This, from Bloomberg today:
Federal Reserve Governor Sarah Bloom Raskin told the New America Foundation that economic inequality, caused by stagnating incomes for most Americans and rapid growth in wealth for the richest 1 percent, is hindering the U.S. economic recovery. She described income inequality as "destabilizing," because it "undermines the ability of the economy to grow sustainably and efficiently." “Finding ways to help more Americans safely grow their incomes and net worth in real terms arguably diminishes the destructive influence of income inequality by giving everyone a more secure footing in the economy and the same kind of flexibility and choice available to the more affluent,” Raskin said.
Raskin is hardly the first mainstream economist to see a connection between inequality and today's economic stagnation (Raghuram Rajan got there first) but she is the first one in a policy-making position that I've seen. Wage stagnation, income inequality and economic insecurity have of course dominated the lives of most American families for decades now, long before the Great Recession. Indeed, one could argue (as Rajan and Robert Reich have) that the inequality may have played a major role in causing the economic downturn. There is little doubt, however, that it continues to hamper our ability to get out of it.
Unfortunately, the best responses to the effects of inequality and income stagnation on economic demand -- Keynesian fiscal policy, a strengthened safety net, a revived labor movement, and so forth -- are unavailable in the present political environment. The Fed can do little on its own, though one hopes that Raskin's clarion call is heard over on Capitol Hill...and in the White House, as the days tick down toward debt ceiling day.
3 comments:
Mark - I apologize for continuing to ask the same question over and over. The question is, why has there been such a growth in inequality?
I agree as an academic topic it is interesting to understand the ramifications of inequality (e.g., health, politics, recovery), however if you are serious about "solving" the problem of income inequality you must look at the cause.
Clue 1 as to cause is illustrated in a David Frum graph (http://www.frumforum.com/incredible-shrinking-workers-income) where the drop in worker income clearly started in the 1980s. I think we need to look at events in the 1970s and 1980s when searching for cause.
There are several other "coincidental" trends that started about that time as well. One of the most striking trends is the financialization of our economy. This has led to an enormous increase in private debt (see my comments on "Crowding Out Confidence Fairies").
The other trend is the rising cost of energy - since the US started importing oil in the 1980s this trend is likely also in the mix.
The last trend is money and politics - you can avoid the term "corruption" if you like, but this is the biggest barrier to "solutions". There are now 2 worlds like it or not: the money world, and the real world - you will have problems convincing the money worlders that the real world exists let alone needs investment.
All of your comments on the causes seem to me to be spot-on. I think the best short account of these issues was Tim Noah's series on inequality in Slate: http://www.slate.com/id/2267157
Its really good -- take a look. Noah, like Hacker/Pierson in their book, take time to refute the most common argument from mainstream economists for the growing inequality in the US: the distribution ofhuman capital.
My list of causes (below) would include all of yours. And you are right about the timing (the 70s). 2 really interesting books by historians (who are finally starting to look at the 70s) in the past year are looking at this very question: Jefferson Cowie's "Stayin' Alive" and Judith Stein's "Pivotal Decade." I just started Cowie's book, but I can already anticipate the biggest part of the answer: the power of capital (financial, especially) and the decline of labor.
Stein doesn't disagree with this, but puts heavy emphasis on American trade policy in the 70s. Basically, while other developed nations were using industrial policy and labor market policy to ease the shift toward newer industry in a global context (and putting at least some limits on the power of financial capital), the US did nothing. Or rather, the US loosened capital mobility, while allowing Cold War policy to hold trade policy hostage.
anyway, my list:
* decline of labor
* growing political power and assertiveness of capital, in both parties
* growing financialization of the economy
* federal tax, trade policies, and de-regulation (and failing to change regs to keep up with changes in the structure and behavior of capital)
* aftermath of the OPEC oil boycott
I would of course also add some of the more traditional items, like globalization of industry (leading to wage stagnation and decline), and returns to (and high cost of) higher education, which has been the gatekeeper to the more secure portions of the labor market.
Ultimately, though, as I've said before, the extent of inequality and insecurity in the US over the past 30-40 years is uniquely extreme in the developed world...providing some evidence that politics and power are behind the difference.
Great read thannk you
Post a Comment