It's Economic Inequality Stupid

I read a very good article in the "Huffington Post" found here. It is about wealth and income inequality in the U.S. in the past 70 or so years. If you want further information on economic inequality in the U.S. and a short brief on Keynesian economics, watch this YouTube video with Nobel laureates Paul Krugman and Joe Stiglitz. I think the actual info starts at about eight minutes in.

With the "Huffington Post" article, I only found one point which I disagree with. When it says, "(the) Clinton era tax increase - especially on the wealthy - that yielded the first balanced budgets in decades, substantial economic growth (sic; they forgot the Oxford comma)and a temporary narrowing of economic inequality" it implies that the Clinton era tax increase caused - or at least contributed significantly to - the economic boom that occurred in the nineties. The economic boom that occurred in the nineties was primarily the result of the mass amounts of technological innovation that occurred also at that time. The tax increase did contribute to balanced budgets and narrowing of economic inequality (albeit slightly), but it did not cause the economic growth in the nineties. The economic boom would have happened regardless of the Clinton era tax increase.

I'm for the Clinton era tax increases, but the ideal amount of tax increase would be far more progressive and all around higher than the one in the Clinton era.

The article lays out a seven point plan to combat economic inequality in the U.S. Included in the plan are things like raising the minimum wage, regulating the financial sector, including worker's rights in international trade agreements, etc.With the possible exception of point six, which calls for the protection of the implementation of the ACA the way it was supposed to function, all of the points made by the article are actually conservative, or in some cases regressive, policies. They aren't advocating anything that hasn't already been done by the U.S. Those points that call for a change, such as raising the minimum wage, use the fact that the wage has been higher in the past to show that it should be higher now. Other points advocate maintaining the status quo of a particular program.

For example, the argument that so-called liberals use for raising the minimum wage is regressive in nature, or at the very least conservative. They say that in the height of the American economic 'golden age' (1945-1970ish) the minimum wage in America was far higher in real value than it is now. Hence, it isn't fair that the minimum wage employee has actually lost purchasing power since then, so we must revert to the policy which was in use in the 'golden age'. If liberalism is the "belief in the value of social and political change in order to achieve progress," like Merriam-Webster says, then raising the minimum wage is not actually liberal. Progress runs contrary to regress. Hence, raising the minimum wage, at least to the point to where it has been in the past, is actually contrary to liberalism. This is just one example of many others.

Not to say that a policy is bad or good based purely on whether or not it has been done before, nevertheless it is still somewhat disturbing when the supposedly 'progressive' economic doctrine is actually just less conservative as the more 'conservative' ones. Even more disturbing is the fact that those on the political right of so called 'progressives' advocate the policies popular in times of clear economic depravity. In one case, the 'progressive' case, they are simply promoting the economic policies of the years 1945-1980ish (Keynsianism). In another case, the mainstream conservative one, they are promoting the tax policies of the era prior to the New Deal, but with some of the New Deal reforms (Monetarism); the policies after the Federal Reserve Act in 1913. In the most extreme case, they promote the laissez-faire, mercantilistic(which is somewhat of an oxymoron) policies of the Gilded Age (Austrian School).

The reason why this is disturbing in my mind is there is no major group promoting truly progressive policies. There are no socialists representatives in the U.S. In Germany, the Left Party, a socialist party, controls 64/631 of the Bundestag seats. In all of the Nordic countries, there are similar parties which usually make up about 6% of the respective parliament/congress. In France, the Socialist party makes up a majority of the government, though the French Socialist party is considerably more moderate than most socialist parties worldwide. Despite the relatively widespread occurrence of socialist parties worldwide, the U.S. has no major socialist group in existence. The closest we have is Bernie Sanders and a handful of senators/representatives like him. They are at best moderate democratic socialists but probably just social democrats. This leads me to believe that the lack of true progress in the United States may cause the U.S. economy to stagnate and fall behind its European counterparts.

Just a bit of a disambiguation, the general difference - at least as far as I can tell - between democratic socialist and social democrat is as follows: democratic socialists are primarily socialists, their economic policy takes precedence over their governmental policy. Whereas social democrats prioritize democracy over socialism. Occasionally only a semantic difference, the distinction can have practical implications. If a politician is a social democrat and also isn't prone to make sweeping reforms, then the politician will likely be against any massive socialist programs because it (may) discriminate against businesses or wealthy individuals; hence a social democrat is likely far more pro-capitalism, or at least pro-free-market-socialism than a democratic socialist, who tend to be more progressive in the actual sense and generally more socialist.

The fundamental problem which is inherent in the lack of major progressive political parties in any country is simple: the world around the country is rapidly changing. Generally the world's impact on us is handled through foreign policy, however events which are economic in nature should be handled by a policy that is economic in nature. Thus, in an economic situation which hasn't ever happened before in the world's history, like say the E.U., the policies addressing the issue should also never have been done before.

It also goes the other way, situations which have happened before should be handled by paying close attention to the way it was handled in the past. If it was handled poorly in the past then we probably shouldn't handle the same situation the same way. We also must be wary of a post hoc egro propter hoc attitude about problems in the past. We need to actually find the root cause and solution to the problems in the past in order to accurately apply them to today.

So, after my rant against the liberal-conservative dichotomy, I still want to address the actual article. Economic inequality has been this extreme only once before in American history. The period directly preceding the stock market crash of 1929 had levels of inequality similar to what is experienced today.

The eventual fix to the great amounts of wealth and income inequality came in the late 1930s. The period surrounding World War II is what is known as the Great Compression to economists. Following that era, and up until about 1970, the relationship between what CEOs and other high income professions made on the one hand, and what the wage-labor worker made on the other, remained relatively stable.

To me, it seems the solutions to the original inequality crisis in the U.S. was two-fold. Policies such as raising taxes on the rich, artificially inflating demand (through military spending), and accumulating the largest budget deficits thus-far seen in American history definitely contributed to the Great Compression and subsequent economic prosperity following World War II.

The other set of policies that contributed to the economic prosperity following World War II was global in nature. First off, the U.S. manufacturers were free from foreign competition due to World War II. Though, because most Europeans were too poor to afford imported goods as a result of the same war, the potential exports that U.S. manufacturers were able to profit off of were limited. That was until the Marshall Plan and the general recovery of the European economies that the Marshall Plan contributed to. After that, the American manufacturers were able to export their products to Europe in substantial quantities. Thus, they still dominated the market, but they were also able to large amounts of profit due to the ability to export their products.

Back to the domestic set of policies, the manufacturing class would have been the sole beneficiary if the laws protecting labor, such as minimum wage, and the power of unions themselves weren't at historic strengths. There needs to be some form of institutionalized policy that guarantees the benefits that the upper-class acquires is distributed to the lower classes.

So, the solution to the modern crisis of economic inequality needs to contain both liberal and conservative policies (in the manner consistent with the aforementioned rant). There does need to be a strengthening of the labor unions and a raise in the minimum wage, an increase in the graduation of our tax structure and general tax reform, an increase in the artificial inflation of demand (though hopefully not through military means), and a "Marshall Plan" for South America, Africa, and certain areas of Asia. But, we also need to both adjust these tried-and-true policies to modern times, and to develop entirely new policies to accurately reflect our times.

In address to the "Marshall Plan" proposition, economic inequality works fundamentally the same way on a global level as it does on a national level. So the increase of foreign aid has the same benefits on the global level as an increase of the minimum wage or the social-safety-net has on the national level.

We also need to find a market in which we have the potential to be preeminent. In the first Great Compression, we had the potential to become preeminent in the manufacturing sector, and so we did when the chance arose. Likewise, we need a new market in which our country can excel. We shouldn't regress back to manufacturing, because developing countries are far better at manufacturing than already developed nations.

All-in-all, the thing which most liberals lack in their solutions to fix economic inequality is a way to address the changing times, Keynesian economics won't do it all by itself.