Three decades of inequality
Glenwood Springs, CO Colorado
My favorite columnist, Paul Begala, recently wrote an excellent Newsweek article about the terrible rise in inequality the past three decades. In his article he reminded us of the following:
“The birth of the American middle class was the product of policy decisions – and the same is true of its death. After the Second World War … as a percentage of gross domestic product, federal debt in 1945 was far larger than today. The Greatest Generation made some tough choices.
“President Eisenhower raised the top marginal tax rate (levied on the portion of high incomes over a certain amount) to 91 percent … and invested in education, housing, infrastructure and technology. And the great American middle class led the boom that paid off the debt. In just 17 years, the debt was back down to its pre-war level.
“Today we again face a debt crisis … But we didn’t get into our current mess because we had too many teachers, cops and firefighters. We got into it because we cut taxes, mostly for the rich, waged two wars on the national credit card, and deregulated Wall Street. … The key to paying off our crushing debt, ultimately, is economic growth. And the key to growth is an expanding middle class.”
Truer words were never spoken. But in order to reach a real national consensus on the government policy changes necessary for resumed growth, voters need some real economic lessons. They need to be disabused of the “free market,” don’t regulate, don’t tax mindset foisted on them by the wealthy and their paid propagandists.
As a start, I wish everyone would read “The Price of Inequality” by Nobel prize winning economist Joseph Stiglitz.
Thirty years ago, the top 1 percent received 12 percent of the national income; now they receive 20 percent. And they keep repeating their mantra that the higher taxes on the wealthy would stifle economic growth. Well, high-taxing Sweden had a much higher growth rate during the 2000-2010 decade than the U.S. And our own experience in the three decades following World War II shows that this mantra is simply not backed up by the evidence.
As Mr. Stiglitz goes to great pains to explain, excessively “free” markets will always lead to excessive inequality and stifle economic growth. That is because of the very important “market failures” well known to economists.
The first market failure is the tendency toward monopoly. Adam Smith himself, the original inventor of the free market concept, warned: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”
Today’s wealthy corporation managers and their high-priced lawyers have become geniuses at figuring out how to stifle competition and monopolize government largesse at the expense of the rest of us.
A second extremely important market failure is labeled “externalities” by economists. It just means that businesses try to externalize costs onto the taxpayers. A perfect example is their success in foisting onto the taxpayers the costs of trying to clean up, or prevent, their pollution and waste.
A third very important market failure is lack of transparency or lack of disclosure.
Think of Wall Street’s recent duplicity in selling as sound investments billions of dollars of bundled mortgages it knew to be very risky and probably doomed.
Mr. Stiglitz admits governments never correct market failures perfectly. But he is adamant in this belief: “Only if the government does a reasonably good job of correcting the most important market failures will the economy prosper.”
He goes on to point out: “Good financial regulation helped the United States – and the world – avoid a major crisis for four decades after the Great Depression. Deregulation in the 1980s led to scores of financial crises in the succeeding three decades, of which America’s crisis in 2008-09 was only the worst.
“But those government failures were no accident: The financial sector used its political muscle to make sure that the market failures were not corrected, and that the sector’s private rewards remained well in excess of their social contributions – one of the factors contributing to the bloated financial sector and to the high levels of inequality.”
– “What Do We Really Want?” appears on the second and fourth Thursdays of the month. Mary Boland is a retired teacher and journalist, a proud grandmother, and a longtime resident of Carbondale. Follow her on twitter@grannyboland.
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