John Buell

Time to Get Serious About Inequality

Will President Obama truly attack inequality? Requiring a higher minimum wage in new federal contracts is a step — albeit minimal and largely symbolic — in the right direction but will hardly address the longer- term causes of inequality. These include not only chronic underemployment, but also the near strangulation that growth of the financial sector has imposed on the economy. Add to that the role that big money — often dark — has played in reinforcing these trends while in the process entrenching its own power. Inequality became locked into the very structure of the political economy.

Conservatives often maintain that income inequality reflects the difference in skills and in the demand for those skills. Inequality is in short a micro-economic phenomenon, just like the situation in which a drought in California drives the price of oranges up. If technology and globalization drive down the demand for unskilled labor and increase demand for skilled workers, we would expect the income gap between these subsets to grow. Yet as James Galbraith points out, in the last thirty years the income gap both within most major industrial societies — all having different skill sets — has grown. And in the US case, despite substantial gains in productivity over the last generation, US labor as a whole has just seen its wages stagnate. Such a trend itself runs counter to the classical economic understanding that wages are pegged to worker productivity.

If these trends cannot be understood simply in classical micro terms, what worldwide forces are in play? Conservatives often maintain that income inequality fosters economic growth. Inequalities create an incentive for workers to work hard and provide economic surpluses for the wealthy to invest, spurring growth for all. Yet however compelling that argument may seem on paper, US economic growth in the twenty five years after WWII had a very different foundation. Generally high levels of employment, and worker incomes that kept pace with productivity growth created the consumer demand that sustained steady economic growth.

That golden age of US capitalism did, however, contain a number of fatal flaws. At least in the major industries such as auto and steel, unions had won the right to regular productivity based wage increases but control of the workplace remained contested. In addition, US prosperity had depended on both economic development of the former enemies, Germany and Japan as well as on cheap petroleum. In the late sixties all the tensions and imperfections in those arrangements came home to roost, both in balance of trade issues, a costly war, and labor turmoil.

In addition, sectors of corporate capital had never fully accepted the compromise with labor. When the caldron of OPEC, war, and growing wage demands produced the unexpected — a rare combination of unemployment and inflation — they took the offensive. And their cue was a set of doctrines being hatched in conservative think tanks. Ideas matter, especially in a period of crisis.

From the early seventies on major industrial democracies — including even the Scandinavian welfare states, have witnessed sustained attacks on the rights of unions, demands for more “flexible” labor markets, trade treaties that protect investors, privatization of state services, vouchers for primary and secondary education, and capital mobility and banking deregulation.

Galbraith points out that finance in effect came to play the role of economic stimulator that unions and public sector infrastructure spending had once played. But this neoliberal agenda came with a great cost. “In 1980, we really went through a fundamental transformation. We stopped being a wage-led economy with a growing public sector that was providing new services. Programs like Medicare and Medicaid were major drivers of growth in the 1970s. Instead, we became a credit-driven economy. What the evidence in the US shows is that the rise in inequality is associated with credit booms, which are often periods of sometimes great prosperity.

One was in the late 1990s with information technology and one in the 2000s with housing, before everything fell apart. But this is also a sign of instability — the crash that follows is very ugly business. If we’re going to go forward with growth on a more sustainable basis, then controlling inequality and controlling instability are the same issue. One is an expression of the other.”

Unfortunately so far Obama has shown little interest in controlling this fundamental leg of the inequality crisis. And not surprisingly. Democrats have become as dependent upon money from the financial sector as Republicans. Support for banking deregulation gave Democrats access to money that older manufacturers would not likely provide. In addition, a credit driven boom did seem to alleviate problems for traditional Democratic constituencies. This recognition that both parties not only support deregulation but will bail them out in the end only emboldens big finance.But just as credit booms can have unexpected endings, this self-reinforcing circle is not impenetrable. The Occupy movement transformed discourse. Demands for a living wage, not just a marginally better minimum, now resonate.

Bankers are hardly popular. But once again ideas matter. Discussions of bank break up, public banking, and a new international economic order are more vital than ever.

John Buell lives in Southwest Harbor, Maine and writes on labor and environmental issues. Email

From The Progressive Populist, March 15, 2014

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