INCOME INEQUALITY: SOME BASICS

We recently began discussing income inequality in America. We focused our first post on poverty

and who bears the most significant responsibility for attacking the problem of people in our society who don’t have enough for a respectable existence free of want. More recently, we identified and fleshed out barriers to freedom from poverty and income inequality. 

We look now at some of the policy reasons for the divide between those at the top and the rest of the population. A real gap exists between the wealthiest Americans and even the middle class, a circumstance producing anxiety and political instability that feeds our destructive partisan divide. In time, we’ll consider solutions and evaluate proposals offered by the 2020 presidential candidates and others. We think it important we help voters separate real, viable solutions from noise and platitudes.

The Depth of the Problem

We hear much about the “one percent” and how they’ve done better than everyone else.  The numbers tell a disturbing

story of a growing wealth gap in the United States. According to a report by scholars associated with the Roosevelt Institute, since 1980, the share of national income earned by the top 1% doubled, to 20% in 2014, up from 10%. That hasn’t happened in all western democracies. In Denmark, for example, the 1%’s share went up only from 5% to 6%. 

Governmental policies and actions affecting both the top and bottom parts of the economy contribute. At the top, reductions in tax rates gave the wealthy a windfall.  At the bottom, policies negatively affecting wages and job growth suppressed lower income individuals.

Most “tax reform” has benefited upper income tax payers, including the 2017 tax bill the Trump administration touts as its major achievemet. In the

1980s, the top marginal tax rate dropped from 70% to 28% and has remained below 40% since. Capital gains tax changes also heavily favored the wealthy, with 65% of the benefits going to the top 20% of tax payers. More than lower tax rates help the wealthy. Half of tax expenditures – deductions for 401K retirement accounts, mortgages, and the like – go for things from which only the top 20% of tax payers benefit.

Meantime, 80% of job growth has come in low wage service and retail jobs. Worker power through collective bargaining decreased as union membership declined. In 1960, 30% of U.S. workers participated in unions. That dropped to 20% in 1984 and to just over 11 % in 2014. Wages and other compensation stagnated with this development, rising only 19 % between 1973 and 2013, despite a 161% increase in worker productivity. 

 

Government Complicity

Politicians of all ideological stripes like saying government shouldn’t “pick winners and losers” in the economy. Fair enough as a theory, but the idea does not comport with reality or history. In addition to tax policy, government has long been in the business of picking economic winners and losers. Start, for example, with the racially discriminatory housing policies so devastatingly described by Richard Rothstein in his path breaking book The Color of Law: A Forgotten History of How Our Government Segregated America. We exhaustively detailed Professor Rothstein’s findings in a series of posts in 2018 and need not repeat them here in making the point that many governmental agencies frequently pick economic winners and losers. 

The Federal Reserve’s hyper focus on fighting inflation has had the same kind of effect. By tightening the money supply through higher interest rates at the first sign of upward price pressure, the Fed has stopped or reduced the job creating opportunities of large and small businesses and stymied start-up activity by making credit less available. Most progressive economists agree this made returning to full employment slower and more difficult, particularly impacting lower wage earners who have more difficulty insulating themselves from the whims of the business cycle. 

Then there’s the matter of the federal minimum wage. It stands now at $7.25 per hour and hasn’t gone up since July 2009. Opponents of a

higher federal minimum wage, mostly  Republicans, argue raising it kills jobs, despite evidence to the contrary developed by economists like Columbia’s Joseph Stiglitz, a leading income inequality scholar. Whatever the reality on that issue, keeping the minimum wage low disadvantages a large segment of the American economy, giving employers a victory and wage earners a loss. No basis exists for arguing the government hasn’t had a major role in creating our current measure of income inequality.  

Why?

Income inequality exists for many reasons. Some are purely political, like the election of Ronald Reagan and implementation of his tax cuts in the 1980s. Some emanated from fears based on historical events. The inflation of the 1970s, partly sparked by upheavals in international energy markets, helped start the Federal Reserve on its anti-inflation crusade. Some have roots in personal greed, “rent seeking” as economists call the efforts of manipulative players in the economy who extract financial advantage through exploitation.

The reasons for income inequality bring into play a variety of individual and societal factors. The good news is that more people, including some running for president, now think we should do something about the problem. We see paying attention to them in the coming months as a good idea.                    

THE MUELLER REPORT: IMPEACHMENT ANYONE?

We long-awaited Special Counsel Robert Mueller’s report on Russian interference in the 2016 Presidential election. It came out April 18, complete with annoying redactions and spin by Bill Barr, President Trump’s legal flack-in-chief masquerading as Attorney General of the United States.

Trump/Barr

Release of the report, and its damning contents put the ball squarely in the court of Congressional Democrats who must decide about starting impeachment proceedings. Despite Barr’s spin, the report showed the American President suggested witnesses lie, encouraged theft of his opponent’s correspondence, and tried impeding a federal investigation, among countless other bad acts. 

Image of Redacted Mueller Report released April 18, 2019

We’ve been talking about impeachment for several years. With much of Mueller’s report out, the nation arrived at the time for deciding on proceeding with impeachment or not. The report paints a picture Congress can’t ignore.  

Impeachment starts in the House of Representatives with

Judiciary Committee hearings. Should it approve articles of impeachment, a full House vote follows. Onlyafter a majority House vote favoring impeachment would the Senate hold a trial on removing Trump from office. 

Woodson: Act Now!

This isn’t a hard call for me. Trump has so compromised our democracy, endangered national security, and imperiled the rule of law, Congress must move on impeachment. If the things Trump did (or asked that others do on his behalf) don’t represent “high crimes and misdemeanors” what does?

Being President imposes a higher standard than not being

criminally indicted. Trump claimed exoneration because Mueller didn’t find sufficient evidence for a criminal prosecution based on conspiracy with the Russians or obstruction of justice. A President, however, swears he or she will take care that the laws are faithfully executed. Just avoiding being charged with a crime doesn’t meet that test.

Some, like House Majority Leader Steny Hoyer (D-Md.), think impeachment still isn’t in order because the people will pass judgment on Trump at the ballot box in 18 months. Others say pursuing impeachment will backfire on Democrats. I believe not pursuing impeachment will backfire on Democrats. Many voters may conclude that if Congress won’t do its job and protect our institutions, what’s the point? Perhaps we’ll just stay home in 2020.

Republican George Conway shares my view. The husband of Trump advisor Kellyanne Conway writes in the Washington Post, “the Mueller Report disturbingly shows, with crystal clarity … there is a cancer in the presidency: Donald J. Trump.

“Congress now bears the solemn constitutional duty to excise that cancer without delay … Charged with faithfully executing the laws, the President is, in effect the nation’s highest law enforcement officer [yet]  the Mueller investigation found multiple acts by the President that were capable of exerting undue influence over law enforcement investigations.”    

    

Rob: Fence Sitter

Woodson makes a persuasive case for moving forward with impeachment. Trump’s vile acts would earn any other citizen a place under the jail. The President’s behavior offends me and I agree being President requires more than being un-indictable. Congressional responsibility for protecting the nation goes beyond political considerations. I get that.

Yet, I am torn. This nation needs most an end to the Trump Presidency. Two concerns drive my thinking that impeachment may not constitute the best way of getting rid of Trump. First, unless the report’s release changes the narrative, it’s clear this issue doesn’t motivate voters. Few people ask about Trump’s sins at town hall meetings and rallies in early primary and caucus states like New Hampshire and Iowa. Voters care about the economy, health care, and climate change. Putting a focus on impeachment doesn’t drive voting, at least not now. 

My second fear lies in the possible result of trying

Barr at pre-release conference

impeachment and failing. Barr’s pre-release news conference showed how Trump’s allies will cast anything that even sounds exculpatory. Because Mueller didn’t charge Trump with a crime, Barr exonerated him. Think of what Barr, and others, will do with an acquittal in the Senate, where removal from office requires that 20 Republicans join all the Democrats in voting for conviction. Impeachment may get rid of Trump and I understand the moral and constitutional duty Congress arguably has. But something tells me we should let voters decide this, so I ride the fence.

Henry: Tell Us More

It’s clear Americans have not yet been educated about the

depth of Trump’s deplorable conduct. Unlike Watergate,when a long string of events (like the Saturday Night Massacre) and public hearings prepared the country for the impeachment process, the Mueller Report gave us our first detailed account of the Trump horrors, like the ten ways he potentially obstructed justice. We didn’t know how blatant some of his lies—and those of his staff – were, like news secretary Sarah Sanders admitting her statements claiming FBI employees called the White House complaining about fired director James Comey “were not based on anything” (in other words, she made it up).

Before moving forward with impeachment, the Democratic House should continue the oversight process already underway in committees. Those committees should hear

from Mueller. They should keep pursuing a fully un-redacted version of the report. Impeachment lies over the horizon, but Congress must tread carefully and deliberately. I know this approach risks encroaching on the 2020 election, but I still see it as the most prudent course. 

In many ways, I agree with Woodson and Rob. Woodson correctly concludes Congress must fulfill its responsibility for upholding the rule of law. In this instance, meeting that responsibility may mean taking on impeachment, even with the political risks Rob identifies and fears. The deliberate process I’ve suggested can mitigate some of that risk. Once people understand how badly the President behaved, I see a good chance Americans will find themselves ready for impeachment and may view it as a necessity.                                      

IDENTIFYING THE BARRIERS TO FREEDOM FROM POVERTY AND INCOME INEQUALITY

We have begun a series of blogs discussing the subjects of poverty and income inequality in  America.  We think that the

subjects are important because freedom from poverty or to change one’s income status is fundamental to American democratic values.  We live in a constitutional democracy where, in theory, every person has a legal right to move through the classifications of the poor, middle class, upper middle class, super rich, and back again.  In other words, we do not operate within a caste system. 

 

While we are a democracy, the system that governs our economic activity is capitalism, and it impacts democratic principles and process.  In America, capitalism has often been tempered with socialism.  Democracy does not guarantee poverty will not exist.  Poverty may occur as a result of a lack of an economic inheritance or the failure to accumulate wealth for a variety of reasons.  Economic inequality can result from a failure to exploit available resources or through a denial of access to such resources.

As we indicated in our earlier blog, Poverty in America:  Where Do We Start and Who Should Address It? income inequality and poverty negatively affect the lives of millions of Americans.  Here we offer two visions that shed some light on the challenges that must be overcome if Americans are to solve this problem.  For those who have visited the countryside, this first vision will likely resonate.  For city dwellers or those who are unfamiliar with the countryside, it might be less effective.  

Imagine for a moment that there exists a beautiful meadow.  In this meadow, the terrain is generally level and the sod is dense and soft.  There are fruit trees and a variety of other

plants and vegetation that serve its inhabitants.  The sun shines on every corner of this meadow, except when it is shielded by the clouds that moderate the sun’s heat.  The wind blows, but not too strongly.  Here Americans work and play and each has a fair opportunity to take advantage of the benefits of this meadow.  Beautiful homes are constructed with well-manicured lawns and safe places of worship.  There are rules governing the behavior of its occupants, but the rules apply equally to all who live there.  In this meadow one lives the American dream.

We now move to a second vision, a jungle.  Many Americans

must traverse this jungle before accessing the meadow.  The

jungle consists of thick underbrush, large trees with low hanging limbs often inhabited by threating reptiles and holes often deceptively dangerous terrain waiting to trip-up the unwary traveler.  In this underbrush are snakes of all varieties and other dangerous animals.  This jungle lacks access to medical services and job training.  There are waters to cross, some navigable others not, and in some locations, rapids.  In other locations, one finds marshes.  For the untrained, unguided, reckless, foolish or poorly equipped, the passage is life threatening.

The second version is intended to highlight the real-life obstacles that one must overcome to reach the meadow, unless, of course, one is born in the meadow.  Those born in the jungle begin in poverty as the descendants of slaves and the heirs of slavery’s legacy.  Those inhabitants were  not

allowed to accumulate wealth, thanks to redlining, sexual discrimination and other barriers.  African Americans were denied the right to vote and deprived of government programs from which other Americans benefited.  Many in this jungle were born with or contracted a disease or suffered a debilitating defeat.  A poor neighborhood with poorly equipped schools and parents who were themselves powerless, due to ignorance and poverty, stopped others.  In this jungle are people reduced to poverty because of calamitous medical bills, from unanticipated illness.  

For some, the jungle was navigable until the jobs left due to globalization, i.e., companies that  once provided jobs left

because of cheap labor in Viet Nam, Pakistan, China, or India.  For others, the companies did not leave the jungle, but many of the jobs did, lost to mechanization and technology.  Fewer workers were needed for the few remaining jobs, because technological advancement reduced the demand for manpower.  For others, the jobs in the jungle remained but wages stagnated because unions were stripped of their capacity to demand of employers a living wage or even an increase in the minimum wage.  Yes, there are people who find themselves in this jungle, though, they did not elect to be there and would leave if shown a way out and the barriers to their exit were removed.

We want every person who wants to reach the meadow to have every opportunity to do so.  In the days and weeks ahead, we will share with you our views on how access to the meadow can be gained i.e., how these barriers might first be identified and then removed.  We hope that you will share with us your views.  We believe America’s life depends on us finding a way through.