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The broken US economy breeds inequality and insecurity. Here’s how to fix it | James C. Galbraith


Rrising interest rates, a falling stock market, fluctuating gas prices, a high dollar, and global financial chaos – all of which once again show the folly of trying to run the world’s largest economy through a central bank. It’s time to rethink the basics: What happened to America? And what should be done?

Adam Smith wrote: “Wealth, as Mr. Hobbes says, is power.” Today in the United States we find islands of wealth and power on one side and the ocean instability and powerlessness, next to poverty, on the other. This is a structural development over 50 years, the impact of policy and politics, as well as industrial change, globalization and new technologies, with intense regional, social, demographic and political consequences.

From the 1930s to the 1970s, America had a middle-class economy centered in the center of the country that fed and supplied the world with machines and goods while drawing labor from the impoverished South to the prosperous Midwest—an economy dominated by powerful unions and corporations. in the world. . It has become a two-coast economy, dominated by globalized finance, insurance and high-end services on one coast, and information technology, aerospace and entertainment on the other.

Finance and technology do not create many jobs and doing business in these sectors is predatory and predatory, overshadowing often into fraud. A few years ago, we calculated the rise in income inequality between counties during the boom years of the 1990s and found that half of the increase was due to increased income in just five counties: Manhattan, Silicon Valley, Seattle. There have been other big gains since then, but the fact remains that the greatest profits and wealth in America are concentrated in a few very specific places, sectors, and people.

However, virtually all of the new jobs created over the past 30 years have been in services, and most of them in “stagnant services” – an abundance of restaurants, retail stores, hospitals and clinics, offices and entertainment venues fueled by household incomes (and debt) that exceed the needs for material goods. The pay in these jobs is mediocre and employment is unstable. Families were compensated by having two or more workers, each of whom sometimes held two or more jobs, whereas 50 years ago, one person with a full-time job paying a living wage was the norm. Then Covid blew up the sector.

For better or for worse, we cannot go back: globalization and the digital revolution are irreversible facts of life. White House June 2021 Supply Chain Review made this very clear using semiconductors, rare earth elements, batteries and pharmaceuticals as examples. Our developed sectors need global markets, including China, as much as they need access to global resources. American consumers are benefiting from imported goods and from the efficiency of the information age.

Question: What should we do now? We can adapt and build a just and secure middle-class society, free of poverty and oligarchy, with tools that are widely familiar. These tools include:

Extension of social insurance

Social Security, Medicare, Medicaid, unemployment insurance, and Snap already greatly reduce poverty, insecurity, and hunger in America. They can be expanded and strengthened. If we can’t get Medicare for everyone, then lower the age of eligibility to 55 years – which will cover a significant portion of the most vulnerable population groups and instantly reduce the burden of private health insurance for employers.

Raise the minimum wage

Federal minimum wage of $15 per hour would provide a raise for at least 20% of all working Americans. This would instantly solve the supposed problem of “labor shortages”—without prejudice to any employer relative to any other. It also wouldn’t encourage immigration, as US workers would start taking decent-paying jobs.

Implement a job guarantee

Federal job guarantee a well prepared proposal it would eliminate involuntary unemployment, establish a basic wage standard, and provide willing workers with continuous employment on useful projects, giving private employers a labor pool from which they can easily recruit the workers they need.

Stabilize energy prices and supplies

The TVA and other agencies provide stable food on long-term contracts. Why manage oil and gas private capital based on boom and bust? Stabilize energy prices and supplies – through regulation, quotas, price controls (as in Germany now), long-term contracts and communal services – and many other problems would become much easier to solve.

Build public services, infrastructure and fight climate change

And to do so while reducing military commitments and spending. The main task of infrastructure is to improve the quality of life with clean water and air, good transport and communications, and – urgently – to change the mix of resources to mitigate global warming as much as possible. We cannot meet these needs and at the same time devote our talents and resources to wars – the limits of which are obvious after Afghanistan and Iraq. It is time to end the illusion that the United States can or should rule the world.

Shift taxation towards land rent

Excellent principle of classical economics was that taxes should encourage work and enterprise while discouraging waste in both the public and private spheres. In the 1980s, taxes were shifted from personal and corporate income and capital gains to wages and sales – and the unsurprising result was the rise of an oligarchy of the super-rich. The remedy now is to tax these savings and the associated rents – land values, mineral rights, technology “quasi-rents” – to bring the new plutocrats back to the land. A stronger estate and gift tax could encourage the transfer of large fortunes to foundations and nonprofits such as hospitals, universities, and churches while working to prevent dynasties, financial and political.

Reform banking before it’s too late

The The Glass-Steagall Act protected the middle class – the ordinary commercial bank depositor – from the speculative whims of the elites. Today, big money is back in power, despite the Great Financial Crisis – and much of the American public, as well as the world at large, is fed up with it. Perhaps the most drastic and necessary reform is reducing debt, including student debt, shrinking banks, restoring effective regulation, prosecuting fraud, and disciplining finances to serve the public good. It will take the fun out of being a banker and the intoxicating power of running the Federal Reserve.

Is this program real? Perhaps not. But think about the path we are on. I offer an alternative – pitchforks, anarchy and civil war.

  • James K. Galbraith holds the Lloyd M. Bentsen Jr. Chair in Government and Business Relations at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin. In the 1970s, he drafted the monetary policy surveillance provisions of the original version of the Humphrey-Hawkins Full Employment and Balanced Growth Act

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