Tag: Economy

It’s Our Job To Finish Dr. Martin Luther King’s Economic Justice Work

I recently travelled to Memphis to headline an event at the National Civil Rights Museum in the Lorraine Motel, the place the Reverend Dr. Martin Luther King Jr. was assassinated on April 4, 1968.

While in the hotel, I pictured the trajectory of the assassin’s bullet. With deadly and unstoppable force, the single bullet hit Dr. King’s cheek, shattered his jaw, hit his spine and landed in his shoulder. It was hard to shake the experience of being in the place where he was murdered. It was even harder to reconcile that Dr. King was killed while attempting to stir up the conscience of a nation and bring relief for striking sanitation workers.

The night before his death, Dr. King delivered a prophetic speech where he critiqued the conditions of America that forced African Americans to contend daily with poverty and injustice. In his remarks, he was lifting the veil of what Black people were experiencing. He spoke a liberating and piercing truth that “the nation is sick and the land is in trouble.” He saw African Americans as the canary in the coal mine, reasoning that the Black struggle paralleled the human struggle. In his mind, the nation couldn’t really be free until all of its people were free.

Dr. King reminded the crowd that an awaking was happening in the United States and abroad among people who wanted to be free. He proclaimed a human rights revolution that required action to ameliorate poverty, hurt and neglect. He said if that did not happen, the entire world would suffer from moral failure.

His words and his vision were radical, and his message and purpose were to disrupt the status quo.

While it seemed unlikely at the time, and while he was clear that he himself might not see it, Dr. King was convinced that we, as a people, would get to the promised land. More than 50 years after his death we are farther along but still on a journey to get to the promised land. You may ask, “How will we know when we’ve arrive?” We’ll know we’re there when the notion of income inequality is a lesson in history books, or when universal healthcare and a $15 minimum wage are baseline expectations. We’ll know we’re there when politicians embrace, rather than malign the poor.

At a time when income inequality is the highest it’s ever been, I believe we are on the verge of another great awakening. The awakening is spurred by people who have been left behind by economic injustice, and it’s time for our elected leaders to hear the pleas of the people. As history would teach us, struggles for justice rarely end, they just evolve. Dr. King had a dream, but clearly we are a nation still dreaming. He dreamed of a day when our sons and daughters would be judged by the content of their character rather than the color of their skin. We dream of a day where elected leaders see the humanity of all people regardless of the color of their skin or the zeroes in their bank accounts.

While he dreamed, Dr. King also took action. He wasn’t passively hoping for progress, he was working to make his dream of racial and economic justice a reality. We are obligated to continue the work. Dr. King and others gave the ultimate sacrifice. Our sacrifice is time and energy. Everyone can do something. We can run for office, we can organize in our local communities, we can push for progressive policies and we can challenge our elected leaders to continue pushing this nation to live up to our foundational creed; “all men are created equal and are endowed by their creator with certain unalienable rights, that among these are life, liberty, and the pursuit of happiness.” Our collective obligation is to take his memory and continue working to move our nation and world forward.

Anything less is betrayal.

Trump’s Big Buyback Bamboozle

Trump’s promise that corporations will use his giant new tax cut to make new investments and raise workers’ wages is proving to be about as truthful as his promise to release his tax returns.

The results are coming in, and guess what? Almost all the extra money is going into stock buybacks. Since the tax cut became law, buy-backs have surged to $88.6 billion. That’s more than double the amount of buybacks in the same period last year, according to data provided by Birinyi Associates.

Compare this to the paltry $2.5 billion of employee bonuses corporations say they’ll dispense in response to the tax law, and you see the bonuses for what they are – a small fig leaf to disguise the big buybacks.

If anything, the current tumult in the stock market will fuel even more buybacks.

Stock buybacks are corporate purchases of their own shares of stock. Corporations do this to artificially prop up their share prices.

Buybacks are the corporate equivalent of steroids. They may make shareholders feel better than otherwise, but nothing really changes.

Money spent on buybacks isn’t reinvested in new equipment, research, or factories. Buybacks don’t add jobs or raise wages. They don’t increase productivity. They don’t grow the American economy.

Yet CEOs love buybacks because most CEO pay is now in shares of stock and stock options rather than cash. So when share prices go up, executives reap a bonanza.

At the same time, the value of CEO pay from previous years also rises, in what amounts to a retroactive (and off the books) pay increase – on top of their already humongous compensation packages.

Big investors also love buybacks because they increase the value of their stock portfolios. Now that the richest 10 percent of Americans own 84 percent of all shares of stock (up from 77 percent at the turn of the century), this means even more wealth at the top.

Buybacks used to be illegal. The Securities and Exchange considered them unlawful means of manipulating stock prices, in violation of the Securities Acts of 1933 and 1934.

In those days, the typical corporation put about half its profits into research and development, plant and equipment, worker retraining, additional jobs, and higher wages.

But under Ronald Reagan, who rhapsodized about the “magic of the market,” the SEC legalized buybacks.

After that, buybacks took off. Just in the past decade, 94 percent of corporate profits have been devoted to buybacks and dividends, according to researchers at the Academic-Industry Research Network.

Last year, big American corporations spent a record $780 billion buying back their shares of stock.

And that was before the new tax law.

Put another way, the new tax law is giving America’s wealthy not one but two big windfalls: They stand to gain the most from the tax cuts for individuals, and  they’re the big winners from the tax cuts for corporations.

This isn’t just unfair. It’s also bad for the economy as a whole. Corporations don’t invest because they get tax cuts. They invest because they expect that customers will buy more of their goods and services.

This brings us to the underlying problem. Companies haven’t been investing – and have been using their profits to buy back their stock instead – because they doubt their investments will pay off in additional sales.

That’s because most economic gains have been going to the wealthy, and the wealthy spend a far smaller percent of their income than the middle class and the poor. When most gains go to the top, there’s not enough demand to justify a lot of new investment.

Which also means that as long as public policies are tilted to the benefit of those at the top – as is Trump’s tax cut, along with Reagan’s legalization of stock buybacks – we’re not going to see much economic growth.

We’re just going to have more buybacks and more inequality.

The American Dream Is At Stake If Low-Income Earners Can’t Own A Home

Even as multiple people rightfully express concerns over the federal tax bill, we should not lose sight of one of the major pillars of homeownership; Fannie Mae and Freddie Mac. The government-sponsored enterprises (GSEs) exist to make the promise of homeownership attainable for individuals of low- and moderate means.

For many people, the dream of homeownership is only attainable through federal guarantees, or loans insured by the federal government. The federal backing provided by the GSEs ensures banks will be paid if the borrower defaults on their loan. This guarantee is critical for the borrower and the lender, as it protects them both.

Without this critical guarantee, many banks would be unwilling to finance home loans, making the promise of the American dream elusive for hardworking families.

As successful as this program has been, it is now in trouble. However, to understand the present, one must consider the past.

At the height of the 2008 housing crisis, the federal government took control of Fannie Mae and Freddie Mac. The decision to take control of the GSEs was a protective one. The federal government wanted to ensure the GSEs would be around for the long term. Similar to the federal government takeover of General Motors, the conservatorship worked, and Fannie Mae and Freddie Mac returned to profitability.

Nearly 10 years into the government’s conservatorship, these agencies are now profitable. Even though the GSEs are performing well, the government still owns a significant percent of stock in the GSEs and continues to take dividends from its shares, rather than allowing them to capitalizeThis puts the future of Fannie Mae and Freddie Mac in jeopardy.

The housing crisis of 2008 may be fading from our nation’s collective memory, but policymakers in Washington, D.C. shouldn’t resign to letting a critical piece of unfinished business — the future role of the Fannie Mae and Freddie Mac — stay unfinished.

Unfortunately, that’s the path we’re on. The House Financial Services Committee is considering HR 4560, the GSE Jumpstart Reauthorization Act of 2017.

Despite the fancy name, the bill may further erode Fannie Mae and Freddie Mac, again two key pillars supporting homeownership. The bill threatens to cut funding for the Housing Trust Fund should the Federal Housing Finance Agency retain quarterly earnings. The bill’s sponsor, Rep. Jeb Hensarling (R-Texas), wants the quarterly earnings returned to the U.S. Treasury, which would starve the GSEs of desperately needed funding. While returning the profits bolsters the federal government, it strips away money which Fannie and Freddie rely on to stay profitable.

If the Federal Housing Finance Agency goes under, borrowers as well as small, community banks are the ones who will suffer. At a time when many households already feel like the rug has been pulled from underneath them, starving the agency of resources is an especially low blow.

As a former state lawmaker who served at the height of the crisis and in the years of recovery shortly thereafter, I know firsthand how important home ownership is in communities across the country. Washington should set forth a comprehensive path for the mortgage lenders to continue to provide equal opportunity for all Americans. 

As our nation’s leaders consider reforming our housing finance system, they should remember that expanding access to the American dream of homeownership should be the overarching policy objective. Fannie Mae and Freddie Mac, which package mortgages and incentivize banks to provide home loans in underserved or unserved communities, are vital players in the conversation. Their role should not be diminished. 

Our elected officials should focus on comprehensive housing finance reform and a path out of the “temporary” conservatorship of Fannie and Freddie that has lasted for nearly 10 years. Without them, many families would not be able to own a home.

An Open Letter To The US Congress

The letter about the GOP tax plan below was signed by over 200 PhD economists. It states their opposition to the GOP tax plan and their reasoning behind their statement.

December 5, 2017

An Open Letter to the U.S. Congress

The tax plan will have disastrous consequences for the American people

Dear Senators and Representatives:

The current tax plan will prove ineffective at best. More likely, it will further the collapse of wages and widen the already dangerous levels of income and wealth inequality that have become so obvious that both political parties referenced them during the 2016 presidential campaign. Our central problem is not insufficient profits for corporations. Consumers, not employers, are the real job creators and cutting the corporate tax rate won’t jumpstart the economy. The key to getting businesses to hire and invest is to swamp them with demand for their products, something that is accomplished by raising the incomes of the poor and the middle-class and not those at the very top of the income distribution. Unfortunately, not only have the former faced stagnating wages and unemployment, but they are burdened by mortgage debt, credit card debt, student debt, and payday loan debt. Little wonder this has been the weakest recovery in the post-World War Two era.

Cut taxes for the poor and the middle class and we will see an increase in wages and the creation of the kind of full-time jobs that we so desperately need. Cut corporate tax rates and corporations will end up sitting on an even bigger stockpile of cash. Period. There is no reason to believe that any jobs would come back to the United States or that more funds would be invested here. Firms invest because they expect strong demand for their products, not simply because they have higher profits. Strong demand will only materialize if consumers are empowered with higher wages and relieved of their debt burden.

We, the undersigned economists, stand firmly opposed to the President’s tax plan. Reforms of some sort are not unwarranted, but if our goal is to improve the lives of American workers then this is absolutely not the route to take. Indeed, it may prove to be disastrous. Tax cuts that create economic growth start at the bottom, not at the top. It is not too late to make the current bill into something that could spur growth and employment and usher in a new era of prosperity for all Americans.


John T. Harvey, Professor of Economics, Texas Christian University, TX

Stephanie Kelton, Professor of Public Policy and Economics, Stony Brook University, NY

Fadhel Kaboub, Associate Professor of Economics, Denison University, OH

James K. Galbraith, Lloyd M. Bentsen Jr. Chair in Government/Business Relations and a Professorship of Government, the LBJ School of Public Affairs, University of Texas, Austin, TX

Aaron Pacitti, Associate Professor of Economics and the Douglas T. Hickey Chair in Business, Siena College, NY

Agnes Quisumbing, PhD Economics, Senior Research Fellow at International Food Policy Research Institute, Washington DC

Al Campbell, Emeritus Professor of Economics, University of Utah, UT

Alan Aja, Associate Professor and Deputy Chairperson Puerto Rican and Latino Studies, Brooklyn College, NY

Alexander Binder, Assistant Professor of Economics, Finance & Banking, Pittsburg State University, KS

Alexandra Bernasek, Sr. Associate Dean & Professor of Economics, Colorado State University, CO

Alfonso Flores-Lagunes, Professor of Economics, Syracuse University, NY

Allison Shwachman Kaminaga, PhD, Lecturer in Economics, Bryant University, MA

Andrew Barenberg, Assistant Professor of Economics, St. Martin’s University, WA

Andrew Larkin, Emeritus Professor of Economics, St Cloud State University, MN

Anita Dancs, Associate Professor of Economics, Western New England University, MA

Antonio Callari, Professor of Economics, Franklin and Marshall College, PA

Antonio J. Fernós-Sagebien, PhD Economist

Arthur MacEwan, Professor Emeritus of Economics, University of Massachusetts Boston, MA

Avanti Mukherjee, Assistant Professor of Economics, SUNY Cortland, NY

Avraham Baranes, Assistant Professor of Economics, Rollins College, FL

Baban Hasnat, Professor of Economics, The College of Brockport, SUNY, NY

Barbara Wiens-Tuers, Associate Professor of Economics Ermerita, Penn State Altoona, PA

Bernard Smith, Associate Professor of Economics, Drew University, NJ

Bill Luker Jr, PhD economist

Brian Werner, PhD Economist

Bruce Pietrykowski, Professor of Economics, University of Michigan at Dearborn, MI

Cameron Ellis, Assistant Professor of Economics, Temple University, PA

Carol Scotton, Associate Professor of Economics, Knox College, IL

Charalampos Konstantinidis, Assistant Professor of Economics, University of Massachusetts at Boston, MA

Charles Becker, Research Professor of Economics, Duke University, NC

Charu Charusheela, Professor, Interdisciplinary Arts and Sciences, University of Washington, Bothell, WA

Chiara Piovani, Assistant Professor of Economics, University of Denver, CO

Chris Tilly, PhD in Economics and Urban Studies and Planning, Professor of Urban Planning at UCLA, CA

Christopher Brown, Professor of Economics, Arkansas State University, AR

Clara Mattei, Assistant Professor of Economics, New School for Social Research, NY

Dale Tussing, Professor Emeritus of Economics, Syracuse University, NY

Dania Francis, Assistant Professor of Economics, University of Massachusetts at Amherst, MA

Daniel Lawson, Professor of Economics, Oakland Community College, MI

Daniele Tavani, Associate Professor of Economics, Colorado State University, CO

Daphne Greenwood, Professor of Economics, University of Colorado, Colorado Springs, CO

Darrick Hamilton, Associate Professor of Economics and Urban Policy at The Milano School of International Affairs, Management and Urban Policy and the Department of Economics, New School for Social Research, NY

David Eil, Assistant professor of Economics, George Mason University, VA

David Zalewski, Professor of Economics, Providence College, RI

Dell Champlin, PhD economist, Instructor of Economics, Oregon State University, OR

Devin T. Rafferty, Assistant Professor of Economics and Finance, Saint Peter’s University, NJ

Don Goldstein, Emeritus Professor of Economics, Allegheny College, PA

Dorene Isenberg, Professor of Economics, University of Redlands, CA

Douglas Bowles, Assistant Director, Center for Economic Information, University of Missouri at Kansas City, MO

Edith Kuiper, Assistant Professor of Economics, SUNY New Paltz, NY

Edward J Nell, Emeritus Professor, New School for Social Research, NY, and Vice-President, Henry George School of Social Science, Chief Economist, RECIPCO Corp

Eiman Zein-Elabdin, Professor of Economics, Franklin & Marshall College, PA

Elaine McCrate, Associate Professor of Economics and Women’s and Gender Studies, University of Vermont, VT

Elba Brown-Collier, PhD Economist

Elhussien Mansour, PhD Economist

Elizabeth Ramey, Associate Professor of Economics at Hobart and William Smith Colleges, NY

Emily Blank, Associate Professor of Economics, Howard University, Washington DC

Ellis Scharfenaker, Assistant Professor of Economics, University of Missouri – Kansas City, MO

Enid Arvidson, Ph.D. economist, Associate Professor, College of Architecture, Planning and Public Affairs, University of Texas at Arlington, TX

Eric Tymoigne, Associate Professor of Economics at Lewis and Clark College, Portland, OR

Erik Dean, Ph.D., Instructor of Economics, Portland Community College, OR

F. Gregory Hayden, Professor of Economics (retired), University of Nebraska-Lincoln, NE

Farida Khan, Professor of Economics, University of Wisconsin at Parkside, WI

Fatma Gul Unal, Assistant Professor of Economics, Hobart and William Smith Colleges, NY

Firat Demir, Associate Professor of Economics, University of Oklahoma Norman, OK

Flavia Dantas, Associate Professor of Economics, SUNY Cortland, NY

Frank McLaughlin, Associate Professor of Economics (retired), Boston College, MA

Fred Moseley, Professor of Economics, Mount Holyoke College, MA

Frederic Jennings, PhD economist, Economic Consultant, MA

Gary Mongiovi, Associate Professor of Economics and Finance, St. John’s University, NY

Geoffrey Schneider, Professor of Economics, Bucknell University, PA

George DeMartino, PhD economist, Professor at the Josef Korbel School of International Studies, University of Denver, CO

Gerald Epstein, Professor of Economics, University of Massachusetts Amherst, MA

Glen Atkinson, Foundation Professor of Economics Emeritus, University of Nevda, Reno, NV

Haider A. Khan, John Evans Distinguished University Professor, Professor of Economics, University of Denver, CO

Haimanti Bhattacharya, Associate Professor of Economics, University of Utah, UT

Haydar Kurban, Associate Professor of Economics, Howard University, Washington DC

Hector Saez, PhD economist, Faculty in Community Economic Development, Chatham University, PA

Howard Stein, Professor in the Department of Afroamerican and African Studies (DAAS) and the Department of Epidemiology at the University of Michigan, MI

Hyun Woong Park, Assistant Professor of Economics, Denison University, OH

Ilene Grabel, Professor of Economics in the Josef Korbel School of International Studies at the University of Denver, CO

James G. Devine, Professor of Economics, Loyola Marymount University, CA

James Sturgeon, Professor of Economics, University of Missouri – Kansas City, MO

Jeffrey S. Zax, Professor of Economics, University of Colorado Boulder, CO

Jennifer Olmsted, Professor of Economics, Drew University, NJ

Jim Peach, Regents and Chevron Endowed Professor of Economics, Applied Statistics, and International Business, New Mexico State University, NM

Joelle Leclaire, Associate Professor of Economics and Finance, SUNY Buffalo State, NY.

Johan Uribe, Assistant Professor of Economics, Denison University, OH

John Dennis Chasse, PhD economist

John Hall, Professor of Economics, Portland State University, OR

John F. Henry, Professor of Economics (retired), California State University, Sacramento, CA

John Sarich, Economist at New York City Department of Finance and Cooper Union, NY

John Willoughby, Professor of Economics, American University, Washington DC

Jon Wisman, Professor of Economics at American University, Washington DC

Jonathan Cogliano, Assistant Professor of Economics, Dickinson College, PA

Jonathan Millman, Lecturer in Economics at University of Massachusetts at Boston, MA

Jonathan Wight, Professor of International Economics, University of Richmond, VA

Jose Caraballo, Assistant Professor of Economics, University of Puerto Rico, PR

Joseph Vavrus, Assistant Professor of Economics, University of Redlands, CA

Julie Nelson, Professor of Economics at the University of Massachusetts Boston, MA

Julio Huato, Associate Professor of Economics, Francis College, NY

June Lapidus, Associate Professor of Economics, Roosevelt University, IL

Karl Petrick, Assistant Professor of Economics, Western New England University, MA

Katherine Moos, Assistant Professor of Economics at the University of Massachusetts Amherst and Economist at the Political Economy Research Institute, MA

Kazim Konyar, Professor of Economics, California State University, San Bernardino, CA

Kimberly Christensen, Professor of Economics, Sarah Lawrence College, NY

Korkut Erturk, Professor of Economics, University of Utah, UT

Lance Taylor, Arnhold Professor Emeritus, New School for Social Research, NY

Laurence Krause, Associate Professor and Chair of Economics, SUNY Old Westbury, NY

Laurie DeMarco, Principal Economist Federal Reserve System, Washington DC

Leanne Roncolato, Assistant Professor of Economics, Franklin and Marshall College, PA

Linda Loubert, Associate Professor and Interim Chair of Economics at Morgan State University

Linwood Tauheed, Associate Professor of Economics, University of Missouri-Kansas City, MO

Lorenzo Garbo, Professor of Economics, University of Redlands, CA

Maggie R. Jones, PhD Economist, Washington DC

Maliha Safri, Associate Professor of Economics, Drew University, NJ

Marc Tomljanovich, Professor of Economics and Business, Executive Director of Business Programs, Director, Wall Street Semester Program, Drew University, NJ

Marilyn Power, Professor Emerita of Economics, Sarah Lawrence College, NY

Mark Maier, Professor of Economics, Glendale Community College, CA

Mark Paul, Postdoctoral Associate at the Samuel DuBois Cook Center on Social Equity, Duke University, NC

Mark Setterfield, Professor of Economics, New School for Social Research, NY

Marlene Kim, Faculty Staff Union President and Professor Department of Economics, University of Massachusetts Boston, MA

Mary King, Professor of Economics, Portland State University, OR

Mathew Forstater, Professor of Economics, University of Missouri Kansas City, MO

Mayo Toruno, Professor Emeritus, California State University, San Bernardino, CA

Mehrene Larudee, Associate Professor of Economics, Hampshire College, MA

Michael Hudson, Professor of Economics, University of Missouri in Kansas City, MO, and Research Scholar at the Levy Economics Institute of Bard College, NY

Michael J. Murray, Associate Professor of Economics, Bemidji State University, MN

Michael Meeropol, Professor of Economics (retired), Wester New England University, MA

Michael Nuwer, Professor of Economics, SUNY Potsdam, NY

Michalis Nikiforos, Research Scholar at the Levy Economics Institute, NY

Mitch Green, PhD economist

Mona Ali, Assistant Professor of Economics, SUNY New Paltz, NY

Nancy Bertaux, Professor of Economics & Sustainability, Xavier University, OH

Nancy Folbre, Professor Emerita of Economics at the University of Massachusetts Amherst, MA

Nancy Rose, Professor of Economics, California State University, San Bernardino, CA

Nasrin Shahinpoor, Professor of Economics, Hanover College, IN

Nathaniel Cline, Assistant Professor of Economics, University of Redlands CA

Neva Goodwin, Co-Director of the Global Development And Environment Institute, Tufts University, MA

Nicholas Reksten, Assistant Professor of Economics, University of Redlands, CA

Nicholas Shunda, Associate Professor of Economics, University of Redlands, CA

Nina Banks, Associate Professor of Economics, Bucknell University, PA

Nurul Aman, Senior Lecturer in Economics, University of Massachusetts at Boston, MA

Omar S. Dahi, Associate Professor of Economics, Hampshire College, MA

Patrick Walsh, Associate Professor of Economics, St. Michael’s College, VT

Paul Smolen, Vice President Fox Smolen and Associates (formerly economist at the Public Utility Commission of Texas), TX

Paula Cole, Teaching Assistant Professor of Economics, University of Denver, CO

Pavlina R. Tcherneva, Chair and Associate Professor of Economics, Bard College, NY

Peter Bohmer, Economics Faculty, Evergreen State College, WA

Peter Eaton, Associate Professor of Economics, Director of the Center for Economic Information, University of Missouri at Kansas City, MO

Peter Dorman, Professor of Political Economy, Evergreen State College, WA

Philip Harvey, Professor of Law and Economics, Rutgers University, NJ

Praopan Pratoomchat, Assistant Professor, School of Business and Economics, University of Wisconsin Superior, WI

Pratistha Joshi, Postdoc Scholar at Global Development and Environment Institute, Tufts University, MA

Radhika Balakrishnan, Professor of Women’s and Gender Studies, Rutgers University, NJ

Raechelle Mascarenhas, Associate Professor of Economics, Willamette University, OR

Ramaa Vasudevan, Associate Professor of Economics, Colorado State University, CO

Randy Albelda, Graduate Program Director and Professor of Economics, and Senior Research Fellow, Center for Social Policy, University of Massachusetts at Boston, MA

Reynold F. Nesiba, Professor of Economics, Augustana University, SD

Richard D. Wolff, Professor of Economics Emeritus, University of Massachusetts, Amherst, MA, and currently visiting Professor in the Graduate Program in International Affairs of the New School University, NY

Richard McGahey, PhD in economics, former Executive Director of the Congressional Joint Economic Committee

Robert Blecker, Professor of Economics, American University, Washington DC

Robert Pollin, Distinguished Professor of Economics and Co-Director of the Political Economy Research Institute, University of Massachusetts-Amherst, MA

Robert Scott III, Professor of Economics and Finance, Monmouth University, NJ

Robin L. Bartlett, Professor of Economics, Denison University, OH

Rodney Green, Professor, Chair and Executive Director, Center for Urban Progress Department of Economics, Howard University, Washington DC

Roger Even Bove, Professor of Economics & Finance (retired), West Chester University, PA

Ross M. LaRoe, Associate Professor of Economics Emeritus, Denison University, OH

Rudiger von Arnim, Associate Professor of Economics, University of Utah, UT

Sarah Jacobson, Associate Professor of Economics, Williams College, MA

Savvina Chowdhury, Ph.D., Economics Faculty, Evergreen State College, WA

Scott Carter, Associate Professor of Economics, University of Tulsa, OK

Scott Fullwiler, Assistant Professor of Economics, University of Missouri at Kansas City, MO

Shaianne Osterreich, Associate Professor of Economics, Ithaca College, NY

Shakuntala Das, Assistant Professor of Economics, SUNY Potsdam, NY

Sheila Martin, Director of the Population Research Center and of the Institute of Portland Metropolitan Studies, Service and Research Centers, Portland State University, OR

Sohrab Behdad, John E. Harris Professor of Economics, Denison University, OH

Spencer Pack, Professor of Economics, Connecticut College, CT

Sripad Motiram, Associate Professor of Economics, University of Massachusetts Boston, MA

Stacey Jones, PhD Economics, Senior Instructor of Economics, Seattle University, WA

Stephanie Seguino, Professor of Economics, University of Vermont, Burlington, VT

Stephen Bannister, Assistant Professor of Economics, University of Utah, UT

Steven Pressman, Professor of Economics, Colorado State University, CA

Sujata Verma, Professor of Economics at Notre Dame de Namur University in Belmont, CA

Susan Feiner, Professor of Economics and Women and Gender Studies, University of Southern Maine, ME

Tara Natarajan, Professor of Economics, St. Michael’s College, VT

Ted Schmidt, Associate Professor of Economics, SUNY Buffalo State, NY

Teresa Ghilarducci, Professor of Economics, New School for Social Research, NY

Thea Harvey-Barratt, Faculty in Economics, Bard College at Simon’s Rock, MA

Thomas DelGiudice, Adjunct Associate Professor of Economics, Hofstra University, CA

Thomas Herndon, Assistant Professor, Loyola Marymount University, CA

Thomas Kemp, Professor of Economics, University of Wisconsin Eau Claire, WI

Thomas Lambert, Lecturer of Economics, University of Louisville, KY

Tim Koechlin, PhD economist, Vassar College, NY

Tim Miller, JP Morgan Chase Professor of Economics, Denison University, OH

Valerie Kepner, Department Chairperson and Associate Professor of Economics, King’s College, PA

Vange Ocasio, Assistant Professor of Economics, Whitworth University, WA

Will Milberg, Dean and Professor of Economics, New School for Social Research, NY

William Darity Jr, Samuel DuBois Cook Professor of Public Policy, African and African American Studies, and Economics, and Director of the Samuel DuBois Cook Center on Social Equity, Duke University, NC

William McColloch, Assistant Professor of Economics, Keene State College, NH

William Van Lear, Professor of Economics, Belmont Abbey College, NC

William Waller, Professor of Economics at Hobart and William Smith Colleges, NY

Xiao Jiang, Assistant Professor of Economics, Denison University, OH

Yahya Madra, Visiting Associate Professor of Economics, Drew University, NJ

Yan Liang, Associate Professor of Economics, Willamette University, OR

Yasemin Dildar, Assistant Professor of Economics, California State University San Bernardino, CA

Yavuz Yasar, Associate Professor of Economics at the University of Denver, CO

Yeva Nersisyan, Associate Professor of Economics, Franklin & Marshall College, PA

Ying Chen, Assistant Professor of Economics, New School for Social Research, NY

Zarrina Juraqulova, Assistant Professor of Economics, Denison University, OH

Zdravka Todorova, Associate Professor and Chair of Economics, Wright State University, OH

Zoe Sherman, Assistant Professor of Economics, Merrimack College, MA

You’re The Real Job Creator – An Interview With Stephanie Kelton

As the GOP tax plan, officially known as the Tax Cuts and Jobs Act, awaits reconciliation with the House, the threat of a mounting deficit is once again in the news.

According to the bipartisan Joint Committee on Taxation and the Congressional Budget Office, the tax plan will add roughly $1 trillion to the deficit over the next ten years—almost enough money to abolish student loan debt ($1.4 trillion). Democrats, who in the past two decades have grown increasingly cautious about federal spending, were quick to note the hypocrisy of the even more hawkish Republican party. What happened to protecting our children from the crushing burden of the national debt?

But while there are many things to fear in the Tax Cuts and Jobs Act—a windfall for the rich at the expense of the poor, permission to drill in a wildlife refuge—the growing deficit should not be one of them. On the contrary, obsessing over the deficit could further imperil those whom the tax bill leaves worst off. In this interview, Stephanie Kelton, a professor of economics at Stony Brook University and former economic advisor to Bernie Sanders, explains why.



You recently shared a video in which you explain what the federal budget deficit is and what it’s not. I was hoping you could elaborate on that: How does the deficit differ from what people think it is?
It would be easier to answer if we could figure out what people think it is, so let’s start there. I think the most accurate way to portray it is that people think deficits are bad because they think they’re evidence that the government is overspending. In fact, when I served on the US Senate Budget Committee as the chief economist for the Democrats, I sat through many, many hearings called by the majority where the chairman, Senator Mike Enzi, would repeat variations on that phrase: “a deficit is evidence of overspending.”

I’d sit in the backbenches behind Senator Sanders and just kind of shake my head. Because as all economists know, a deficit isn’t evidence of overspending, inflation is evidence of overspending. A deficit is just evidence that the government put more money into the economy than it took out.

In the video, I try to explain it with very simple numbers. Say the government puts $100 into the economy and takes $90 out. The government’s books will show a deficit of $10. If the government spends more than it takes out in a given period of time, say a fiscal year, it’s recorded as a government deficit. OK. But what about the rest of the books in the economy? If all we do is focus on the government’s ledger, we’re looking at the picture with one eye shut. What people should understand is that when the government runs a deficit, it’s adding dollars to the economy. Somebody gets those dollars. If the government adds $100 and only takes back $90, somebody in the economy ends up with $10 they wouldn’t have had otherwise.

The real question to ask is: Why did the government run the deficit? What was it trying to achieve? Was it the product of spending to repair crumbling infrastructure, or to better fund schools, or to give greater aid to the sick and the poor? Or if the deficit increased because the government cut taxes, why did they do that? To lift the incomes of households that haven’t seen real wage gains for many decades? Once you know, you can at least have a conversation: “Well, that’s where the money went.” But to just look at the deficit and say that it’s good or bad without any further information is crazy.

Of course, that’s what we all do. We judge the government’s behavior as if smaller deficits are by definition good, bigger deficits are by definition bad, and a balanced budget is by definition the goal. All of that, in my view, is just getting it wrong.

One point of confusion is where the money for the federal budget comes from. Most people assume the US government runs on taxpayer dollars, because that’s how it works on the state level: local schools are paid for by taxpayers, et cetera. But you’ve written before that unlike individuals or local governments, the federal government doesn’t need to “get” money from anywhere before it can spend it. Can you say more about the difference?
It is absolutely true that states, municipalities, and local governments depend on tax revenue in order to fund themselves. It is absolutely untrue that the federal government of the United States depends on tax revenue to fund itself. The United States government is the issuer of our currency—the US dollar. It has to spend dollars before the rest of us can get any. Households, local governments, private businesses, state governments—they are all users of the dollar. They have to get dollars in order to spend them. That’s the big difference.

Not only do people tend to think of the government like a household—believing it can’t go on spending more than it takes in, taking on more and more debt and never paying off all its debt—they also assume they can draw parallels between the federal budget and a state budget. For example, many people who should and probably do know better have used Kansas to argue that massive tax cuts will leave the federal government without the revenue it needs to operate, just as they did in the state of Kansas. Governor Brownback massively cut taxes on the advice of Arthur Laffer, Reagan’s former economic adviser, who was hired as a consultant to the Republicans and was paid a hefty sum of $75,000. The experiment did not work the way Brownback and other Republicans told voters it would. It didn’t attract companies and businesses and jobs, it didn’t create so much growth that revenues exploded. Instead it bled the coffers—because the state does need revenue from taxes to fund itself. You can’t do Reaganomics at the state level. When revenues crashed in Kansas, they ended up cutting funding for schools and other programs. It was a disaster.

You wrote in the Times that the reason to oppose the GOP tax bill is not the projected deficit but the fact that it’s a tax break for the rich. I can understand being fixated on cutting taxes as a way to lift your income, if you’re a regular person and haven’t seen any real wage growth in decades, but why would any non-rich person support this bill when it’s not even a tax break for them?
It’s kind of interesting. Anecdotally, some people have written me and said they’re talking to low-income people who are OK, actually, with the fact that most of the benefits go to those at the very top. People are saying, “Well, they are the people who hire people like me.” So the Republicans have been effective, I think, in selling this trickle-down idea that the wealthy and businesses are the real job-creators in the economy. I don’t know if that’s representative of millions of Americans or whether I’m just seeing an exception to the rule, but I am hearing, second-hand, poor people saying basically they don’t mind.

And yet there’s no good reason to believe that the people getting these tax cuts will spend in a way that creates jobs. You mentioned something in your video called “the marginal propensity to consume.” Can you explain that?
The marginal propensity to consume is the likelihood that if you get an extra margin, that extra dollar, you will spend it or spend part of it into the economy. A very poor person has an MPC of 99 percent or more: give them an extra dollar, or an extra $100, and they will spend virtually all of it, just because they’re surviving on so little. But if you give a tax break to someone like Oprah Winfrey or Bill Gates, and they get an additional dollar or $100 or $1,000, their MPC is something like 0.01 percent. They’re only going to spend a penny out of any additional $100 they get, because they already have enough to buy whatever it is they want to buy.

And when I say spend, I mean buying newly produced goods and services in the economy so that it adds to the GDP. Say you’re Jay Leno—you’re a car guy, you have lots and lots of money, and you get a windfall from these Republican tax cuts. If you go out and buy a classic Corvette convertible or whatever manufactured in the 1950s, that’s not adding to the GDP, because that car was already added to GDP the year it was first purchased. If you buy somebody else’s mansion, that doesn’t add to GDP. If you buy stocks and bonds and investments, or you buy a Picasso, that doesn’t boost GDP. 

As a result of this bill, the ultra-rich—I’m talking about the one-tenth of 1 percent—will see on average about a quarter of a million dollars in additional income per year. People like Bill Gates and Oprah will get a lot more, but the average household in the one-tenth of 1 percent will see about a quarter of a million dollars. How much of that quarter million will they turn around and spend into the economy, creating demand that leads to higher sales that tell business they can produce more and hire people?

Remember a few weeks ago when John Bussey from the Wall Street Journal asked that room full of CEOs how many of them intended to create new jobs with money they’d save from the tax cuts, and only a handful raised their hands? Gary Cohn, Trump’s economic adviser, was embarrassed. He said, “Why aren’t the other hands up?” Well, the answer is that businesses don’t hire when profits go up, they hire when sales go up. That’s what drives hiring and investment. Businesses do not want to hire; the last thing they want to do is put another employee on payroll, train them, and provide them with health care. You have to make them hire. You have to swamp them with customers and create such strong demand for their product that they have no choice but to add staff.

This is where I would put the focus. The Republicans are doing the old trickle-down thing, “We’ll give the money to the people at the very top and somehow it will incentivize them to go out and start businesses in the US, or bring businesses domiciled abroad back home.” No, it won’t. The real job creators are the American consumers. It’s a shame that more consumers don’t know that: You’re the real job creator. If people have rising income, secure jobs, better pay, higher wages, they’re spending more in the economy—that’s the demand that tells these businesses it’s OK to produce more and hire more.

So in sum: it’s OK to run a deficit for good reasons; the federal government is not funded by taxpayer dollars, unlike local governments; and consumers, not rich people, create jobs. These are simple enough ideas. So why are we stuck in this austerity, trickle-down framework? Is part of the issue that Democrats also buy into it?
Exactly. Look what happened over the course of the past eight years or so. The Democrats had an opportunity to come in and really restructure things. Rahm Emanuel famously said, “you never want a serious crisis to go to waste” . . . Well, they did waste a good crisis. The economy was crashing and nearly a million people a month were losing their jobs. You lose your job you lose your income, you lose your income and guess what? You don’t pay income tax, because you can’t pay income tax on income you don’t have. Tax revenue is falling off a cliff, and spending to support the unemployed is automatically increasing. We call them the “automatic stabilizers”: unemployment compensation, food stamps, Medicaid. And so the deficit explodes.

The Obama Administration sees this happening and they panic. They say, “We have to fix it!” They turn the away from fixing the fundamental problems in the economy—away from homeowners, from joblessness—and turn their attention to the deficit. Obama famously formed the bipartisan deficit reduction commission, and thank God we didn’t do what the commission was proposing, which included entitlement reform and all kinds of stuff . . .

It seems to me that the Democrats, especially the progressive wing of the Democrats, like to repeat this talking point about how the rich aren’t paying their fair share: “The problem in this country is that the rich aren’t paying their fair share.” I don’t like that. I don’t like it because basically, it says that income is flowing up to the rich and our job is to take some of it away from them. I prefer to say: the problem is not that the wealthy don’t pay their fair share, the problem is that they’re taking more than their fair share—that’s why they’re so damn rich. That’s why real wages have stagnated for the median household for decades, because people at the top are taking more than their fair share. You don’t want to let that continue and then take back taxes and redistribute to the bottom. You want pre-distribution, not redistribution. Focus on the problem at its origin.

Americans really do believe that we should not be “punishing success.” They don’t like the idea that someone who’s worked hard and has been successful would be punished. So while a lot can be accomplished through the tax codes, there are other ways to change the distribution of wealth before anyone gets all of it.

So are politicians who fixate on the debt or the deficit lying to us about it, or do they not understand economics? I mean, Barack Obama is a smart guy. Did he not understand what was happening?
So much of it is politics. If you read some of the reports about the conversations that took place between Obama and his advisors about the stimulus—between Christina Romer [former Chair of the Council of Economic Advisers], Tim Geithner [former Treasury Secretary], and Larry Summers [former Director of the National Economic Council]—you see it. It’s clear that the economy is melting down and that it’s going to take more than simply the Fed to prevent the economy from spiraling into a depression. They start batting around these numbers, thinking, “How much do you think it’s going to take?” They had a low-end number and a high-end number. The low-end number was about $750 billion, the high end was $1.8 trillion. Christina Romer—the only female in the room—was pushing for the $1.8 trillion, and she was right. She even went down to $1.3 trillion under pressure.

This became public when Obama said, “We’re looking for something in the range of . . .” and gave these numbers. At the time, in January 2009, I was part of a panel with [former Clinton labor secretary] Bob Reich, [economist] Jamie Galbraith, and others, and we all came out and said it has to be $1.3 or trillion, at least, to keep this recession from becoming the kind that takes forever to claw our way out of.

But they didn’t listen to Romer. Larry Summers had a lot to do with it, reportedly. What I read many, many times was that he was concerned about “sticker shock.” A trillion was too big a number. People could not accept that. And he said, “We can’t do this, we can’t go to voters with a trillion.” So they settled on $787 billion. And Obama said, “our attitude is that with the legislative process, we’ll start with the low end and see what happens”—which was exactly the wrong strategy. That’s not how you negotiate. You never start with the low number.

Back to sticker shock: Why doesn’t someone like Obama just get up onstage and say, “By the way, this is how the economy works, all the economists will tell you”?
I’m pretty sure nobody’s told him. I don’t know that he understands. I don’t think Larry Summers, you know, sat him down and walked him through monetary operations. For example: two days ago, Larry Summers went on television and said, “If these tax cuts pass, the US is going to be living on a shoestring for decades to come because of the increases to the deficit that will result. We are not going to be able to defend ourselves militarily—we won’t have the ability to go to war if we need to protect ourselves.”

Now, I don’t think for a second that Larry Summers believes that. Not for a second. He’s too smart. That’s a political argument. But it’s a dangerous one. If you’re on record saying, “If the Republicans pass this bill”—which they are about to do, by the way; this bill is passing—“if the Republicans pass this bill the US will be broke,” aren’t you setting up the Republicans to then say, “Uh oh, we cut taxes and now we’re broke, we better cut social security, Medicare, Pell Grant, all the social services”? You just told them you’re out of money. And you told North Korea that we won’t be able to defend ourselves. It’s obviously intended to shake people up and scare some senators into opposing the bill, to get voters worried so that they turn the pressure up. But it’s a crazy statement to have made.

So yes, I think no one around Obama either understood or was going to explain this to him.

What do we do now? What is the next move for people who are getting screwed by this bill?
What do you do? You better sweep the House, you better take back the Senate, and take back the White House in 2020, and hold your resistance at a very high level. I mean, people have to be prepared to stand up and fight back. There’s three more years before there’s any chance of changing course. If you win the House in 2018, you can at least stop a lot of stuff from happening. That has to happen. That’s the quickest way to stop the pain for the poor and the middle class—because we can expect more of this for three more years if we don’t.

So, that’s number one. To the extent that people are able, in an environment like this, to organize, to protect themselves in the workplace, to form unions—those are safeguards. Communities are doing more. States like New York, California, and Tennessee are moving to make public colleges and universities tuition-free. Fight for $15 has made the greatest inroads in blue states. In places where it’s still possible to make gains in policy—environmental, economic, racial, and social justice policy—those fights will continue. But at the national level it’s going to be very difficult if 2018 comes to pass and the Republicans still have the Senate, the House, and of course the White House.

Many people on the left argue that the Democrats need a more inspiring platform to run on, one that includes big spending policies to fix the economy and repair the social safety net. The Center for American Progress recently floated the idea of a job guarantee, which is a longstanding proposal on the left. What other good ideas should the Democrats be stealing?
Here’s the great thing: they don’t have to steal them, they just have to remember them. The most beloved President of all time, the guy who won four times—FDR—left us with a blueprint for an agenda that the Democrats have ready-made for them, and that is the Second Bill of Rights. This should be considered the unfinished business of the Democratic Party.

People are so damn frustrated. They go year after year, working harder and harder, and never get ahead. There’s so much anxiety. Work has become more precarious, people don’t know their hours ahead of time, bosses schedule changes at the last minute. A third or so of the working population is engaged in some kind of freelance employment. These are not the kinds of jobs that people had forty years ago, when they had a job for life and got regular pay increases and had a pension. People don’t have safety and security.

So what is the Second Bill of Rights? It’s a safety and security contract. It’s a social contract. And it says, as a citizen of the country, you have a right to employment at a decent wage. You have a right to health care. You have a right to a secure retirement. You have a right to an education. There’s also a right to housing on that list.

If you stood as a party for those basic rights, those fundamental rights, you could win. Everything else is up to you. You could still have a capitalist economy, where people still have to compete and work hard if they want more than the basics, so there are still plenty of incentives to be innovative and invest and all that—but the basics are guaranteed. It removes that insecurity, that anxiety that you won’t be able to send your kids to college or aren’t going to have money to survive on for retirement. If you look at surveys, when you ask peope “At what age do you expect to retire?” A share of the population says, “I’m never going to be able to retire, I’m going to work until I die, because I can’t afford it. I don’t have anything set aside. I don’t have a 401k or a pension or whatever. I can’t live on social security, so I’m never going to retire.” I don’t think the Democrats need to steal ideas. I think they need to remember what this party once stood for and champion a bold agenda.

What about journalists and talking heads, what can they do? How are they contributing to misconceptions about federal spending?
Journalists have been very bad. They have just repeated the same talking points that the Republicans got from Peter Peterson. “Fix the Debt” is an absolutely toxic campaign, and it came out of the Peterson Foundation.

What’s the Peterson Foundation?
The Peterson Foundation is Peter Peterson’s nonprofit umbrella organization. He’s a billionaire whose dream in life seems to be the evisceration of what remains of the New Deal or the Great Society. If it had to do with LBJ or FDR, Peterson wants no trace of it. So, Medicare, which came from LBJ—gone. Social security, from FDR—gone. He wants to gut entitlements.

Underneath the Peterson Foundation is “Fix the Debt,” his $60 million campaign to convince people that the deficit is a national crisis as a way to justify austerity and privatization. Joe Scarborough and half the people who sit at the table every morning on MSNBC with Scarborough, either are or have been affiliated with Fix the Debt. Senators from the state of Virginia, Tim Kaine and Mark Warner, both Democrats—Fix the Debt gave them awards. So anyone who comes under the spell of this Pete Peterson “Fix the Debt” stuff gets their talking points from him. It’s Republicans and Democrats. Angus King, Independent. Paul Ryan is dogmatic: “How can we do this to our children and grandchildren?” And then you have Democrats repeating exactly the same arguments. 

So Peterson is a very bad guy. Bernie always talks about Pete Peterson. And I mean, he is my nemesis. I wake up every single day, and the motivation for crawling out of bed is to do battle with this faction. Because it’s powerful! And it’s incredibly destructive. It’s mind-warping and it’s brain-washing. Fix the Debt goes out and gets these people to be talking heads—they recruit them, pay them, train them, send them out—and then suddenly you have an army of pundits and people writing in the Wall Street Journal and the New York Times pushing this hysteria. So that’s all anybody’s ever heard: that deficits are bad, the debt is bad, and the US faces a long-term debt crisis. Even a guy like Paul Krugman, the most he can do is muster, “Well, it’s only a long-run problem, not a short-run problem,” which is the same as saying “we have a deficit crisis, it’s just not here yet.”

Very few people are trying to explain anything to any American other than that. They argue about when it’s coming—“How fast is the sky falling?”—but not enough are saying that the national debt is not a national crisis. The fact that 21 percent of all children in the United States live in poverty—that’s a crisis. The fact that our infrastructure is graded at a D+, that’s a crisis. The fact that income inequality is at 1920s levels is a crisis. The fact that wages haven’t increased in real terms, that’s a crisis. Those are real crises. The national debt is not a crisis.

The Big Picture: Strengthen Unions

Inequality has skyrocketed as unions have weakened. That is no accident and it’s why we have to strengthen unions now! 50 years ago, unions were the countervailing power to business. They were successful in raising wages, improving working conditions and supported legal protections like the 40 hour work week and worker safety.


Facing Up To Income Inequality

The Census Bureau recently announced a heartening 5 percent gain in the median household income between 2014 and 2015, the largest one-year gain on record. Yet a look at the longer-term trends offers a sobering perspective. The jump in household income merely helps to make up for lost ground; the median earnings in 2015 were actually lower than back in 1999 — 16 years ago.

While household median incomes have stagnated since the late 1990s, the inflation-adjusted earnings of poorer households have stagnated for even longer, roughly 40 years. Meanwhile, households at or near the top of the income distribution have enjoyed sizeable increases of living standards. The result is a stark widening of the gap between rich and poor households.

There is perhaps no issue in America more contentious than income inequality. Everybody has a theory as to why the gap between rich and poor has widened and what should be done — if anything — to close it. A full explanation should help us understand why the United States stands out for having an especially high and rising inequality of income.

There are three main factors at play: technology, trade, and politics. Technological innovations have raised the demand for highly trained workers, thereby pushing up the incomes of college-educated workers relative to high-school-educated workers. Global trade has exposed the wages of industrial workers to tough international competition from workers at much lower pay scales. And our federal politics has tended, during the past 35 years, to weaken the political role of the working class, diminish union bargaining power, and cap or cut the government benefits received by working-class families.

Consider technology. Throughout modern history, ingenious machines have been invented to replace heavy physical labor. This has been hugely beneficial: Most (though not all) American workers have been lucky to escape the hard toil, drudgery, dangers, and diseases of heavy farm work, mining, and heavy industry. Farm jobs have been lost, but with some exceptions, their backbreaking drudgery has been transformed into office jobs. Farm workers and miners combined now account for less than 1 percent of the labor force.

Yet the office jobs required more skills than the farm jobs that disappeared. The new office jobs needed a high school education, and, more recently, a college degree. So who benefited? Middle-class and upper-class kids fortunate enough to receive the education and skills for the new office jobs. And who lost? Mostly poorer kids who couldn’t afford the education to meet the rising demands for skilled work.

Now the race between education and technology has again heated up. The machines are getting smarter and better faster than ever before — indeed, faster than countless households can help their kids to stay in the job market. Sure, there are still good jobs available, as long as you’ve graduated with a degree in computer science from MIT, or at least a nod in that direction.

Globalization is closely related to technology and, indeed, is made possible by it. It has a similar effect, of squeezing incomes of lower-skilled workers. Not only are the assembly-line robots competing for American jobs; so too are the lower-waged workers half a world away from the United States. American workers in so-called “traded-goods” sectors, meaning the sectors in direct competition with imports, have therefore faced an additional whammy of intense downward pressure on wages.

For a long time, economists resisted the public’s concern about trade depressing wages of lower-skilled workers. Twenty-two years ago I coauthored a paper arguing that rising trade with China and other low-wage countries was squeezing the earnings of America’s lower-skilled workers. The paper was met with skepticism. A generation later, the economics profession has mostly come around to recognize that globalization is a culprit in the rise of income inequality. This doesn’t mean that global trade should be ended, since trade does indeed expand the overall economy. It does, however, suggest that open trade should be accompanied by policies to improve the lot of lower-wage, lower-skilled workers, especially those directly hit by global trade but also those indirectly affected.

Many analyses of rising income inequality stop at this point, emphasizing the twin roles of technology and trade, and perhaps debating their relative importance. Yet the third part of the story — the role of politics — is perhaps the most vital of all. Politics shows up in two ways. First, politics helps to determine the bargaining power of workers versus corporations: how the overall pie is divided between capital and labor. Second, politics determines whether the federal budget is used to spread the benefits of a rising economy to the workers and households left behind.

Unfortunately, US politics has tended to put the government’s muscle on behalf of big business and against the working class. Remember the Reagan revolution: tax cuts for the rich and the companies, and union-busting for the workers? Remember the Clinton program to “end welfare as we know it,” a program that pushed poor and working-class moms into long-distance commuting for desperately low wages, while their kids were often left back in dangerous and squalid conditions? Remember the case of the federal minimum wage, which has been kept so low for so long by Congress that its inflation-adjusted value peaked in 1968?

There is no deep mystery as to why federal politics has turned its back on the poor and working class. The political system has become “pay to play,” with federal election cycles now costing up to $10 billion, largely financed by the well-heeled class in the Hamptons and the C-suites of Wall Street and Big Oil, certainly not the little guy on unemployment benefits. As the insightful political scientist Martin Gilens has persuasively shown, when it comes to federal public policy, only the views of the rich actually have sway in Washington.

So in the end, the inequality of income in the United States is high and rising while in other countries facing the same technological and trade forces, the inequality remains lower, and the rise in inequality has tended to be less stark. What explains the difference in outcomes? In the other countries, democratic politics offers voice and representation to average voters rather than to the rich. Votes and voters matter more than dollars.

To delve more deeply into the comparison between the United States and other countries, it is useful to measure the inequality of income in each country in two different ways. The first way measures the inequality of “market incomes” of households, that is, the income of households measured before taxes and government benefits are taken into account. The second measures the inequality of “disposable income,” taking into account the taxes paid and transfers received by the household.

The difference between the two measures shows the extent of income redistribution achieved through government taxation and spending. In all of the high-income countries, the inequality of market income is greater than the inequality of disposable income. The taxes paid by the relatively rich and the transfers made to the relatively poor help to offset some of the inequality of the marketplace.

The accompanying chart offers just this comparison for the high-income countries. For each country, two measures of inequality based on the “Gini coefficient” are calculated. The Gini coefficient is a measure of income inequality that varies between 0 (full-income equality across households) and 1 (full-income inequality, in which one household has all of the income). Countries as a whole tend to have a Gini coefficient of disposable income somewhere between 0.25 (low inequality) and 0.60 (very high inequality).

In the figure, we see the two values of the Gini coefficient for each country: a higher value (more inequality) based on market income and a lower value (less inequality) based on disposable income (that is, after taxes and transfers). We can see that in every country, the tax-and-transfer system shifts at least some income from the rich to the poor, thereby pushing down the Gini coefficient. Yet the amount of net redistribution is very different in different countries, and is especially low in the United States.

Compare, for example, the United States and Denmark. In the United States, the Gini coefficient on market income is a very high 0.51, and on disposable income, 0.40, still quite high. In Denmark, by comparison, the Gini coefficient on market income is a bit lower than the United States, at 0.43. Yet Denmark’s Gini coefficient on disposable income is far lower, only 0.25. America’s tax-and-transfer system reduces the Gini coefficient by only 0.11. Denmark’s tax-and-transfer system reduces the Gini coefficient by 0.18, half-again as high as in the United States.

How does Denmark end up with so much lower inequality of disposable income from its budget policies? Denmark taxes more heavily than the United States and uses the greater tax revenue to provide free health care, child care, sick leave, maternity and paternity leave, guaranteed vacations, free university tuition, early childhood programs, and much more. Denmark taxes a hefty 51 percent of national income and provides a robust range of high-quality public services. The United States taxes a far lower 31 percent and offers a rickety social safety net. In the United States, people are left to sink or swim. Many sink.

So, many Americans would suspect, Denmark is miserable and being crushed by taxes, right? Well, not so right. Denmark actually comes out number 1 in the world happiness rankings, while the United States comes in 13th. Denmark’s life expectancy is also higher, its poverty lower, and its citizens’ trust in government and in each other vastly higher than the equivalent trust in the United States.

So herin lies a key lesson for the United States. America’s inequality of disposable income is the highest among the rich countries. America is paying a heavy price in lost well-being for its high and rising inequality of income, and for its failure to shift more benefits to the poor and working class.

We have become a country of huge distrust of government and of each other; we have become a country with a huge underclass of people who can’t afford their prescription drugs, tuition payments, or rents or mortgage payments. Despite a roughly threefold increase in national income per person over the past 50 years, Americans report to survey takers no higher level of happiness than they did back in 1960. The fraying of America’s social ties, the increased loneliness and distrust, eats away at the American dream and the American spirit. It’s even contributing to a rise in the death rates among middle-aged, white, non-Hispanic Americans, a shocking recent reversal of very long-term trends of rising longevity.

The current trends will tend to get even worse unless and until American politics changes direction. As I will describe in a later column, the coming generation of yet smarter machines and robots will claim additional jobs among the lower-skilled workers and those performing rote activities. Wages will be pushed lower except for those with higher training and skills. Capital owners (who will own the robots and the software systems to operate them) will reap large profits while many young people will be unable to find gainful employment. The advance in technology could thereby contribute to a further downward spiral in social cohesion.

That is, unless we decide to do things differently. Twenty-eight countries in the Organization for Economic Cooperation and Development have lower inequality of disposable income than the United States, even though these countries share the same technologies and compete in the same global marketplace as the United States. These income comparisons underscore that America’s high inequality is a choice, not an irreversible law of the modern world economy.


The Angry Birds Approach To Understanding Deficits In The Modern Economy

Dr. Kelton clears up the misinformation on Fed Deficits being told Americans. Stephanie consults with policymakers, investment banks and portfolio managers across the globe. Her research expertise is in: Federal Reserve operations, fiscal policy, social security, health care, international finance and employment policy. 


The Big Picture: Fight For $15

Right now, there are adult breadwinners who work full-time, or more than full-time, and still live in poverty. If the minimum wage in 1968 had simply kept up with inflation, it would be more than $10 today. If it also kept up with the added productivity of American workers since then, it would be more than $21 an hour. A decent society ensures that all workers get a decent wage. It’s the least we can do. And a $15 wage is the place to start.


Inequality For All: A Visual Story

This is a graphical look at economic inequality in terms of 3 questions: Part 1 – What is happening in terms of the distribution of income and wealth? / Part 2 – Why? / Part 3 – Is that a problem?


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