The Rigging Of The American Market

Much of the national debate about widening inequality focuses on whether and how much to tax the rich and redistribute their income downward.

But this debate ignores the upward redistributions going on every day, from the rest of us to the rich. These redistributions are hidden inside the market.

The only way to stop them is to prevent big corporations and Wall Street banks from rigging the market.

For example, Americans pay more for pharmaceuticals than do the citizens of any other developed nation. That’s partly because it’s perfectly legal in the U.S. (but not in most other nations) for the makers of branded drugs to pay the makers of generic drugs to delay introducing cheaper unbranded equivalents, after patents on the brands have expired.

This costs you and me an estimated $3.5 billion a year – a hidden upward redistribution of our incomes to Pfizer, Merck, and other big proprietary drug companies, their executives, and major shareholders.  

We also pay more for Internet service than do the inhabitants of any other developed nation. The average cable bill in the United States rose 5 percent in 2012 (the latest year available), nearly triple the rate of inflation. Why? Because 80 percent of us have no choice of Internet service provider, which allows them to charge us more.

Internet service here costs 3 and-a-half times more than it does in France, for example, where the typical customer can choose between 7 providers.  

And U.S. cable companies are intent on keeping their monopoly.

It’s another hidden upward distribution – from us to Comcast, Verizon, or another giant cable company, its executives and major shareholders.

Likewise, the interest we pay on home mortgages or college loans is higher than it would be if the big banks that now dominate the financial industry had to work harder to get our business.

As recently as 2000, America’s five largest banks held 25 percent of all U.S. banking assets. Now they hold 44 percent – which gives them a lock on many such loans.

If we can’t repay, forget using bankruptcy. Donald Trump can go bankrupt four times and walk away from his debts, but the bankruptcy code doesn’t allow homeowners or graduates to reorganize unmanageable debts.

So beleaguered homeowners and graduates don’t have any bargaining leverage with creditors – exactly what the financial industry wants.  

The net result: another hidden upward redistribution – this one, from us to the big banks, their executives, and major shareholders.

Some of these upward redistributions seem to defy gravity. Why have average domestic airfares risen 2.5% over the past, and are now at their the highest level since the government began tracking them in 1995 – while fuel prices, the largest single cost for the airlines, have plummeted?

Because America went from nine major carriers ten years ago to just four now. Many airports are now served by one or two. This makes it easy for airlines to coordinate their fares and keep them high – resulting in another upward redistribution.

Why have food prices been rising faster than inflation, while crop prices are now at a six-year low? Because the giant corporations that process food have the power to raise prices. Four food companies control 82 percent of beef packing, 85 percent of soybean processing, 63 percent of pork packing, and 53 percent of chicken processing. 

Result: A redistribution from average consumers to Big Agriculture.

Finally, why do you suppose health insurance is costing us more, and co-payments and deductibles are rising?

One reason is big insurers are consolidating into giants with the power to raise prices. They say these combinations make their companies more efficient, but they really just give them power to charge more.

Health insurers are hiking rates 20 to 40 percent next year, and their stock values are skyrocketing (the Standard & Poor’s 500 Managed Health Care Index recently hit its highest level in more than twenty years.)

Add it up – the extra money we’re paying for pharmaceuticals, Internet communications, home mortgages, student loans, airline tickets, food, and health insurance – and you get a hefty portion of the average family’s budget.

Democrats and Republicans spend endless time battling over how much to tax the rich and then redistribute the money downward.

But if we didn’t have so much upward redistribution inside the market, we wouldn’t need as much downward redistribution through taxes and transfer payments.

Yet as long as the big corporations, Wall Street banks, their top executives and wealthy shareholders have the political power to do so, they’ll keep redistributing much of the nation’s income upward to themselves.

Which is why the rest of us must gain political power to stop the collusion, bust up the monopolies, and put an end to the rigging of the American market.

Disclosure: None.

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Douglas Whiteside 7 years ago Member's comment

Regarding the Affordable Care Act (Obamacare): All this did was pump more money into an already bloated system. The way to fix healthcare in the US (if it even can be fixed) is NOT pumping in more money. The cost of healthcare HAS to be reduced. Currently the US spends more per capita on healthcare, by a sizable margin, than any other industrialized nation.

At the same time, the ranking of the US healthcare system is the lowest.

Obviously, throwing more money at the US healthcare industry is NOT the answer. This is one of, if not THE largest redistribution of wealth from the have-nots to the haves in the US and all ACA did was make it even worse.

Louis Volschenk 7 years ago Member's comment

Nope, the things you mention are not examples of upward redistribution, but simply market forces. The big upward redistribution taking place is through the central bank system that artificially creates inflation, thereby robbing everyone and benefitting the big banks that make massive profits on money they lend out, but obtained at no cost and without real risk. THAT's the core of the rigged system.

Michele Grant 7 years ago Member's comment

Well put.

Wal Stir 7 years ago Member's comment

"As recently as 2000, America’s five largest banks held 25 percent of all U.S. banking assets. Now they hold 44 percent – which gives them a lock on many such loans."

Other countries such as Canada, Australia and New Zealand have much more concentrated banking systems than the U.S. - yet those countries came through the Housing Bubble and the resulting Financial Crisis far better than the U.S.

The Differences Between Banking in the US and Canada

"Because there are fewer banks in Canada, its financial system is more concentrated. And the “Big 6” in Canada (Toronto Dominion, Royal Bank of Canada, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce, and National Bank of Canada) control more than 85 percent of $3.955 trillion in domestic assets. Although highly concentrated, Canadian banks are generally more diversified, with expansion into wealth management, insurance, deposit and loans, and brokerage services."

"Also, because of the fewer number of Canadian banks, Canadian regulators are more involved in everything the banks do. This includes everything from capital requirements to underwriting standards. This level of scrutiny has helped the Canadian banks be more conservative in terms of risk taking."

"By comparison, the “Big 5” in the U.S. (JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, and Goldman Sachs) control 44 percent of the $15.3 trillion in assets held by U.S. banks, according to data compiled by SNL Financial."

Fergius Hashimoto 7 years ago Member's comment

Inflation and overall rise in prices MEAN EXACTLY THE SAME THING, you numbskull! What Reich says is that currently in the US, price rises are due to MONOPOLY POWER, not to other possible causes of inflation, like the banks creating too much money. By the way, not only central banks can cause inflation by printing too much money, but so can HSBC [Huge Sewer of British Crapitalism] or any other organ of the parasitical financial oligarchy. They don’t even have to print it, they just type on their keyboards.

Go Figure 7 years ago Member's comment

Interest is the reason people can't get ahead. Even at a rate of 2% on a mortgage almost all your payments for the first 10 years go to interest. the system is designed to keep the borrower indebted for as long as possible. It is why the US is trillions in debt. Why the poor can't payback loans. Why the average family are losing their ability to buy a home. Couple with ridiculous artificial inflation and stock market and housing crashes that wipe our the wealth of entire middle class generations. Our governments work for foreign interests who get to charge interest on money they never had. The entire system is a Ponzi scheme with the average citizen loosing out while the Elites who are in on the scheme keep getting richer. The goal of the Global Elites is equality for the masses, meaning they stay Elite while the average citizen worldwide becomes equal. Meaning the citizens of industrialized nations will eventually become as poor as those in third world countries. Not the other way around. This will be preceded by a disarming of the masses which is currently underway.

Francis Gwapo 7 years ago Member's comment

America was built by a capitalist economy. It now controls the internet (Google) Before, any little company can compete a fair game with big corporations on the web. Now, try searching anything with google in relation with consumer products. First page bang! big corporations.. Ebay, Amazon, Walmart...

Anand Srini 7 years ago Member's comment

As a non-American who has lived over 10 years at various times in US- I have realized these phenomenon during my stay there - the effect of stock market are more pronounced with the data presented here. - the other major phenomenon - which I call the sophisticated art of siphoning wealth from middle class to the Corps and richer class, is in the defence spending and overseas reconstruction projects- Although it may be tough for patriotic Americans to acknowledge - the effect of recent wars in Asia - is a huge burden on US taxpayers and loss of defence personnel - while benefitting the defence industry and the private companies who fulfil the reconstruction and private security contracts in these countries.

Johann Georg Blomeyer 7 years ago Member's comment

I am an outsider from Germany, but a good quarter of the Blomeyer family lives since 1833 in the US. I am emotionally attached to the US and will never forget up to my last breath my gratefulness for all the sacrifices they suffered when liberating my country from the nazidevil's claws. Now to the problem of rigging American markets. This is the result of an ill consciousness and a lack of national pride. The nation and the fair distribution of wealth comes first. True respectful service to the citizens must be upheld. It is not done and so the mafia activities silently formed in the hidden dark appear to the surface. I admire Robert Reich's courage to bring this disgusting economic en-slavery of the public to our attention. With constant satyric opinion statements the general public will be awakened and will finally demand a change. Colleague Douglas is perfectly right that "corruption" has entered the administration and judicial structures. I can quote many surprising stories having experienced when working in Kabul with an US consulting corporation. What is demanded? New thinking and courageous leadership. Johann Georg Blomeyer