Income Inequality is Government Policy

Dean BakerOne thing I still hear a lot is that the reason there is so much income inequality is education and lack thereof. This goes along with the idea that there is “structural unemployment.” It isn’t that companies aren’t hiring, it is just that workers don’t have the skills that companies need! This is, of course, a supply side analysis of the problem. It amazes me with the utter failure of supply side theory over the last three decades that people still push these ideas.

Today, conservative economists want us to believe this nonsense even when this is exactly what they were saying during the Great Depression. I would think they would be embarrassed about this. But they are so wedded to their ideology that they just dig in further. They can’t be wrong—their models say so!

Another part of this madness is the idea that robots and computers are the cause of widening inequality and high unemployment. In other words: accountants are no longer necessary since we have QuickBooks. Dean Baker has been arguing against this fantasy for years now. As he says, “This story is comforting to elites because it means that inequality is something that happened, not something they did.” But he showed the lie to this in a Guardian article yesterday, Technology Didn’t Kill Middle Class Jobs, Public Policy Did.

It is mostly based upon some research by three of his colleagues at the Center for Economic and Policy Research. Baker highlights the work on the disappearing middle class during the 2000s. What has happened is that middle-wage jobs have disappeared, only to be replaced by low-wage jobs. If this was just the economy adjusting to a new normal, we should have seen the earnings of low-wage workers increase. But we don’t see that at all. Basically: money that used to go to wages now simply goes to profits.

Baker mentions two reasons for this. First is the inequality of trade deals. Our government has signed onto deals that put manufacturing workers in direct competition with similar workers in other countries. This has caused wages to decrease. But at the same time, our government has held onto protections for high-wage earners like doctors, lawyers, and the like. It has also strengthened copyright protections. So while the middle class has gotten poorer, the cost of living has increased.

The second issue, and the most important in my opinion, is the decline of trade unions. And this is absolutely, positively not natural. Starting with the Taft-Hartley Act of 1947 and getting a huge boost by Reagan’s firing of the air traffic controllers, it has been open season on unions since about the time when they got established. (Note: the Professional Air Traffic Controllers Organization stupidly supported Reagan in 1980.) This one is extremely simple. Businesses have costs and receipts. They try to minimize costs and maximize receipts so that they can maximize their profits. Strong unions can force some of that profit to be spent on costs—namely workers. This is why businesses generally don’t like unions.

But it isn’t just about worker pay. CEO salaries can be kept in line by unions. There was a time when a company would have been afraid of all the bad press they would get when a CEO got twenty million dollars. Unions used to be a check against corporate greed and malfeasance. What’s more, strong unions would be a force against unfair trade agreements. I think basically all of our income inequality problems would be solved (directly and indirectly) with strong unions.

The point is that we have the income inequality we have because it has been government policy. This isn’t the “free market at work!” This is the power elite controlling government for their own purposes. The first step to fixing our broken system is to recognize this. Things don’t just happen to be bad; they are bad because the rich want it that way.

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

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