciate how much the lack of that information is actually costing them. The value of this information was estimated above with Figure 3 at $38,000 per year for the median family in the US.

     Second, there is only very limited distribution of the information about this that is compiled by people who understand the need. The Internet is reducing the costs of disseminating such information, but the public still needs to learn to look for it and recognize solid reporting from shock jock data-independent thinking.

     Third, commercial media organizations that publicized information the wealthy did not want disseminated have in the past generally lost profitability and either went out of business or were acquired by competitors who were less likely to expose the questionable activities of major advertisers, as explained in the next section.

 

 

Bias in the Media

     A substantial majority of the US electorate seems to believe that the media have a liberal bias. It is extremely difficult to get good information on media bias. Most mentions of media bias on the web claim a liberal bias without citing any evidence. Most sources with citations select their “evidence” to fit their hypothesis and avoid citing contrary evidence. The only web links I know that cite evidence for both a liberal and a conservative bias in the media are in Wikipedia (“Media Bias” and “Media Bias in the United States”).

The media have four constituencies, all of which must be pleased (or at least pacified):

1. Audience

2. Funding sources

3. Regulators

4. Senior media executives

 

     The overall editorial policies must lie someplace between the average perspectives of each of these four groups. They lose audience if what they disseminate is not sufficiently attractive relative to the alternatives. They can lose funding in two ways: lose audience²⁰ or disseminate content that convinces funding sources to reduce their support. Media organizations often try to please both these constituencies by minimizing stories that could offend advertisers unless doing so would likely generate a substantial reduction in audience (and therefore advertising rates). For example, the Deepwater Horizon oil spill of 2010 was big news until the well was capped. Then the spotlight turned elsewhere, arguably underreporting the plight of people and small business whose lives and livelihoods were negatively impacted by the spill but who do not control major advertising budgets.

     Especially with the current level of media consolidation, media executives have found that they can cut their budgets for investigative journalism without substantive loss of audience, thereby also reducing the risk that investigative journalists might offend an advertiser.²¹ This threatens democracy by depriving the audience of information they need for responsible citizenship but don't seek, because they don't know they need it.

     A larger aspect of this problem is that people often select media “for affirmation rather than information.”²² This effect is accentuated during war, where “The First Casualty is Truth” (Knightly, 2004); in such situations media become partisan presumably to retain audience and avoid being labeled “treasonous”.²³

     What about regulators, the third of the four constituencies named above? For many purposes, the influence of regulators on editorial policies can be ignored. This is partly because regulators are often taken over by the regulated: Regulatory statutes are commonly written to combat abuses of power (real or perceived). But organizations that are regulated are highly motivated to obtain regulators who will support them. When the public's attention turns elsewhere, regulated organizations often lobby successfully to influence staffing decisions in their favor. The general phenomenon is called "regulatory capture", with numerous examples (including the Federal Communications Commission) discussed in the Wikipedia article by that title. The editorial policies of the mainstream media tend to support regulatory capture, as noted below.

     What about media executives, the fourth named constituency? Their first task is to attract an audience. However, since most media organizations today get much of their funding from sources other than their audience, they must also be aware of the concerns of key decision makers in their funding sources, e.g., advertisers or government, as noted above. This is particularly true of commercial broadcasting, which in the US gets 100 percent of their revenue from advertising. Newspapers, by contrast, have typically gotten between 70 and 80 percent of their revenue from advertising (Mensing, 2007). When the number of funding sources is much smaller than the size of the audience, media executives must of necessity flinch when offered content that may offend a funding source. In the US, this tendency seems worse today than 30 years ago because of media consolidation (McChesney, 2004; Lessig, 2004).

The bottom line of this analysis is that media organizations in the US whose editorial policies have been too disagreeable to advertisers have generally lost revenue and have failed to attract an increase in audience sufficient to make up for the advertisers who went elsewhere. Such media organizations have either gone out of business or changed their editorial policies, possibly after being purchased by a more profitable competitor (McChesney, 2004).²⁴

     In sum, the business model of commercial media is selling behavior change in their audience to advertisers.

 

 

Worthy and Unworthy Subjects

     One important example of media bias was documented by Herman and Chomsky. They found that mainstream US media provided as much news coverage to one “worthy victim” as for 100 “unworthy victims”, all of whom had been brutally murdered by secret police or paramilitaries condoned or supported by their governments. In 1984 a dissident polish priest, Popiełuszko, was tortured to death by secret police in Communist Poland. Herman and Chomsky found that Popiełuszko alone got as many column inches of print and seconds of air time as 100 similarly mistreated Latin American priests and laity. The only plausible explanation for this difference was that Popiełuszko was a “worthy victim”, having been killed by a designated enemy of the US, while the 100 Latin Americans had been killed by designated allies whose security forces received weapons and training from the US (Herman and Chomsky, 1988).

     There are also “worthy” and “unworthy” subjects for news and entertainment. One can find stories, for example, describing how bank personnel foreclosing on loans signed thousands and millions of documents, claiming with each signature “under penalty of perjury” that the signers had followed certain procedures that they clearly had not had time to follow (Florida Foreclosure Fraud Weblog, 2011). All 50 states have launched a joint investigation into foreclosures (Armour, 2010). If the response to this issue included the kind of media feeding frenzy showered on Popiełuszko, it seems likely that major bankers would be prosecuted for (a) conspiring to commit perjury on these foreclosures and (b) fraud for having encouraged many of those same people to lie on loan applications years earlier. However, this is an unworthy subject, because the bankers in question can retaliate, as previously mentioned.

     Election years are particularly lucrative for commercial media, because virtually all election advertising is purchased on short term contracts at the highest rates paid by any advertiser. In 2010, “media corporations raked in a record $3 billion this mid-term election cycle, not only breaking the previous mid-term spending record of $2.4 billion in 2006, but also surpassing the $2.7 billion spent in the 2008 presidential election cycle. ... CBS [posted] a 53 percent increase in its third-quarter net income.” (Corcoran and Maher, 2011) A casual review of the content of election year coverage suggests that the media focus almost exclusively on polls and election gossip. To the extent that this assessment is accurate, it suggests that the media have a policy of avoiding substantive discussion of issues during an election year. It is easy to see why policies like this could benefit media companies, because adequate discussion of issues and candidates positions would make it easier for candidates to get elected without massive advertising budgets. This would not only reduce direct media revenue, it would reduce the effectiveness of political campaign contributions by well-heeled special interests such as the finance, sugar and dairy lobbies discussed above. Evidently, political issues are “unworthy subjects”, especially during an election year.

     Another “unworthy subject” is the recent US Supreme Court decision in “Citizens United”, which declared that a corporation is a person and can spend money without limit in political campaigns. This 2010 decision appears to have contributed to the substantive increase in media company profits just mentioned. Obviously, the media do not want to help disseminate any message that could reduce their profitability.

     Another example of worthy and unworthy subjects is the comparison of news coverage of governmental assistance for the poor with welfare for the wealthy such as the finance, sugar and dairy examples above. “The Great Communicator”, Ronald Reagan, often discussed “Welfare Queens” in ways that were “almost always unsubstantiated, usually false, yet so sensational that it merited repeated recounting… And because his ‘examples’ of welfare queens drew on existing stereotypes of welfare cheats and resonated with news stories about welfare fraud, they did indeed gain real traction.” (Douglas and Michaels, 2005, p. 185) The media routinely disseminate such statements by politicians, knowing that there is effectively no chance of losing advertising revenue or being sued for libel. The US had and still has a problem with welfare cheats. However, serious attempts to check the details behind claims like those just mentioned routinely found that the story was exaggerated.

     The point here is that the behavior of the mainstream commercial media is consistent with what Adam Smith in The Wealth of Nations might have described, namely that executives of for-profit companies are more interested in maximizing their own personal wealth and power than in benefiting stockholders, customers and the public. The “invisible hand” of the market constrains them to act in the public interest except when they can corrupt the market with favors purchased from the media and the government or when they successfully make their services so complicated the public fails to see that they need better information than what is easily available.

 

 

What to Do?

     It is virtually impossible to get elected to any major office in the US today without campaign contributions far beyond what can reasonably be raised from ordinary citizens. Candidates can get on the ballot without massive sums of money, but few candidates win a major office without selling their souls to the wealthy. Members of the US House and Senate reportedly spend half their time raising money and the other half servicing those bribes (e.g., Stern, 1992; Lessig, 2011). Only when the media make an issue of something do major politicians deviate from their primary business of servicing bribes; if they did otherwise, they would not be credible candidates. Lessig (2011) insists that the corruption here lies in the system; few individual politicians actually sell their services. This supports the system view outlined with Figure 1 above.

     Ordinary citizens can build better lives for themselves while also helping to reduce this corruption in a couple of ways.

     First, the vast majority of people carrying credit card debt can either pay it off or find financing at lower interest -- maybe not immediately but over time by watching their finances more carefully. Individuals can reduce their own personal susceptibility to economic fluctuations by appropriate frugality. Stanley and Danko (2002) note that anyone who saves 15 percent of income and invests in things that average 9 percent per year return can be financially independent in 25 years, able to sustain their previous lifestyle from the interest on their savings. It is not easy to get 9 percent interest, but that is what the US stock markets averaged throughout the twentieth century.

     Second, people with accounts at major banks can transfer their banking to a local credit union that is a customer-owned cooperative focusing primarily on providing local financing. Stiglitz and others have noted that financial instability helps the wealthy, because people with money go bargain hunting in a weak economy. In addition to buying goods and production facilities at bargain prices, they also get concessions from labor that would not be possible with a stronger economy. It often takes a decade for people who work for a living to recover what they lost during a recession (Charlton, 2008). Individuals with money in major banks and other large financial institutions contribute to this financial instability. Every dollar transferred to a credit union or some other local-only financial institution helps improve international financial stability and helps build the local economy.

     Beyond this, individuals can contribute to fixing this problem by seeking, creating and supporting serious investigative journalism and media that do not accept advertising.²⁵

     Fourth, voters should give campaign ads the disrespect they deserve: Candidates elected with campaign budgets beyond the means of middle class contributors must spend most of their time in office servicing those bribes. They can afford to support their working and middle class constituents only on the extremely rare issues that get attention in the mainstream media. This raises questions about the standard claim that voting for a third party candidate is throwing away your vote: Major party candidates will never be able to support their non-wealthy constituents as long as money wins elections. In this environment, voting for a major party candidate is arguably voting for bribery and may be worse than throwing one's vote away; from this perspective, the only useful votes may be for third party candidates.

     Finally, individuals can encourage relatives, friends and neighbors to adopt one or more of these corruption-fighting strategies and can push social, religious and professional organizations to which they belong to take similar measures.

 

 

Conclusion

     There are no villains here: Nearly everyone recognizes that the system is seriously broken, but few understand it well enough to suggest effective remedies. Major politicians dislike spending half their time fund raising and much of the other half responding to the concerns of their campaign contributors. However, if they didn't do it, they believe that someone else would do more harm than they do. Lobbyists and people with money dislike constantly being asked for campaign contributions but see no way to do anything different. Few if any in the media see themselves as the source of the problem: If they behaved much differently, they would lose money and be replaced. Citizens can't imagine how they could be the source of the problem. Each group in Figure 1 does the best they know how to reduce the evil in the system and build a better world for themselves and their families.

     The only hope for improvement lies in a better understanding of the system. Common citizens can do things that will generally make their lives better and could also alleviate the systemic problems if enough people did them, as suggested in the previous section.

In brief, the situation is serious but not hopeless. Obama got the Democratic nomination in 2008 based largely on contributions from common citizens. Unfortunately, he won the election based on contributions from the wealthy, and his actions since seem to reflect the interests of the ultra-wealthy more than the concerns of the people who helped him get the nomination. The new Arab democracy movements provide further hope for change in the US. Another example closer to the US is the 1993 Canadian federal elections, where the ruling Progressive Conservative party went from 169 of 295 seats in parliament to 2 from the morning to the evening of October 25, 1993 (Brau, 2011). Change is possible.

 

 

References

Armour, S. (2010, Oct. 14) All 50 states launch joint investigation into foreclosures, USA Today, Retrieved July 18, 2011, from http://www.usatoday.com/money/economy/housing/2010-10-13-states-foreclosures_N.htm.

 

Beghin, J. C., El Osta, B., Cherlow, J. R., and Mohanty, S. (2001) The Cost of the U.S. Sugar Program Revisited, Working Paper 01-WP 273, Center for Agricultural and Rural Development Iowa State University, Ames, Iowa 50011-1070, Retrieved July 7, 2011, from www.card.iastate.edu/publications/dbs/pdffiles/01wp273.pdf.

 

Brau, B. (2011, Feb. 18) Canada 1993: the benchmark for NSW?, The Tally Room, http://www.tallyroom.com.au/8996.

 

Castells, M. (2007) Communication, Power and Counter-power in the Network Society, International Journal of Communication, 1: 238-266, Retrieved August 14, 2011 from http://ijoc.org/ojs/index.php/ijoc/article/view/46/35.

 

Charlton, A. (2008) Capital Market Liberalization and Poverty, ch. 5, pp. 121-138, in Ocampo, J. A., and Stiglitz, J. E., eds., Capital Market Liberalization and Development, NY: Oxford U. Pr..

 

Cole, H. L., and Ohanian, L. E. (2004) New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis, Journal of Political Economy 112(4): 779–816; prepublication version retrieved September 10, 2011 from http://hlcole.bol.ucla.edu/NewDealucla.pdf.

 

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1spencer.graves@structuremonitoring.com

 

 

2including the legislative, executive and judicial branches as well as officially independent government agencies and corporations such as the Federal Reserve, the Federal Communications Commission, and the National Labor Relations Board in the US.

 

 

3Castells (2007, p. 5) noted that, “the media are not the holders of power, but they constitute by and large the space where power is decided.” This seems to understate the role of the media, according to the analysis of the present article, as the selection and framing of news and entertainment by the media has a major impact on the exercise of power.

 

 

4“Mainstream media” here refers to the primary sources people use for the news and fiction from which the general public constructs its world view and much of its group identity. An increasing portion of this today comes from the Internet. The primary focus in this essay is on sources (broadcasting, print media, and web sites) that accept advertising and must of necessity have a double standard for what they disseminate, as explained below. In the US at least, the “mainstream media” is still overwhelmingly commercial.

 

 

5There is a huge literature on “development economics” and “political economy” that studies the impact of government actions on economic growth and on the economy more generally. We quote here from only one example: Vernon (1989) claimed that the industrial revolution began in Great Britain because the British were the first to successfully restrict the power of the King to arbitrarily confiscate the property of successful innovators. He noted that a Russian steam engine produced in 1766 disappeared, and a similar French device in 1769 was officially suppressed. Not long thereafter, James Watt got a patent.

 

 

6Statistical analysis by the author of data retrieved from Johnston and Williamson (2011). The period from 1930 through 1946 appears quite different from an otherwise relatively steady trend, with GDP per person falling dramatically between 1929 and 1933 as misguided policies pursued by the Federal Reserve system during the Hoover administration provided strong evidence for the theories espoused by John Maynard Keynes, by doing substantially the opposite of what he would have recommended and producing results he would have predicted from such policies. This is followed by growth of roughly 8 percent per year not quite continuously until the end of World War II, as the Franklin Roosevelt administration followed policies consistent with Keynes' recommendations and obtained results consistent with his theories.

 

 

7 Author's analysis of data from Johnston and Williamson (2011). Figure 2 shows a generally increasing trend in the growth rate, less than 1.7 percent before about 1880 and higher since World War II. However, these nonlinearities do no seem relevant to the present discussion and are ignored here.

 

 

8For example, Tavlis (2011) states, “The consensus view in the economics profession today is that the genesis of the Great Depression was the tightening of policy by the Fed in 1928 and 1929 ... . Beginning with the work of Friedman and Schwartz (1963), a substantial literature has ascribed a prominent role for both the slowdown in economic activity that began in the summer of 1929 and the stock market crash of October 1929 to the tightening of Federal Reserve policy in 1928 and 1929”.

 

 

9Hannsgen and Papadimitriou (2010) cite some of this literature in a rebuttal. Cole and Ohanian (2004) claimed that, “The recovery from the Great Depression was weak”, and Smiley (2011) wrote, “Although the U.S. economy began to recover in the second quarter of 1933, the recovery largely stalled for most of 1934 and 1935.” Hannsgen and Papadimitiou's Figure 1 shows annual GDP growth exceeding 10 percent in 1934 and 8 percent in 1935, consistent with our Figure 2. One can reach the conclusion of Smiley, Cole, and Ohanian by looking at growth in dollars not percent or (equivalently) failing to plot dollars on a log scale, as our Figure 2 or by looking at a different source of numbers than used by Hannsgen and Papandimitriou and the present work. Ohanian (2008) expressed concern in October 2008 that then-candidate Obama might raise taxes, “particularly on the nation's most productive citizens, many of whom create jobs through their own enterprises.” By “most productive”, I assume Ohanian means the highest paid, who are “most productive” in the sense of having had the greatest success in corporate politics and getting legislation written by their lobbyists. To what extent they also create jobs is an empirical question beyond the scope of this essay, except that jobs were created at a healthy rate by the US economy between 1936 and 1970 when the highest marginal income tax rate on this “most productive” group was at least 68 percent vs. 35 percent in 2011 (Tax Foundation, 2011).

 

 

10Plots using a logarithmic scale as Figure 2 seem relatively rare in the economics literature. This is unfortunate, because because effects like the the relatively steady growth (except for 1929 to 1946) that is obvious in Figure 2 are obscured when data like these are plotted on a standard linear scale. This all-too-common practice has doubtless made it easier for revisionist economists to claim that the New Deal may have been counterproductive.

 

 

11Author's analysis of Maddison (2007), whose data ends in 2003.

 

 

12Lebergott also gives unemployment as a percent of non-farm employees: This number goes from 4.7 to 35.3 to 20 to 26.4 to 1.6 percent in 1929, 1933, 1937, 1938, and 1944.

 

 

13The term “wealthy” in this article blurs the distinction between income and wealth. The data analyses presented here refer to people with high income. The discussion of the impact of money on politics refers to people with either high income or wealth.

 

 

14Different macroeconomic series suggest different dates for the transition between “Middle Class America” and the “Great Divergence”. Income shares of the top percentiles of family incomes considered by Piketty and Saez (2006) suggest the transition began around 1980, while the incomes adjusted for inflation considered in Figure 3 suggest a transition date of 1970.

 

 

15Author's analysis of data from US Census Bureau (2011) and Piketty and Saez (2008). There are incompatibilities between these two sources. These incompatibilities have a minor impact on the precise numbers displayed but do not affect the general conclusions from this analysis.

 

 

16Author's analysis of data from US Bureau of Economic Analysis (2011). In 1932 and 1933, total domestic corporate profits were negative, while financial sector profits were positive. This made the ratio negative, as indicated in Figure 4.

 

 

17Stiglitz won the Nobel Memorial Prize in Economics for seminal contributions to understanding markets with imperfect information, i.e., all real markets. He served as the Chair of President Clinton's Council of Economic Advisers, 1995-1997, and as Chief Economist of the World Bank, 1997-2000, criticizing the World Bank severely for supporting the wealthy against the interests of the poor in violation of the proclaimed World Bank mission (Stiglitz, 2002). For a rebuttal of Stiglitz' criticisms, see Rogoff (2006). Stiglitz then founded the Initiative for Policy Dialog, which is is a global network of over 250 leading researchers and civil society representatives working to help countries strengthen their institutions and civil societies.

 

 

18US Department of Agriculture Economic Research Service (2011a, 2011b): Their Table 4 divided by Table 3a.

 

 

19Stern (1992): $430,000 = $2.6M / 6 years. Stern and other sources note that many, probably most, major campaign contributors donate to anyone who seems to have a good chance of winning, often contributing to multiple candidates competing for the same race. To avoid prosecution for bribery, the defenders of this system say the contributions buy, “access”, increasing the likelihood that an incumbent or appropriate support staff with listen to the relevant lobbyists.

 

 

20Advertising rates are established using sample surveys to estimate the size and spending habits of audiences. For television in the US and many other countries, the primary source of such data are the Nielsen Ratings produced by Nielsen Media Research; see Wikipedia ("Neilsen Media Research).

 

This article was initiated by Spencer Graves.  It reflects the perspective of the author (possibly as modified by other editors) and does not necessarily reflect the view of any specific group.  

 

 

21“A five-year study of investigative journalism on TV news completed in 2002 determined that investigative journalism has all but disappeared from the nation's commercial airwaves.” McChesney (2004, p. 81) See also McChesney and Nichols (2010).

 

 

22el-Nawawy and Powers (2008) focusing on international news.

 

 

23el-Nawawy and Powers (2008, esp. p. 50) provide survey results documenting how the Al Jazeera English audience was on average more conciliatory and less dogmatic than the audiences of BBC World and CNN International. Frère (2007) described the role of the media and media ownership structures in driving conflicts in Africa. For discussions of the media in the 1989 Tiananmen Square incident, see He (1996) and MacKinnon (1992).

 

 

24For a discussion of media consolidation focusing on Spain but citing research elsewhere, see Llorens (2010), who makes an important distinction between “internal” (audience) consolidation and “external” (ownership). Leandros (2010) discussed problems with media consolidation in Greece. This includes a 2001 anti-corruption constitutional amendment to limit media ownership by companies bidding for government contracts that was overruled by Brussels. For a related international comparison of public broadcasting, see Palmeri and Roland (2011). Their commentary includes the observation that governmental funding for the Public Broadcasting System in the US “amounted to only about 5% or less of the per capita fiscal resources available to French public broadcasting and other European public service systems.”

 

 

25The Investigative News Network (http://investigativenewsnetwork.org, accessed September 9, 2011) is a consortium of 60 non-profit organizations doing investigative journalism. Two other organizations that are primarily supported by their audience, accepting no corporate funds, are the Pacifica network of radio stations (http://pacifica.org, accessed September 9, 20110) and Democracy Now (www.democracynow.org, accessed September 9, 20110). Individuals can help by visiting their web sites and contributing to some. Note, however, that many popular webs that carry news only redistribute stories published elsewhere. McChesney and Nichols (2010) make several recommendations for ways to provide public funding of journalism following examples in Europe, Canada and Japan. In these countries, publicly funded news offers a much broader range of perspectives than what is available from commercial media in the US; as a result, research has shown that the electorates there are better informed, and electoral participation is more vigorous. Fortunately, the public does not need to wait for legislation implementing the recommendations of McChesney and Nichols.