It's no secret income inequality in the United States and even the world is growing and contributing to our current economic problems. Many would argue growth is the answer to bring the staggering economy back to prominence but those in positions to do something to fix the problem are caught up in a battle of ideology. As the Washington Post's Ezra Klein stated recently, Washington is plagued by certain rules. For example, it is a given that Republicans are not going to raise taxes after they signed the pledge to Americans for Tax Reform. So with taxes off the table, how do we approach the problem? Entitlements? Democrats feel strongly about entitlements and are dead set against major cuts to programs such as Social Security and Medicare while the Ryan budget sets to privatize Social Security and turn Medicare into a voucher program.
To make matters worse, the cost of living is rising and wages do not reflect this trend. President Obama tried to address this problem by applying chained CPI to Social Security benefits rather than the standard cost of living adjustment. What chained CPI means for seniors is they will have less money in their pockets because checks are pared-down to spread Social Security funds over a longer period of time to ensure funds do not run out. The foundation of chained CPI is that as costs rise, consumers buy cheaper, but comparably equal goods. This still does not address our problems of inequality and debt in America however. So how does the spending and debt problem get fixed?
A panel of economists gathered in Arlington, Virginia last Thursday to
discuss the problem of income inequality its possible solution. The panel consisted of Hendrick Smith, the Pulitzer Prize winning author of Who Stole the American Dream?, Thea Lee, the Deputy Chief of Staff at AFL-CIO President's Office, Dean Baker, the Co-Director of the Center for Economic and Policy Research, Lori Wallach, the Director of Public Citizen's Global Trade Watch, and Lawrence Mishel, the President at the Economic Policy Institute.
Five major ideas/reforms really resonated with me for curbing income inequality and returning us to pre-Reagan, post-World War II/Cold War years of economic prosperity in which production and wealth was reflected and distributed correctly: American thought, wages/retirement, labor, trade, and financial sector reform. One commonality I was able to pick up on was that this trend of income inequality is a global problem and holds the key to getting the world economy out of this recession and back on the right track. Mr. Smith offered a rather interesting point to the current state of our country citing that the two most successful empires in history - Greece and Rome - were brought down by challenges from within. He stated America is divided and there are two America's, the wealthy, and everyone else. For him, the solution is for Americans to get involved again. Most every member on the panel pointed to the 1940s, 50s, 60s, and 70s (post-World War II/Cold War period) as the prosperous period in terms of economic growth and distribution of wealth. Smith states this period fostered citizen sponsored movements which spurred social change: the women's movement lead to higher wages for women; Ralph Nader and the crusade against GM led to safer cars; and the environmental movement lead to Earth Day and cleaner standards (EPA). After this period, the business lobby became too large. To fight the lobbies, the grassroots needs to rise up again. This American desire was a catalyst to real change. Both Smith and Lawrence Mishel echoed the poor distribution of wealth today in terms of a production to distribution ratio. Mr. Mishel notes we have had the highest profits in 30 years during the recession. How is this possible? He also asks how this wealth is going to be divvied up.
I believe wages are the most important factor in gaining economic equality and have echoed this sentiment for some time. Families cannot survive on minimum wage jobs anymore given the rising costs of goods spurred through globalization. Ms. Lee and Mr. Mishel hit on this hard. Mr. Mishel believes wages are the key to the middle class because the middle class is not poor enough to qualify for government subsidies or programs and they do not collect from capital gains or dividends. For the middle class, wages are the key - the minimum wage must be raised. In the late 1970s, minimum wage was much lower because a large portion
of working individuals did not have high school diplomas. This has changed today with almost
everyone having a high school education and as a matter of fact, many have college degrees which
companies exploit through free work called internships. Lawrence Mishel stated President Obama needs to focus on wages and make that an economic priority. The middle class also depends on stable retirements which Lee laments needs to be provided again. Pensions are being cut which is seriously hurting our middle class. Hendrick Smith mentioned during the prosperous post-World War II/Cold War period, many more companies were offering full healthcare coverage, lifetime pensions, and 401(k)'s. Today, with the corporate take over, these benefits have been cut. Ms. Lee noted this power shift from the poor to multi-national corporations and business - this sprawl from large (middle class) to small (top 1%).
According to Thea Lee, the United States needs another labor movement. In this country, the anit-union, anit-labor sentiment is too great. We must harbor collective bargaining which will contribute to more growth through a greater labor force. Mr. Mishel stated, with the exception of one law, since the 1930s, there have been no laws to help labor unions. The labor force is important and needs to be allowed to thrive.
Trade is another important factor. Lori Wallach strongly opposes trade agreements. In her opinion, these "trade" agreements today set up a loser system for everyone except a small percentage at the top. Since the North American Free Trade Agreement (NAFTA) was established during the Clinton Administration, five million manufacturing jobs have been lost. She states free trade agreements are creating lower wages and a larger corporate governance because jobs are outsourced to countries with no labor or wage standards. She wants to return to the old system with a bottom up approach which gets rid of deregulation. There are too many rules in our current trade system which actually drive prices up in some industries such as pharmacy. She pointed out that the Trans-Pacific Partnership (TPP), which is a major free trade agreement close to being agreed upon by the nations involved, has no labor provisions. Skilled workers are allowed to travel to other nations through for work with easily obtained visas, yet they can be deported at a moment's notice. This is referred to human capital which has been widely used by developed nations in the age of globalization.
Lastly was the issue of financial sector reform. Dean Baker hit on three subjects of financial reform, "Too Big to Fail," private equity, and financial transactions. Mr. Baker does not believe anything has changed since the passage of Dodd-Frank and goes as far as to suggest that Congress would still bailout big banks today if the situation arose again. Big bank subsidies are also way too high and are, in fact, the same size as SNAP or food stamp subsidies. He believes we can function without these big banks because we did so only a decade before. Private equity is also destroying our economy and needs to be eliminated. Private equity finds loopholes in the tax system and gets around bankruptcy laws. Organizations such as Bain Capital are a perfect example of a large private equity firm exploiting the system that small companies have no chance of replicating. Everyone (except these companies) loses money on these transactions and exploitation of the system. Finally, Baker suggests a bill should be proposed to impose a 0.03% tax on buying stocks which would raise billions of dollars in revenue and would have microscopic effects on consumers.
Income inequality is not a new trend but it is getting worse and for the sake of global economic stability, it must be addressed. Dean Baker wrote a book entitled The End of Loser Liberalism in which he clarifies the "Loser Liberalism" term by stating that liberals are not losers, but rather "the system was rigged," which is why they lost. Lawrence Mishel stated he has shifted his thinking regarding the economy, "The economy is not broken, it is working the way it was intended to." This is a profound statement which should inspire change and create growth from the bottom up, not top down. Trickle down economics has had its chance and it has failed. It is time to try something else.