In Charles Dickens' immortal "A Christmas Carol," Ebenezer Scrooge is judged — first by ghosts and then by the reader — for his meager treatment of loyal employee Bob Cratchit. Dickens conveyed the poor treatment to the reader by noting that Cratchit was paid 15 shillings a week in the contemporary setting of 1843, which by today's standards is fairly modest, even adjusted for inflation. But even a pre-haunting Scrooge has some virtues that today's captains of industry lack: Cratchit was in fact paid at or slightly above the (industry-low) going rate for clerks in 1843 London, and while Dickens takes pains to emphasize the financial challenges afforded the Cratchit family, the fact remains that Bob's salary supported a 9-member family in London.
Wherever you may fall on the debate about the relative ethics of Ebenezer Scrooge, the climax of the story sees him trimming his impersonal business sense with a newfound spirit of charity and providing some financial relief to his loyal employee, both in the form of an implied increase in wages as well as a kind of patronage to his family (beginning with a large goose). These financial resources were not conjured out of thin air — they come in fact from Scrooge's own personal and business resources, borne at least in part from his monetization of Cratchit's labors. At no point in the story was the reader meant to suspect that Cratchit's circumstances were the result of broad economic conditions, or that Scrooge's redemption was owed to an unexpected windfall.
Fast-forward to Christmas season of 2020, and we are seeing businesses apparently shutter as a result of COVID precautions and people suffering financially as a result. In September, Forbes reported that about 100,000 businesses had closed. Many have chosen to blame the resulting financial constriction on those policymakers who mandated various shutdowns for public health reasons. Both extremist protestors as well as more mainstream outlets such as the Wall Street Journal laid the economic effects at the feet of politicians, stating that "severe and broad restrictions on daily activity ... helped send the world into its deepest peacetime slump since the Great Depression."
But that's not really what's been happening. Just like with Bob Cratchit, our circumstances are not completely the result of a disappearance of economic value, but rather a disruption to how that value has been distributed.
To be sure, the economic disruption brought about by the COVID-19 pandemic demolished second-quarter economic growth in 2020, and even then, much of that was due to a personal savings rate that more than tripled over that period. However, increased spending in the third quarter has contributed to a whopping 33% increase in GDP over that period. That doesn't mean GDP will be fully back on track in 2021; we lost a lot of time in quarter two and we'll probably be looking at a slight negative GDP for the calendar year. However, the strong second half of 2020 has led many to project that growth is expected to be on track, with some anticipating 2021 growth to be between 4-5%. But as people are unlocking their savings and spending again, why are many businesses and employees still struggling? Why does it feel like, despite the orgy of spending, our local businesses and those who work there are still stuck in second quarter?
Unlike the comparatively kind-hearted (!) Ebenezer Scrooge, those who sit atop our current economy are not in the business of being charitable to their employees (or contractors), or even paying a living wage like Ebenezer.
If you are one of the nation's 600-odd billionaires, you saw your wealth grow exponentially through all quarters in 2020 (after a slight initial dip in quarter 2) and more so in quarter three. America's billionaires has a great year, adding about a Trillion dollars to their net worth since March, or an increase in their fortunes of 36%.
The sad truth is that the idea of additional economic activity failing to "trickle down" — or in many cases actively trickling up — is a pattern that has been accelerating for years. But as many Americans are waiting in vain to see the third quarter economic activity buoy their households or their small businesses in the wake of a COVID-ravaged first half of the year, we're feeling the sting much more acutely. Or to put it more succinctly, the economy is indeed rebounding in haste but it's our growing wealth stratification — not lockdown orders — that is preventing many Americans from being a part of that rebound.
How does something like this happen and what can we do about it?
The business model that has become ascendant in a COVID era — gig workers providing services — was described aptly in the 1990 Warren Beatty film "Dick Tracy." In the film, Al Pacino's gangster antagonist is describing his plan to impose a broad-based protection racket on the city's residents:
“We form this big company… We’ve got a town with thousands of small stores and businesses. People who are working real hard. I think they should be working real hard – for us! We will become the people’s silent partner. Every time some citizen buys a pound of hamburger, we get a nickel. Every time some guy gets a haircut, we get a dime. … Together, we will own this town.”
Sound familiar? The monologue was a narrative designed specifically to convey the menacing nature of the character to the viewers in 1990... But today this concept represents a common and celebrated business model whereby a "big company" takes a cut of services for acting as an agent between the consumer and the purchaser, whether taking a cut from a restauranteur, delivery person, or driver. And the "protection" nature of the relationship is often not far off. In 2014 and 2015, when ride-sharing giant Uber defiantly began offering services in Portland contrary to the City's regulations, Uber's team of lobbyists and attorneys went to town on what they termed "outdated local regulations" and soon carved out protections for ride-share drivers. But for independent drivers who do not kick a portion of their earnings up to a ride-share corporation, there are no such protections; without political influence, they remain subject to fines and sanctions just as Uber drivers were in late 2014.
Probably the most obvious example of the COVID middleman is Amazon, which sells mostly products made by others online. The idea of retail is nothing new (most brick-and-mortar retail outlets don't craft their own merchandise), but the ubiquitousness of product delivery during a pandemic led to Amazon CEO Jeff Bezos' own wealth increase of over $70 Billion since March of 2020. This is not to say that product middleman delivery services like Amazon, Grubhub, Instacart, or others are not useful during a pandemic lockdown. Indeed, they have likely helped to ensure that many small restaurants are able to continue accessing markets and that many consumers who are unable to safely leave their home are able to receive food and other sundries. However, the fact remains that these services siphon capital up and away from local main street businesses. Between the consumer, restauranteur, and delivery person, each is giving up some value that ultimately finds its way to a Jeff Bezos or other shareholder.
This brings us back to the angry crowds and sour disposition of the Wall Street Journal with regard to the perceived constriction of the economy as a result of COVID lockdowns. Those who are legitimately suffering — the Bob Cratchits — are sorely in need of that post-haunting patronage of an enlightened Ebenezer Scrooge: to purchase a sufficient goose or to seek proper medical care for Tiny Tim.
But Ebenezer's assistance came not from a macroeconomic expansion: it came from his pocket. Likewise, the economic relief needed by Americans will (apparently) not come from the economy's sunny third quarter performance... not directly anyway. No, that relief will come in much the same manner as described by Dickens: from the pocket of those hoarding those economic gains. From all the dimes per haircut or nickels per pound of hamburger.
For Congress to bicker over a $600 versus a $2,000 stimulus check means the world to some families, but it is ultimately a discussion that misses the point. When those receiving the check are paying a higher effective tax rate than those who are siphoning resources to the top of the economic pyramid, the discussion is ultimately one of rearrangement.
Ideally, Congress should issue a sizeable stimulus check paid for from the profits of those Scrooges and Dick Tracy gangsters — if middleman services are in fact a blessed necessity during the pandemic, then to allow that degree of profiteering on the back of such suffering is problematic at best, or sinful at worst.
The $286 Billion in direct aid (checks and unemployment benefits) anticipated in the second stimulus package could be fully paid for by raising a new marginal rate for capital gains for billionaires. Out of the one Trillion dollars made by American billionaires since March, assuming the bulk of that has been taxed at the 20% capital gains rate, establishing a new top marginal rate of somewhere between 45-50% could suffice.
Absent the use of several specters to go about alternately shaming or frightening the ultra-rich into purchasing geese and health care for their employees, Congress should play the role of the supernatural advisors and compel them to feel the Christmas spirit.
