This piece focuses in turn on the historical severity of the inequality, root causes of the inequality, and then the cancerous effects of the inequality to date and into the future (a four foot rise in sea level could have been included, but it is damn well implicit). All of which is prelude to his laying out the "How-to" plan of the title -- a ten-part model for how we can dig ourselves out of this very sick situation.
This article is a well-crafted paper written for a specific purpose and audience -- for the purpose of spurring understanding, an acute sense of threat and an urge for action among us, the American people.
Paul Krugman's been trying to focus us on the same concerns. In related op-eds ("Now That's Rich", "The Undeserving Rich") expanding on parts of our polarized right-left politics, Krugman drills down into the belief among plutocrats and their political and media idolizers that the rich deserve to hold onto every penny by dint of working ten thousand times harder than the rest of us lazy asses. In fact, the biggest earners in the country basically siphon cash from the system and create neither jobs nor value.
Underneath the Reich article, I'm pasting in a brief report that speaks to the worst of our good old "American exceptionalism" -- i.e., the part of it that reflects our tolerance of such extreme and destructive levels of inequality. It's about a survey showing how we (don't) support families in the costly process of becoming families. The report says that the U.S. ranks with Oman and Papua New Guinea at the bottom of 185 nations surveyed as to maternity benefits and leave.
At the end, Reich says his proposals for reversing inequality can only be realized if WE THE PEOPLE fight for it. The key phrase he uses is "shared prosperity", echoing his earlier point that there is no long-run prosperity when all the goodies go to those who have the capital. Capitalism in the current run-amok version is destroying value across the collective economy, not creating it. His last words in the piece go like this:
"... I know how difficult it is to get anything done unless the broad public understands what’s at stake and actively pushes for reform.
"... we need a movement for shared prosperity—a
movement on a scale similar to the Progressive movement at the turn of the last
century, which fueled the first progressive income tax and antitrust laws; . . .
and other critical legislation.
"Time and again, when the situation demands it,
America has saved capitalism from its own excesses. . . . We will reverse the
trend toward widening inequality eventually. We have no choice. But we must
organize and mobilize in order that it be done."
Economist, professor, author and political commentator Robert Reich. (photo: Richard Morgenstein)
How to Shrink Inequality
By Robert Reich, The Nation
09 May 14
It’s not inevitable. Here are ten practical steps to reverse the growing trend.
ome inequality of income and wealth is inevitable, if not necessary. If
an economy is to function well, people need incentives to work hard and
innovate. The pertinent question is not whether income and wealth inequality is
good or bad. It is at what point do these inequalities become so great as to
pose a serious threat to our economy, our ideal of equal opportunity and our
democracy.
We are near or have already reached that tipping
point. It is incumbent on us to dedicate ourselves to reversing this diabolical
trend. It will not happen automatically, because the dysfunctions of our economy
and politics are not self-correcting when it comes to inequality. In order to
reform the system, we need a political movement for shared prosperity. Herewith,
a short summary of what has happened, why it has happened, how it threatens the
foundations of our society, and what we must do to reverse it.
The data on widening inequality are remarkably and
disturbingly clear. The Congressional Budget Office has found that between 1979
and 2007, the onset of the Great Recession, the gap in income—after federal
taxes and transfer payments—more than tripled between the top 1 percent of the
population and everyone else. The after-tax, after-transfer income of the top 1
percent increased by 275 percent, while it increased less than 40 percent for
the middle three quintiles of the population and only 18 percent for the bottom
quintile.
The gap has continued to widen in the recovery.
According to the Census Bureau, median family and median household incomes have
been falling, adjusted for inflation; while according to the data gathered by my
colleague Emmanuel Saez, the income of the wealthiest 1 percent has soared by 31
percent. In fact, Saez has calculated that 95 percent of all economic gains
since the recovery began have gone to the top 1 percent.
Wealth has become even more concentrated than
income. An April 2013 Pew Research Center report found that from 2009 to 2011,
“the mean net worth of households in the upper 7 percent of wealth distribution
rose by an estimated 28 percent, while the mean net worth of households in the
lower 93 percent dropped by 4 percent.”
This trend is now threatening the three foundation
stones of our society: our economy, our ideal of equal opportunity and our
democracy.
In the United States, consumer spending accounts
for approximately 70 percent of economic activity. If consumers don’t have
adequate purchasing power, businesses have no incentive to expand or hire
additional workers. Because the rich spend a smaller proportion of their incomes
than the middle class and the poor, it stands to reason that as a larger and
larger share of the nation’s total income goes to the top, consumer demand is
dampened. If the middle class is forced to borrow in order to maintain its
standard of living, that dampening may come suddenly—when debt bubbles
burst.
Consider that the two peak years of inequality over
the past century—when the top 1 percent garnered more than 23 percent of total
income—were 1928 and 2007. Each of these periods was preceded by substantial
increases in borrowing, which ended notoriously in the Great Crash of 1929 and
the near-meltdown of 2008.
The anemic recovery we are now experiencing is
directly related to the decline in median household incomes after 2009, coupled
with the inability or unwillingness of consumers to take on additional debt and
of banks to finance that debt—wisely, given the damage wrought by the bursting
debt bubble. We cannot have a growing economy without a growing and buoyant
middle class. We cannot have a growing middle class if almost all of the
economic gains go to the top 1 percent.
Widening inequality also challenges the nation’s
core ideal of equal opportunity, because it hampers upward mobility. High
inequality correlates
with low upward mobility. Studies are not
conclusive because the speed of upward mobility is difficult to measure. But
even under the unrealistic assumption that its velocity is no different today
than it was thirty years ago—that someone born into a poor or lower-middle-class
family today can move upward at the same rate as three decades ago—widening
inequality still hampers upward mobility. That’s simply because the ladder is
far longer now. The distance between its bottom and top rungs, and between every
rung along the way, is far greater. Anyone ascending it at the same speed as
before will necessarily make less progress upward.
In addition, when the middle class is in decline
and median household incomes are dropping, there are fewer possibilities for
upward mobility. A stressed middle class is also less willing to share the
ladder of opportunity with those below it. For this reason, the issue of
widening inequality cannot be separated from the problems of poverty and
diminishing opportunities for those near the bottom. They are one and the
same.
The connection between widening inequality and the
undermining of democracy has long been understood. As former Supreme Court
Justice Louis Brandeis is famously alleged to have said in the early years of
the last century, an era when robber barons dumped sacks of money on
legislators’ desks, “We may have a democracy, or we may have great wealth
concentrated in the hands of a few, but we cannot have both.”
As income and wealth flow upward, political power
follows. Money flowing to political campaigns, lobbyists, think tanks, “expert”
witnesses and media campaigns buys disproportionate influence. With all that
money, no legislative bulwark can be high enough or strong enough to protect the
democratic process.
The threat to our democracy also comes from the
polarization that accompanies high levels of inequality. Partisanship—measured
by some political scientists as the distance between median Republican and
Democratic roll-call votes on key economic issues—almost directly tracks with
the level of inequality. It reached high levels in the first decades of the
twentieth century when inequality soared, and has reached similar levels in
recent years.
When large numbers of Americans are working harder
than ever but getting nowhere, and see most of the economic gains going to a
small group at the top, they suspect the game is rigged. Some of these people
can be persuaded that the culprit is big government; others, that the blame
falls on the wealthy and big corporations. The result is fierce partisanship,
fueled by anti-establishment populism on both the right and the left of the
political spectrum.
Between the end of World War II and the early
1970s, the median wage grew in tandem with productivity. Both roughly doubled in
those years, adjusted for inflation. But after the 1970s, productivity continued
to rise at roughly the same pace as before, while wages began to flatten. In
part, this was due to the twin forces of globalization and labor-replacing
technologies that began to hit the American workforce like strong
winds—accelerating into massive storms in the 1980s and ’90s, and hurricanes
since then.
Containers, satellite communication technologies,
and cargo ships and planes radically reduced the cost of producing goods
anywhere around the globe, thereby eliminating many manufacturing jobs or
putting downward pressure on other wages. Automation, followed by computers,
software, robotics, computer-controlled machine tools and widespread
digitization, further eroded jobs and wages. These forces simultaneously
undermined organized labor. Unionized companies faced increasing competitive
pressures to outsource, automate or move to nonunion states.
These forces didn’t erode all incomes, however. In
fact, they added to the value of complex work done by those who were well
educated, well connected and fortunate enough to have chosen the right
professions. Those lucky few who were perceived to be the most valuable saw
their pay skyrocket.
But that’s only part of the story. Instead of
responding to these gale-force winds with policies designed to upgrade the
skills of Americans, modernize our infrastructure, strengthen our safety net and
adapt the workforce—and pay for much of this with higher taxes on the wealthy—we
did the reverse. We began disinvesting in education, job training and
infrastructure. We began shredding our safety net. We made it harder for many
Americans to join unions. (The decline in unionization directly correlates with
the decline of the portion of income going to the middle class.) And we reduced
taxes on the wealthy.
We also deregulated. Financial deregulation in
particular made finance the most lucrative industry in America, as it had been
in the 1920s. Here again, the parallels between the 1920s and recent years are
striking, reflecting the same pattern of inequality.
Other advanced economies have faced the same
gale-force winds but have not suffered the same inequalities as we have because
they have helped their workforces adapt to the new economic realities—leaving
the United States the most unequal of all advanced nations by far.
What We Must Do
There is no single solution for reversing widening
inequality. French economist Thomas Piketty has shown that rich nations are
moving back toward the large wealth disparities that characterized the late
nineteenth century, as the return on capital exceeds the rate of economic
growth. His monumental book Capital in the Twenty-First Century paints a
troubling picture of societies dominated by a comparative few, whose cumulative
wealth and unearned income overshadow the majority who rely on jobs and earned
income. But our future is not set in stone, and Piketty’s description of past
and current trends need not determine our path in the future. Here are ten
initiatives that could reverse the trends described above:
1) Make work pay. The
fastest-growing categories of work are retail, restaurant (including fast food),
hospital (especially orderlies and staff), hotel, childcare and eldercare. But
these jobs tend to pay very little. A first step toward making work pay is to
raise the federal minimum wage to $15 an hour, pegging it to inflation; abolish
the tipped minimum wage; and expand the Earned Income Tax Credit. No American
who works full time should be in poverty.
2) Unionize low-wage workers. The
rise and fall of the American middle class correlates almost exactly with the
rise and fall of private-sector unions, because unions gave the middle class the
bargaining power it needed to secure a fair share of the gains from economic
growth. We need to reinvigorate unions, beginning with low-wage service
occupations that are sheltered from global competition and from labor-replacing
technologies. Lower-wage Americans deserve more bargaining power.
3) Invest in education. This
investment should extend from early childhood through world-class primary and
secondary schools, affordable public higher education, good technical education
and lifelong learning. Education should not be thought of as a private
investment; it is a public good that helps both individuals and the economy. Yet
for too many Americans, high-quality education is unaffordable and unattainable.
Every American should have an equal opportunity to make the most of herself or
himself. High-quality education should be freely available to all, starting at
the age of 3 and extending through four years of university or technical
education.
4) Invest in infrastructure. Many
working Americans—especially those on the lower rungs of the income ladder—are
hobbled by an obsolete infrastructure that generates long commutes to work,
excessively high home and rental prices, inadequate Internet access,
insufficient power and water sources, and unnecessary environmental degradation.
Every American should have access to an infrastructure suitable to the richest
nation in the world.
5) Pay for these investments with higher
taxes on the wealthy. Between the end of World War II and 1981 (when
the wealthiest were getting paid a far lower share of total national income),
the highest marginal federal income tax rate never fell below 70 percent, and
the effective rate (including tax deductions and credits) hovered around 50
percent. But with Ronald Reagan’s tax cut of 1981, followed by George W. Bush’s
tax cuts of 2001 and 2003, the taxes on top incomes were slashed, and tax
loopholes favoring the wealthy were widened. The implicit promise—sometimes made
explicit—was that the benefits from such cuts would trickle down to the broad
middle class and even to the poor. As I’ve shown, however, nothing trickled
down. At a time in American history when the after-tax incomes of the wealthy
continue to soar, while median household incomes are falling, and when we must
invest far more in education and infrastructure, it seems appropriate to raise
the top marginal tax rate and close tax loopholes that disproportionately favor
the wealthy.
6) Make the payroll tax
progressive. Payroll taxes account for 40 percent of government
revenues, yet they are not nearly as progressive as income taxes. One way to
make the payroll tax more progressive would be to exempt the first $15,000 of
wages and make up the difference by removing the cap on the portion of income
subject to Social Security payroll taxes.
7) Raise the estate tax and eliminate the
“stepped-up basis” for determining capital gains at death. As Piketty
warns, the United States, like other rich nations, could be moving toward an
oligarchy of inherited wealth and away from a meritocracy based on labor income.
The most direct way to reduce the dominance of inherited wealth is to raise the
estate tax by triggering it at $1 million of wealth per person rather than its
current $5.34 million (and thereafter peg those levels to inflation). We should
also eliminate the “stepped-up basis” rule that lets heirs avoid capital gains
taxes on the appreciation of assets that occurred before the death of their
benefactors.
8) Constrain Wall Street. The
financial sector has added to the burdens of the middle class and the poor
through excesses that were the proximate cause of an economic crisis in 2008,
similar to the crisis of 1929. Even though capital requirements have been
tightened and oversight strengthened, the biggest banks are still too big to
fail, jail or curtail—and therefore capable of generating another crisis. The
Glass-Steagall Act, which separated commercial- and investment-banking
functions, should be resurrected in full, and the size of the nation’s biggest
banks should be capped.
9) Give all Americans a share in future
economic gains. The richest 10 percent of Americans own roughly 80
percent of the value of the nation’s capital stock; the richest 1 percent own
about 35 percent. As the returns to capital continue to outpace the returns to
labor, this allocation of ownership further aggravates inequality. Ownership
should be broadened through a plan that would give every newborn American an
“opportunity share” worth, say, $5,000 in a diversified index of stocks and
bonds—which, compounded over time, would be worth considerably more. The share
could be cashed in gradually starting at the age of 18.
10) Get big money out of politics.
Last, but certainly not least, we must limit the political influence of the
great accumulations of wealth that are threatening our democracy and drowning
out the voices of average Americans. The Supreme Court’s 2010 Citizens United
decision must be reversed—either by the Court itself, or by constitutional
amendment. In the meantime, we must move toward the public financing of
elections—for example, with the federal government giving presidential
candidates, as well as House and Senate candidates in general elections, $2 for
every $1 raised from small donors.
It’s doubtful that these and other measures
designed to reverse widening inequality will be enacted anytime soon. Having
served in Washington, I know how difficult it is to get anything done unless the
broad public understands what’s at stake and actively pushes for
reform.
That’s why we need a movement for shared
prosperity—a movement on a scale similar to the Progressive movement at the turn
of the last century, which fueled the first progressive income tax and antitrust
laws; the suffrage movement, which won women the vote; the labor movement, which
helped animate the New Deal and fueled the great prosperity of the first three
decades after World War II; the civil rights movement, which achieved the
landmark Civil Rights and Voting Rights acts; and the environmental movement,
which spawned the National Environmental Policy Act and other critical
legislation.
Time and again, when the situation demands it,
America has saved capitalism from its own excesses. We put ideology aside and do
what’s necessary. No other nation is as fundamentally pragmatic. We will reverse
the trend toward widening inequality eventually. We have no choice. But we must
organize and mobilize in order that it be done.
U.S. lags on paid maternity leave
By John Zarocostas McCLATCHY NEWSPAPERS
GENEVA, Switzerland — The United States is the only Western country — and one of only three in the world — that does not provide some kind of monetary payment to new mothers who have taken maternity leave from their jobs, a new U.N. study reports.
Two countries share the U.S. position of giving “no cash benefits during maternity leave,” said the report, released Tuesday by the International Labor Organization: Oman, an absolute monarchy; and Papua New Guinea, where the State Department says violence against women is so common, 60 percent of men in a U.N. study acknowledged having committed a rape.
The 182 other countries surveyed provide either a Social Security-like government payment to women who have recently given birth or adopted a child, or require employers to continue at least a percentage of the worker’s pay. In 70 countries, paid leave is also provided for fathers, the report said, including Norway, which expanded its paternity leave from 12 to 14 weeks.
The United States also provides for fewer weeks of maternity leave than what other Western countries mandate, the report said.
Under U.S. law, businesses are required to allow a new mother to take as many as 12 weeks of unpaid leave. The report noted five states do mandate paid maternity leave, including New Jersey, which allows up to 18 weeks of partial pay.
Government provides the payments in most of the surveyed countries, the report said, with 107 nations making cash benefits available through social security plans. In 45 countries, benefits are paid solely by employers; in 30 countries employers and social security plans bear the costs.
The International Labor Organization, which has promoted better working conditions since it became the U.N.’s first specialized agency in 1946, said it prefers leave mandates that do not saddle individual companies with costs, saying such requirements hurt businesses and potentially lead to bias against hiring women.
The report held out the prospect that the United States might one day join the rest of the world through proposed legislation to establish a national paid family-leave insurance program for 12 weeks of paid leave. It was introduced in December, but prospects are uncertain.
