Easter is always a good time to contemplate rebirth. It is no accident that the Catholic Church chose to coopt the spring fertility celebrations with one that celebrates Jesus victory over death.
We have the same opportunity in this country.
We are struggling with some fundamental political differences between liberalism and conservatism. One of the most pervasive conservative ideas that Ronald Reagan popularized, is that government is too big and taxes inhibit economic progress. While that idea has propelled a political movement, it has proven to be a major economic failure. It has left our economy weaker and our government biased in favor of the wealthy.
We’ve built the case that income inequality exists and that it is bad for the economy. We’ve also attributed the historic proportions to which it has grown to government policies advocated by conservative Republicans starting with Ronald Reagan. Finally we’ve outline how this disparity produces a weaker less stable economy than one based on a robust middle class.
Even conservatives who are willing to accept all of the above facts, still respond fatalistically, “So what, that’s the way things are and you can’t change them.”
Here are some suggestions of how we can both narrow the income gap and improve the economy.
To get there we have to first identify two other facts which have acerbated the built-in bias toward the wealthy that became government policy 25 years ago.
The accepted view is that disruptive changes in technology resulted in large job displacement. As a result, we now have a large mismatch between opportunities and skills. The reality is somewhat more nuanced, as Paul Krugman points out. When you look at the salary numbers for high skill tech jobs, they don’t reflect the sort of price pressure that one would normally expect if demand was outstripping supply. What we see instead is companies building the case for bringing in more foreign workers primarily from India and China. These workers are willing to work these jobs at lower wages which ends up holding down wages for the whole sector. So the reality is that technology is disruptive, but its major disruption is not that there aren’t enough qualified workers. It’s major disruption is that while productivity is increasing, the human contribution to overall output of our economy is decreasing. This has allowed companies to downsize their workforce which allows them to hold wages steady while increasing their profits. This results in a DECREASING share of profits going to working wages. Instead that money funds the outrageous growth in CEO salaries.
Productivity gains through primarily robotics has made domestic manufacturing competitive with off shore low wage alternatives. So manufacturing is actually coming back to this country. But the reality is that we are now competing in a global market and must match the investments that our competitors in India and China are making in both education and infrastructure. That’s because our edge today in robotic manufacturing is not sustainable. Both education and infrastructure investments have suffered during this 25 year reign of government downsizing.
Income inequality makes these problems worse because the interests of the wealthy no longer align with the welfare of the nation.
This is the first and most obvious change that has to occur. Our problems began when the electorate was told that government was the problems and low taxes would revive the flagging American spirit. The only thing that low taxes did was increase the debt and create a new class of wealthy people.
We have to make education easier to obtain for everyone regardless of income. We have to make huge investments in our neglected crumbling infrastructure in order to remain globally competitive. We also have to continue to reform our healthcare system so that costs to care for our aging population don’t cripple our economy.
The first and most obvious way to do this is to increase taxes on those with the most disposable income.
The reason that wages have stagnated for the middle class is that workers no longer have the power that they once did to bargain for a fair share of the profits corporations gained from their labor.
Hopefully the Reagan idea that free markets will fairly distribute economic rewards of productivity can finally be put to bed. One only needs to look at the huge gains that CEO’s have made at the expense of everyone else. Stronger unions will re-balance the huge advantages that corporations have gained over the last 25 years both in the marketplace and in politics.
Thanks to conservative judges sitting on the Supreme Court, anti-trust laws are no longer a protection against corporations becoming too big to fail. The numbers also prove that the biggest companies actually increase unemployment and reduce innovation. A tax that punishes companies from becoming too big would encourage companies break themselves up into smaller entities. Those smaller entities make our economy more robust and innovative.
Externalities are those costs that companies pass on to the tax payer. When corporations pollute the air or water, generally tax payers foot the cleanup bill. We need a taxation system that fully burdens corporations and the wealthy for all of the costs that they create at the time that they create them. This includes carbon taxes for those companies that use fossil fuels. It includes infrastructure costs for those companies or wealthy individuals that choose to develop properties where there are no roads, sewers, or schools. It includes the environmental impacts of all extractive industries. It includes the costs that local economies suffer when large employers relocate. Changing the economics of how we deal with externalities will serve as a valuable foundation for addressing the serious costs of climate change mitigation.
Strengthen the Social Safety Net
This isn’t just putting more money into existing programs. It is recognizing the cost of low wage jobs. Today, low wage employers are subsidized by tax payers. That subsidy has to end. We already have examples of big box retailers, like Costco, who do pay a living wage and have no problem being competitive. Those who choose not to pay a living wage should at least be required to reimburse the government for the costs of making sure that their employees have enough to eat, can afford healthcare, and can afford a place to live.
As a country we should be able to guarantee that everyone has access to affordable healthcare. We should be able to provide high quality primary education regardless of income or location. Those who have the talent and interest in attending college should be able to do so without concern about how they are going to pay for it. Those who cannot support themselves should not be a burden on their families or their communities.
Social Wealth versus Personal Wealth
Social wealth are the investments that we as a country choose to make. They include things like public education, government sponsored research, mass transit, first responders, highways, dams, and parks. Libertarianism rejects these investments and suggests that the marketplace is a better arbiter of how money should be spent. But we have already seen that this model doesn’t work. Instead it divides the country into rich and poor. The rich have access to resources. The poor don’t.
Our country was built on the concept of democracy, not oligarchy. Unfortunately money has lately been allowed to warp government policy to benefit the rich at a staggering cost to the poor.
The pendulum has to swing back toward a larger sense of community.
Everyone should have an opportunity to get a world class education because that benefits the country. Talent is spread evenly across our population. Failing to give every citizen a chance to maximize their contribution to the country makes us a weaker country.
Everyone should have an opportunity to live in a safe community where they can enjoy life, liberty, and the pursuit of happiness. There is value to our economy for this too. Those who come from stable homes do better in school. Those who have a stable home are more productive employees. Stable communities increase in value and are able to support the sorts of local services that employ people.
None of these are new ideas.
All of these ideas are already in widespread use among our global competitors. As Tom Friedman points out in “The World is Flat”, China and India have made massive investments in education, particularly engineering. The results of those investments are obvious to anyone who works at a company that employs engineers. There are a lot of Chinese and Indians in the US work force.
If the United States wants to remain a competitive force in the global technical markets, it has to confront the realities of globalization.
Our 25 year experiment in “free market” capitalism has failed.
It is past time to rebalance our tax system and fund the investments that we need to make as a country that will keep us relevant and competitive in the future.
Next up, let’s focus on the other end of the spectrum – the poor. Figuring out how to reduce poverty will also narrow the income inequality gap, and at least from a financial perspective, it may be cheaper than you think.