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ON the ECONOMICS and POLITICS OF INEQUALITY
The brouhaha over Republican
Governor Scott Walkers so-called campaign to destroy collective bargaining
(and thereby, some claim, unionism itelf) has also been billed as the opening
shot of the 2012 (Presidential) campaign. These attitudes reflect the usual
politics of the moment -- the chronic short-term-it-is of the political class.
The real, long-term significance of the
This is a time-bomb of an
issue, one that has been ticking for years. The urgency of it has been brought
home with a vengeance by the now-named, still lingering Great Recession (GR).
For the failure to see a rate of recovery anywhere near those of the rapid
rates following previous recessions has finally driven home what economists and
others have observed for many years -- two prime facets of what we used to call
our economy [as we like to think of our politics and our government] --
(1) the stagnation of middle-class wages and salaries; and (2) a steadily,
increasing inequality of income and wealth. The latter has been so striking --
with over 34% % of wealth now owned by the top 1% of American households --
that it has put one of the most vaunted features of American exceptionalism -- equality
of opportunity -- open to question. As the editors of N+1 recently
noted: Class mobility in the
In the past, those with lower levels of wealth had a significant chance of getting rich; now, the odds are much less. This fact has been obscured by news accounts of many big businesses going out of business and many rich folks losing their shirts. Consider, however: From 1972 - 2001, median personal income was stagnant, while the income of the top 10% rose 34%; the top 1%, 87%; the top 0.1%, 181%; and the top 0.01%, 497%.
Despite our economy being mired in the deepest recession since the 1930s, people in the top 1% continue to own as much wealth as those in the bottom 90%.<![if !supportFootnotes]><![endif]>
Meanwhile, the news have not overlooked another consequence of the GR -- Immiseration of the Middle Class. This is not only a factor in the growing inequality; it is also due to several factors that further aggravate inequality. Most important are:
<![if !supportLists]>Ä <![endif]>Skewness in the growth shares of rising productivity. These have been appropriated, not necessarily earned, by those who occupy the upper reaches of our society in terms of power and money.
<![if !supportLists]>Ä <![endif]>A growing gap between financial and real growth, as revealed by the most recent bubble in our economy, the bursting of which led to the destruction of over 40% of the wealth of the middle class.
<![if !supportLists]>Ä <![endif]>Loss of manufacturing jobs to a significantly greater
extent than the gradual, long-term negative trends that have affected
Whats most important to recognize in the above is that these economic factors and consequences are not simply economic; they have been and are influenced significantly by government policies, laws and regulations. For example, the legal foundations of corporate governance influence the distribution of productivity and profits. Financial bubbles were encouraged by Federal Reserve policies and lack of governmental oversight. Loss of manufacturing jobs was aggravated by government policy, starting with a pro-financial sector federal government policy declaration of 1980 and federal failure to confront the rising threat of worldwide competition from Chinese manufacturing.
Another basic fact has also surfaced for all to see: The increasingly incestuous relationship between big business and big government [BB/BG] -- more generally, the increasing connection(s) between politics and economics. Not the only, but the primary, factor at work here is the growing dependence of big government upon big money through campaign contributions and well-financed lobbyists. Campaign finance reform (CFR) has failed. It never affected lobbying, anyway,As a result, Congressional legislators have had to spend increasing amounts of time dialing for dollars to raise a minimum of $10,000 a week for their reelection campaigns.
The BB/BG connection, in turn, also surfaced for all to see as the federal government used TARP and Stimulus funds to bail out the big boys. They then proceeded [how un-gratefully!] to employ cheap federal money to trade in the financial markets and provide big bonuses to already overpaid financial executives rather than lend money to entrepreneurs and productive enterprises. Federal government interventions also served to increase consolidation in the banking sector. This further increased the market power of the big boys. Altogether, however, these developments gave rise to the Tea Party movement -- a new, trend-breaking and potentially countervailing source of power. In the past, the rise of big money had been one of the factors discouraging peoples participation in politics. Not so this time.
Potentially and countervailing
are words to reflect upon if the great American Middle Class is to be restored
and the un-American rise in inequality arrested.
As jazz pianist Les McCann sang in 1978, Lets make It real
compared to what?.
We cant do so if we cant recognize reality. Two major weaknesses in the Tea
Party approach to change are tendencies to exalt the market and denigrate
government. Both fail to see whats real in both worlds and how they
interconnect. The Tea Party does right to fight the power of a bloated central
government. But what about the rising power of huge financial and
multi-national firms in the marketplace? And how is such power to be countered,
if not by selective, judicious applications of the lawful power of
democratically elected governments? Where do the allegiances of huge,
multinational corporations lie when more than 50% of their revenues come from
The full extent of both diagnosis and prescription to restore equal opportunity and the middle class are beyond the scope of this brief piece. Some types of initiatives to consider, though, include:
<![if !supportLists]>v <![endif]>Entrepreneurship: There needs to be a much greater promotion, education, training and other support for Be Your Own Boss. Most of the 8 million jobs lost during the Great Recession will never be replaced unless a significant portion of the long-term unemployed are encouraged and enabled to create their own job(s).
<![if !supportLists]>v <![endif]>Tax reform: Redefine the basic terms in our economys tax code -- consumption, savings, investment (&c) -- and define a new one: hoarding.<![if !supportFootnotes]><![endif]> Substitute a consumption tax for the income tax and discourage hoarding. Tax capital gains at high rates that arise from either short term or unproductive investments. Give favorable tax treatment to productive, long-term (greater than 5 years) investments and to investment in new or early-stage (less than 5 years old) enterprises. If a consumption tax system cannot be devised to avoid regressivity, a supplemental progressive tax on those with high incomes may have to be considered.
<![if !supportLists]>v <![endif]>Investment: Change law and regulation to -- (a) Encourage community banking; (b) Break up the large, too big to fail banks into smaller units; (c) Enable community investment in new or local enterprises; and (d) Encourage investment in new or early-stage businesses (as above, and perhaps other ways as well).
<![if !supportLists]>v <![endif]>Manufacturing:
Levy or increase tariffs on foreign imports to the extent their producers are
subsidized by state policies. Cut incentives for firms to move plants overseas.
Provide incentives to encourage firms investment in
<![if !supportLists]>v <![endif]>Campaign finance: Reform the reform so as to value contributions of peoples time much more than donations of big money. See Bearse, Peter (2004), WE THE PEOPLE: A Conservative Populism, for more.<![if !supportFootnotes]><![endif]>
As the latter suggests and the Tea Party movement has demonstrated, the only real hope to turn our country around lies with We the People. To the extent that people continue to wake up and recognize that they have to get involved to take our country back, theres a real chance that we can do so. Otherwise, all bets are off and fulfillment of the American Dream will be in danger.
PETER BEARSE, Ph.D., International Consulting Economist and 2010 Republican Candidate for Congress in NH CD 1. Feedback and critical remarks would be welcomed to firstname.lastname@example.org.
<![if !supportFootnotes]><![endif]> In an article Revolt of the Elites, 12 January, 2011. Also see Chistopher Laschs 1994 book of the same name.
<![if !supportFootnotes]><![endif]> Quoted from www.faireconomy.org. Also see: www.faculty.fairfield.edu/faculty/hodgson/courses/so11/stratification/income&wealth.htm for tables and graphs of relevant statistics.
<![if !supportFootnotes]><![endif]> These suggestions owe to my colleague, Carmine Gorga, Ph.D., by way of recent conversations and reading his 2010paper On the Development of a Concordian Economics. Gorga can be contacted via email@example.com.
<![if !supportFootnotes]><![endif]> Since the publisher, Alpha Publishers, Inc., has
since gone out of business, copies can be obtained directly from the author for
$10 each plus $5 for shipping and handling from