Rich getting richer is no accident

The upward redistribution of income in the United States over the last four decades has been well documented. Many argue there is little we can do about forces like globalization, accelerating technological change, the transformation to a service economy, taxes and government programs that have put downward pressure on wages for the ordinary American worker, but there are steps government could take to address these changes.

Economic inequality is the result of conscious policy choices. This issue is especially relevant in light of President Trump’s new tax blueprint and the health care overhaul recently passed by the House of Representatives.

From the 1950s to the mid-1980s, the richest 1 percent of Americans earned a touch under a 10 percent share of the national income. By 2012, that number was about 20 percent.

Overall wealth is even more concentrated than income. In 2012, the top 1 percent of the population controlled about 42 percent of the wealth.

The promises many politicians make about material comforts are duplicitous, since only a small minority have access to such comforts and they come at great expense to the majority. Working-class Americans feel left behind, stewing in their resentment of economic hardships and being forced to make daily choices between things like buying gas or putting food on the table.

They have come to believe government is run by and for the rich, who are used to getting their own way and face none of the daily struggles they do. Much of the American working class lives in a provisional world where making it to the next day is a victory.

Average Americans were cut adrift from their former lives, given little help to build new ones and disparaged as a basket of deplorables. All this was largely happening outside the view of the media and the political class.

You don’t have to have the psychological acuity of a self-important academic to understand the ironclad rage of the working class, which is proving to have the shelf life of radioactive waste. Is it any surprise that when powerless to determine their own destinies and achieve the American Dream, they backslide into anger and resentment?

This was not supposed to happen. In the optimistic period after the fall of the Berlin Wall in 1989 and the collapse of the Soviet Union in 1992, free-market capitalism, with its invisible hand miraculously transforming selfishness into common good, was seen as the way to usher in a period of prosperity and peace.

More recently, one event after another has exposed this utopian narrative. The 2008 financial earthquake revealed fault lines running through the economic system that cost millions of Americans their jobs, homes, life savings and hopes for decent retirements. It unraveled communities, especially those where manufacturing jobs have disappeared and the well being of the working class has been marginalized by circumstances beyond their control. It was a cataclysm far worse than any natural disaster.

Troubling results from growing inequality include dampened economic growth, reduced social mobility, and a corrosive impact on democratic institutions. Another important consequence is weak consumer demand to support the economy.

It would be wise to recall how Henry Ford simultaneously created transportation for the masses and drove economic growth. He furnished consumers with reasonably priced cars while raising wages for his own workers to make the car affordable to them.

Rather than raising the federal minimum wage, a modern version of Ford’s approach would be to expand the earned income tax credit to supplement low-wage workers’ incomes, which would mean the government paying Americans whose earnings are below a certain level. The program was started under President Ford in 1975, expanded once by President Reagan and again by President Clinton.

President Trump has proposed expanding the earned income tax credit beyond the 27 million working families who currently benefit from it. Such a move would increase demand and economic growth by providing working class Americans with the living wage they deserve.

Originally Published: May 13, 2017

Extreme wealth inequality threatens the nation

One of the salient characteristics of the last 20 years has been the unprecedented growth in income and wealth inequality, and the extent to which both have flowed to the proverbial1-percenters.

Market capitalism has generated enormous wealth, but the distribution of the spoils of capitalism has gone awry. While there are many ways to measure inequality, consider that in today’ s Gilded Age, the wealthiest 1 percent of American households enjoy a higher total net worth than the bottom 90 percent and the top 1 percent of income earners receive more pretax income than the entire bottom half.

Since 1979, 36 percent of all after-tax gains went to the 1-percenters; over 20 percent of those gains went to the top one-tenth of 1 percent of the income distribution.

The increasingly unequal distribution of income and wealth threatens not only the social fabric of American society but the economy as well. The mega-rich cannot spend enough to offset the lost demand that results from a shrinking middle class, which slows economic growth.

Growing inequality is making a lie of the American promise that this is a country where if you work hard, you can make it into the middle class. We are witnessing the hollowing out of the middle class; it is being mothballed like an old Navy ship. The last time that income inequality in the land of plenty was as profound as it is now was immediately before the 1929 stock market crash.

Right now, more than 8.4 million Americans are collecting either state or federal unemployment benefits and one out of every seven depend on food stamps, the highest share of the population ever to do so. A shrinking few claim a disproportionate share of the nation’s wealth at the expense of everyone else.

If we could identify a single culprit to blame for this mess, it would make for a good television drama. But the story of rising income inequality is more complex. None of the major explanations are exhaustive or definitive, and making sense of them is no easy task.

Some blame globalization, a process of closer integration between different countries and peoples made possible by falling trade and investment barriers, tremendous advances in telecommunications and  drastic reductions in transportation costs that have forced American workers to compete against the huge supply of low-cost labor in the developing world and contributed to the declining influence of labor unwns.

Others point to new labor-replacing technologies that threaten both unskilled and skilled workers, while they increase demand for a select few with highly specialized skills. They argue that American public education does not provide children with the advanced skills they need to compete in this new world.

Stated differently, the pace of technological advance has outstripped the educational system’s ability to supply students with the skills they need to utilize this technology, leading to outsized earnings gains for those who have such skill. This is the so-called college wage premium.

Over the past few decades, people in developed economies who were educated enough to take advantage of the technological advances won higher wages. Others got left behind.

Finally, there are those who contend that immigration policy worsens inequality. The mass influx of low-wage workers probably reduces global inequality at the same time it increases inequality within America by reducing the wages of hard-working, semi-skilled Americans.

Many pundits contend that we can reverse the deterioration of the middle class with a series of policies such as revising the tax code, making free trade fair, investing in America’s infrastructure, rethinking training and education and strengthening labor unions.

Perhaps America can deal finally with the divisive issue of inequality after having spent decades ignoring it, but hope is not a strategy. The only thing we can be certain of is that there are no quick fixes or easy solutions, and the longer it takes to address the problem, the more painful the cure will be.

originally published: November 30, 2013

The political chasm between the rich and working class

We’re often told that the typical third world country is characterized by a small percentage of the population hogging a huge share of wealth and power. Everyone else, the story goes, lives in varying degrees of penury and has little political influence.

For a long time, Americans liked to think of their country as the antithesis of this cliche, but socioeconomic trends over the past three decades are changing that.

It’s generally understood that we live in a time of growing inequality. We now know, for example, that there is a large and growing gap between rich and poor. And money has corrupted our political system so it only benefits a privileged few, resulting in the concentration of political power at the top.

The presidential debates should focus on this subject, but both candidates are too busy shoring up their bases and trying to ingratiate themselves to the precious undecided voters who tip the scales in tight elections. These gladiatorial contests ignore rising inequality and the erosion of the middle class, ambiguously defined as households making an average annual income ranging from $30,000 to $90,000.

Since the mid-1970s, we have seen the living standards of most Americans stagnate. Average wages have remained flat or declined.

Today, the wealthiest 1 percent of American households has a higher total net worth than the bottom 90 percent combined. That same top 1 percent also has more pretax income than the bottom 50 percent.

Income inequality has reached the highest level since the Great Depression and shows no signs of moderating. During the first full year of tepid recovery from the most recent recession, the top 1 percent of earners realized 93 percent of all income gains.

The fruits of our economy flow increasingly to a tiny minority of corporate CEOs, top-tier symbolic analysts in the legal and financial professions, sports stars and entertainment-industry celebrities who can leverage their market power into membership in a new class of super-rich.

Meanwhile, most American families are trying to keep body and soul together, seeing little or no improvement in their living standards, despite the fact the both parents are often working. This is crazy in an economy in which consumer spending is an important source of economic growth.

New research indicates that the growing gap between rich and poor may retard future growth, shortening economic expansions by as much as one third.

The increasing concentration of income has spawned a second Gilded Age. With it comes the ever­ greater ability of the new super-rich class to buy political influence through contributions to increasingly costly election campaigns, endowments for issue-oriented think tanks and control of advertising media.

It all translates into special tax breaks, such as allowing the hedge fund manager who makes millions to treat his or her income as capital gains, or the major corporation making billions in profits to have little or no tax liability. Both are egregious examples of corporate welfare that results from the unholy marriage of big corporations and big government.

Occupy Wall Street and the Tea Party crowd share a common resentment of how big government and corporate America are in bed with each other. They see the fat cats running the show, while they’re getting hammered.

We are told that’s the way the cookie crumbles in an age of international competition, rapid technological advances and the relentless drive to cut short-term costs. Sure, capitalism is unrivaled in its ability to produce material well-being. But no economic recovery is sustainable unless we can distribute its fruits more widely.

Growth is important, but recovery is little more than an illusion unless the economy can produce a more equitable distribution of wealth. That’s why we should insist that the presidential candidates give us practical proposals to help the middle class share in any future economic recovery.

originally published: October 20, 2012