As you should know, Michael Hiltzik is one of the best political columnists around. But he works on the west coast, so he is largely ignored by the New York punditocracy. But he’s great. That’s why he’s listed on the right under “Daily” (Economy Hub). What Jonathan Bernstein is to political science reporting, Hiltzik is to economics reporting. Except that Hiltzik is actually a whole lot more fun. Anyway, yesterday he wrote a very interesting and maybe even hopeful article, Dire Warning from Wall Street: Income Inequality Hurts US Growth.
The article refers to a report out of Standard & Poor’s. I know what you’re thinking, “Weren’t they one of the companies that were giving high ratings to all that subprime garbage?” Yes they were! But you have to understand: they were paid to do that; this isn’t a paid gig. The point is that Standard & Poor’s is corrupt, not incompetent. So you should pay attention when Chief US Economist Beth Ann Bovino writes, How Increasing Income Inequality Is Dampening US Economic Growth, And Possible Ways To Change The Tide.
Oh. My. God. I know what you’re thinking, “Thomas Piketty must have gotten to her!” But no. That’s not it at all. This has all been pretty clear for a long time. Think about cell phones. First, if only one or two people had them, no one would care. We would call them walkie-talkies and move one. What’s more, they would be really expensive. You’d have to have cell phone towers all over the world just in case one of the two people who had a phone happened to be there. So it is nice to have a lot of people who make enough money to make things like cell phones and the internet cheap and interesting.
What’s more, there is the issue of having people to sell stuff to. I walked through our local JC Penney this afternoon and it was like a ghost town. Retailers like that are really hurting because there is less and less of a middle class. It seems like we are headed to a country where there are a couple of Tiffany & Co stores and thousands of Dollar Trees. That’s not stable, but our economy is getting more and more like that. Even Kmart, considered really low market when I was a kid, is having problems. The thing is that rich people own stores like JC Penney and Kmart and they can’t keep making money if no one has the cash to shop at those places.
This is one of the reasons I don’t understand why the rich have become so focused on the short term. Their obsession with short-term profits is bad for them long-term. I would think that they would be the most vocal supporters of things like welfare (Food stamps!) and unemployment and education and all those things that allow the middle class to thrive. But in general, they aren’t. Maybe it isn’t that surprising, though. In my experience, people in business are often clueless about how the macroeconomy works.
Regardless of this, I’ve also made the argument that the rich should be worried about social breakdown, The Revolution Will Be Televised. Well, Bovino makes the same argument. Michael Hiltzik explains:
Bovino even offers some suggestions for changing things. She says that we ought to increase access to education. While I agree with that, it isn’t the core of what is wrong in America. And I would really like people to decouple education from “earning potential.” A democracy needs educated people just to survive. We here in America take our democracy for granted. It isn’t. And we are seeing the results of that.
She recommends things like spending on healthcare, but not (I suppose it is too radical) a guaranteed minimum income. But she does suggest increasing taxes on the rich. That is, I’m afraid, the key to the matter. But I fear that the rich will only allow that after things get much worse.
But there is no doubt, it is nice to hear stuff like this coming out of Wall Street. It is a good start.