This morning I was having a discussion about income inequality. It still amazes me that the power elite don’t see the problem. Of course, I’m expecting too much; the power elite are as shortsighted as anyone—maybe even more so. The problem is that as fewer and fewer people have all the money, the economic system just doesn’t work. As billionaire Nick Hanauer has noted, the rich only wear one pair of pants at a time; they only drive one car at a time; they only get one gallbladder operation at a time. Income inequality will eventually destroy the economy. The rich may end up a very exclusive club, but they would be lords of a dark age where being rich wouldn’t mean much. As conservatives like to say, the poorest American today is better off than than richest European king of 500 years ago. (That’s not technically true, but you get the idea.)
Matt Yglesias has been hammering away at a related point for some time now. I haven’t found it that compelling. He’s been arguing that all the cash that corporations are sitting on should either be invested, distributed to shareholders, or (best of all) paid out in bonuses and higher salaries to employees. I’ve tended to think that Yglesias is being hopelessly naive. I’ve seen this with most conservatives: they think that we don’t need government regulations because businesses will generally do the “right” thing. But I know this isn’t a description of Yglesias; he’s a well informed and thoughtful guy.
This morning, he wrote an article that better explains where he’s coming from, How 40 Years of Union-Busting Has Failed America. He’s making the same argument, but looking at it in a different way. He starts by noting that the big anti-union push of 40 years ago was justified by an argument. It was an argument in three parts: (1) if unions were less powerful, companies would have more profits; (2) if companies had more profits, they could invest more; (3) if they invested more, there would be more economic growth and we would all be richer. But as he shows, only the first step has happened: companies have not invested more and the productivity gains have not been any better (they are actually worse) than they had been.
There is an obvious argument to be made here that Yglesias is again being naive. It is true that conservative intellectuals made that argument about unions. It is not true that policy makers basically defined unions out of existence for this reason. It always was (and this dates back well over a hundred years) the case that the business community hated the very idea of unions because they do not want to share the fruits of their businesses with their workers. Like I said, this is a shortsighted view. But this is the way that people think. No one can seriously think that eliminating the minimum wage is going to increase economic growth. Yet the same people who hate unions hate the minimum wage. And it is for the same reason: so the rich can have more money.
But Yglesias is right that the three part argument is the only argument that a majority of the people might accept for destroying the unions. And the data are in and we know the results: destroying unions has been bad for everyone. (I do mean everyone: even the rich would be better off in an absolute sense if we had less income inequality.) On a macro-scale, it all makes sense. But to any individual business owner it doesn’t. It is the same as the paradox of thrift. If an individual business pays its employees less, it will have a competitive advantage and thus make more money. But if all businesses pay their employees less, they will see their profits go down as consumers (who are also the workers getting paid less) don’t have as much money to buy things.
I suspect that there are many ways that we can go about fixing this problem. The first thing to do is for the government to start enforcing those labor laws that are still on the books. Then they could pass some pro-labor laws like Card Check. A more progressive federal income tax and a less regressive payroll tax would also help. Yglesias mentions a couple of his own, but I prefer mine that go directly to the heart of the problem. The point is that there are a lot of things we could do. And literally everyone should be on board with this.