Tuesday, September 8, 2015

Examining The Roots of Economic Inequality

Economic Inequality occupies such a prominent place in today's political-economic discussions that even the high-powered elites (at least some of them, like the Bank of International Settlements) have actually warned of its metastasis. This suggests the problem is at once global but still far more pernicious in some nations, such as the USA.

The general measure is the Gini coefficient and for the U.S. it has dramatically increased the past 25 years and is now nearly 0.40. This is nearly on a par with the Philippines and Mexico. Not only that but inequality is increasing.

There are two ways to look at what's happening: 1) simplistic or 2) systemic. In the simplistic narrative inequality is simple because it's just reduced to income inequality. People-workers are naturally unequal in means, salary, perks etc. because they occupy different stations in life, have different training, aptitudes, education, background etc. so some will "get to the top" and have it all or most of it with humongous incomes, while others will flounder as flunkies in bottom feeder jobs like burger flippers or maybe street cleaners.

Following from this, the elites will always be able to buy more and bigger, whether cars, homes, TVs, home theaters or even vacations. By this narrative, it's the fault of the "flunkies" for accepting what are supposed to be starter jobs and keeping them instead of moving on to bigger and better things, preferably by getting more training, education etc. (No mention here at all of the fact that 95% of all wealth is inherited, as first exposed by Michael Parenti in his book 'The Dirty Truth')

As a corollary to this, the poor  - those in poverty and needing welfare or food stamps - are also to blame for not pulling themselves up and making more of their lives by getting higher paid jobs as opposed to say "settling" for a $7.50 an hour fast food McJob.

Of course, this is all a balderdash right wing fairy tale that may console the Right winger's conscience but barely touches on reality.

Thus, to really get at what's going on one needs to use a systemic approach and analysis. In doing so we learn a number of brutal truths:

1) The Job profile in the U.S. now is like a steep pyramid with only a few "great" jobs at the top, mainly techies (Google, Microsoft etc.) but the bulk are mediocre or poorly paid. Also, with few benefits. Look at the typical WalMart worker. The latter doesn't go for food stamps or Medicaid because he is endemically "poor" but rather is too poorly paid. Since his company won't provide him the health benefits he needs, of course he must go on Medicaid.

2) The pyramid took this form since the 1990s, and especially after NAFTA, when millions of manufacturing and production jobs were sent out of the country and plants - as well as steel mills and auto factories (paying truly living wages of $35/hr or more) were shut down.

3) While many econ gurus made predictions that computer -software and other better paying jobs would come to the fore this didn't materialize. Instead companies (e.g. Dell)  "outsourced" their tech help software expertise to India. (Indian schools now train their s/w students not only in the various online help techniques but also how to imitate American accents).

4) Thus, the fact of the matter is the elite jobs never came back and hence upward mobility - once a cornerstone of the U.S. work force- went into abeyance and is perhaps now extinguished permanently according to some authors (See Juliette Schorr, 'The End Of Work') .  The WSJ in one article back in August actually predicted that by 2020 fully 44 percent of the workforce would be in retail- and receiving a truly 'royal' average wage of about $9.50 an hour. When the Wall Street Journal recognizes such a huge proportion of retail jobs you know upward movement is a thing of the past.

All of which shows that claiming income disparity is at the root of economic inequality is true in one big sense, but misplaced if  massive U.S. job outsourcing via globalization is not factored into the equation - and acknowledging this interjects a systemic defect.

5) American workers have gang-busted with productivity gains since the early 1970s, but have virtually nothing to show for it. Wage increases have only marginally increased (last month to barely 2.2 percent)  and meanwhile benefits have been pared back. Worse, productivity is now almost uniformly measured not the way it once was - by how much a worker did per hour - but instead how many workers can be CUT so that those remaining can still do the work of the earlier total.

The other systemic side of economic inequality has to do with how many advantages the wealthiest have which average workers do not. For example, they have enough disposable extra income that they can afford to be in the stock market and sustain heavy losses - say in a correction or downturn - without having to eat cat food. The ordinary worker with his or her 401k of only $100,000 can't afford that luxury.

Also, the wealthy can make use of  computer flash trading to cash in shares before the ordinary Joe can reach for his smart phone. The rich also know how to use fractional trading to benefit as well as get tax write-offs the ordinary bloke can only dream of and can use trusts to protect his estate that the ordinary Joes and Janes can't.

From a systemic viewpoint then we see the plight of the U.S. worker can be laid at several forces which are causing available jobs of any quality to plummet: 1) globalization, including the oncoming TPP trade deal, and 2) automation - which is enabling companies to jettison even more workers and thereby save on salaries and benefits. These factors,  in tandem with the wealthy stacking  market transactions in their favor, means it will always be a rigged game. Worse, the wealthy will make extra money off the backs of the workers via the stock and mutual fund losses of the latter.

The solution to the problem then must be systemic but not as the 'simplistic' folks portray it. First, the market and stock market in particular must be held to account for the little guy. No more flash trades or fractional share buying, selling. No more carry trade. Plus each transaction carries a tax hit, no more unlimited exchanges.

At the same time,  the  rich alone can't be taxed to sustain an economically equitable society. Everyone of middle means must be taxed more highly but also understand they will get it back in higher benefits (like the Europeans do), including: lower health care costs, lower drug costs, and lower thresholds for Medicaid and even food stamps. Also, low cost or free child care to enable parents to work or even have the chance to get better jobs (if such become available0.

In Europe, citizens accept much higher taxation but this is balanced by much more government support they can depend on, whether for pensions, healthcare or childcare. In the U.S. model, Americans are taught to be rabid individualists and "go it alone" without any support,  but if they stumble (say by getting a fatal cancer or being in a bad accident), too bad. However, if they hit life's lottery - yeah, they will live like kings, or at least Trump.

Trouble is 99 percent will not make life's lottery, so will end up scrabbling for a life line at some point. (Which is also why you see so many hard working Americans throwing their money at lottery tickets the only chance they have- in their mind.)

Donald Trump in all his economic bloviations, has gotten one thing correct - and it is driving the anti-tax fanatics of the GOP nuts: higher taxes have to be paid, especially by the super rich. But if economic inequality is ever to be conquered and real productivity returned - higher taxes must be borne by everyone of decent means - which is also why the Bush middle class tax cuts were one of the worst things ever for this country. Especially as they were implemented when Bushie boy was starting $ 4 trillion wars. Sadly, the Dems contributed to that malaise by voting for them in the first place then extending them past their sunset date (which even the Bushies knew was needed to prevent a deficit blowout.)

Now all those war debt coppers got to be paid back, and the rich alone - rich as they are - can't do it. The burden falls on us all. But it's surely a cautionary point against starting any future conflicts we can't pay for and which will only increase inequality!

The truth for my bible -believing friends is that the "parable of talents" would end up a poor joke in today's rigged financial world. I don't believe Yeshua, if he was alive now, would even be daft enough to propose it. He'd know in advance, given he's God, whoever received a talent to invest would lose it - in about the time taken to be fleeced in a flash trade.

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