Popular Economics Weekly

It looks like some states are beginning to take the equality issue seriously again. Massachusetts just raised their minimum wage to $10 per hour, California is raising it to $8.25 over 2 years, with New Jersey and other states to follow.

And just last week, the Center for American Progress launched the Washington Center For Equitable Growth, which aims to deepen the economic critique of inequality. It is being set up by Berkeley economist Emmanuel Saez, among others, who is known with his partner Thomas Piketty, as the first economists to historically research the history of income distribution over the past 100 years.

Their results show that we have the worst income distribution in the developed world; as bad as in 1929 that resulted in the Great Depression. Such inequality was again the case in the run-up to the Great Recession.

It was declining household incomes that led the Bush administration and Federal Reserve to create the housing bubble. It used very easy credit conditions and lax loan qualification standards to boost economic growth. But those declining incomes caused consumers to use up all their available credit and savings to maintain their standard of living, thus causing the Great Recession.

As the mission statement of the Center says:

“New research suggests that growing inequality in the United States may have broad social and economic effects — by reducing stable demand for goods and services, dampening entrepreneurialism, undermining the inclusiveness and responsiveness of political and economic institutions, limiting access to education, and stunting individual development.  Yet our understanding of how these mechanisms interact with the broader economy is limited.”

In December 2011 I wrote a column entitled, Equality Is Good For Everyone, when there was hope that maybe the Great Recession was finally over, and households might regain their financial footing from the busted housing bubble.

Alas, that wasn’t to be because Congress become locked in the battle over a higher debt ceiling and government spending cuts, just as the Europeans were going through their own austerity budget cuts. And so similar budget cuts were agreed to by President Obama and Congress that has reduced economic growth by as much as 1 percent per year, according to leading economists.

President Obama had just given a speech on income inequality that December at Osawatomie, Kansas, the site of Teddy Roosevelt’s “New Nationalism” speech, which signaled the beginning of the progressive era that culminated in FDR’s New Deal.

Teddy Roosevelt had given his now famous speech in 1910 that called upon the three branches of the federal government to put the public welfare before the interests of money and property.

“The new Nationalism puts the National need before sectional or personal advantage,” said Roosevelt. “It is impatient of the utter confusion that results from local legislatures attempting to treat National issues as local issues. It is still more impatient of the impotence which springs from over-division of governmental powers, the impotence which makes it possible for local selfishness or for legal cunning, hired by wealthy special interests, to bring National activities to a deadlock. This new Nationalism regards the executive power as the steward of public welfare. It demands of the judiciary that it shall be interested primarily in human welfare rather than in property, just as it demands that of the representative.”

Sound familiar? Obama said the Republican ideology of laissez faire, small government, free markets that existed when Teddy Roosevelt made his Osawatomie speech had resulted in too much graft and unlimited corporate power.

“It’s a simple theory — one that speaks to our rugged individualism and healthy skepticism of too much government. It fits well on a bumper sticker. Here’s the problem: It doesn’t work. It’s never worked.”

Berkeley Professor and former Clinton Labor Secretary Robert Reich has been most vocal on the growing divide between Haves and Have-nots that has resulted from the decline in equality with his film and book, Inequality For All. He also highlights the resultant distortions—among them a declining quality of life for most Americans, and financial markets becoming more susceptible to boom and bust cycles.

Harlan Green © 2013

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