On December 16, 2013, Ezra Klein writes on the Wonkblog in The Washington Post:
1) It’s perhaps useful to begin with what I was not saying. I’m not saying inequality isn’t a serious problem. I’m not saying declining social mobility isn’t a serious problem. I’m not saying that the difficulty of finding firm evidence that inequality impedes growth means that inequality doesn’t impede growth. The column is about whether inequality should be seen as the central economic problem of our age. Amidst mass joblessness and weak growth, I’m skeptical.
2) Obviously this whole conversation is moot if inequality is a primary reason for mass joblessness and weak growth. I don’t find the evidence on that score hugely compelling. We’ve had nearly full employment during periods of high inequality (say, 2005) and we’ve had high unemployment during periods of relative equality (say, 1982). The same is true internationally: Some relatively equal countries suffer from extremely high unemployment (Portugal, for instance) while some relatively unequal countries are seeing fast growth and low unemployment (Singapore, say). But Dean Baker at the Center for Economic and Policy Research find this argument more persuasive, and you should read his case.
3) I’m quite convinced, however, that joblessness makes inequality much worse. As former White House economist Jared Bernstein writes, “Over the period when labor markets were tight 2/3′s of the time, incomes grew together. Over the period when labor markets were tight 1/3 of the time, they grew apart.” Here’s the graph:
“Full employment”, I think, probably is the correct rallying cry for this age, and Baker and Bernstein’s free e-book on the topic is something you should read right now. While there are ways to reduce inequality without doing much about employment (say, by taxing the rich and using the proceeds on defense spending), it’s hard to imagine full employment not doing much to reduce inequality.
4) Basically everything I just wrote about full employment applies to median wage stagnation, too. I’m not convinced that the top one percent’s acceleration is the same problem as the stagnation of median income. For one thing, median wage stagnation began in the ’70s, while the top one percent only began pulling away in the mid-’80s. So it’s easy to imagine policies that could “solve” inequality while doing little for median wages. By contrast, I’m much more convinced that median wage stagnation is connected to slack labor markets, and it’s really hard to imagine full employment not boosting median wages.
5) A hypothesis of the column is that worrying about inequality and social mobility is politically easier than worrying about mass joblessness. Inequality at levels we’re seeing today is morally offensive. Declining social mobility is the kind of thing that hedge fund managers feel good worrying about. If that’s right, it creates a political bias toward too much concern over inequality, much as there’s a political bias toward too much concern over the deficit.
6) In this way, my argument is the direct opposite of Third Way’s argument: They think the problem with worrying about inequality is that “nothing would be more disastrous for Democrats.” They’d prefer more focus on the deficit. But inequality is great politics — as you can tell by the number of politicians taking up the banner — and making the deficit your central worry right now is absolutely nuts. (For more on this, read Neera Tanden at New Republic.)
7) Anecdotally, I find that people in politics simply find joblessness, at this point, frustrating and sad. They want to move on from it because they don’t see worrying about it further to be either politically advantageous or obviously productive. Most voters are employed, and there aren’t the votes to do something new about joblessness anyway.
8) Since new measures to combat joblessness or inequality are similarly implausible, it’s fair to ask why this conversation matters at all. One answer I proposed is that it focuses intellectual resources on one problem rather than the other. Krugman replies, “We know how to fight unemployment — not perfectly, but good old basic macroeconomics has worked very well since 2008…The causes of soaring inequality, on the other hand, are more mysterious; so are the channels through which we might reverse this trend.” That’s a good point. In particular, there should be a lot more research on the possible connection between inequality and financial crises.
9) A second point Krugman makes (and that’s also been made by political scientists Jacob Hacker and Paul Pierson) is that inequality is a driving force in our politics, and as such, is a key impediment to better economic policymaking more broadly. On this, I’m more skeptical. The last five years have seen the passage of, among other things, a universal health-care bill that funds itself in large measure by taxing the rich — higher marginal tax rates on the rich, massive expansions and extensions of progressive elements of the tax code, the reelection of the political candidate promising higher taxes on the rich, and so on. Today’s tax code might well be the most progressive since 1979. Inequality was lower in the 1980s, but policymaking was much more regressive.
10) That said, worrying about political inequality leads you to different policy emphases than worrying about income inequality. In particular, massive campaign-finance reform should probably be the top priority if you’re worried about wealthy individuals and corporations buying off our politics. That’s not the direction this conversation seems to be going in here in Washington, though.
11) Within the general rubric of “inequality,” income inequality gets a whole lot more attention than wealth inequality. But wealth inequality is much more concentrated and, in various ways, much more dangerous for the social structure. In particular, it’s wealth inequality that really ossifies social mobility.
The children of the top one percent only occasionally manage to match their parent’s incomes. But they often receive massive inheritances that grow over time, installing them atop the economic ladder and giving them a political reason to fight like hell against progressive tax policies (the Walton family is a good example here). And this kind of inequality doesn’t have any of the salutary benefits of income inequality: Massive inheritances don’t make people work harder. They give them a reason to never work very hard at all, and to try to influence public policy so they never have to work hard in the future, either.
12) All that said, income inequality and social mobility really are startling trends that people should be very worried about and that the political system should be working aggressively to solve, or at least ameliorate. I don’t have many policy disagreements with the folks focusing on inequality. But politics is about prioritization, and what politicians end up doing is in part driven by what problems their political coalitions are most worried about. Next time someone like Jared Bernstein is advising the president of the United States about what her top economic priority should be I’d prefer if the answer was full employment rather than inequality, and I’d prefer if her political advisers agreed.
Full Production and Equal Ownership Opportunity should be the top economic priority!
We will never realize a full-employment society unless we reform the system and break the lock by the present wealthy ownership class that ensures that the FUTURE will continue to be owned by them. Full employment, other than taxpayer extracted and national debt make-work dependency, must rely on real economic growth. And even then it would be a relatively short-run endeavor during the time period it takes to build a FUTURE economy that can support general affluence for EVERY citizen. The technology exists to employ machines, super-automation, robotics, digital computerized operations, etc., which holds the promise of eliminating human toil work and significantly improve production efficiencies as the FUTURE economy is built.
The political maneuvering in Washington is directed at benefiting the wealthy capital ownership class, not the average person on “Main Street.” Such policies as are pursued will further concentrate ownership of wealth-creating, income-producing productive capital assets among the 1 to 5 percent of the American population and further enhance the economic and political power of the wealthy ownership class.
Technological change makes tools, machines, structures, and processes ever more productive while leaving human productiveness largely unchanged (our human abilities are limited by physical strength and brain power––and relatively constant). The technology industry is always changing, evolving and innovating. The result is that primary distribution through the free market economy, whose distributive principle is “to each according to his production,” delivers progressively more market-sourced income to capital owners and progressively less to workers who make their contribution through labor.
Unfortunately, ever since the 1946 passage of the Full Employment Act, economists and politicians formulating national economic policy have beguiled us into believing that economic power is democratically distributed if we have full employment––thus the political focus on job creation and redistribution of wealth rather than on full production and broader capital ownership accumulation. This is manifested in the belief that labor work is the ONLY way to participate in production and earn income. Long ago that was once true because labor provided 95 percent of the input into the production of products and services. But today that is not true. Capital provides not less than 90 to 95 percent of the input. Full employment as the means to distribute income is not achievable. When capital workers (productive capital owners) replace labor workers (non-capital owners) as the principal suppliers of products and services, labor employment alone becomes inadequate. Thus, we are left with government policies that redistribute income in one form or another.
Conventional economist such as Paul Krugman, political leaders and the national media are oblivious to the structural problems that plague our economy, especially with respect to the ways the system further concentrates ownership of wealth-creating, income-producing productive capital assets and growth among the already wealthy ownership class, which represents 1 to 5 percent of the population. With such concentrated economic power, the American majority is barred from participating in the ownership of the non-human factor assets that are doing the bulk of the production of products and services, leaving them with their ONLY income source a job or welfare. Thus they are shut out from a most significant income source to effectively empower them to be “customers with money” and propel economic demand, and thus real growth of the economy.
There is a way out if the Federal Reserve System can be reformed to act as a purveyor of economic growth.
Right now the Federal Reserve creates money by loaning it to banks, who re-loan it multiple times because of fractional banking rules. With Capital Homesteading, money would be created by loaning it directly to citizens via banks at near-zero interest to invest in FUTURE wealth-creating, income-generating (full dividend payout) productive capital assets formed by producer companies. To build real wealth and also phase out our near-defunct social security scheme, the new full-reserve money would go into a long-term retirement account to be invested in dividend-paying, asset-backed shares of corporations. That way, money power would be spread to all citizens. The middle class would be invigorated using the principle of compounding interest, instead of being decimated by mushrooming public and personal debt.
The Federal Reserve could play a more positive role, removing artificial barriers to equal citizen access to acquiring and owning productive capital wealth. By creating asset-backed money for production, supported by growth-oriented tax policies, the Federal Reserve could truly help promote shared prosperity in a market system.
Virtually all the economic gains have pertained to the wealthy ownership class within the top 1 to 5 percent of the population, who own the vast wealth-creating, income-generating productive capital assets of American corporations.
Unless we reform the system inequality will expand and the American people will experience far greater competition globally as teams of people and machines compete to produce and sell their products and services. This means that we must look to increasing the productiveness of technological innovation and invention. The system is rigged by the wealthy ownership class to manipulate the lives of people who struggle with declining labor worker earnings and job opportunities, and then accumulate the bulk of the money through monopolized productive capital ownership. Our scientists, engineers, and executive managers who are not owners themselves, except for those in the highest employed positions, are encouraged to work to destroy employment by making the capital “worker” owner more productive. How much employment can be destroyed by substituting machines for people is a measure of their success––always focused on producing at the lowest cost. Only the people who already own productive capital are the beneficiaries of their work, as they systematically concentrate more and more capital ownership in their stationary 1 to 5 percent ranks.
The reality is that personal and family household income for those who are dependent on a job as their ONLY income source is declining. Wage and salary incomes will continue to decline simultaneously with global competition and, as a result of the necessity to turn to increasingly more productive non-human means of production, destroy jobs that will become unnecessary and devalue the worth of labor.
Full employment is not an objective of businesses. Companies strive to keep labor input and other costs at a minimum in order to maximize profits for the owners. Private sector job creation in numbers that match the pool of people willing and able to work is constantly being eroded by physical productive capital’s ever increasing role. This will not change with companies realizing that they can operate more efficiently with fewer employees. Therefore, unless the employees are owners, the share of corporate profits going to the employees will continue to decline.
The reality is that more and more people are being squeezed financially, faced with dismal job prospects (their only source of income) and on the blink of having to turn to the government for welfare support funded by tax extraction and national debt. Americans, for the most part, are in a mode of retrenchment even though they have tremendous pent-up demand and unfulfilled dreams for a more affluent life, which they see enjoyed by the wealthy ownership class (without realizing that those people are wealthy because they OWN).
