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AMERICAN GROWTH AND WAGE INEQUALITY

September 8, 2016

AMERICAN GROWTH AND WAGE INEQUALITY

There is a fiction in contemporary economic history that higher taxes and adequate public services retard economic growth. It is in fact more than a fiction; it is a falsehood deliberately planted and nurtured by the rich and corporate class to maintain and expand their privileged position in society, the members of which have beaten these drums to a point where such a pretense can only be described as propaganda. There not only is no evidence to support such a proposition; indeed economic history supports the opposite view, i.e., we have economic growth when higher taxes are levied on the rich and corporate class and adequate public services are made available to ordinary Americans.

There are a couple of recently published books which set forth the economic history of economic growth vis-à-vis wage inequality. They are: The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War, by Robert J. Gordon; and Unequal Gains: American Growth and Inequality since 1700, by Peter H. Lindert and Jeffrey G. Williamson, both published by the Princeton University Press.

Lindert and Williamson in their analysis find that the colonial-era slogans that America was the land of opportunity and “the best poor man’s country in the world” was accurate. Income was high and inequality was low, so that all but the very richest British North Americans had a higher standard of living than their counterparts in Britain, and parenthetically, as I have often blogged, the American Revolution was inaptly described; it was rather a British Revolution fought on colonial soil between mainland and colonial British subjects.

The British in America (as renamed Americans) were doing quite well compared to those still living in Britain and loyal to the Crown. However, the price for the war for independence was a drop in the comparatively high standard of living for Americans, though with the establishment of the new republic Americans’ incomes began to rise again. Their incomes took another drop during the Civil War. (Note that we are talking relative rather than absolute gains in standards of living in Lindert’s and Williamson’s account.)

So what causes the ups and downs in either relative or absolute gains in standards of living in this country? Wars, financial panics or other episodic changes (or “shocks” as Piketty calls them)? Perhaps they were at least partial causes (or effects), but how does one explain increasing American inequality since the 1970s, a very long time to be mired in this economic malaise? Is our current problem of accelerating wage and wealth inequality due to episodic shock?

It clearly is not; we have recovered from episodic shocks of wars and panics and depressions before, and it has never taken this long to recover. So why so long? I think we are where we are on the economic spectrum as a result of policy, i.e., the laws, rules and regulations made by politicians who are beholden to the financial sector in return for campaign contributions and other favors to which we are not privy. I think the following statement says it all: “An unregulated financial sector has promoted economic instability while disproportionately rewarding the wealthiest Americans.”

Keynes in the past and Gordon in his book argue that in view of lost economic ground by American men due to wage inequality, they should support a state that would restrain the financial sector and redistribute income, but as a matter of policy and so long as white American men can be induced to resent instead the women and African Americans who have slowly and incompletely made progress toward equality, the evidence is that they will not support such policies. It is clear that American men are shooting at the wrong target; the income inequality they are suffering has nothing to do with women and black rights and everything to do with the greed of the rich and corporate class.

Lindert and Williamson show clearly what history shows: That higher rates of taxation and adequate public services have not retarded economic growth, either in this country or any other. They write that “There is no lost GDP from taxing the wealthy heavily,” and they are right. When, for instance, we taxed high incomes during and after WW II at rates varying from 70 to 94 per cent, we had enormous economic growth and a rapidly building robust middle class while educating millions under the GI Bill and building an interstate highway system.

Now that we have “carried interest” and much lower capital gains rates and other goodies ladled out to corporate vultures, hedge fund operators and the rich and corporate class in general by compliant politicians, we are reaping the bitter harvest of tepid demand, stagnant wages, an underperforming economy, decaying infrastructure, unkept pension promises etc., and for what? So we can heap even further riches on the rich and corporate class? When does this end, if ever? How long will it take us to recover from Potter’s memo in 1971 and the corporate machinations since then?

Prominent economists write that the present dour situation for the great mass of Americans cannot continue, that it is “unsustainable either economically or politically.” I agree that it is not sustainable economically, but I am beginning to wonder if it may not be sustainable politically given the decades of its existence with no end in sight. To reiterate, when does this end?

What to do? Vote for politicians who are not compliant with the wishes of Wall Street but rather compliant with the hopes and aspirations of the hundreds of millions of American citizens who have only one life to live and do not want to live it in politically-inspired poverty just to feather the financial nests of a narrow minority.

Yes, getting out of this mess is itself messy because it is political, but that’s the way we got here and that’s the way we can get out of here. Diversionary tactics used by the propaganda organs of the rich and corporate class involving race, creed, color, and the claims of some sloganeers to make America great again are just that, diversionary tactics designed to take our attention away from the number one issue of our time, to wit: income and wealth inequality, so let’s change personnel in the Congress and elsewhere who will work on the real and not the contrived issues of the day. Vote!    GERALD      E

 

 

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