Income inequality has been spiking in the United States particularly, but the industrialized world generally for thirty years, since the rise of Reagan/Thatcher conservatism. This isn’t a coincidence. What follows is my prescription for fixing the mess.
Before the problem of rising poverty and inequality can be addressed, we have to understand the root cause. Trying to fix the symptoms without fixing the root cause will ultimately be a useless exercise in band-aid solutions.
Across the industrialized world, the advent of neo-liberal (or as it is known in the US, neo-conservative) economic and trade policy has directly resulted in a dramatic rise in poverty and income inequality. Every major economy that has implemented so-called “supply-side” economic solutions has seen a concentration of wealth among those already wealthy and stagnation if not decline in the in the wealth of essentially everyone else. The middle class is being hollowed out, and western societies are in the process of reverting to Dickensian social stratification. It has to be understood that neo-conservative policy, and particularly tax and trade policies lie at the root of the problem. Right wing tax policy favours flattening taxation structures, transferring the burden of taxation increasingly from the wealthy and well-off to the the middle and working classes. Right-wing trade policy favours corporations and their interest in the free movement of goods and capital (but importantly not workers) across borders and oceans, providing an impetus and stimulus to the off-shoring of jobs to jurisdictions with lax labour laws and environmental standards while restricting the ability of nation-states to regulate their own economies.
Only once we have this understanding of the causes can we begin to address solutions. The first tier of solutions can be found in a second New Deal. The first step is to correct the errors of right-wing fiscal policy. Not only must what has been torn down in the last thirty years be rebuilt, but more must be added. The process must begin with bringing a proper progressive nature to the tax code. The phrase “from each according to his ability, to each according to his need” may be a cliched old socialist chestnut, but it doesn’t express just a socialist aim, it expresses the general aim of a group of people aiming to live in a caring society. The wealthy across the world, but especially in the United States are getting a ludicrously good deal. They live high on the hog while their low taxes compromise the delivery and very existence of critical social services. So high taxes must be imposed on the wealthy. In the middle of the 20th century, marginal tax rates on the highest income earners reached 90%. That level of taxation isn’t necessary to fix the problem. Restoring a top marginal tax rate of, say, 66% would bring in more than sufficient income. Those who are not wealthy but are well-off must also be asked to pay more. Further, the outrageous loopholes in the tax system must be closed. It is obscene that someone making as much money as Warren Buffet pays less in tax than his secretary. That just shouldn’t be.
The money that is brought in by these tax changes can be used to build a truly effective and sustainable social safety net. A system of at least partially socialized medicine, along the model of France, is a must. A system in which low-income individuals are left at the mercy of the market is not tenable in the long-term. The public must step in. The refusal to properly fund childcare is another problem that must be fixed. A system of childcare and early childhood education has myriad benefits. It prepares children for school, it helps build pro-learning values and can help identify health issues that may impact on ability to learn earlier on, giving every child a fair shake at success in school. Importantly, a properly funded system of childcare makes it easier for parents who would otherwise be delivering childcare to engage in other productive activities (I want to be very clear here that I in no way mean to disparage the value of parenting by stay-at-home parents). This can help build the income of a household and bring the household out of poverty.
Another important piece of the puzzle is reversing the attacks on the rights of workers to unionize and to collectively bargain the terms and conditions of their employment. These rights have been systematically eroded since 1980, and this has been reflected in steadily declining rates of unionization. Unions play an important role in providing workers with the ability to secure their lives. If nothing else, workers gain the guarantee that they will not be fired except for just cause. Unions help build high-wage workplaces that enable families to live in dignity. Along with this must go a reform of more general employment laws to strengthen workplace health and safety protections, raise the minimum wage and protect employees from workplace harassment. All of these contribute to building the stable and secure workforce that will reduce poverty and inequality.
The government must also crack down on anti-competitive and market-manipulating behaviour on the part of business elites. For too long, the market has been gamed to favour those who run companies and banks. A reinvigorated SEC with broadened powers, more prosecutorial staff and an increased budget can make the market substantially more fair for the ordinary person, substantially reducing the “rich get richer, poor get poorer” nature of the market that exists right now.
The government must also stop subsidizing energy companies that are already making fabulous profits. The money spent on doing that should be transferred to industries that will commit to creating and keeping high-wage jobs in the United States. The money being spent on oil, natural gas, coal and ethanol subsidies could be spent on supporting the development of a 21st century manufacturing economy focusing on green energy, nanotechnology applications, biotechnology, etc. These jobs are high-wage and can provide stable and secure employment to Americans, bringing them out of poverty.
These proposals boil down to making sure that people can support and take care of themselves from a single full-time job, and that society in the form of government is there to catch them when they can’t, for example in the case of a health emergency.
But only so much can be accomplished through domestic policy measures. A long, hard, look has got to be taken at trade policy, and making sure that it favours people, not corporate profits. “Free trade” has been focused very much on goods and capital mobility, while deliberately impeding worker mobility. Free trade, in the form NAFTA, the WTO and bilateral FTAs have had the effect of draining jobs out of the US, and other industrialized nations. Critically important is a return to a system of international capital controls, to reduce the absurd power that an abstraction like “the market” wields over government policy. Organizations like the WTO take decisions out of the hands of citizens and place them in the hands of the incestuous corporate-WTO complex that governs world trading relationships. Capital controls make it radically more difficult for capital to flee the country in the face of a tax increase. Where have lax capital controls gotten the US? A situation where US corporations hold $4 trillion in assets outside of the US and will not bring them back to be taxed.
Combining these proposals would work to bring the manufacturing sector back to life, and stop the transition to insecure, temporary and low-wage employment that is encouraged by right-wing fiscal and trade policies. The McJob does nothing real for the worker, and serves only to perpetuate a cycle of poverty and inequality. The US needs a new industrial revolution, bringing green energy manufacturing and other 21st century manufacturing back. An economy must be built on something, and the foundation cannot be the service sector. Ultimately that leads to collapse.
None of the proposals I am advocating here is radical, except in the context where the right wing has moved the “middle” so far to the right that what were mainstream ideas in the 1960s and 1970s, and still are mainstream ideas in Europe, are now considered to be radical and socialistic. On careful reading, I am not proposing any nationalization or seizure of the means of production. What I am advocating is that everyone pay their fare share, and that everyone be given a fair shake. Until the 1980s, this proposal would have fit in with the main of Democratic policy. That it is so far outside it now shows how far the Democrats have strayed from their roots.
The current situation cannot go on. It is the stuff of which revolutions are bred. My proposals may not be the only way, but they are a way that is shown to work, has worked and can work again for the United States. All that is lacking is the political will to try.
