“Too Much Capital In Too Few Hands”: Populist Backlash Will Keep Increasing As Inequality Continues To Rise
Listen to a typical center-left Democrat, and you’ll hear rosy things about the economy. GDP growth is solid, unemployment is low, and even wages are starting to rise. The Clinton campaign and the Democratic Party generally will be touting these achievements even as they focus on issues of structural racism and sexism while offering government support in areas like childcare.
But there’s a big problem: overall, inequality is still rising at an astonishing rate to unprecedented levels:
Financial inequality became even wider in the United States last year, with average income for the top 1% of households surging 7.7% to $1.36 million.
Income for the richest sliver rose twice as fast as it did for the remaining 99% of households, according to an updated analysis of tax data by Emmanuel Saez, an economics professor at the University of California, Berkeley.
It’s true that the 99% is doing better than it has since the 1990s, but the gains are relatively modest. Furthermore, basic cost of living has gone way up, particularly in the areas of tuition and housing. Housing in particular is a major problem driven by inequality itself: with accumulation of capital comes the need for places to store it, and real estate is a popular piggybank for wealthy investors. This in turn drives up the cost of housing, making it more difficult to afford housing in the urban areas where most jobs are located.
The bigger problem is that America already tried the 1990s approach to prosperity, assuming that rising inequality isn’t a problem as long as everyone is doing OK. What does it matter if the rich are getting much much richer, if the fortunes of the poor and the middle class are also improving even if at a slower rate?
The answer is that it’s unsustainable in both the short and long term. Over the long term high rates of inequality shrink the middle class and increase political instability. In the short term, too much capital in too few hands leads to speculative bubbles, that in turn lead to big recessions. Recessions tend to wipe out the wealth of the middle class in a much more devastating way than that of the wealthy who have more ways to protect their money. More importantly, the wealthy recover their position much more quickly as asset values balloon back, but the jobs that sustain the middle class and the poor return more slowly–often at permanently lower wage levels when adjusted for inflation.
Automation and globalization are likely to inexorably drive the trend toward rampant inequality, exacerbated by tax policy designed to protect the wealthy and overgrown financial sector. Merely tackling structural racist and sexist inequalities will do good in their own ways for women and minorities, but they will do little to address the overall problem. Targeted government programs to help citizens with childcare and other needs will help somewhat but won’t do much to fix what’s fundamentally wrong.
Only much more aggressive policies that give workers a greater say in how companies are run to “pre-distribute” wealth, as well as much more progressive graduated tax policies that distribute uneven gains more equitably, will ultimately tilt the balance back toward the middle class where it belongs. Until then, expect to see increasingly virulent strains of populist backlash from both the right and the left until something changes. Incrementalism may be all that is possible politically, but it’s not an answer for the problems that beset us and give rise to anxious backlash. As long as inequality rises, Donald Trump, Brexit and ISIS will be just the beginning of the world’s back-to-basics nativist woes.
People don’t just want the 99% to do better. As the 1% continues to outpace everyone else, a great many people in America and the world actively want the 1% to do worse. And it’s hard to blame them for that sentiment.
By: David Atkins, Political Animal Blog, The Washington Monthly, July 4, 2016
“Definitive Proof Of Failure Of Supply-Side Economics”: Kansas’ Experiment In Right-Wing Economics Is Still Failing Miserably
Every few weeks I feel it’s important to return to the ongoing disaster in Sam Brownback’s Kansas. It doesn’t get nearly as much play as it should in the media, which is unfortunate because Kansas’ experience is definitive proof of the failure of supply-side, Laffer-curve-based economic theory.
Under the leadership of Brownback and one of the most conservative legislatures in America, Kansas dramatically slashed the tax rates of Kansas’ wealthy and its corporations. According to ideology, the cuts should have jumpstarted Kansas’ economy and led to rapid growth that created jobs and helped the tax cuts pay for themselves. Of course, nothing of the sort happened.
The effect was disastrous, a slow-rolling series of budget shortfalls followed by cuts to essential services like education and roads, which only slowed the economy further. A series of punitive and regressive sin taxes on tobacco and other goods were instituted to make up for the cuts to the tax rates of the wealthy, which of course only further undermined consumer spending.
Officials in Kansas have tried to blame the problems on a slow national economy, but that is hogwash. Say what you will about the unequal distribution in gains from national economic growth, there is no doubt that the national economy is performing well by traditional metrics. It is not doing so in Kansas. Moreover, Kansas’ neighboring states are doing far better than it is.
It’s not local economic variations. Kansas’ troubles really are directly the fault of its tax cuts. They didn’t boost the economy–they slowed it down.
And now Kansans are paying the price. Even more cuts are coming, including devastating cuts to road maintenance through thefts from its already plundered Department of Transportation. These cuts to transportation (totaling over $2 billion in a small state!) are leading to deferred maintenance that will, of course, be incredibly expensive to deal with at a time when borrowing costs will likely be far higher than they are now.
This is on top of the damage Brownback is already doing to the state’s K-12 and university education systems, causing good teachers and professors to flee to more hospitable states. It’s a complete disaster.
The nation’s eyes should be trained on Kansas. This is what happens when you put Republicans in charge with the freedom to pursue their economic ideology. It’s not just a moral train wreck in terms of inequality and shared prosperity. It doesn’t even work to keep the lights on and make the trains run on time. Conservative economic orthodoxy is completely dysfunctional for running governments and society because it’s built on assumptions that aren’t true: rich people don’t create jobs, cutting their taxes doesn’t stimulate growth, cutting government services doesn’t “free up” capital to be spent on private sector growth, etc. What actually happens is that the rich simply hoard more money, corporations build up savings in their balance sheets, government cuts damage public confidence and infrastructure, and regular people don’t have as much money to spend, which dries up the consumer confidence and spending that is the real driver of job and economic growth.
By: David Atkins, Political Animal Blog, The Washington Monthly, July 3, 2016
Florida Gov. Rick Scott went to California last week to steal some jobs.
Guess how that brilliant idea turned out.
Scott urged California businesses to pack up and move to Florida because the minimum wage in Florida is only $8.05 an hour.
That was actually the thrust of his selling point: Why are you paying your workers $10 an hour? Floridians will work dirt cheap!
Scott spent lots of taxpayer money to carry this dubious offer to the Golden State, where it went over like a lead balloon.
In a caustic retort, Gov. Jerry Brown wrote: “If you’re truly serious about Florida’s economic well-being, it’s time to stop the silly political stunts and start doing something about climate change — two words you won’t even let state officials say.”
A Los Angeles Times editorial called Scott’s California trip “especially offensive.” It said he “should be home in Florida … trying to create well-paying jobs, instead of trolling for low-wage ones that he can steal in California, undermining this state’s effort to pay a living wage to more of its low-skilled workers.”
The impetus for Scott’s trip was California’s decision to raises its minimum wage to $15 per hour over the next six years. Scott says the wage hike will cost the state 700,000 jobs, a figure he got from a conservative think tank that didn’t even use California jobs data.
Meanwhile, a study by the Labor Center at the University of California-Berkeley predicted no net job loss in Los Angeles as a result of the state’s phased-in pay increases.
In Florida, we’re used to Scott’s obsession with job numbers instead of quality jobs. It will be the centerpiece of his U.S. Senate run in 2018, by which time we might lead the nation in convenience-store openings.
Last week’s “trade mission” to California was Scott’s second. His first try came in March 2015, and since then California employers have added twice as many new jobs as Florida employers have.
So, that trip didn’t work out so great, either.
Unfortunately for Scott, California’s economy is booming right now.
Although the unemployment rate is higher than in Florida, there is no corporate exodus. Ironically, census figures from 2014 indicate that more Florida residents are moving to California than going the other direction.
Florida is an easier sell to multimillionaires looking to relocate in a state with no income tax. That’s undoubtedly one of the reasons that Scott himself moved to Florida in 2003.
However, Florida isn’t so alluring to firms looking for a skilled and educated labor force. That’s because the state still spends an embarrassingly paltry amount on its schools.
According to the National Education Association, the average salary of public teachers in Florida in 2013-2014 was $47,780. That’s 39th in the country, worse than even Alabama or Louisiana.
In California, the average teacher salary that year was $71,396.
Now, if you’re on the board of Apple or Microsoft, where do you think your employees with school-age children would rather live?
It’s bad enough that Scott flies around the country bragging about Florida’s pathetically low wages, but he’s using public money to run radio commercials in other states, beseeching companies to close up shop and move to Florida.
Which would basically screw all the working people on their payrolls.
The governor’s job-poaching junkets are, as the Los Angeles Times said, offensive. But his mission is futile, and his lack of sophistication is breathtaking.
Scott puts the “goober” in gubernatorial.
In March, he invited Yale University to leave its iconic Connecticut campus and resettle in Florida, to avoid state taxes on its endowment fund.
That would be Yale University, founded in 1701. A perfect fit for Boca Raton, right? Or maybe Yeehaw Junction?
Whether Scott was serious or not (he insisted he was), he came off looking like a dolt. They’re still laughing at him (and us) in New Haven.
Out of courtesy to his GOP colleagues, Scott focuses his job-stealing raids on states with Democratic governors. There’s nothing for them to be afraid of, no manic stampede of companies — or Ivy League universities — to the Sunshine State.
All we Floridians can do is apologize to the rest of the country for any past and future appearances by our weird ambassador for cheap labor and mediocrity.
Don’t take him seriously. We certainly don’t.
By: Carl Hiaasen, Columnist for The Miami Herald; The National Memo, May 10, 2016
On economics, that is. On other issues — well, who was worse, Mussolini or Torquemada? Decisions, decisions.
But on economics, Trump is a big protectionist, while Cruz is a devotee of the gold standard. And we know quite a lot about what these policies would do.
Protectionism makes economies less efficient, but it does not, in general, destroy jobs. Put a tariff on imports and people will spend less on imports — but they will normally spend more on other things instead. So a worldwide turn toward protectionism would both reduce everyone’s exports and reduce their imports, with the overall effect on spending and hence on employment more or less a wash.
Yes, I know there’s a Moody’s study claiming that Trumponomics would be a yuuge job destroyer, but I really don’t know where they got that result; the best guess seems to be that they’re assuming that former spending on imports just goes away, which is not a good assumption.
And no, protectionism didn’t cause the Great Depression. It was a consequence, not a cause — and much less severe in countries that had the good sense to leave the gold standard.
Which brings us to Cruz, who is enthusiastic about the gold standard — which did play a major role in spreading the Depression.
The problem with gold is, first of all, that it removes flexibility. Given an adverse shock to demand, it rules out any offsetting loosening of monetary policy.
Worse, relying on gold can easily have the effect of forcing a tightening of monetary policy at precisely the wrong moment. In a crisis, people get worried about banks and seek cash, increasing the demand for monetary base — but you can’t expand the monetary base to meet this demand, because it’s tied to gold. On top of that, a slump drives interest rates down, increasing the demand for real assets perceived as safe — like gold — which is why gold prices rose after the 2008 crisis. But if you’re on a gold standard, nominal gold prices can’t rise; the only way real prices can rise is a fall in the prices of everything else. Hello, deflation!
So on economics, again, Trump is ignorant and unpredictable — but Cruz knows what isn’t so, and would lead us to predictably dire results.
By: Paul Krugman, The Conscience of a Liberal, Opinion Pages; The New York Times, April 8, 2016