Even Forbes Gets It. Why Can't Steve Harper?

Forbes, yes that Forbes, the business magazine understands the damage that income inequality is exacting on America's economy.

New research indicates that growing income inequality isn’t just unpleasant; it is seriously hurting the U.S. economy. And economists are figuring out just how the damage is done, according to a fascinating new article by the journalist Jonathan Rauch in National Journal. This challenges a long-standing consensus that, as Rauch puts it, “inequality is the price America pays for a dynamic, efficient economy. . . . As long as the bottom and the middle are moving up, there is no reason to mind if the top is moving up faster.”

...The Congressional Budget Office recently reported that between 1979 and 2007 the top 1% of households doubled their share of pretax income while the share of the bottom 80% fell. Then came the great recession. Economists including David Moss of the Harvard Business School noticed that “the last time inequality rose to its current heights was in the late 1920s, just before a financial meltdown. . . . In 2010, Moss plotted inequality and bank failures since 1864 on the same graph; he found an eerily close fit.”

 But does that imply a cause-and-effect relationship? It looks that way, Rauch writes. Economists have been tracing the following chain of causality. Those who make the least consume the most of their income; those who make the most tend to save a great deal, and for that reason, according to the economist Christopher Brown, at Arkansas State, “income inequality can exert a significant drag on effective demand.” Rauch writes that

 In a democracy, politicians and the public are unlikely to accept depressed spending power if they can help it. They can try to compensate by easing credit standards, effectively encouraging the non-rich to sustain purchasing power by borrowing. They might, for example, create policies allowing banks to write flimsy home mortgages and encouraging consumers to seek them. Call this the “let them eat credit” strategy.

Then “the economy, propped up on shaky credit, becomes more vulnerable to shocks. When a recession comes, the economy takes a double hit as banks fail and credit-fueled consumer spending collapses.” The instability this time was worsened by the fact that the ever-richer richest Americans “needed liquid investments into which to put their additional wealth. Their appetite for new investment vehicles fueled a surge in what Arkansas State’s Brown calls ‘financial engineering’—the concoction of exotic financial instruments, which acted on the financial sector like steroids.”

So as income inequality grew, the government propped up spending by promoting easy credit for less wealthy Americans, and much of the profit from that easy credit fed the wealth of the richest, widening the gap between rich and poor yet further. “Alas, when the recession struck, the financial sector’s gigantism and complexity helped turn what might have been a brush fire into a meltdown.”

There doesn't appear to be much new in the Rauch article that isn't already well chronicled in Stiglitz' The Price of Inequality and other works.  It's just that even the voice of business is now speaking out and accepting income inequality as a scourge on the economy.

When will the Conservatives, or the Liberals for that matter, finally get it?   This is a problem that, even in Canada, can rapidly get out of control and the more it grows and the further it damages the economy, the harder it will be to rectify.

The Opposition Doesn't Much Care But Canadians Do

Harper, freely aided and abetted by the opposition parties in our Petro-Parliament, has been pulling Canada's political centre to what, in decent times, would have been considered the far right.

It's been almost assumed the Canadian public was like-minded.  Maybe not.

A survey commissioned by the Broadbent Institute has found Canadians support higher personal taxes and higher corporate taxes to close Canada's ever expanding gap between rich and poor.

The survey of 2000 Canadians, commissioned by the left-leaning Broadbent Institute, found that 23 per cent are "very willing" and 41 per cent are "somewhat willing" to pay slightly more tax in order to protect social programs such as health care, post-secondary education and pensions.

The Broadbent Institute, named after the NDP's former leader Ed Broadbent, argues that protecting social programs would help reduce income inequality.

Liberal and NDP voters are the most supportive of this proposal, the results showed, but 58 per cent of Conservative voters are also in favour of it.

"This attitude toward paying slightly higher taxes is reflected equally in high-income and middle income Canadian households. It's only their governments who are offside," the report, the first from the newly established think tank, said.

But being offside of the public interest is standard form for governments of petro-states, countries like today's Canada.

Inequality at 30-Year High

Inequality in wealth quickly metastasizes into other afflictions including inequality in income and inequality in opportunity.  It chokes off social mobility and nurtures the ascendancy of an oligarchy in which political and economic power is siphoned away, particularly from the middle classes, to a new ruling order.

Now the OECD reports that inequality among its membership, the developed nations, has reached a 30-year high.  Across the OECD, the richest 10% enjoys incomes nine times that of the poorest 10%.  That gap is 14-1 in the US, Turkey and Israel and, in America at least, it's growing rapidly.

As clearly shown in Wilkinson's and Pickett's, The Spirit Level, this sort of inequality rapidly undermines societies and manifests in a host of social ills including  mental health, drug use, physical health and life expectancy, obesity, educational performance, teen births, violence, imprisonment and punishment and social mobility.  It lowers the quality of life for all sectors, including the wealthy, except for the very wealthiest, what is referred to today as the 1%.   It lowers the nation, the society, the individual.  Yet for some reason, presumably anchored in ignorance, the Right persists in advancing policies that promote inequality.

Whether it's America's bought and paid for Congress or Harper's Conservative regime, the Right today is a devoutly corporatist movement.   Their interests are so at odds with the welfare of the public, including most of those who vote them in, that they must rely on a powerful corporate media to mislead, confuse and misdirect them.   The grand masters of this are the denizens of FOX News, the subject of recent studies that chillingly show that FOX viewers are more poorly informed on events than those who get no news at all.   In other words, FOX exists solely as a corporatist propaganda agency to manipulate voters through misinformation and misdirection.  To get a sickening look into the political perversion that is FOX News, just visit mediamatters.org.

This incestuous marriage of corporatist politics and corporatist media is the very outcome foreseen by those who championed in the 60s and 70s regulations to thwart concentration of ownership and cross-ownership in the media.   For a while we seemed to understand the obvious, that broad and diverse media ownership was the key to ensuring an informed voting public that was nurtured by ready access to the full range of political thought.   And that is why the key to breaking down this diabolical corporatist union and de-corporatizing our political institutions is to utterly dismember the media cartels, something the opposition is curiously leery of advocating.

Which leads to the next woe - the utter absence of opposition to the Harper regime.   Neither the Official Opposition NDP nor the Liberals are earning their parliamentary pay and Harper is grateful for their flaccid performance.  The three out of five voters who didn't support Harper are blatantly unrepresented in this Parliament.   And with that lack of representation, Parliament has lost its credibility, even its legitimacy.   Harper simply could not have bought a better opposition than the lame excuse that faces him across the aisle today.

The type of government Canada endures today - the secretive, manipulative, duplicitous and authoritarian regime in power riding herd over a gaggle of petro-pols on both sides of the aisle - should be rejected out of hand.   If we want our interests respected relying on Ottawa is counter-intuitive and self-defeating.   A perfect example is the Northern Gateway pipeline.

In late November, the Pembina Institute, the Living Oceans Society and the National Resources Defense Council released a damning report on the proposal to ship Athabasca bitumen across British Columbia for supertanker transport to Asia.   The report, in PDF format, is accessible by following the earlier link.  The 32-page report exposes Harper's scam in sickening detail.  The high point of the report is reference to a survey conducted in April, 2011 that found 80% of British Columbians solidly opposed to tanker traffic in our coastal waters.   That is why I believe if they proceed with this they will see a wave of civil disobedience previously unknown to Canada the scope of which is unforeseeable.

Any doubts about the Right's corporatist embrace are dispelled by their stated intention of fast-tracking this pipeline/tanker port project over the will of 80% of the people in the area affected.  That's about as undemocratic as it gets.  It is precisely the sort of authoritarianism that legitimizes mass civil disobedience.

We have to start dismantling  Stephen Harper's Canada limb by limb.  

The American Disease Jumps Our Border

Income inequality might as well be called the American Disease if only because it is far more prominent there than anywhere else in the developed world.

Canadians, or at least many of us, like to think of ourselves as superior to that what with our egalitarian social safety net and all but we need to drop that smugness - now.  Carol Goar sounds the alarm on income inequality taking a firm hold in Canada in the 21st century and it's a warning we must heed.

Last week, the Canadian Centre for Policy Alternatives published a study by senior economist Armine Yalnizyan that showed the richest one per cent of the population reaped an unprecedented one-third of the gains from economic growth between 1997 and 2007. She has written about the growing gap between Canada’s corporate elite and the rest of the population before. But this time, her message got people talking.

In October, Penguin released a new book by Toronto Star columnist Linda McQuaig and Osgoode Hall tax professor Neil Brooks called The Trouble with Billionaires. It argues the excessive inequality in North America is bad for democracy, bad for the economy and bad for society. The book is getting respectful reviews in unexpected places. Here is what Jonathan Kay, managing editor of commentary at the National Post, wrote in the current issue of the Literary Review of Canada: “Given the somewhat radical left-wing bona fides of McQuaig, I was surprised how reasonable I found many of the arguments in this book.”

I have written on the bitter scourge of income inequality at length.  You might wish to check out these posts:

 " A Must-Read for the Liberal Right"

 "
  Robert Reich Dissects America's New Great Recession.  The Real Culprit?  Inequality."


" The Century of Revolution."


" Robert Reich's  Rational Plan to End the Great Recession."

There was a time when Liberals weren't afraid to fight income inequality, perhaps back when they respected liberalism.   I don't sense that inclination in today's laughably timid and feckless, centre-right Liberals.

Robert Reich's Rational Plan to End the Great Recession

Reich is right.  The fundamental economic disorder so miserably afflicting America's (and the developed world's) economy is inequality.  Income inequality to be precise.  The bottomless wealth chasm that has opened up between the richest of the rich and the now distant and reeling middle class.

In today's New York Times, Reich explains how America blundered into the Great Recession and the only way it can dig itself out.  The path to ruin:

This crisis began decades ago when a new wave of technology — things like satellite communications, container ships, computers and eventually the Internet — made it cheaper for American employers to use low-wage labor abroad or labor-replacing software here at home than to continue paying the typical worker a middle-class wage. Even though the American economy kept growing, hourly wages flattened. The median male worker earns less today, adjusted for inflation, than he did 30 years ago.



But for years American families kept spending as if their incomes were keeping pace with overall economic growth. And their spending fueled continued growth. How did families manage this trick? First, women streamed into the paid work force. By the late 1990s, more than 60 percent of mothers with young children worked outside the home (in 1966, only 24 percent did).


Second, everyone put in more hours. What families didn’t receive in wage increases they made up for in work increases. By the mid-2000s, the typical male worker was putting in roughly 100 hours more each year than two decades before, and the typical female worker about 200 hours more.


When American families couldn’t squeeze any more income out of these two coping mechanisms, they embarked on a third: going ever deeper into debt. This seemed painless — as long as home prices were soaring. From 2002 to 2007, American households extracted $2.3 trillion from their homes.


Eventually, of course, the debt bubble burst — and with it, the last coping mechanism. Now we’re left to deal with the underlying problem that we’ve avoided for decades. Even if nearly everyone was employed, the vast middle class still wouldn’t have enough money to buy what the economy is capable of producing.


Where have all the economic gains gone? Mostly to the top. The economists Emmanuel Saez and Thomas Piketty examined tax returns from 1913 to 2008. They discovered an interesting pattern. In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation’s total income; by 2007, the top 1 percent took in 23.5 percent of total income.

...The rich spend a much smaller proportion of their incomes than the rest of us. So when they get a disproportionate share of total income, the economy is robbed of the demand it needs to keep growing and creating jobs.

What’s more, the rich don’t necessarily invest their earnings and savings in the American economy; they send them anywhere around the globe where they’ll summon the highest returns — sometimes that’s here, but often it’s the Cayman Islands, China or elsewhere. The rich also put their money into assets most likely to attract other big investors (commodities, stocks, dot-coms or real estate), which can become wildly inflated as a result.

This is precisely what author and Republican, Kevin Phillips, described in his 2005 book, American Theocracy.  Phillips chronicled how every Western superpower over the centuries has caused its own downfall by outsourcing manufacturing in a quest for cheap-labour driven profits, thereby using its wealth to grow its successor's economy.
 
How can America, caught in this bind, dig itself out?  Not by eating the rich, not really:
 
"...THE Great Depression and its aftermath demonstrate that there is only one way back to full recovery: through more widely shared prosperity. In the 1930s, the American economy was completely restructured. New Deal measures — Social Security, a 40-hour work week with time-and-a-half overtime, unemployment insurance, the right to form unions and bargain collectively, the minimum wage — leveled the playing field.



In the decades after World War II, legislation like the G.I. Bill, a vast expansion of public higher education and civil rights and voting rights laws further reduced economic inequality. Much of this was paid for with a 70 percent to 90 percent marginal income tax on the highest incomes. And as America’s middle class shared more of the economy’s gains, it was able to buy more of the goods and services the economy could provide. The result: rapid growth and more jobs.


By contrast, little has been done since 2008 to widen the circle of prosperity. Health-care reform is an important step forward but it’s not nearly enough.

...Policies that generate more widely shared prosperity lead to stronger and more sustainable economic growth — and that’s good for everyone. The rich are better off with a smaller percentage of a fast-growing economy than a larger share of an economy that’s barely moving. That’s the Labor Day lesson we learned decades ago; until we remember it again, we’ll be stuck in the Great Recession."
 
Reich's evaluation of the American problems and solutions should resonate with Canadians also.   Thanks only to an economy more heavily weighted on resources that manufacturing (at least compared to the U.S.), Canadians benefitted from having a greater hunk of our economy that couldn't be shipped overseas.  That said, we have also allowed a potentially debilitating wealth gap to grow in Canada.   As demonstrated in the book The Spirit Level, income inequality is a scourge to every country, every society - at least those within the developed world.
 
Curiously, however, income inequality, the widening gap between rich and poor, is an issue that never passes the lips of Stephen Harper or Michael Ignatieff.   For Harper that's predictable.   For Ignatieff it's worrying.