Why does economic inequality matter? This is a question that many on the right continue to ask as inequality continues to soar. While Sen. Bernie Sanders, I-Vt., has made a campaign out of denouncing the grotesque levels of income and wealth inequality in America, hardly a peep has been heard from Republican candidates on the issue. And when the issue does come up on the right, it is usually to defend inequality by saying things like, “the fundamental producer of income inequality is freedom” (a declaration from George Will in a didactic piece last month), or that the American poor are the “envy of the world,” which America’s richest congressman, Darrell Issa, R-Calif., said earlier this year.
Of course, economic inequality is hardly a new phenomenon, and neither is the apologia that comes along with it. In the United States, this debate goes all the way back to its founding, before the country became industrialized — which would create immense wealth concentration among a few industrialists. Among the founding fathers, wealth inequality was mostly a concern because of the instabilities that came along with it (as well as the inevitable political inequalities).
As with most things, Thomas Jefferson and Alexander Hamilton had different views on inequality, partly because Jefferson believed in a romantic agrarian society, while Hamilton was at the forefront of America’s industrialization. Even though Hamilton was outspokenly anti-democratic, he saw the dangers of great concentration of wealth, and believed a strong middle class was “needed to become energetic customers of businesses in the entire economy.” Jefferson, on the other hand, believed in widespread ownership of land, so that each person could have the “property of his labor.” (Jefferson’s view of property was greatly influenced by the Lockean theory that property comes from one’s exertion of labor on natural resources.) While in France, he wrote to James Madison:
“I am conscious that an equal division of property is impracticable. But the consequences of this enormous inequality producing so much misery to the bulk of mankind, legislators cannot invent too many devices for subdividing property, only taking care to let their subdivisions go hand in hand with the natural affections of the human mind. The descent of property of every kind therefore to all the children, or to all the brothers and sisters, or other relations in equal degree is a politic measure, and practicable one.”
While Jefferson’s view of property was a product of his time (preceding industrialization), his view of economic inequality remains important when considering what kind of balance between liberalism and democracy the founders had in mind. The consensus among the founders seemed to have been that the larger the inequality in property, the greater the threat to the Republic and liberty itself. John Adams advocated the “distribution of public lands to the landless to create broad-based ownership of property,” while in 1792, Congress passed a law subsidizing the cod fishing industry, giving five-eighths of the subsidy to the fisherman and the remainder to the ship owners — but only if the owners shared profits. (If Fox News had been around in those days, they’d have probably labeled the founding fathers job-killing socialists).
Even the father of classical economics, whose invisible hand is promoted by all free marketeers of today as an ultimate truth, spoke out against economic inequality in “The Wealth of Nations”:
“Servants, laborers, and workmen of different kinds, make up the far greater part of every great political society. But what improves the circumstances of the greater part can never be regarded as an inconvenience to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, clothe, and lodge the whole body of people, should have such a share of the produce of their own labor as to be themselves tolerably well fed, clothed, and lodged.”
In a post-Citizens United America, the vast economic inequality of today directly challenges political equality (the American political tradition has historically considered economic and political inequalities to be intertwined). It is clear that those with higher incomes and levels of wealth, who can afford to donate large sums to political campaigns and hire lobbyists to further their interests in Washington, have much more political power than the majority of people who do not have money to throw around. Studies have found that in the United States, where inequality is among the highest in the developed world, “political institutions and public policy are indeed most heavily influenced by the policy preferences of the wealthiest segments of the citizenry, while middle and low income citizens have virtually no impact on politics.”
While voter suppression of poorer Americans and minorities is becoming increasingly common around the country, in theory, every citizen is supposed to have equal political power (with their vote), and elected officials are supposed to represent the majority. But this is clearly not the case. In a government where representatives rely on large donations to run political campaigns, political power will inevitably be disproportionately held by the wealthiest.
Not only does inequality and its close relative of poverty create political inequality and social instability, but economic instability. It should not be taken as a coincidence that the two biggest economic crises of the past hundred years occurred during the greatest periods of inequality. As Thomas Piketty writes in his acclaimed book on inequality, “Capital in the Twenty-first Century”:
“In my view, there is absolutely no doubt that the increase of inequality in the United States contributed to the nation’s financial instability. The reason is simple: one consequence of increasing inequality was virtual stagnation of the purchasing power of the lower and middle classes in the United States, which inevitably made it more likely that modest households would take on debt, especially since unscrupulous banks and financial intermediaries, freed from regulation and eager to earn good yields on the enormous saving injected into the system by the well-to-do, offered credit on increasingly good terms.”
Most of those on the right shrug off income and wealth inequality as a natural result of varying innate abilities — the capitalist apologist Herbert Spencer popularized this notion when he transferred Darwin’s theory of biological evolution into the social realm, with his famous saying, “survival of the fittest.” All humans obviously differ in aptitude and attitude, but this idea that all inequalities of today simply come from innate differences is hilariously ahistorical, and it completely ignores the economic institutions of today. In our globalized world of capitalism, where massive corporations have immeasurable power on governments and the ownership of property and capital (productive and intellectual) tend to determine one’s wealth, this notion is rather old-fashioned. Indeed, it had more truth to it in the preindustrial time of Thomas Jefferson, when individuals toiled on their land (many, albeit, with slave labor) and artisans individually crafted products or provided services. It is as if those on the right, particularly libertarians, believe in a kind of lemonade-stand capitalism, where every individual is economically autonomous — which is obviously not the case.
For many people, economic inequality is considered a moral issue, as is social/political inequality and poverty. Though the two latter are undoubtedly moral issues, it is debatable whether income and wealth inequality are “morally wrong,” or how much inequality should be put up with in a society (there will always be a certain degree of inequality in an open society — how excessive this inequality is is the main concern). This is a philosophical question that cannot be answered here, but there is little doubt that economic inequality creates societal and economic instability, and causes political inequality as well — which is indeed a moral issue.
Sen. Sanders has put the excessive inequalities that have grown rapidly over the past 40 years at the forefront of the 2016 election, and the debate over inequality will only become more contentious in the coming year. Sanders (and Clinton, to a degree) has been very vocal about how inequality has corrupted American democracy, and this has created a growing movement among the discontent (particularly the young) — but it would be even more effective if he discussed the other practical problems that economic inequality inevitably causes. Social and economic stability was the main concern of the founding fathers and the progressives and New Dealers who came after them. Today, challenging the inequality that has grown is not only a question of fairness and democracy, but a practical question of social cohesion.
Conor Lynch is a writer and journalist living in New York City. His work has appeared on Salon, AlterNet, Counterpunch and openDemocracy. Follow him on Twitter: @dilgentbureauct.
The fundamental truth about American economic growth today is that while the work is done by many, the real rewards largely go to the few. The numbers are, at this point, woefully familiar: the top one percent of earners take home more than 20 percent of the income, and their share has more than doubled in the last thirty-five years. The gains for people in the top 0.1 percent, meanwhile, have been even greater. Yet over that same period, average wages and household incomes in the US have risen only slightly, and a number of demographic groups (like men with only a high school education) have actually seen their average wages decline.
Income inequality has become such an undeniable problem, in fact, that even Republican politicians have taken to decrying its effects. It’s not surprising that a Democrat like Barack Obama would call dealing with inequality “the defining challenge of our time.” But when Jeb Bush’s first big policy speech of 2015 spoke of the frustration that Americans feel at seeing “only a small portion of the population riding the economy’s up escalator,” it was a sign that inequality had simply become too obvious, and too harmful, to be ignored.
Something similar has happened in economics. Historically, inequality was not something that academic economists, at least in the dominant neoclassical tradition, worried much about. Economics was about production and allocation, and the efficient use of scarce resources. It was about increasing the size of the pie, not figuring out how it should be divided. Indeed, for many economists, discussions of equity were seen as perilous, because there was assumed to be a necessary “tradeoff” between efficiency and equity: tinkering with the way the market divided the pie would end up making the pie smaller. As the University of Chicago economist Robert Lucas put it, in an oft-cited quote: “Of the tendencies that are harmful to sound economics, the most seductive, and…the most poisonous, is to focus on questions of distribution.”
Today, the landscape of economic debate has changed. Inequality was at the heart of the most popular economics book in recent memory, the economist Thomas Piketty’s Capital. The work of Piketty and his colleague Emmanuel Saez has been instrumental in documenting the rise of income inequality, not just in the US but around the world. Major economic institutions, like the IMF and the OECD, have published studies arguing that inequality, far from enhancing economic growth, actually damages it. And it’s now easy to find discussions of the subject in academic journals.
All of which makes this an ideal moment for the Columbia economist Joseph Stiglitz. In the years since the financial crisis, Stiglitz has been among the loudest and most influential public intellectuals decrying the costs of inequality, and making the case for how we can use government policy to deal with it. In his 2012 book, The Price of Inequality, and in a series of articles and Op-Eds for Project Syndicate, Vanity Fair, and The New York Times, which have now been collected in The Great Divide, Stiglitz has made the case that the rise in inequality in the US, far from being the natural outcome of market forces, has been profoundly shaped by “our policies and our politics,” with disastrous effects on society and the economy as a whole. In a recent report for the Roosevelt Institute called Rewriting the Rules, Stiglitz has laid out a detailed list of reforms that he argues will make it possible to create “an economy that works for everyone.”
Stiglitz’s emergence as a prominent critic of the current economic order was no surprise. His original Ph.D. thesis was on inequality. And his entire career in academia has been devoted to showing how markets cannot always be counted on to produce ideal results. In a series of enormously important papers, for which he would eventually win the Nobel Prize, Stiglitz showed how imperfections and asymmetries of information regularly lead markets to results that do not maximize welfare. He also argued that this meant, at least in theory, that well-placed government interventions could help correct these market failures. Stiglitz’s work in this field has continued: he has just written (with Bruce Greenwald) Creating a Learning Society, a dense academic work on how government policy can help drive innovation in the age of the knowledge economy.
Stiglitz served as chairman of the Council of Economic Advisers in the Clinton administration, and then was the chief economist at the World Bank during the Asian financial crisis of the late 1990s. His experience there convinced him of the folly of much of the advice that Western economists had given developing countries, and in books like Globalization and Its Discontents (2002) he offered up a stinging critique of the way the US has tried to manage globalization, a critique that made him a cult hero in much of the developing world. In a similar vein, Stiglitz has been one of the fiercest critics of the way the Eurozone has handled the Greek debt crisis, arguing that the so-called troika’s ideological commitment to austerity and its opposition to serious debt relief have deepened Greece’s economic woes and raised the prospect that that country could face “depression without end.” For Stiglitz, the fight over Greece’s future isn’t just about the right policy. It’s also about “ideology and power.” That perspective has also been crucial to his work on inequality.
The Great Divide presents that work in Stiglitz’s most popular—and most populist—voice. While Piketty’s Capital is written in a cool, dispassionate tone, The Great Divideis clearly intended as a political intervention, and its tone is often impassioned and angry. As a collection of columns, The Great Divide is somewhat fragmented and repetitive, but it has a clear thesis, namely that inequality in the US is not an unfortunate by-product of a well-functioning economy. Instead, the enormous riches at the top of the income ladder are largely the result of the ability of the one percent to manipulate markets and the political process to their own benefit. (Thus, the title of his best-known Vanity Fair piece: “Of the 1 percent, by the 1 percent, for the 1 percent.”) Soaring inequality is a sign that American capitalism itself has gone woefully wrong. Indeed, Stiglitz argues, what we’re stuck with isn’t really capitalism at all, but rather an “ersatz” version of the system.
Inequality obviously has no single definition. As Stiglitz writes:
There are so many different parts to America’s inequality: the extremes of income and wealth at the top, the hollowing out of the middle, the increase of poverty at the bottom. Each has its own causes, and needs its own remedies.
But in The Great Divide, Stiglitz is mostly interested in one dimension of inequality: the gap between the people at the very top and everyone else. And his analysis of that gap concentrates on the question of why incomes at the top have risen so sharply, rather than why the incomes of everyone else have stagnated. While Stiglitz obviously recognizes the importance of the decline in union power, the impact of globalization on American workers, and the shrinking value of the minimum wage, his preoccupation here is primarily with why the rich today are so much richer than they used to be.
To answer that question, you have to start by recognizing that the rise of high-end incomes in the US is still largely about labor income rather than capital income. Piketty’s book is, as the title suggests, largely about capital: about the way the concentration of wealth tends to reproduce itself, leading to greater and greater inequality. And this is an increasing problem in the US, particularly at the highest reaches of the income spectrum. But the main reason people at the top are so much richer these days than they once were (and so much richer than everyone else) is not that they own so much more capital: it’s that they get paid much more for their work than they once did, while everyone else gets paid about the same, or less. CorporateCEOs, for instance, are paid far more today than they were in the 1970s, while assembly line workers aren’t. And while incomes at the top have risen in countries around the world, nowhere have they risen faster than in the US.
One oft-heard justification of this phenomenon is that the rich get paid so much more because they are creating so much more value than they once did. Globalization and technology have increased the size of the markets that successful companies and individuals (like pop singers or athletes) can reach, so that being a superstar is more valuable than ever. And as companies have gotten bigger, the potential value that CEOs can add has increased as well, driving their pay higher.
Stiglitz will have none of this. He sees the boom in the incomes of the one percent as largely the result of what economists call “rent-seeking.” Most of us think of rent as the payment a landlord gets in exchange for the use of his property. But economists use the word in a broader sense: it’s any excess payment a company or an individual receives because something is keeping competitive forces from driving returns down. So the extra profit a monopolist earns because he faces no competition is a rent. The extra profits that big banks earn because they have the implicit backing of the government, which will bail them out if things go wrong, are a rent. And the extra profits that pharmaceutical companies make because their products are protected by patents are rents as well.
Not all rents are terrible for the economy—in some cases they’re necessary evils. We have patents, for instance, because we think that the costs of granting a temporary monopoly are outweighed by the benefits of the increased innovation that patent protection is supposed to encourage. But rents make the economy less efficient, because they move it away from the ideal of perfect competition, and they make consumers worse off. So from the perspective of the economy as a whole, rent-seeking is a waste of time and energy. As Stiglitz puts it, the economy suffers when “more efforts go into ‘rent seeking’—getting a larger slice of the country’s economic pie—than into enlarging the size of the pie.”
Rents are nothing new—if you go back to the 1950s, many big American corporations faced little competition and enjoyed what amounted to oligopolies. But there’s a good case to be made that the sheer amount of rent-seeking in the US economy has expanded over the years. The number of patents is vastly greater than it once was. Copyright terms have gotten longer. Occupational licensing rules (which protect professionals from competition) are far more common. Tepid antitrust enforcement has led to reduced competition in many industries. Most importantly, the financial industry is now a much bigger part of the US economy than it was in the 1970s, and for Stiglitz, finance profits are, in large part, the result of what he calls “predatory rent-seeking activities,” including the exploitation of uninformed borrowers and investors, the gaming of regulatory schemes, and the taking of risks for which financial institutions don’t bear the full cost (because the government will bail them out if things go wrong).
All this rent-seeking, Stiglitz argues, leaves certain industries, like finance and pharmaceuticals, and certain companies within those industries, with an outsized share of the rewards. And within those companies, the rewards tend to be concentrated as well, thanks to what Stiglitz calls “abuses of corporate governance that lead CEOs to take a disproportionate share of corporate profits” (another form of rent-seeking). In Stiglitz’s view of the economy, then, the people at the top are making so much because they’re in effect collecting a huge stack of rents.
This isn’t just bad in some abstract sense, Stiglitz suggests. It also hurts society and the economy. It erodes America’s “sense of identity, in which fair play, equality of opportunity, and a sense of community are so important.” It alienates people from the system. And it makes the rich, who are obviously politically influential, less likely to support government investment in public goods (like education and infrastructure) because those goods have little impact on their lives. (The one percent are, in fact, more likely than the general public to support cutting spending on things like schools and highways.)
More interestingly (and more contentiously), Stiglitz argues that inequality does serious damage to economic growth: the more unequal a country becomes, the slower it’s likely to grow. He argues that inequality hurts demand, because rich people consume less of their incomes. It leads to excessive debt, because people feel the need to borrow to make up for their stagnant incomes and keep up with the Joneses. And it promotes financial instability, as central banks try to make up for stagnant incomes by inflating bubbles, which eventually burst. (Consider, for instance, the toleration, and even promotion, of the housing bubble by Alan Greenspan when he was chairman of the Fed.) So an unequal economy is less robust, productive, and stable than it otherwise would be. More equality, then, can actually lead to more efficiency, not less. As Stiglitz writes, “Looking out for the other guy isn’t just good for the soul—it’s good for business.”
This explanation of both the rise in inequality and its consequences is quite neat, if also bleak. But it’s also, it has to be said, oversimplified. Take the question, for instance, of whether inequality really is bad for economic growth. It certainly seems plausible that it would be, and there are a number of studies that suggest it is. Yet exactly why inequality is bad for growth turns out to be hard to pin down—different studies often point to different culprits. And when you look at cross-country comparisons, it turns out to be difficult to prove that there’s a direct connection between inequality and the particular negative factors that Stiglitz cites. Among developed countries, more unequal ones don’t, as a rule, have lower levels of consumption or higher levels of debt, and financial crises seem to afflict both unequal countries, like the US, and more egalitarian ones, like Sweden.
This doesn’t mean that, as conservative economists once insisted, inequality is good for economic growth. In fact, it’s clear that US-style inequality does not help economies grow faster, and that moving toward more equality will not do any damage. We just can’t yet say for certain that it will give the economy a big boost.
Similarly, Stiglitz’s relentless focus on rent-seeking as an explanation of just why the rich have gotten so much richer makes a messy, complicated problem simpler than it is. To some degree, he acknowledges this: in The Price of Inequality, he writes, “Of course, not all the inequality in our society is the result of rent seeking…. Markets matter, as do social forces….” Yet he doesn’t really say much about either of those inThe Great Divide. It’s unquestionably true that rent-seeking is an important part of the rise of the one percent. But it’s really only part of the story.
When we talk about the one percent, we’re talking about two groups of people above all: corporate executives and what are called “financial professionals” (these include people who work for banks and the like, but also money managers, financial advisers, and so on). These are the people that Piketty terms “supermanagers,” and he estimates that together they account for over half of the people in the one percent.
The emblematic figures here are corporate CEOs, whose pay rose 876 percent between 1978 and 2012, and hedge fund managers, some of whom now routinely earn billions of dollars a year. As one famous statistic has it, last year the top twenty-five hedge fund managers together earned more than all the kindergarten teachers in America did.
Stiglitz wants to attribute this extraordinary rise in CEO pay, and the absurd amounts of money that asset managers make, to the lack of good regulation. CEOs, in his account, are exploiting deficiencies in corporate governance—supine boards and powerless shareholders—to exploit shareholders and “appropriate for themselves firm revenues.” Money managers, meanwhile, are exploiting the ignorance of investors, reaping the benefits of what Stiglitz calls “uncompetitive and often undisclosed fees” to ensure that they get paid well even when they underperform.
The idea that high CEO pay is ultimately due to poor corporate governance is a commonplace, and certainly there are many companies where the relationship between the CEO and the board of directors (which in theory is supposed to be supervising him) is too cozy. Yet as an explanation for why CEOs get paid so much more today than they once did, Stiglitz’s argument is unsatisfying. After all, back in the 1960s and 1970s, when CEOs were paid much less, corporate governance was, by any measure, considerably worse than it is today, not better. As one recent study put it:
Corporate boards were predominately made up of insiders…or friends of theCEO from the “old boys’ network.” These directors had a largely advisory role, and would rarely overturn or even mount major challenges to CEO decisions.
Shareholders, meanwhile, had fewer rights and were less active. Since then, we’ve seen a host of reforms that have given shareholders more power and made boards more diverse and independent. If CEO compensation were primarily the result of bad corporate governance, these changes should have had at least some effect. They haven’t. In fact, CEO pay has continued to rise at a brisk rate.
It’s possible, of course, that further reform of corporate governance (like giving shareholders the ability to cast a binding vote on CEO pay packages) will change this dynamic, but it seems unlikely. After all, companies with private owners—who have total control over how much to pay their executives—pay their CEOs absurd salaries, too. And CEOs who come into a company from outside—meaning that they have no sway at all over the board—actually get paid more than inside candidates, not less. Since 2010, shareholders have been able to show their approval or disapproval of CEOpay packages by casting nonbinding “say on pay” votes. Almost all of those packages have been approved by large margins. (This year, for instance, these packages were supported, on average, by 95 percent of the votes cast.)
Similarly, while money managers do reap the benefits of opaque and overpriced fees for their advice and management of portfolios, particularly when dealing with ordinary investors (who sometimes don’t understand what they’re paying for), it’s hard to make the case that this is why they’re so much richer than they used to be. In the first place, opaque as they are, fees are actually easier to understand than they once were, and money managers face considerably more competition than before, particularly from low-cost index funds. And when it comes to hedge fund managers, their fee structure hasn’t changed much over the years, and their clients are typically reasonably sophisticated investors. It seems improbable that hedge fund managers have somehow gotten better at fooling their clients with “uncompetitive and often undisclosed fees.”
So what’s really going on? Something much simpler: asset managers are just managing much more money than they used to, because there’s much more capital in the markets than there once was. As recently as 1990, hedge funds managed a total of $38.9 billion. Today, it’s closer to $3 trillion. Mutual funds in the US had $1.6 trillion in assets in 1992. Today, it’s more than $16 trillion. And that means that an asset manager today can get paid far better than an asset manager was twenty years ago, even without doing a better job.
This doesn’t mean that asset managers or corporate executives “deserve” what they earn. In fact, there’s no convincing evidence that CEOs are any better, in relative terms, than they once were, and plenty of evidence that they are paid more than they need to be, in view of their performance. Similarly, asset managers haven’t gotten better at beating the market. The point, though, is that attributing the rise in their pay to corruption, or bad rules, doesn’t get us that far. More important, probably, has been the rise of ideological assumptions about the indispensability of CEOs, and changes in social norms that made it seem like executives should take whatever they could get. (Stiglitz alludes to these in The Price of Inequality, writing, “Norms of what was ‘fair’ changed, too.”) Discussions of shifts in norms often become what the economist Robert Solow once called a “blaze of amateur sociology.” But that doesn’t mean we can afford to ignore those shifts, either, since the rise of the one percent has been propelled by ideological changes as much as by economic or regulatory ones.
Complicating Stiglitz’s account of the rise of the one percent is not just an intellectual exercise. It actually has important consequences for thinking about how we can best deal with inequality. Strategies for reducing inequality can be generally put into two categories: those that try to improve the pretax distribution of income (this is sometimes called, clunkily, predistribution) and those that use taxes and transfers to change the post-tax distribution of income (this is what we usually think of as redistribution). Increasing the minimum wage is an example of predistribution. Medicaid is redistribution.
Stiglitz’s agenda for policy—which is sketched in The Great Divide, and laid out in comprehensive detail in Rewriting the Rules—relies on both kinds of strategies, but he has high hopes that better rules, designed to curb rent-seeking, will have a meaningful impact on the pretax distribution of income. Among other things, he wants much tighter regulation of the financial sector. He wants to loosen intellectual property restrictions (which will reduce the value of patents), and have the government aggressively enforce antitrust laws. He wants to reform corporate governance so CEOs have less influence over corporate boards and shareholders have more say over CEO pay. He wants to limit tax breaks that encourage the use of stock options. And he wants asset managers to “publicly disclose holdings, returns, and fee structures.” In addition to bringing down the income of the wealthiest Americans, he advocates measures like a higher minimum wage and laws encouraging stronger unions, to raise the income of ordinary Americans (though this is not the main focus of The Great Divide).
These are almost all excellent suggestions. And were they enacted, some—including above all tighter regulation of the financial industry—would have an impact on corporate rents and inequality. But it would be surprising if these rules did all that much to shrink the income of much of the one percent, precisely because improvements in corporate governance and asset managers’ transparency are likely to have a limited effect on CEO salaries and money managers’ compensation.
This is not a counsel of despair, though. In the first place, these rules would be good things for the economy as a whole, making it more efficient and competitive. More important, the second half of Stiglitz’s agenda—redistribution via taxes and transfers—remains a tremendously powerful tool for dealing with inequality. After all, while pretax inequality is a problem in its own right, what’s most destructive is soaring posttax inequality. And it’s posttax inequality that most distinguishes the US from other developed countries. As Stiglitz writes:
Some other countries have as much, or almost as much, before-tax and transfer inequality; but those countries that have allowed market forces to play out in this way then trim back the inequality through taxes and transfer and the provision of public services.
The redistributive policies Stiglitz advocates look pretty much like what you’d expect. On the tax front, he wants to raise taxes on the highest earners and on capital gains, institute a carbon tax and a financial transactions tax, and cut corporate subsidies. But dealing with inequality isn’t just about taxation. It’s also about investing. As he puts it, “If we spent more on education, health, and infrastructure, we would strengthen our economy, now and in the future.” So he wants more investment in schools, infrastructure, and basic research.
If you’re a free-market fundamentalist, this sounds disastrous—a recipe for taking money away from the job creators and giving it to government, which will just waste it on bridges to nowhere. But here is where Stiglitz’s academic work and his political perspective intersect most clearly. The core insight of Stiglitz’s research has been that, left on their own, markets are not perfect, and that smart policy can nudge them in better directions.
Indeed, Creating a Learning Society is dedicated to showing how developing countries can use government policy to become high-growth, knowledge- intensive economies, rather than remaining low-cost producers of commodities. What this means for the future of the US is only suggestive, but Stiglitz argues that it means the government should play a major role in the ongoing “structural transformation” of the economy.
Of course, the political challenge in doing any of this (let alone all of it) is immense, in part because inequality makes it harder to fix inequality. And even for progressives, the very familiarity of the tax-and-transfer agenda may make it seem less appealing. After all, the policies that Stiglitz is calling for are, in their essence, not much different from the policies that shaped the US in the postwar era: high marginal tax rates on the rich and meaningful investment in public infrastructure, education, and technology. Yet there’s a reason people have never stopped pushing for those policies: they worked. And as Stiglitz writes, “Just because you’ve heard it before doesn’t mean we shouldn’t try it again.”
British economist Tony Atkinson has been studying inequality — the gap in income and wealth between the top and the bottom — for nearly half a century. Now that the dogma of trickle-down has been exposed as myth, he sees economists, policy-makers and the public finally waking up to the seriousness of the problem. But how to fix it? In his new book, Inequality: What Can Be Done?Atkinson focuses on ambitious proposals that could shift the distribution of income in developed countries. This post was originally published on the blog of theInstitute for New Economic Thinking.
Lynn Parramore: When did you become interested in the topic of economic inequality? What sparked your work?
Tony Atkinson: My interest in the topic actually led me to become an economics student. There was a famous book in England called The Poor and the Poorest, which was the rediscovery of poverty in Britain, published in 1965. I then decided to write a book about poverty when I graduated, and it was published in 1969: Poverty in Britain and the Reform of Social Security.
LP: In terms of finding solutions to inequality, Thomas Piketty, in his book Capital in the Twenty-First Century, talks about a wealth tax, but many are skeptical that it could work. What is distinct about your prescriptions?
TA: It’s fair to say that Piketty’s book was not about solutions. He does refer to a global capital tax, but he was much more concerned with an analysis rather than a set of prescriptions. In a way, my book was really continuing the lines of recent discussions, that is to say, we’ve identified the problem and we’ve seen some of the reasons for it, and we’ve seen our political leaders and our religious leaders all saying this is a serious problem — a “defining challenge of our time” to quote your president. So the next question, of course, is, what are we going to do about it?
What I tried to do was to set out a range of measures, which were to some extent very familiar in terms of taxes and transfers. But I also tried to stress that this is only, at best, part of the solution. One has to think much more carefully about what determines incomes people get before the government intervenes in taxing and transferring.
LP: Some of the possible prescriptions you discuss, such as a basic income for all citizens, may sound radical, but you point out that they are actually already implemented as policy in many countries in various ways. Are ideas like basic income getting more attention and traction now?
TA: Definitely. A lot of people I’ve talked to about the book, in different places, say, Oh! I never knew we could do that kind of thing. It’s a tragedy, in a way, that our political system has become very narrowly focused and not willing to at least debate these ideas.
The basic income is very close to the idea Thomas Paine put forward in the 1790s. (Paine’s proposal, by the way, is on the website of the U.S. Social Security Administration.) That proposal is something that I and many others think is really interesting, which is that everyone, on reaching the age of 18 or so, should receive a capital payment. It would be like a negative capital tax. That idea was also proposed years ago in America by Bruce Ackerman, a professor of law at Yale.
A capital payment, or capital grant, would contribute to solving the problem of the intergenerational distribution of income, which is something I stress in the book. That is a serious problem, which I found, for example, in discussions with Korean journalists and economists. They are very worried about generational divide — concerned that the older people have benefitted from growth and the younger people are struggling to find jobs and so on. Some of the measures I propose are designed to take money away from my generation and give it to younger generations. The capital grant certainly would do that.
LP: You’ve been a strong critic of claims that we can’t afford to do much about inequality. How do you react to such claims?
TA: I think that the question about whether we can afford it has two dimensions. One is the extent to which addressing inequality involves redistribution —whether it involves some people, like myself, paying higher taxes to finance a more effective system of social protection, for example. On the other hand, it’s a question about how far these measures and other measures would tend to reduce the size of the cake, to put it in a rather hackneyed metaphor.
The second argument is the one I spend more time discussing, which is to say that in the kinds of economies in which we live, there are a number of directions in which we can both make the distribution fairer and contribute to making our economies more efficient and more productive for everyone. That’s very much within the Institute for New Economic Thinking’s way of looking at the world because I’m really saying that the economic model we’ve had to think about is one in which intervention tends to reduce the size of the cake. Yet if you think about a different economic model, you have to allow for the fact that there are corporations with monopoly power. You have to allow for the fact that we have workers who have very little countervailing power, and so on. There are, in fact, ways in which the current situation is inefficient.
LP: So reducing inequality may increase efficiency rather than the opposite, as neoclassical economists might argue?
TA: Yes, I think that as a starting point we need to look at the world as it really is. We have unemployment and other evidence that the world isn’t working in a kind of textbook competitive fashion.
LP: Let’s talk about debates concerning Britain and whether or not inequality is growing. Pikettty, for example, says that British society is becoming more economically unequal. Others refute this view. How do you read the data?
TA: I think it’s very important to distinguish here between distribution of incomes and distribution of wealth. On incomes, there’s very little dispute. There is no doubt that income inequality in Britain today is very significantly higher than it was a generation ago. The Gini coefficient, which is used to measure it, is some ten percentage points higher than it was in the 1970s. And that’s a very big increase. It took us from being a country like the Netherlands or France to being a country like the United States in terms of inequality. I don’t think anyone disputes that, nor do they dispute the fact that poverty is higher than when I started out as an economist nearly 50 years ago.
Where there is much less certainty is about the wealth data, that is, how rich people are. There, our current statistics about changes in wealthy inequality are not so good — not as good as the American statistics. I think there is room for confusion there. The OECD says that wealth concentration in Britain is rising. Maybe. I’m not myself quite sure. It’s much harder to measure wealth concentration now because people are so geographically mobile. People on the “rich list” — it’s not quite clear whether they live in England or not. They might live somewhere else. It’s not clear whether the wealth is owned by them, or by a foundation, or a trust, or whether it’s spread out amongst a family. So it’s a much more complicated set of statistics to assemble today than it was 20 or 30 years ago.
LP: You’ve written in your book that you feel optimistic about solving the problem of inequality. What gives you hope?
TA: People often say that there’s a sense of inevitability, that there’s nothing much you can do. But what I was trying to argue in the book is that there are things you can do. The problem has been that we’ve not had on the agenda issues that would make a difference. Interestingly, even since I wrote the book the Conservative government in Britain has actually adopted the living wage as policy. Last week in the budget the chancellor announced he was in favor of paying higher wages. So there’s hope.
Lynn Parramore is contributing editor at AlterNet. She is cofounder of Recessionwire, founding editor of New Deal 2.0, and author of “Reading the Sphinx: Ancient Egypt in Nineteenth-Century Literary Culture.” She received her Ph.D. in English and cultural theory from NYU, and she serves on the editorial board of Lapham’s Quarterly. Follow her on Twitter @LynnParramore.
On the 80th anniversary of the Social Security Act of 1935, which established the social security system in the United States, President Franklin Delano Roosevelt’s New Deal is on life support as the American middle class continues to be squeezed and millions of Americans struggle with poverty.
The U.S. desperately needed a New Deal 3.0 after the crash of September 2008 and a program of aggressive reforms. Instead, most of the welfare that followed the Panic of 2008 has been corporate welfare rather than programs to help America’s embattled poor and middle class. Overall, the U.S. has been moving away from the New Deal when it should be reinvigorating it. Below are 10 ways in which the New Deal (and by extension, LBJ’s Great Society) continues to be under attack in the United States.
1. Income Inequality Is Going from Bad to Worse
FDR firmly believed that capitalism cannot function well without a strong middle class, and even auto magnate Henry Ford agreed with him: Ford famously said that American workers needed to be paid a decent wage in order to be able to afford his products. And during the post-FDR America of the 1950s and 1960s, having a robust middle class was great for a variety of businesses. But in 2015—with the gains of the New Deal having been imperiled by everything from union busting to the outsourcing of millions of American jobs—income inequality in the U.S. is a huge problem. The Organization for Economic Cooperation and Development recently released a report on income inequality among OECD members and found that the U.S. was among the worst offenders. The U.S., Mexico and Turkey had some of highest income inequality of OECD countries, while Denmark, the Czech Republic, Finland, Iceland and Belgium fared much better. OECD Secretary-General Angel Gurría commented that “high inequality is bad for growth,” and he’s absolutely right.
2. Republicans Yearn for Social Security Privatization
Although President Dwight D. Eisenhower was a Republican, he supported elements of the New Deal and saw the need for a strong social safety net: in fact, Eisenhower expanded social security, and in 1954, he bluntly asserted that any oligarchs who would “attempt to abolish social security, unemployment insurance and eliminate labor law and farm programs” were “stupid.” But in the 21st century, Republicans have been going after social security with a vengeance. The privatization of social security was proposed by President George W. Bush in 2004, and far-right Republicans, the Tea Party and wingnut lobbying groups like the Club for Growth have been doubling down on the idea of privatizing social security. GOP presidential hopeful Jeb Bush called for social security privatization at a town hall meeting in New Hampshire in June, and he also favors raising the social security retirement age to 69 or 70, which would be especially bad for blue-collar workers who have spent decades in physically demanding jobs.
3. The 1% Continue to Dodge Taxes
FDR had no problem asking the ultra-wealthy to pay their fair share of taxes: the U.S.’ top marginal tax rate rose to 94% in the early 1940s, when the country entered World War II. Taxes for the ultra-rich didn’t go down much under Republican Eisenhower, who lowered the top tax rate to 91% in the 1950s—and after that rate decreased to 28% under President Reagan, it rose to 39.6% under President Clinton and decreased to 35% under President George W. Bush. Looking at the last 80 years of tax history, one sees a clear pattern: the American middle class does much better when the 1% pay their fair share of taxes. And even though the Tea Party tries to paint Barack Obama as a soak-the-rich president, their assertion is laughable because Obama extended the Bush tax cuts and hasn’t been nearly as forceful as FDR or Eisenhower when it comes to taxing the 1%.
4. The Minimum Wage Is Much Too Low
One of the important elements of the New Deal was FDR’s strong belief in a national minimum wage. FDR began to push for a federal minimum wage after taking office in January 1933, saying, “By living wages, I mean more than a bare subsistence level. I mean the wages of a decent living.” And Congress enacted one in 1938, when the U.S.’ first federal minimum wage was set at 25 cents per hour. But in recent years, the federal minimum wage (which was raised to $7.25 an hour in 2009) has not kept up with inflation. Economist Robert Reich has proposed raising the federal minimum wage to $15 an hour, which he sees as a crucial part of economic recovery. And in some cities, including Los Angeles and Seattle, city councils have raised their local minimum wages to that amount. But at the federal level, an increase to even $10.10 an hour (President Obama’s proposal) is a steep uphill climb when both houses of Congress are dominated by far-right Republicans who hate the poor with a passion.
5. Infrastructure Continues to Deteriorate
The New Deal was great for the U.S.’ infrastructure thanks to programs that built or strengthened everything from roads to water and electric systems to municipal power plants. But in recent years, the American infrastructure has been seriously decaying—and a major wake-up call came on May 12, when an Amtrak train derailed in Philadelphia and eight passengers were killed. But the nation’s railways are only one of the ways in which the U.S.’ infrastructure has deteriorated. According to Ray LaHood (former secretary of transportation for the Obama Administration), 70,000 bridges in the U.S. are now structurally deficient. That is in addition to all the roads that are in desperate need of repair. And when it comes to high-speed rail travel, the U.S. lags way behind Europe (where one can get from London to Brussels in just under two hours or from Madrid to Barcelona in less than three hours).
6. Union Representation Has Reached Historic Lows
One of the most important pieces of New Deal-era legislation was the National Labor Relations Act of 1935, a.k.a. the Wagner Act, which did a lot to advance labor unions in the U.S.: by the mid-1950s, around 35% of America’s labor force was unionized. But according to the Bureau of Labor Statistics (BLS), a mere 11.1% of salaried U.S. workers (factoring in both the public and private sectors) were union members in 2014. Among private-sector workers, the number was a paltry 6.6%. And the decline of unions has been encouraged bad working conditions: according to the Economic Policy Institute, executives at large companies earned, on average, 296 times as much as their average workers in 2013 compared to only 20 times as much in 1965. But as much as labor unions have declined in the U.S., Wisconsin Gov. Scott Walker (a GOP presidential hopeful for 2016) and his fellow Republicans would like to see them decline even more. Walker recently set a disturbing precedent in that state when he supported anti-union legislation that prohibits private-sector unions from requiring members to pay union dues; Walker has, in essence, made Wisconsin a northern “right to work” state. And it’s safe to say that Walker, based on his actions in Wisconsin, would be among the most anti-union presidents in U.S. history.
7. “Too Big to Fail” Is Bigger Than Ever
Unlike many of today’s extreme-right Republicans and neoliberal corporatist Democrats, FDR was not afraid of offending the banking sector. FDR said of the banksters of the 1930s, “They are unanimous in their hate for me, and I welcome their hatred.” One of the New Deal achievements that banksters detested was the Glass-Steagall Act of 1933, which mandated a strict separation of commercial and investment banking and was designed to prevent another major Wall Street calamity like the crash of 1929. Glass-Steagall served the U.S. well for many years: although there were some tough recessions in the mid-1970s, early 1980s and early 1990s, none of them cut as deep as the Great Depression. But the repeal of Glass-Steagall in 1999 was a major blow to the New Deal and paved the way for the crash of September 2008, clearly the most devastating financial event in the U.S. since 1929. Unfortunately, there was no real banking reform after the 2008 calamity, and as Vermont Sen. Bernie Sanders points out, JPMorgan Chase, Bank of America and Wells Fargo are now “80% larger” than they were in 2007. Critics of the banking sector propose bringing back Glass-Steagall, including Reich (who warns that another major Wall Street crash “is not unlikely”) and Massachusetts Sen. Elizabeth Warren. And Sanders has proposed New Deal-like legislation that would break up the U.S.’ largest banks.
8. Medicare, An Expansion of the New Deal, Is a Major GOP Target
Medicare, which established a single-payer health care system for Americans 65 and older, was not part of the New Deal per se: Medicare came into being in 1965 as part of Democratic President Lyndon B. Johnson’s Great Society (which was very much an extension of the New Deal). And the program proved to be so popular that even Republican President Richard Nixon (who was considered an arch-conservative in his day) expanded Medicare in both 1969 and 1972. But these days, far-right GOP wingnuts in the House of Representatives—especially Rep. Paul Ryan, chairman of the House Ways and Means Committee—have repeatedly called for drastic Medicare cuts and for replacing traditional Medicare with a privatized voucher program. In June, a variety of pro-Medicare groups (including the Alliance for Retired Americans and the Medicare Rights Center) sent a joint letter to the House criticizing representatives who wanted to cut $700 million from the Medicare program.
9. Home Ownership Is Becoming Increasingly Difficult for Many Americans, and the Rent Is Too Damn High
Before the New Deal, five-year or 10-year mortgages were the norm in the U.S., and were unaffordable for most Americans. But FDR saw home ownership as a crucial part of building a strong middle class: between the Federal Housing Administration, the Home Owners’ Loan Corporation and the introduction of 30-year fixed-rate mortgages—all of which came about under FDR—home ownership in the U.S. gradually increased. According to the U.S. Census Bureau, home ownership in the U.S. went from 45% in 1920 and 47% in 1930 to 55% in 1950, 61% in 1960 and 62% in 1970. But the Crash of 2008 has been terrible for American homeowners, resulting in countless foreclosures, and banksters have been allowed to acquire and rent out many foreclosed homes. The private equity firm Blackstone Group had, as of late 2013, bought almost 40,000 homes in the U.S. in order to rent them. To make matters worse, all those post-2008 foreclosures have caused rents to skyrocket all over the country. And the more one pays in rent, the harder it is to save for a down payment on a home. To quote Jimmy McMillan, the rent is too damn high.
10. Wingnut Attacks on Food Stamps Never End
The American food stamps program started on a pilot basis under FDR’s secretary of agriculture, Henry A. Wallace, in 1939 but became permanent when LBJ signed the Food Stamp Act of 1964 into law as part of his Great Society. In recent years, the U.S.’ economic decline has been so painful that, according to the U.S. Department of Agriculture, the number of Americans poor enough to quality for food stamps was 46.2 million in 2014 compared to only 17 million in 2000. Food stamps, as envisioned under the New Deal and the Great Society, are designed to be a stepping stone for the poor—and the benefits (which presently average $127.91 per month per person, according to USDA figures) are hardly lavish. But that has not prevented Republicans in Congress from repeatedly proposing dramatic food stamp cuts during the Great Recession. And in Wisconsin, Gov. Scott Walker has been trying to punish and shame food stamp recipients by subjecting them to drug-testing.
Alex Henderson’s work has appeared in the L.A. Weekly, Billboard, Spin, Creem, the Pasadena Weekly and many other publications. Follow him on Twitter @alexvhenderson.
Income inequality in the United States continued to grow in 2014, according to updated figures released last week by University of California, Berkeley economist Emmanuel Saez.
According to Saez’s report, the top one percent of income earners increased their share of total income from 20.1 percent in 2013 to 21.2 in 2014 percent.
The income shares of the highest-earning 10 percent, 1 percent, and 0.1 percent of income earners all grew in 2014. The top ten percent of earners received 49.9 percent of income in 2014, more than any other year besides 2012.
Saez noted that the top 1 percent of earners received 58 percent of income gains during the so-called economic “recovery” between 2009 and 2014. The incomes of the bottom 99 percent grew by just 4.3 percent during that period.
The figures for 2014 mark the first year that real incomes for the bottom 99 percent of earners increased by any significant amount since the 2008 financial crisis. Incomes for the bottom 99 percent grew at a rate of 3.8 percent last year.
Saez wrote that “the incomes of most American families are still far from having recovered from the losses of the Great Recession.” He added that by 2014, the bottom 99 percent of income earners had recovered less than 40 percent of the annual income they had lost during the 2007-2009 recession.
The modest growth in incomes for the bottom 99 percent was dwarfed by the increase in the incomes of the super-rich. The incomes for the top 1 percent of earners grew at a rate of 10.8 percent last year, more than three times faster than the average for the bottom 99 percent.
While the growth of social inequality has dramatically accelerated following the 2008 crash, this is a continuation of a decades-long process. The report notes, “Top 1 percent incomes grew by 80.0% from 1993 to 2014. This implies that top 1 percent incomes captured almost 60% of the overall economic growth of real incomes per family over the period 1993-2014.”
Saez warns that the growth of inequality is not likely to slow down, noting, “Based on the US historical record, falls in income concentration due to economic downturns are temporary unless drastic regulation and tax policy changes are implemented and prevent income concentration from bouncing back. Such policy changes took place after the Great Depression during the New Deal and permanently reduced income concentration until the 1970s.”
He notes, “The policy changes that took place coming out of the Great Recession… are modest relative to the policy changes that took place coming out of the Great Depression. Therefore, it seems unlikely that US income concentration will fall much in the coming years, absent more drastic policy changes.”
In fact, the US government’s response to the 2008 crash has been dedicated to inflating the wealth of the super-rich while driving down incomes for the vast majority of the population. The White House has protected Wall Street executives from legal prosecution, while the Federal Reserve has handed out trillions of dollars in cheap money through “quantitative easing” programs, leading share values to triple on major US exchanges.
Saez notes that a significant contributor to the growth of income inequality has been the growth of the salaries for top earners, particularly top executives. He observes, “The income composition pattern at the very top has changed considerably over the century. The share of wage and salary income has increased sharply from the 1920s to the present, and especially since the 1970s. Therefore, a significant fraction of the surge in top incomes since 1970 is due to an explosion of top wages and salaries.” He adds that, by some estimates, “the share of total wages and salaries earned by the top 1 percent wage income earners has jumped from 5.1 percent in 1970 to 12.4 percent in 2007.”
There are signs that this process is accelerating. The same day that Saez published his report, the Wall Street Journal published a separate survey of executive pay, which found that CEOs at major corporations it surveyed had their pay increase by 13.5 percent in 2014, hitting $13.6 million.
The soaring wealth of the financial elite, driven by surging stock prices and executive pay, is driving demand for luxury goods and housing in major financial centers. Manhattan real estate prices have reached an all time high, with the average home price hitting $1.87 million, according to reports cited by the New York Times Wednesday. The Times noted that real estate developers are scrambling to create enormous multi-million-dollar high-rise apartments, which are being snapped up by members of the financial elite.
Meanwhile, the housing situation for the great majority of the population has only worsened since 2008. Last week a study by Harvard University’s Joint Center For Housing Studies found that the share of the US population that owned a home hit the lowest level in two decades, with the homeownership rate for those aged 35-44 plunging to the lowest level since the 1960s. The report attributed the fall in home ownership to falling incomes for typical US households, noting that median household income in the US remained 8 percent below its level in 2007.
On Thursday, US President Barack Obama plans to unveil what he has called a major new policy initiative in a speech in La Crosse, Wisconsin. The proposal entails new federal rules that would make an additional 3 percent of the US population eligible for overtime pay. If adopted, the change would add a mere $1.3 billion to worker’s wages annually. This is a tiny fraction of the trillions of dollars that have been transferred to the financial elite since the 2008 financial crisis.
To put things in perspective; Obama’s program would transfer less income to working people each year than Facebook CEO Mark Zuckerberg made in a single day last year.
Income inequality in many developed countries has reached an all-time high, according to a report released Thursday by the Organization for Economic Co-operation and Development (OECD). The report also notes that growth of social inequality has been accompanied by the growth of part-time and contingent labor, particularly for younger workers.
The wealthiest tenth of the population in OECD member countries now earn 9.6 times the income of the poorest 10 percent, up from nine times in the 2000s, and seven times in the 1980s.
“Inequality in OECD countries is at its highest since records began,” said OECD Secretary-General Angela Gurria. The OECD is composed of 34 advanced economies, including the United States, members of the European Union, Japan, Korea, Mexico and several others.
The report notes that in 2012, “the bottom 40% owned only 3% of total household wealth in the 18 OECD countries with comparable data. By contrast, the top 10% controlled half of all total household wealth and the wealthiest 1% owned 18%.”
The United States is the fourth most unequal country in the OECD, after Chile, Mexico and Turkey.
In the mid-1980s, the top 10 percent of US income earners took in 11 times more than the bottom 20 percent. This figure rose to 12.5 times in the mid-1990s, but in 2013, the US’s top 10 percent made 19 times more than the bottom 10 percent.
Wealth inequality in the United States is even greater than income inequality. In the US, the top 10 percent controls 76 percent of all the wealth, while the bottom 60 percent owns just 2.5 percent. The top five percent of households in the US have about 91 times more wealth than the average household.
For the OECD countries as a whole, the top 10 percent of the population owns 50 percent of the wealth. The middle 50 percent owns about 47 percent of the wealth, and the bottom 40 percent owns just three percent.
A large portion of this increase in income inequality has occurred in the aftermath of the 2008 financial crisis. According to the report, in the United States, “between 2007 and 2013, net wealth fell on average 2.3 percent, but it fell ten-times more (26 percent) for those at the bottom 20 percent of the distribution.”
Income inequality in the United States is substantially worse than in any other developed country. For instance, while overall household income is 14 percent higher in the US compared to Canada and 25 percent higher compared to Germany and France, the report notes that “the average income of the bottom 10% in the US is 42% lower than in Canada and about 50% lower than in France and Germany.”
The OECD claims that one reason for this difference is that “redistribution through income taxes and cash transfers is considerably lower in the United States than in most other OECD countries.”
The report notes the particular hardship that the lowest-earning sections of the international working class have faced in the past 30 years. In the past three decades “low-income households have not benefited at all from income growth.” For instance, the bottom 10 percent of income earners in the United States lost 3.3 percent of their income since 1985, adjusted for inflation, while the average household income increased by 24 percent.
In Spain and several other countries most severely impacted by the financial crisis, this trend was even sharper. Spain saw the incomes of the poorest 10 percent of the population drop by roughly 13 percent every year between 2007 and 2011.
In addition to a massive growth in income and wealth inequality, the report shows that part-time work, self-employment and temporary contracts have become increasingly prevalent over the past two decades. The OECD notes that “Between 1995 and 2013, more than 50 per cent of all jobs created in OECD countries fell into these categories,” adding, “Low-skilled temporary workers, in particular, have much lower and unstable earnings than permanent workers.”
The OECD notes that young people are the most affected by this turn towards temporary, low-paying work. Forty percent of employed young people in the OECD countries, defined as those aged 18 to 34, do not have full-time regular work.
The OECD report calls on governments to take steps to reduce inequality, declaring that, “In recent decades, the effectiveness of redistribution mechanisms has been weakened in many countries.” It warns that “By not addressing inequality, governments are cutting into the social fabric of their countries and hurting their long-term economic growth.”
The reality, however, is that the growth of social inequality is the deliberate outcome of government policies, whose aim has been the enrichment of the financial oligarchy at the direct expense of the working population. No change in this state of affairs is possible within the framework of the capitalist system, whose essential characteristic is the incessant concentration of wealth at the top of society.
A new report written by scores of progressives economists has laid out an detailed agenda to dismantle, reverse and fix how the laws and policies governing the American economy are rigged to benefit the wealthiest individuals and largest corporations.
The report, “Rewriting The Rules Of The American Economy: An Agenda For Growth and Shared Prosperity,” has just been released by The Roosevelt Institute, where Sen. Elizabeth Warren and New York City Mayor Bill de Blasio joined its chief economist Joseph Stiglitz at its press conference.
“The American economy no longer works for most Americans… What is causing this dysfunction?” the report opens, then answering that question and making dozens of specific law and policy changes, listed below.
“Some point to technological change or globalization,” it said. “Some posit that government has shackled the free enterprise system and hobbled business. Some say that our economy is simply rewarding the risk takers and job creators who have earned the riches coming their way… None of these arguments gets it right.”
“Skyrocketing incomes for the 1 percent and stagnating wages for everyone else are not independent phenomena, but rather two symptoms of an impaired economy that rewards gaming the system more than it does hard work and investment,” it states. “The roots of this dysfunction lie deep in the rules and power dynamics that have prioritized corporate power and short-term gains at the expense of long-term innovation and growth. The outcomes shaped by these rules and power dynamics do not make the economy stronger; indeed, many make it weaker.”
What follows are 37 specific laws and policy changes to restore fairness and balance to the economy without undermining American capitalism.
Fix The Financial Sector
1. End “too big to fail” by imposing additional capital surcharges on systemically risky financial institutions and breaking up firms that cannot produce credible living wills.
2. Better regulate the shadow banking sector.
3. Bring greater transparency to all financial markets by requiring all alternative asset managers to publicly disclose holdings, returns, and fee structures.
4. Reduce credit and debit card fees through improved regulation of card providers and enhanced competition.
5. Enforce existing rules with stricter penalties for companies and corporate officials that break the law.
6. Reform Federal Reserve governance to reduce conflicts of interest and institute more open and accountable elections.
Incentivize Long-Term Business Growth
7. Restructure CEO pay by closing the performance-pay tax loophole and increasing transparency on the size of compensation packages relative to performance and median worker pay and on the dilution as a result of grants of stock options.
8. Enact a financial transaction tax to reduce short-term trading and encourage more productive long-term investment.
9. Empower long-term stakeholders through the tax code, the use of so-called “loyalty shares,” and greater accountability for managers of retirement funds.
Make Markets Competitive
10. Restore balance to intellectual property rights to encourage innovation and entrepreneurship.
11. Restore balance to global trade agreements by ensuring investor protections are not prioritized above protections on the environment and labor, and increasing transparency in the negotiation process.
12. Provide health care cost controls by allowing government bargaining.
13. Expand a variant of chapter 11 bankruptcy to homeowners and student borrowers.
Rebalance The Tax System
14. Raise the top marginal rate by converting all reductions to tax credits and limiting the use of credits.
15. Raise taxes on capital gains and dividends.
16. Encourage U.S. investment by taxing corporations on global income.
17. Tax undesirable behavior such as short-term trading or polluting and eliminate corporate welfare and other tax expenditures that foster inefficiency and inequality.
Make Full Employement The Goal
18. Reform monetary policy to give higher priority to full employment.
19. Reinvigorate public investment to lay the foundation for long-term economic performance and job growth, including by investing in large-scale infrastructure renovation: a 10-year campaign to make the U.S. a world leader in innovation, manufacturing, and jobs.
20. Invest in large-scale infrastructure renovation with a 10-year campaign to make the U.S. a world infrastructure innovation, manufacturing, and jobs leader.
21. Expand public transportation to promote equal access to jobs and opportunity.
22. Strengthen the right to bargain by easing legal barriers to unionization, imposing stricter penalties on illegal anti-union intimidation tactics, and amending laws to reflect the changing workplace.
23. Have government set the standards by attaching strong pro-worker stipulations to its contracts and development subsidies.
24. Increase funding for enforcement and raise penalties for violating labor standards.
25. Raise the nationwide minimum wage and increase the salary threshold for overtime pay.
Expand Access to Labor Markets and Opportunities For Advancement
26. Reform the criminal justice system to reduce incarceration rates and related financial burdens for the poor.
27. Reform immigration law to provide a pathway to citizenship for undocumented workers.
28. Legislate universal paid sick and family leave.
29. Subsidize child care to benefit children and improve women’s workforce participation.
30. Promote pay equity and eliminate legal obstacles that prevent employees from sharing salary information.
31. Protect women’s access to reproductive health services.
Expand Economic Security And Opportunity
32. Invest in young children through child benefits, early education, and universal pre-K.
33. Increase access to higher education by reforming tuition financing, restoring protections to student loans, and adopting universal income-based repayment.
34. Make health care affordable and universal by opening Medicare to all.
35. Expand access to banking services through a postal savings bank.
36. Create a public option for the supply of mortgages.
37. Expand Social Security with a supplemental public investment program modeled on private Individual Retirement Accounts, and raise the payroll cap to increase revenue.