Tuesday, August 26, 2014

Wealth Transfer Doesn't Mean the Welfare State

Manufacturing jobs used to pay well, and they could again. Who would that hurt?

Income inequality.

Asking if those two words are good for the economy or bad for the economy is truly a Rorschach test for today's politics. Conservatives will say it's good because it puts money in the hands of the "job creators." Liberals will say we're short-changing workers and stifling economic growth while allowing massive amounts of capital to accumulate among a handful of winners, you know, the 1% or, more accurately, the .1%.

Also in the mix of current outcomes is the lower tax burden at the top, exacerbating income inequality and starving government, especially by cutting public-sector jobs and benefits and underfunding and understaffing government agencies.

And yes, also in the mix is a tension between social welfare programs -- which, if not being cut, are also being underfunded -- and austerians who would cut them further.

But stepping back away from the politics, one finds that the key here is stagnant wage growth. Yes, there are winners at the top, as corporate profits soar, but there are losers all over the income spectrum: Even upper-middle-class workers are seeing earnings contractions -- if these workers are still in the upper-middle class at all. And the middle class itself, once the driver of the U.S. economy, is falling off a cliff, leading economists to surmise that we're in for a long economic winter referred to as secular stagnation.

What is secular stagnation? It's a situation in which job growth is slack, what new jobs are "created" pay lower wages, and demand remains slack. GDP used to track population growth, but it can't in a secular stagnation because low wage growth, among other things, limit demand growth. As they say, it ain't rocket science. If I have no money, I don't spend. If I have money, I do spend.

Bottom line: Money accumulated at the top has lower velocity. It moves through the economy slowly, if at all. Money in the lower quintiles moves faster because the less well-off you are, the faster you empty your wallet, not because you're stupid but because you're needy, even hungry. This velocity, as money repeatedly changes hands within the economy, is what drives economic activity and growth.

Rising wages might be the best way to stimulate an economy, even if it comes at the expense of businesses, which just might thrive because of rising demand. It's a wash, this wealth transfer, and a good wash indeed, but tell that to the conservatives who don't want you to find out that money at the top -- and the lower taxes they "purchase" with their wealth -- isn't the best outcome. You just might find out that money redistributed is what lifts all boats, and that would be political disaster for the conservative cause.

Why? Because once that canard known as the "job creators" is shown to be the fraud that it is, what else to they have, drill, baby, drill and bomb, bomb, bomb? Yeah, maybe so.

The Puritans, the forefathers of the conservative movement, believed in
predestination. In other words, God picks winners and losers. Sound familiar?

Once you accept that rising wages lifts all boats, how do you raise wages? Through collective bargaining, that's how. It's called unionism. Sure, you could raise the minimum wage, which should be done, up to a living wage. But to revive the middle class -- and let it start spending again -- we need more than a raise of the minimum wage. We need real wage growth, and that takes wage negotiations between business and labor on a level playing field, and that takes unions. It worked for America in the past, and works in much of Europe today. And what's wrong with that?

Nothing at all. But tell that to the "job creators." I mean, er, the wealthy.

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