Tuesday, January 28, 2014

On "Income Inequality"

“’Income inequality’ is the defining issue of our day.”

So says President Barak Obama and a host of his advisors and fellow travelers.

It is true that “income inequality,” the gap between the highest and lowest income earners, has been growing in recent years, after nearly fifty years of decline.  According to the President and Democrat politicians in general, the cause for that is greed on the part of the wealthy who take more than their fair share from the economy and Republican Party reluctance to redistribute through higher taxes on the wealthy, diminished support for higher education and an emphasis on deficit reduction over employment.  They also say that policies which have weakened the organized labor movement have hurt.  Republicans, on the other hand, blame excessive taxation, deficit spending, and government regulation which discourages or increases the cost of business growth and expansion.

While I could delve into that partisan argument, I’ll simply say that I have my doubts about some of the claims on both sides.  In some ways they make the issue to complicated, especially when it comes to the lower end of the economic scale.  According to one scholar, "The academic literature is very solid on what it takes to stay out of poverty.  Number one, graduate from school. Number two if you're not married, don't have a baby. Number three, get a job, and stick with it." Notice he says nothing about “higher education.”  That’s because there are a great many opportunities to make a very good and comfortable living with skills developed through experience or trade schools.  Not everyone needs to go to college.  What they do need is a good, solid basic education and the skills of life, like reading, writing and arithmetic as the saying used to go.

It is also worth noting that the end of the era of convergence in income equality pretty much coincided with the end of the last great national infrastructure project, the interstate highway system.  As construction wound down, the growth in inequality began to set in.  I’m not saying that the one caused the other, of course.  The space program also went into decline about that same time, and though the emphasis on science and technology of that program certainly benefitted the country and created job opportunities for people with education in what is now referred to as “STEM,” science, technology, engineering, and math, that one program wasn’t sufficient to power the American economic machine by itself.

Also of interest is that the decline of income equality has occurred during a period of emphasis on government programs intended to have the opposite effect.  The “War on Poverty,” begun in the mid-60’s by President Johnson and the Democrat Party, has proved to be ineffective at anything more than making poverty more comfortable.  It’s done very little to actually reduce poverty and some would argue has actually increased it.

The thing that stands out to me, though, is the decline in American manufacturing.  When “globalization” of labor began, I wondered if it was not the beginning of a downward spiral in the national economy and the well-being of American workers.  How, I thought, can people continue to afford to buy the things they need and want when the jobs that form the foundation of our economy were going away?  It turns out that I was looking at the flip-side of the determination made by Henry Ford when he decided to pay “above market wages” to his workers, rationalizing that to be successful he needed buyers to whom he could sell his cars.  He produced cars as cheaply as possible, utilizing the principle of the assembly line, but if his employees were going to be able to buy the very product of their labor, they would need sufficient income to do it.  By paying more than he absolutely had to Ford reduced the profit of the business to himself and his investors, but over the long term he was able to build one of the most successful companies in the US.  Big businesses in the US and around the world no longer view things the way Ford and his contemporaries did.  The short term maximization of profit, motivated by high performance bonuses, has led many of them to move production to various other countries in search of ever lower labor costs.   This has effectively cut off the top of the income food chain, stopping the flow of cash into the heart of the economy and closed the door to upward financial mobility for the majority of the population.

I’ve seen the results of this as Chris and I have travelled around the country for the last nine years.  Abandoned factory buildings dot the landside in every state.  I have vivid memories of seeing weeds growing through the asphalt of the crumbling parking lots at a vacant plant in New Jersey, where vines were in the process of pulling down the power and phone lines to the structure.   Travelling through the Mississippi Delta region on numerous occasions I’ve been struck by the fact that virtually every county seat town has at its heart a now-closed and boarded up plant of some sort.  Surrounding those closed down facilities are run-down and in many cases totally abandoned residences.  It seems that the main income for those communities has become recycling the monthly welfare checks through the local economy until it is dissipated and gone until the first of the next month.

The result of allowing the national industrial and manufacturing base to be gutted has been to drive ever larger numbers of former workers into welfare and poverty.  Statistics show that the smallest percentage of the population in decades is in the active workforce.  One economic analyst recently put the actual unemployment/underemployment/drop-out rate at 37+% of the population.  I don’t see any way that any nation can remain economically viable, let alone a major force in the world, with over one third of the people dependent on what can be taken from the other two thirds of the people for their sustenance.
It would be simplistic to suggest that the proper course for dealing with poverty and the associated “income inequality” would be to adopt the advice of Benjamin Franklin when he said that the greatest gift you can give the poor is to make them uncomfortable in their poverty.  It’s true that it is too easy for “safety nets” to become “hammocks,” but if the nation is going to truly reduce poverty and “income inequality,” there must be something substantial for the poor to do.  Low skill, low wage jobs like straightening the shelves at the local big box store won’t cut it.

When the President and his party cry about the need to reduce “income inequality,” they need to focus on policies and practices which will revitalize our industrial base and bring good quality jobs.  It may be true that there need to be some changes to the rules under which the money-changers live and operate, but the key has to be getting the top of the middle class back to productive work.  Only then will there be sufficient genuine liquidity in the economy (as opposed to the bogus liquidity created by the Federal Reserve inventing $85 billion a month for the benefit of the money-changers and lenders), and the avenues for economic advancement reopened.  Until they do, anything they say on the subject must be suspected of being self-serving and politically motivated by the desire to create and sustain the class envy on which they depend for their power.

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