The last couple of months in Washington have been punctuated by burst of excitement as policymakers and pundits reacted to what to them was good news for the economy. The stock market is up. Consumer spending is up. Housing is booming again. The era of “uncertainty” is over. “The economy is holding up surprisingly well,” Pundits exchanged rhetorical high-fives, as they more or less declared, “It’s working.” Deficit reduction and “de facto” austerity are having the promised effect, and the economy is working.
By now we know this is not a good economy. It’s a “Truman Show” economy, in which “good news” about economic gains are really smoke and mirrors intended hide the reality that ours is an economy in which the few have chosen inequality for the many.
The claims that the economy is improving and the recovery picking up speed seem almost like an effort to reinforce or prove correct the austerians’ “cut and grow” mantra — a conservative brand of magical thinking, which holds that shrinking the economy through massive cuts will miraculously lead to economic growth. “See,” you can almost hear them say, “It’s working!”
It’s working alright. But only if “it” was intended to produce widespread and deepening economic inequality that’s likely to be with us for generations unless something changes.
Concerns about inequality are usually waved off with another bit of magical thinking, that David Callahan summed up pretty well.
A dramatic rise in inequality in the U.S. since the 1970s has long been explained as the inevitable byproduct of a changing economy: Globalization has sent good manufacturing jobs overseas and technological change has automated other jobs, while the rise of an information economy has increased the premium on education and advanced skills.
These trends have been unfortunate for the bottom half of Americans, but are nobody’s fault in particular.
Or so goes the story.
Inequality just happens. It’s nobody’s fault. It’s just a natural part of a changing economy.
Except, of course, when it’s not. In this case, economic inequality is a matter of choice and policy.
Callahan cites a new study by four economists, which examines countries that have not experienced such a dramatic rise in inequality and determines that inequality doesn’t just happen. Economic inequality in the U.S. is largely the result of public policies that are entirely reversible, provided the political will exists to make it happen.
Three specific policies set the U.S. apart from countries with far less inequality.
- Tax policy: Huge tax cuts to the wealthiest 1 percent — especially for capital gains and inheritances. For the 1 percent, a lot of economic gains are not counted as income, allowing the wealthy to limit their tax liabilities. It’s an expensive policy, in terms of what it costs the U.S. in tax revenues. This year alone the various tax expenditures largely benefiting the wealthy will cost around $900 billion this year alone, and will cost $12 trillion in the coming decade under current policies.
- Collective bargaining: Unlike Europe, the U.S. has backed off support for collective bargaining, starting with Ronald Reagan’s famous firing of air traffic controllers to Wisconsin governor Scott Walkers war on public sector employee unions. Another study by the American Sociological Review suggests that declining in union power is directly related to labor’s declining share of income. Since the 1970s, Shifting income away from labor to capital increases inequality. The percentage of national going to labor (i.e., workers) has fallen dramatically, while the percentage of national income going to capital (i.e., owners, managers, etc.) has increased just as dramatically.
- Trade policy: While it’s true the global economy has changed, and that some worker have been displaced by technological advances, Callahan writes that it’s just as true that the U.S. has embraced trade policies that have accelerated the worst effects of globalization, by funneling wealth to the top while keeping wages down for everyone else.
The U.S has become a less equal society over the past 30 years, but it didn’t just happen. Inequality in the U.S. happened by design, not by chance. It is the direct result of government policy. David Cay Johnston writes that the top 1 percent had just 10 percent of all reported national income. By 1999 the top 1 percent claimed 20 percent of national income. Since 2000, they have claimed about 1 fifth of national income. During the recovery, from 2009 to 2011, 121 percent of gains in income went to the top 1 percent.
Tax cuts for the wealthy are have driven the wrist in inequality in two ways. The report cited by Johnston and Callahan says that “tax cuts may have led managerial energies to be diverted to increasing their remuneration at the expense of enterprise growth and employment.” That means CEOs are padding their portfolios at the expense of the companies they run. Tax policy not only made the “vulture capitalism” practiced and practically invented by Bain Capital possible, it incentivized and rewarded it.
What we know about tax cuts now is pretty straightforward. Tax cuts of the wealthy won’t stimulate the economy, won’t create jobs, and won’t spread prosperity, because the wealthy don’t spend their tax cuts. Instead, the wealthy save their tax windfalls, to invest when the stock market is booming.
Thus the money represented by tax cuts for the wealthy doesn’t get invested in jobs (outside of Wall Street hedge funds, that is). Much of it gets invested in creating more wealth, detached from actual work.
Besides investing their money in creating more wealth (known as “letting your money make money for you), the wealthy also invest their money in public policies that safeguard and/or further increase their wealth. Callahan writes, “The United States has chosen to become a less equal society over the past generation, and that choice has been made by an electoral and policy system dominated by private money and wealthy interests.”
The 1 per centers and the corporate class dominate our electoral and policy systems simply by “investing” in politicians they can count on to, as Eric Cantor’s aide put it in one all-too-candid moment, “make sure the people at the top stay there.” Policymakers accomplish this through legislation that keeps taxes low for the wealthy, keeping corporate taxes low, and keeping loopholes open. The Supreme Court’s Citizens United ruling only served to unite the 1 percent behind candidates who will pledge allegiance to policies designed to “make sure the people at the top stay there.”
Taxes are just one way the few choose inequality for the many. Deficit reduction is another. Republicans in Congress cited the deficit as a reason for damaging pushing for cuts in 2011 and 2012. Without those cuts unemployment rates would be a point lower than they are now, and economic growth likely two months 2 points higher. In real terms, that means 1.5 million more Americans would be employed, and the economy would be growing fast enough to drive down unemployment.
By comparison, the 2009 stimulus was far more successful at growing the economy and slowing unemployment than the well-heeled advocates of austerity promised deficit reduction would be. Even with an absurdly small amount of stimulus spending, the economy stopped shedding jobs, and started to rebound. It worked out for states too. The stimulus helped close 30 to 40 percent of state budget shortfalls and preserved public sector jobs that helped support local economies.
Instead, even with the deficit under control our elected leaders insist on cuts that kill jobs and harm the economy. The sequester is a prime example.
Remember that conservatives told us that sequester would help the economy? We already know that the sequester does the most harm to the most vulnerable, with devastating cuts education and social service programs. The sequester is harming the economy, too. Businesses are slashing jobs because of the impact of the sequester. Those private sector jobs are lost because public sector jobs are taking a hit from the sequester.
Fewer jobs means means more unemployment, and that means more inequality. And in this case, inequality isn’t just happening. It’s a direct result of public policy — the sequester — that can and should be repealed.
Inequality is a choice. It is chosen by the wealthy and the powerful, who are invested protecting and increasing their wealth and power. The 1 per centers and their purchased policymakers chose inequality.
But who are they choosing it for? A glance at the economic state of the rest of us — the 99 percent —makes it clear that a growing number of Americans bear the brunt of inequality’s worst consequences, while an ever smaller number reap the benefits. Let’s just look at two of the most alarming areas.
Paul Krugman says that we’re creating a permanent underclass of unemployed Americans, and doing it on purpose.
And let’s be clear: this is a policy decision. The main reason our economic recovery has been so weak is that, spooked by fear-mongering over debt, we’ve been doing exactly what basic macroeconomics says you shouldn’t do — cutting government spending in the face of a depressed economy.
It’s hard to overstate how self-destructive this policy is. Indeed, the shadow of long-term unemployment means that austerity policies are counterproductive even in purely fiscal terms. Workers, after all, are taxpayers too; if our debt obsession exiles millions of Americans from productive employment, it will cut into future revenues and raise future deficits.
Our exaggerated fear of debt is, in short, creating a slow-motion catastrophe. It’s ruining many lives, and at the same time making us poorer and weaker in every way. And the longer we persist in this folly, the greater the damage will be.
Almost 12 million Americans are currently unemployed. Of those, 4.6 million have been unemployed more than six months. More than three million have been unemployed for more than a year. Those numbers don’t take into consideration the millions of Americans who have fallen off the radar, and don’t get counted because they’ve simply given up looking for work.
Poverty is spreading to the suburbs, as a result of increasing unemployment. According to Confronting Suburban Poverty in America, a new book by Ellen Kneebone and Alan Berube, suburban poverty has increased by 64% in the past decade. That growth for 16.4 million suburban poor, and now outpaces the growth of poverty in urban centers.
Many of the suburban poor are unemployed construction and manufacturing workers, displaced by recent and long-terms economic developments. When manufacturing jobs left the cities, they moved to the suburbs. But as those manufacturing jobs left for other shores, the suburbs began bleeding jobs.
The jobs that followed the manufacturing jobs from the cities to the suburbs turned out to be low-wage service sector jobs with no benefits. Meanwhile, the foreclosure crisis hit suburban workers when they were at their weakest. When a weakened housing market slowed construction to a halt, construction workers joined the ranks of suburban poor.
If, as Krugman writes, our obsession with debt is exiling millions of Americans from productive employment, and leaving them to languish in cul de scas of poverty, it’s also true that Republicans have insisted on a cuts only approach to deficit reduction, and refused to even consider raising taxes on the wealthy, closing corporate tax loopholes. Instead, they insist on budget cuts that don’t reduce the deficit, and only increase inequality — to the benefit the wealthy few and the detriment of just about everyone else.
So, inequality doesn’t just happen by chance. It happens by design. Inequality is the direct result of public policy bought, paid for, and put into place by and for a narrow percentage of the wealthiest, at the expense of most of the rest of us