INCOME INEQUALITY : SUGGESTIONS FOR CURBING IT

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^ the smartest and most realistic economic reformer in the USA today : Robert Reich

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We all know now, thanks to Thomas Pikettty’s Capitalism In the 21st Century, what many political economists have been opining for several years now : that growing disparity of incomes threatens the growth, the effectiveness, the very stability of the economy we live in. Robert Reich blogs almost every day about it and has highly useful suggestions to make. Paul Krugman opines about it — and other economic events and decisions — and almost always gets it right.

We have several suggestions for curbing income inequality; but first, let’s do a little analysis and then read a bit of history :

What French economist Piketty has added to the discussion is to show, at length, that ( 1 ) the fruits of commerce almost always tend to go chiefly to the top and ( 2 ) the process is fundamentally absurd.

By “absurd,” I mean that income equality grows hyperbolically : the more unequal the apportionment, the faster it grows still more unequal, until almost all income goes to hardly anyone but a very few.

This happens because the generation of income is a dynamic process; the momentum of it controls the process. We see this quite clearly in stock markets, where “uptrends” — and “downtrends” — of stock prices tend to increase ever faster the higher they go, as more and more speculators get aboard the trend, until they end in a “spike” top or “spike” bottom. Stock prices are a particularly pure form of hyperbolic money momentum, but the same trend dynamic applies, albeit more gradually, sometimes interrupted, to almost every economic enterprise in which transactions occur.

The disruptive consequences of price trend spikes and of boom and bust economics became quite painfully known to advanced nations a long time ago. from the 1870s to the 1960s, such nations either enacted corrective legislation or underwent revolution; some did both. In the USA we set up the Interstate Commerce Commission to regulate railroad pricing; established anti-trust laws to curb monopoly; set up the Federal Reserve Bank to backstop the nation’s money supply — and, in the 1930s, to impose “margin” requirements (limits on how much leverage a borrowing buyer could take) on stock and bond speculators. We enacted much labor legislation to protect workers seeking to organize and bargain wage and benefit contracts collectively. We gave the Federal Reserve the power to establish national interest rates, to stimulate an economy in recession or slow down an economy going into boom mode. We introduced the graduated income tax and estate taxes, to slow down income accumulation and cut down the power of inherited concentrations of money. We passed the Glass-Steagall Act, forbidding depository banks from using depositors’ money to speculate in securities.

Canada enacted many of the same reforms. western European nations did the same, or imposed stare ownership on many industries along with extremely generous wage rates and high taxation. Some nations tried all-out state economics, centrally owned and state controlled. This model went too far,. innovation was discouraged, experiment feared, diversity prosecuted. The model failed.

The other two models worked well until about 20 to 30 years ago. Then came the internet, and speculation fever, after the collapse of which speculative money, as yet unstated, bought into the mortgage market and, as we know, into the speculative trading of mortgage bonds and other mortgage-backed instruments.

This activity collapsed, but the vast income inequality it generated did not. Publicly traded companies are hounded by speculative money pools that own their stock, to maximize short-term profits, as short term as the rapid fire trades that pressure these firms. Firms found that they could grant enormous stock bonuses to their top executives in turn for maximizing short term profits and thus becoming favored by speculative money pools whose buys boosted these companies’ stock prices — which in turn made the stock option bonuses that much more valuable.

The surest ways to maximize quick-month profits are to skimp on research, pay workers as little as possible, and do stock buybacks. All are favored methods for companies whose stock is traded, to CEO advantage, by speculative money pools.

Hence the absurdity. Money is generated by speculative trading, which makes money for the CEO’s stock options, which in turn assure that he will run the company to the purposes of the speculators. And the speculations’ money, instead of investing in new products, or creating new industry — which is what investment money is best used for — invests basically in itself : money buying money which buys money to sellers who pay money to buy money sold to them.

By this means money is, basically, taken out of the economy entirely to chase its own tail.

Meanwhile, the 99.9 % of people who have to live by a paycheck — or by public assistance or retirement funds, most of it in forms of social security — find hardly any additional money accruing to them. Between jobs outsourced, layoffs, and outright wage theft — and by making workers be “temporary” status, this eliminating their benefits — companies maximize the amount of money they can spin into the speculative tail chase and into CEOs’ stock option increases.

You would suppose that companies’ own stockholders would reject this policy. They would, except that today the huge money pools own as much a 90 % of all the stock of such firms; they control every part of the company’s money usage.

Not all publicly traded companies suffer money masturbation. Some, like Costco, practice an opposite policy : pay workers generously, limit the CEO’s pay enormously. Companies in which the founding family retains a “control block” — like the Pitcairns of PPG Industries, or the Lilly Foundation of Eli Lilly — also resist being masturbated. In these firms, investment in employees and research takes precedence. Firms operating in enterprises requiring high skill — oil and gas, technology, aircraft — also manage to avoid being jerked off. Thus the economy doesn’t completely fold in upon itself — yet.

So : what to do ? All manner of suggestions have been propounded. we have our own :

1.Reform corporate governance laws so that stock can only vote if owned bona fide by individuals, not money pools or other institutions.

2.raise the minimum wage to a living wage level : $ 15.00 an hour, or, better yet, to a stated proportion of the median income for each state.

3.require publicly traded companies, as a condition of admission to a stock exchange, to have at least one third of its board members be representatives of the firm’s employees; require that each board also have on e consumer representative if the firm’s chief business is selling to retail customers

4.Grant the “Fed” power to impose margin requirements on the buying and selling of all traded financial instruments, not just those traded on formal exchanges.

5.make the classification of employees as “temporary” or as “independent contractors” an unfair labor practice, and fund the NLRB to enforce labor laws by earmarking receipts from stock transfer taxes to the NLRB (and SEC) enforcement personnel and expense.

6.Impose a surtax on firms that move their incorporation offshore.

7.give the “Fed” regulatory power over interest rates and fees charged to consumers by credit card grantors, similar to the regulatory power that state utilities commissions have over public utilities’ rates.

8.move universal health care to Medicare single payer administered by Medicare and Medicaid staffs.

9.make student loans a grant in aid, like Pell Grants, renewable each term upon performance.

10.encourage immigration and regularize the status — including path to citizenship — of all who are here already (except those who have significant criminal records)

You will notice that my list does not include the penalty taxes suggested by Robert Reich and which have been proposed in California. That’s because tax costs can all too easily get passed on to consumers — example : cigarette taxes — and thus fail of the effect intended.

The basic principle of my reforms ? simply this : the economy must work for all, with reasonable fairness, or it can’t work at all.

And by the way : remember that I mentioned Canada toward the front of this story ? I had a purpose : that nation did not allow the speculative practices that we set afoot 20 years ago, nor the banking excesses. Canada’s banks remained “boring,’\” and today, our neighbor to the North has the best-paid middle class in the advanced world.

Let the discussion begin.

—- Mike Freedberg / Here and Sphere

MAGOV14 : FIVE VISIONS FIVE AT SEIU CANDIDATES FORUM

 

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^ the Forum Five (photo courtesy of Chris Condon of SEIU local 509)

Since I last saw the Democratic Five at a candidates’ Forum — about six weeks ago — all have sharpened their profiles considerably. On stage at the SEIU (Service Employees International Union) candidates Forum today, there was lots of specifics, even some debate, and only a touch or two of the vague.

Specific, the five needed to be today. The SEIU’s members do the campaign grunt work and they have an agenda that they insist upon — and which they’ve proven, time and time again, they have the muscle to see enacted. Every one of the five badly wanted the SEIU endorsement. They want its game-on. They need it, and they made their need plain to the gathered attendees — at least 500 strong, a massive showing on a Saturday morning.

In return, SEIU members know which candidates have a chance to win the race and which ones probably don’t. So how did the five do ?

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First, Steve Grossman.

Grossman reminded the gathering — maybe too many times — that they had endorsed him before, and he had always kept his promises and “stood with” them on strike lines and issues fights. He gave voice to more specific agenda items than any of his rivals — policy points are his great strength. But he missed the point of one question — about restoring rights to ex convicts : the right the questioner wanted to hear about was voting right restoration — and, addressing the minimum wage, he said that “I will veto any minimum wage bill that includes an unemployment insurance give-back !” As this give-back is Speaker Robert DeLeo’s price for supporting the minimum wage hike, Grossman opened up the door to a running fight with the Speaker — who, like his predecessor during the entirety of Deval Patrick’s two Governor terms has proven that the Speaker always wins such fights. And that any Governor who fights him comes away weakened. Grossman either is just blowing smoke here, or he has ceded the entire minimum wage issue to Charlie Baker, the almost certain GOP nominee, who has said — no ifs ands or buts — that he accepts Speaker DeLeo’s give-back and can thus get the $ 11.00 per hour minimum wage hike enacted. (Baker has also made the issue of expanding the earned income tax credit his own, and it was interesting to see that at least two of the candidates, Coakley and Avellone, mentioned expanding earned income credits. Two months ago, no Democrat at Forums mentioned it at all.)

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Second, Martha Coakley.

Coakley campaigns with a light touch and an eyes-up grin that often feels snarky. She took a middle route at the Forum : not endorsing driver’s licenses for undocumented people, refusing to grant bargaining rights point-blank to public defender lawyers, sliding away from Don Berwick’s single payer health insurance call. Coakley played careful lawyer : she made clear that she agrees with SEIU’s wage hike and immigrant rights agenda, but maybe not on as all-in a basis as SEIU would like to see. Coakley spoke personally about mental health issues, and with real life stories about income equality; and before the Forum began she posed for many pictures with SEIU’ers who smiled like crazy to be photographed with her. She even said “we have to improve the economy for everybody.”

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Third, Juliette Kayyem.

Kayyem continues to converse at times, in a Forum setting where conversation wanders off message. But she has become much, much more forensic in her approach; at SEIU she made big, clear points addressing criminal justice reform; she rejected Don Berwick’s single payer call, saying “even if it can be done, it can’t happen until 2018. we need a Governor for right now.” Obviously, Kayyem has realized that sweetness and glamour — which she owns in this race — must bring toughness and advocacy aboard. Yet the generalities continue. She said “Massachusetts has done well but we can do better.” Better how ? She posed an actual plan: “three points…Save, share, and grow. save money in criminal justice spending. share it by setting up a ‘green bank.’ Grow by investing in education and comprehensive immigration reform.”

Kayyem stressed her immigrant roots; that she’s a mother and wife; and — taking full advantage of being two decades younger than her rivals — that she is “the young generation ready to govern.”

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Fourth, Don Berwick.

Berwick has no peer when discussion turns to health care. If he were running for Massachusetts Commissioner of Health and Welfare, he’d win by acclamation. He decries our state’s health care failings — its waste, high cost, inequities — as rigorously as Baker is likely to do. Berwick also speaks to income inequity and the “low wage crisis,” as SEIU’s Forum hosts put it, as passionately as anyone, maybe more. But Berwick overshoots the progressive mark. His solution to the health care system’s failings is single payer — a worthy idea, but it isn’t going to happen soon, and as Kayyem said back at him, “we are electing a Governor for now.” Berwick also seeks a graduated income tax (though he didn’t call it that), an idea that Massachusetts voters quite a while ago rejected in two separate referendums and which would hardly entice to our State the businesses which every Forum candidate, Berwick included, say that Massachusetts needs.

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Lastly, Joe Avellone.

Avellone speaks authoritatively about the state’s drug abuse crisis, about recovery and re-entry, and about CORI reform. nd like all the Forum candidates, he supports raising the minimum wage and protection of low-wage workers’ bargaining tights, including extending them to hospital workers who don’t know have that right. Still, Avellone barely seems a possible Governor rather than what he has been, a town selectman. At no place in the Forum did he address the big picture, the massive responsibility sphere that we entrust to the state’s Governor. The Big Dogs of the Legislature would eat Avellone for lunch. So might the State House lobbyists. Avellone made some friends at the Forum; I doubt he won many members’ endorsement.

It was too bad that Charlie Baker wasn’t at the Forum. He had a delegate rally of his own to attend, in Saugus; and the GOP convention takes place next weekend. Still, an opportunity was missed. Baker could have addressed the health care issue authoritatively; the minimum wage and earned income credit; criminal justice reform; homelessness; schools reform; and jobs and innovation — even bargaining rights. It would have been an opportunity to expand his personal reach where a reformist candidate needs be : directly into the most important front of the labor movement, the fight against low-wage situations and all the burdens that low wage work puts on workers and taxpayers alike.

—- Mike Freedberg / Here and Sphere