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CAPITAL, WEALTH AND INEQUALITY (PART I)

September 20, 2016

CAPITAL, WEALTH AND INEQUALITY (PART I)

My followers may have grown weary at reading my constant complaints about wage inequality in this country, our number one domestic problem, so I have decided to devote the next few efforts toward discussing this problem in the context and in its interaction with capital and wealth, which may help explain how this scab on economic growth is so destructive to the future of America and its people. I decided to write about this after re-re-reading Joseph E. Stiglitz’s handbook, Re-Writing the Rules of the American Economy (An Agenda for Growth and Shared Prosperity), published in 2016, months before the publication of his latest book, The Euro, which I have also read. Stiglitz, winner of the Nobel Prize, is a busy and talented economist who writes books and make speeches while serving as professor at Columbia and Chief Economist for the Roosevelt Institute.

Everyone (rich and poor, Republican and Democrat) talks about economic growth, which is the ultimate goal for any market economy. We all want economic growth, or at least pretend we do, but how do we get there? We have tried trickle-down economics brought to us by Ronald Reagan, and that didn’t work and isn’t working. We have tried self-regulation of the financial sector by our repeal of the Glass-Steagall Act of 1933 and other such “let the market decide” exemptions from public control and that gave us bailouts and Bush’s Great Recession which, needless to say, didn’t work. We have catered to the financial sector by allowing them to use FDIC-insured deposits to invest in credit derivatives and other such risky investments without adequate control mechanisms, and that did not work will not work. (I write “will not” in this connection because the Dodd-Frank Act of 2010 removed such FDIC-insured deposits from big banks’ access, but Republicans at the behest of the big banks later restored such access to the big banks via an amendment which they hooked to a spending bill – a dirty legislative trick in its own right – forcing Obama to sign it or shut the government down.) Your money is again at risk as the government continues to subsidize the big banks, thanks to this Republican shenanigan.

It seems that every concession we have made to the rich and corporate class under the pretense that such concessions will lead to economic growth has back-fired and has been the root cause of recessions, slowdowns, and other such negative consequences to economic growth which, inevitably, make not for  growth but rather for both wage and wealth inequality which, with its reduction in median wages for the past several decades, has given us tepid demand and an underperforming economy, hardly recipes for economic growth.

Yet the nation’s capital and wealth have multiplied for the few while the rest of us are (inflation-adjusted) poorer than we were 40 years ago. How could this happen? If there is in the aggregate so much more capital and wealth these days, then how is it that millions of Americans have been thrown into poverty from their former middle class status since Bush’s Great Recession and median wages have not only not increased as inflation-adjusted but have actually decreased over the past 40 years? The answer, of course, is in the question just posed. The Dow and other measures of Wall Street success spring directly from the refusal of the rich and corporate class to pay a fair share of the economy’s income to those who work for them. I call that wage theft, but apparently it is legal – and why is it legal?

It is legal because inequality is a political choice and, contrary to the arguments of some, it is not the result of inevitable consequences of market outcomes, globalization, and technological progress. Wage and wealth inequality is the result of misguided structural rules that operate to restrict rather than advance economic growth. Economic growth can come about only by increases in demand, as Keynes long ago pointed out, and increases in demand can only come about through a fairer distribution of our economy’s income to those who will spend such increases in the marketplace.

There is nothing “natural” about the current maldistribution of the fruits of our economy. We are where we are by political choice, and that can be changed for the better, as it was with the election of Franklin Delano Roosevelt in 1932 and can be again if and when we decide to quit supporting policies that make the rich richer and instead adopt policies that call for a fairer sharing of the fruits of our economy and the economic growth that comes with it to the benefit of all, even to the rich and corporate class.

I will write in Part II on the distinction to be made between capital and wealth, their productive and non-productive uses in advancing economic growth, and related topics. Stay tuned.     GERALD      E

 

 

 

 

 

 

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