Are We Stuck With Inequality?

| Educate!


THE LATEST study of deepening inequality by three of the most careful scholars of the subject, Thomas Piketty, Emmanuel Saens, and Gabriel Zucman, has prompted another round of shrugs from economists that inequality is just in the nature of the advanced economy.

Supposedly, these inexorable trends reflect technology, globalization, and increasing rewards to more advanced skills. The poor are paid in correct proportion to their contribution to the national product, which, alas, isn’t much.

A close look at political history suggests that this widespread inference is convenient nonsense — convenient to economic elites. In fact, the distribution of income and wealth has bounced around a lot in the past century and a half. It was extreme in the first Gilded Age of the late 19th century, a little less so in the Progressive Era, extreme again in the 1920s, and remarkably egalitarian in the period between the New Deal and the early 1970s — and now extreme again.

Does anyone seriously argue that these shifts reflected changes in technology or skills? No, they reflected changes in the political power to set the ground rules of capitalism. And that’s what should command our attention today.

The remarkable income equality of the postwar boom was built on a political transformation, which in turn allowed a suite of equalizing policies. It had little to do with shifts in the technical structure of the economy.

Most fundamentally, the power of finance was “repressed,” in the phrase of Harvard economists Carmen Reinhart and Kenneth Rogoff, both economically and politically. That in turn weakened both the ability of financial elites to capture such a large share of the total product and to influence the rules of the game. Commercial banks and investment banks were tightly regulated, hedge funds and private equity were minuscule, and there were no complex synthetic financial products to enrich insiders, frustrate ordinary borrowers, or crash the system.

Trade unions were empowered, both by the Wagner Act of 1935, and more importantly by Roosevelt’s policies during the war, which made unions recognized partners in war production, and, by extension, partners in a broader social compact. Before corporations took the gloves off again, there was a brief era in which unions had broad legitimacy.

Unions, in turn, influenced wages, not just of their own members, who were about one-third of the workforce in labor’s heyday during the ’40s and ’50s, but the structure of earnings and the terms of employment generally. Minimum wages were far higher in real terms.

In that era, the terms of globalization, created at the Bretton Woods Conference of 1944, deliberately created rules that allowed trade to expand, but not to destroy national social compacts. Bretton Woods was biased in favor of full-employment economies and against the austerity that is newly fashionable and as perverse as ever.

All of this helps explain why the postwar era was a far more equal one than we have today. But what about skills? Well, the typical worker barely had a high school diploma — many did not — but one income was enough to support home ownership and a middle-class standard of living. Despite low skills, the social compact of that era insisted on greater equality.

But can we ever get that back? Of course we can — the obstacles are political, not economic.

We could have much higher minimum wages. We could stop the union-bashing. We could restore a brand of globalization that promotes rather than undermines national social standards. We could invest massively in a green transition, modeled on the World War II mobilization that reduced unemployment from 14 percent to 2 percent in two years and produced tens of millions of good jobs.

As technology replaces human work, we could also give everyone a share of that new production, the way the Alaska Permanent Fund gives all Alaskans a share of that state’s oil revenues. Any advances created with the help of government — from subsidy of biomedical research to free-riding on the Internet — could be subject to a share-the-wealth levy. Author Peter Barnes is the inspiration for this idea.

Is this broad vision crazy? It is far less crazy than the folly of supply-side economics that is back in fashion, which will only make America more needlessly unequal. Instead of accepting the counsels of despair, we should be reinventing the levers of the more equal economy and society that America once proudly displayed to the world.

  • Dave Constable

    I am sure I have mentioned before that looking at income distribution is okay, but what would really address inequities is looking at property ownership.
    Basically, in capitalism ( as in most other past economies I have read about) chunks of the common wealth are carved out and granted to private ownership for private ownership’s exclusive use. These exclusivity rights are enforced by the state.
    We might consider working harder to maintain what is in our common domain (water, sewage, roadways,…) and increase the amount of property that we include in our common ownership ( from real estate, to patents and intellectual property…especially electronic communications ownership – Pirate Party ,anyone?)

  • Matthew Borenstein

    Let’s turn the banks & corporations into public property, and then we the people, as equal property owners/ partners, democratically manage & operate all our common property together , for our mutual benefit.

  • occupyRUScom

    Believe It or Nay:

    [Competition] for/in the Name of some G_D / Prophet via”RELiGION is the main Culprit in “INequality” on [OUR] space-Ship Earth.

    Therefore; The Necessity to “TAX THE CHURCH”(s)! Else Stay ‘in-Equalized”!

  • DHFabian

    We’ve always had inequality. It’s a core fact of life in a capitalist system. What has changed is that, from Reagan’s deregulation mania to Clinton ending actual welfare aid, we’ve created a poverty crisis. Poverty is one of those things that, if ignored, doesn’t go away. It just grows.

    Not everyone can work (health, etc.) and there aren’t jobs for all. The US shut down/shipped out a huge number of jobs since the 1980s, ended actual welfare in the 1990s. This hasn’t just significantly harmed those pushed into poverty, but has taken a heavy toll on the overall economy, suppressing wages, shrinking tax revenues even as military spending soared. We built an abundant surplus of replacement workers — job-ready people who are desperate for any job at any wage.

    People still sometimes talk about that “failed welfare system.” Our former welfare aid not only saved lives, but enabled the great majority (some 80%) of recipients to have enough financial stability to keep their families together, housed and fed, so that they could quickly get back into the job market. Today, many low wage workers (and we’ve been transitioning to low wage jobs for years) are a single job loss from losing everything, with no way back up. Without a home address, phone, etc., you can’t get a job. You’re out.

    US corporations have gone international, and are no longer dependent on US workers or consumers. The more people in poverty, the fewer the consumer purchases, the fewer products need to be made/sold in the US, the fewer US workers are needed to make those products, the more people in poverty. We looked at those policies and programs that took the US to its height of wealth and productivity (from FDR to Reagan) — far from perfect, but far better — and chose to do the exact opposite.The inevitable happened.

  • DHFabian

    Disagree. America’s religion is capitalism, and the seat of our religion is Wall Street. We have the economic agenda/policies chosen or supported by our middle class. In the US, human worth itself is determined by economic status/usefulness to the corporate state. This is why even liberals have been unconcerned as we stripped our “surplus population” (those not of current use to employers) of the most basic human rights (UN’s UDHR) of food and shelter.

  • DHFabian

    We’ve heard similar ideas. All of this public property would go to middle class workers because, as they point out, “We paid for it!” We would maintain our feudal system, with a slightly less disgruntled bourgeoisie, as we continue to starve out the masses and the nation. This is the issue that is bringing the country itself to its breaking point.

  • DHFabian

    Right, the middle class is all for protecting the advantages of the middle class while disregarding the broader issues that have been ending the US itself. The ONLY idea Americans have had for years is to keep calling for infrastructure jobs, which overwhelmingly go to middle class men with the training to do those jobs. Economically speaking, it’s like putting all your savings into new carpeting while ignoring the fact that the very foundation of your house has been crumbling, and the house will soon come crashing down around you.

  • chetdude

    Socialism, that’s Socialism the greedy bastards will cry!

  • jemcgloin

    Yes, and the Federal Reserve has a policy of raising interest rates if unemployment goes below about 5%, so we have at least 5% unemployment designed into the system.