Sunday, May 10, 2015

The Most Pressing Moral Issue Of Our Time

What's one of the most pressing moral issues of our time? I'll give you a hint, it has little to do with religion.

It's rising income inequality.

To get a sense of the problem, let's take a look at some data.

According to a recent Pew finding, income inequality is at its "highest level on record." Basically, over the last 30 years the wealthy keep getting more wealthy, and the middle and lower income classes have either remained flat or have gotten poorer. This is what's increasing the wealth gap.

Since 1983 the wealth of lower income Americans has gotten lower, for middle income Americans it's remained flat, and upper income Americans have doubled their wealth

What economic policies did we begin using 35 years ago? Oh right, reaganomics, also known as supply-side economics, or more colloquially, trickle-down economics. It's the theory that the wealthy are the job creators, and if we only made them more wealthy, they'd have more money to spend and invest, and that will help create jobs and their wealth will "trickle down" into the lower income brackets. Sounds nice on paper, the only problem is that it doesn't work.

Courtesy of Nick Hanauer

Sure, making the rich get richer will create some jobs as they spend their increased wealth. The problem is a rich guy is not going to buy 10,000 cars, or 10,000 homes, or 10,000 washing machines, or 10,000 TVs, or 10,000 pairs of shoes. He will most likely buy a few more than your average middle income person, and perhaps those of better quality, but he's not going to sustain the economy and be able to buy as much as 10,000 middle income people will. All this increased concentration of wealth at the top income brackets does not sustain a healthy economy, because it is middle class consumers who are the real job creators when we go out and spend our disposable income.

Economist Robert Reich, who I'm a great admirer of, knows the deal. As middle income wages stagnated beginning in the late 1970s when the current problem with income inequality began, most Americans resorted to three coping mechanisms to increase their wealth:
  • Women began to work in large numbers. We all know the stereotypical 1950s family. The husband worked and the wife stayed home. That began changing in the late 1970s as two incomes were needed to offset the stagnate wages of male workers.
  • People began working longer hours. While women entering he workforce did increase household income for most average families, it's a very limited coping mechanism. Once a woman starts working you've got two incomes, but that's it. The next option is for people to put in longer hours and to work more jobs. But even this is a limited resource, because you can only work so much. Which brings us to our third option.
  • People started to use their homes as an ATM. During the housing bubble people took out home equity loans, and refinanced their mortgages to turn their homes into ATMs to the tune of 2.3 trillion dollars between 2001 and 2007. But the housing bubble burst and in lead to the Great Recession. With these three money coping mechanism out of the way, there are few options left. 

Economic Myths

I make a lot of fuss on this blog about the flawed mythologies of religious folks. But there are other myths that many of us hold, even some of my fellow atheists. These are some of the economic myths that so many of us hold and reiterate almost as a reflex.

  • Myth #1: The rich are the job creators. This is one of the most popular economic myths out there. Rich people don't create jobs, middle class people with disposable income create jobs by spurring demand. As venture capitalist Nick Hanauer says, "rich people don't create jobs. Nor do businesses large or small. Jobs are a consequence of a circle of lifelike feedback loop between customers and businesses. And only consumers can set in motion this virtuous cycle of increasing demand and hiring. In this sense, an ordinary consumer is more of a job creator than me."
  • Myth #2: Lowering taxes on the rich creates jobs. This is another popular myth related to the one above. Top marginal tax rates are near the lowest levels they've been in over 70 years.* We lowered taxes for the rich in the 2000s with the Bush tax cuts. So if this myth were true, where were the jobs? We should've been inundated with jobs in the 2000s. We aren't. That's because jobs are created by business who must meet higher demand, which comes when middle class people spend their disposable income.
  • Myth #3: Raising wages kills jobs. This popular myth is based on the fallacy that if you raise the price of employment, you get less of it. If that were true, there should be no CEOs since CEO salary has gone up 937% from 1978 to 2013. It also results in a fundamental misunderstanding of how economics works. If wages are kept low, people have less disposable income, and if people have less disposable income they spend less money. When they spend less money, businesses suffer. The more disposable income we have the more we spend, and that creates demand, and it is this demand that creates jobs. 

Finally, we all know that there are many people near the bottom of the economic spectrum who are being hurt by these conservative economic policies and who would stand to benefit from the progressive, middle-out economic policies espoused by Robert Reich, Nick Hanauer and others. But they vote against their economic interests in election after election. One reason why is because they've bought into the myths above that they're being sold. Another reason is because the politicians who advocate these conservative economic policies also advocate conservative social policies, and many people who vote for these politicians are voting for that reason. And this is why I think it is imperative to advocate for progressive social values in addition to progressive economic values. Once there is no sizable conservative social base to be pandered to, politicians with a conservative economic agenda will not be able to win elections as easy as they do. 

So this is a debate on two fronts really, where the goal is the same: reversing economic inequality. If this trend doesn't change, we will not be able to sustain a vibrant economy. No society can last on a long term basis with an ever increasing wealth gap. It either ends in a police state or a revolution. So if you agree with this, spread the word. Go out and talk to people about economics who disagree you. Challenge them. Allow them to challenge you. Get outside your bubble and pierce someone else's. Support organizations that address this issue, like the Wolf-pac. Be vocal about it and make sure that it is an issue your politicians know concerns you. Write, blog, and tweet about it. Continue to make economic inequality a front and center issue so that politicians address it, and keep your politicians accountable.

*It has been argued that no one actually paid the marginal tax rates when they were at 70 or 90% and that the effective tax rates were never above 30%. But this is challenged some data that the effective tax rates were near the 70% mark in the 50s and 60s.

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