Who cares about economic growth if it all gets funneled to the 1%? I don't understand how raising taxes on Mitt Romney and his friends will result in even income distribution. Won't it only ensure that the Government gets more of the 1%'s disproportionately high share of income? That's better than the alternative, but not enough ... is there a way to make income growth less uneven to begin with?
In the same way that Romney can't "connect the dots" between his tax cut/deregulation agenda and middle/lower class wealth creation, Obama has failed to adequately explain how his policies will address poor growth, job creation, and, most importantly, income inequality.
Personally, I think the problem runs deeper than tax rates, tax loopholes, and which entitlements get cut. I think it's a simple question of priorities - who do our leaders take care of first and where is their emphasis?
I promise to get back to income inequality shortly, but there's something really annoying about the current debate over jobs ...
It's bizarre that in the intense debate over unemployment, both sides rarely reference the Federal Reserve -the one institution with the specific mandate to maximize employment. Imagine having a debate about defense policy that doesn't reference the military, or a debate about the budget that doesn't reference Congress. That would be weird, right?
I think this is a HUGE advantage for Republicans: the jobless rate is too high, Obama's the president, and it's all his fault. That's an easy narrative.
Republicans, of course, are critical of the Federal Reserve, but it's along very different lines. You see, to them, the Federal Reserve has done too much to facilitate job creation. They would never put it quite that way, because the emphasis isn't on monetary policy and job creation - rather, it's on monetary policy and inflation risks.
Put simply, Republicans don't believe that the Federal Reserve should be mandated to maximize unemployment. The sole emphasis of the Monetary policy should be price stability. The can never be any inflation risk under any circumstances. This emphasis reveals their real priority, and it's clearly not jobs.
Here's the thing - if inflation rose from the current 2% level to 2.5% or 3% - most people would barely notice. In fact, may debtors would benefit, including the Government - it'd make the paying off the national debt easier. But banks and investors would FREAK OUT. Many of their investments depend upon historically low levels of inflation. Put simply, it would endanger their profit margins.
There's a mildly interesting debate over the labor market's impact on monetary policy. The main thrust of that debate:
“In an environment where the actual unemployment rate is not coming down, at least not quickly, I think there’s still room for monetary policy to do more,” said Goldman Sachs Chief Economist Hatzius, whose estimate of the so-called natural rate of unemployment that triggers inflation is just below the 6 percent calculation of Fed researchers. “My view of this is pretty similar to the Fed’s.”
At Pimco, co-Chief Investment Officers El-Erian and Gross estimate the natural rate is closer to 7 percent.
“Our analysis strikes a different balance between cyclical and structural factors,” Newport Beach, California-based El- Erian said in an e-mail after Bernanke’s Aug. 31 speech. “It places greater emphasis on structural headwinds, including segments of the labor, housing and credit markets.”
What does this have to do with income inequality? Notice how the entire debate centers on the point at which the jobless rate would cause inflation risks to escalate. Some say 6%, others say 7%. But implicit in that debate is that even the slightest risk of inflation should be avoided, even if that means millions must remain jobless. Both sides are on board with this position.
The investor class can't have their profit margins threatened, no matter how many wage-earners are unemployed. Their biggest nightmare: unemployment gets too low, workers are able to demand higher wages, which pushes price levels higher. The horror!
My point here isn't that we should or shouldn't have expansionary fiscal policy (although I think we should). Nor is it that I think "structural factors" are bogus. Instead, my point is that the priority, the emphasis, is entirely about what they can do without risking inflation. In other words, they'll do what they can to help wage-earners, so long as their is no risk to investors.
Investors get preferential tax rates. Investors must be protected from inflation at all costs. "Job creators" (Republican-speak for investors) need to be taken care of so that they can start hiring.
This is far beyond a slightly higher tax rate for people making more than $250K. This is about reversing the pervasive policy priorities for elite, investor interests over wage-earners. I'd like to see Democrats demonstrate how they will change priorities regarding monetary policy and regulation, along with taxing and spending policies.
The root cause of income inequality isn't a mystery. It exists because those in power prioritize the richest over everyone else. Only when income inequality is addressed can we ensure that economic growth is even worthwhile. How are you going to do this Mr. President?