Equitable Wealth = Equitable Growth

 Answering the Kennedys’ Call

Equitablegrowth.com

We must cure the record income inequality if we are to re-unite the United States into a country that serves Americans in both red and blue states.

The current disunity is a result of whole swaths of the country losing out on economic opportunity. Our modern, tech-based capitalism has raced ahead, rewarding those that can keep up.

The wealth is distributed in a highly unequal fashion, says the Center for Equitable Growth, a progressive think tank, with the wealthiest 1 percent of families in the United States holding about 40 percent of all wealth and the bottom 90 percent of families holding less than one-quarter of all wealth.

The result has been that the top 20 percent of America’s educated class are winning the race with educational opportunities that have enabled them to take advantage of modern technologies.

And what happens to people who feel left behind—in education, good jobs, and adequate housing? They find a way to protest, and Donald Trump became their voice of protest.

They protest against immigrants because they believe their jobs have been stolen. They protest against open borders because they see those jobs fleeing to other countries with cheaper wages.

They are so angry they will believe any theory confirming their suspicions that the educated elites with the best jobs are abridging their freedoms.

That is why President Biden’s plan to return US to full employment by the end of 2022 is so important.

The just passed $1.9 trillion American Rescue Plan will boost benefits of lower and middle income consumers, raising incomes for the poorest 20 percent of families by an average of 20 percent, according to the Tax Policy Center's analysis, and create 7 million jobs by the end of 2021 while top earners would see their income rise less than 1 percent, according to the CBO.

The proposed $2 trillion plus infrastructure bill will create more good jobs by requiring the development of universal broadband, such as 5G networks that China is already building on a grand scale, a major issue in rural communities.

Documents suggest it will also include nearly $1 trillion in spending on the construction of roads, bridges, rail lines, ports, electric vehicle charging stations, and improvements to the electric grid and other parts of the power sector, all requiring higher paying jobs.

“I think a package that consists of investments in people, investments in infrastructure, will help to create good jobs in the American economy,” testified Treasury Secretary Janet Yellen in congressional hearings recently, “and changes in the tax structure will help to pay for those programs (and also reduce income inequality).”

The investments in people is even more important to lift the spirits of the 13 million that still have no jobs or would like full time jobs, including greater access to Obamacare and Medicaid, aid that the Trump administration had been drastically reducing.

Bringing back trust in government will do the most to boost public spirits. And that means spending on programs that make life easier for most Americans.

There is no easy path to a greater equality of opportunity in the richest country in the world, because we must first restore our faith in each other with programs that benefit all Americans.

Harlan Green © 2021

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Why Has It Taken So Long?

The latest Federal Reserve press releases—firstly, the minutes of last FOMC meeting, and also its reduced projections of expected inflation—tell us the Fed is still in austerity mode, due to a fear of non-existent inflation.  And it is that unjustified fear that puts the brake on growth, since even the fear that the Fed will tighten credit conditions via its control of short term interest rates affects business investment.

Graph: Marketwatch

The just released FOMC minutes reveals there was hardly a consensus in raising the Fed Funds rate to 0.5 percent from 0.25 percent.  Why?  Because many of the Fed Governors don’t believe inflation will rise at all this year from the present 1.3 percent annual Personal Consumption Expenditure index rate it favors.

This is while Nobelist Joseph Stiglitz has been decrying the lack of concern over the slow recovery from the Great Recession; lest we forget has grown more slowly than during the Great Depression.  And the Fed hasn’t been as proactive as I could be.

But what can duplicate the conditions that led to President Roosevelt and the New Deal programs (which were created by a woman, Labor Secretary Francis Perkins, by the way) that gave enough benefits to workers and trade unions so they could ultimately negotiate for a living wage and working conditions?

“In early 2010, I warned in my book Freefall, which describes the events leading up to the Great Recession, that without the appropriate responses, the world risked sliding into what I called a Great Malaise,” said Stiglitz. “Unfortunately, I was right: We didn’t do what was needed, and we have ended up precisely where I feared we would.”
            We needed another New Deal, in other words, but there was neither a Roosevelt with the experience and political savvy to push through the job creation programs of the 1930s, nor such a loss of faith in capitalism that prevailed then.  Let’s not forget that Herbert Hoover lost his job precisely because private industry ran for the exits, refusing to create jobs, so government job programs such as the CCC, and WPA employed those millions left jobless and became the bulwark that saved the US economy during that time.

Now we sadly have history repeating itself.  “The economics of this inertia is easy to understand,” continues Stiglitz, “and there are readily available remedies. The world faces a deficiency of aggregate demand, brought on by a combination of growing inequality and a mindless wave of fiscal austerity. Those at the top spend far less than those at the bottom, so that as money moves up, demand goes down. And countries like Germany that consistently maintain external surpluses are contributing significantly to the key problem of insufficient global demand.”
            History has repeated itself in several ways.  Income inequality was this high in 1929, as well as a stock market bubble.  A six-year drought in the Midwest created the Dust Bowl, and made millions homeless.  And credit was too easy then as well and consumers overspent, believing that stock values would never fall. 

John Steinbeck described those times the best in A Primer on the '30s' by John Steinbeck, 1960, pgs. 17-31: “I remember the Nineteen Thirties, the terrible, troubled, triumphant, surging Thirties. ... I remember '29 very well ... the drugged and happy faces of people who built paper fortunes on stocks they couldn't possibly have paid for. ... In our little town bank presidents and track workers rushed to pay phones to call brokers. Everyone was a broker, more or less. At lunch hour, store clerks and stenographers munched sandwiches while they watched stock boards and calculated their pyramiding fortunes. Their eyes had the look you see around a roulette wheel ...”

Why is it important that we remember those times?  Why is it so important to learn from history, you say?  Because the Great Depression led to WWII in direct ways.  Hitler rose out of a Germany shamed by its failed economy, and so chose dictatorship.

“[I]n the Thirties when Hitler was successful,” continued Steinbeck, “when Mussolini made the trains run on time, a spate of would-be Czars began to rise. Gerald L.K. Smith, Father Coughlin, Huey Long, Townsend - each one with plans to use the unrest and confusion and hatred as the material for personal power.”

And today we have blatantly racist Republican presidential candidates like Donald Trump and Senator Ted Cruz doing the same. 

Professor Stiglitz says we know what to do: “…some of the world’s most important problems will require government investment. Such outlays are needed in infrastructure, education, technology, the environment, and facilitating the structural transformations that are needed in every corner of the earth.

Therefore, “The obstacles the global economy faces are not rooted in economics, but in politics and ideology. The private sector created the inequality and environmental degradation with which we must now reckon. Markets won’t be able to solve these and other critical problems that they have created, or restore prosperity, on their own. Active government policies are needed.”

There is a price we pay for ignoring the lessons of history, in other words. 

Harlan Green © 2016

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Why Does Bernie Love Denmark?

Presidential candidate Bernie Sanders is breathing fire on the campaign trail these days, including his most recent campaign speech that advocated the breakup of too-big-to fail banks.  "We will no longer tolerate an economy and a political system that has been rigged by Wall Street to benefit the wealthiest Americans in this country at the expense of everyone else," said Sanders.

Then why does Senator Bernie Sanders love Denmark, and has been mentioning it and the other Scandinavian countries as ideal models for a developed country, one he would like the U.S. to emulate?

“In Denmark, social policy in areas like health care, child care, education and protecting the unemployed are part of a "solidarity system" that makes sure that almost no one falls into economic despair,” he said in a 2015 Huffington Post article. “Danes pay very high taxes, but in return enjoy a quality of life that many Americans would find hard to believe.”

 A recent Center For Economic Policy and Research report highlighted the differences between Nordic countries and the United States.  The differences are mainly because of their superior social safety nets.

           
For instance, the U.S. has the lowest average longevity at 78.8 years, vs. Denmark’s 80 years, while citizens of Iceland and Sweden live 82 years.  Do their colder climates have something to do with it?  No, more likely is the fact that they have to work fewer hours for almost the same income, with better health, educational and retirement outcomes.

  

It’s well-known that U.S. health care costs are double that of all other developed countries, as are infant mortality rates, while homicide rates are more than double of any other developed country.  We know, for instance, there are more than 32,000 gun deaths per year in the U.S., with the majority due to suicides—which also tells us the mental toll that comes with an inadequate social safety net that doesn’t support its citizens.

So it should be no surprise the U.S. has the highest income developed world, before and after taxes and transfers. The higher the Gini Coefficient number portrayed in the graph, the higher the inequality.  With the exception of the United States, there is a perfect correlation between market inequality and the role of fiscal policy in reducing inequality.

That is to say, western capitalist-oriented economies generate profits that go to the major wealth holders, so fiscal policies need to rebalance this effect.  And that is what the Nordic countries in particular, do so well.  “Countries with greater levels of market income inequality are more proactive at reducing inequality through their tax and spending systems,” says the CEPR.

Then why is there opposition in our Congress, particularly, to U.S. citizens having the same benefits as other developed countries, when we are supposed to be the richest country in the world?  It’s the successful opposition to higher taxes by the wealthiest among US.  The wealthiest have succeeded in reducing their taxes and tax rates since President Reagan, the first ultra-conservative Republican president.

The result is ugly—and shows the U.S. is not the land of opportunity for many Americans.  Instead, we have the result of a largely unregulated financial system--higher death rates, violent crime and incarceration rates, as well as inadequately funded health care, retirement, and educational systems. 

 

Harlan Green © 2016

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen