Part 5:  Solutions
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By William C. Shelton

 (The opinions and views expressed in the commentaries of The Somerville Times belong solely to the authors of those commentaries and  do not reflect the views or opinions of The Somerville Times, its staff  or publishers)

I was thinking of summarizing the series thus far. Then Pope Francis eloquently did so in last week’s Apostolic Exhortation:

While the earnings of a minority are growing exponentially, so too is the gap separating the majority from the prosperity enjoyed by those happy few. This imbalance is the result of ideologies which defend the absolute autonomy of the marketplace and financial speculation. Consequently, they reject the right of states, charged with vigilance for the common good, to exercise any form of control. A new tyranny is thus born, invisible and often virtual, which unilaterally and relentlessly imposes its own laws and rules.

I would add that among the developed nations, people in more unequal societies do worse on any measure of health and wellbeing than those in less unequal societies. People in America, the richest and most unequal, do the worst. Even the wealthiest citizens in the U.S. and the U.K. are less healthy and happy than their peers in more equal societies like Japan and the Scandinavian countries.

How societies achieve greater equality doesn’t seem to affect these results. Denmark, Finland, Norway and Sweden do it through progressive taxation, the revenues from which fund universal benefits like healthcare, childcare, and pensions. Japan does it by ensuring that differences between the poorest and wealthiest in before-tax incomes are smaller. In America, we need to do both.

Smaller pre-tax earnings differences

Minimum wage law sets a floor that affects all other wages. Over the years, the minimum wage has not risen commensurately with inflation, losing 25% of its value during the Reagan administration alone.

A large majority of people who earn minimum wage work for mega corporations like McDonalds and Walmart, and in jobs that cannot be outsourced. This is probably why research shows that minimum wage increases do not kill jobs or small businesses, as opponents claim.

Senator Tom Harkin and Congressman George Miller have sponsored a bill that would increase the federal hourly minimum wage from $7.25 to $10.10 over two years. A Hart Research poll finds that 80% of Americans support such an increase—92% of Democrats, 80% of independents, and 62% of Republicans.

Education that has not kept pace with technology-driven labor-market demands is a factor some economists cite to explain America’s growing inequality.

A large and growing body of research shows that pre-kindergarten education—when children’s brains develop most rapidly—is directly linked to later financial and social success. Several studies agree that every $1 invested in pre-kindergarten education ultimately reduces public spending on services, and increases productivity and earnings, to produce a combined return of $7. We need the kind of universal pre-K education that kids in more equal countries receive if we are to again achieve economic vitality.

Skyrocketing college costs and suffocating student debt are reducing young people’s ability to prosper, while undermining economic growth. The plan that the President has presented to make college more affordable deserves serious consideration.

Fiscal policy, and specifically, public investments in infrastructure, research, and education, can make an important contribution to full employment, which reduces inequality. Right-wing obstruction of such measures is ideological and self-serving, but unsupported by the evidence. Absent these investments, the Federal Reserve Bank has been attempting to stimulate the economy by recklessly expanding the money supply, a policy which, I believe, is ineffective and fraught with risk.

Wall Street reform is long overdue. During the last thirty years, growth in financial services has been hugely disproportionate to growth in other industrial sectors. It has diverted a large share of the national income from wages and salaries to dividends and capital gains, diverted capital away from job- and growth-producing sectors, and damaged productive sectors through speculation and plunder.

Privately owned investment banks went public in the 1980s and 90s, using shareholder money to increase their capital while reducing their personal risk. They successfully lobbied to abolish regulations protecting the public. Congress and President Clinton repealed the Glass Steagall Act in 1999, enabling investment bankers to speculate with depositors’ money as well. They became fabulously wealthy from high-risk successes, while taxpayers covered their failures.

John McCain and Elizabeth Warren are sponsoring a bill to reinstate Glass Steagall. Meanwhile, Republicans continue to block full implementation of the Wall Street Reform and Consumer Protection Act of 2010.

Fairer taxation and benefits

Social Security payments to Americans who have worked all their lives are paltry when compared to those of other developed nations. The payroll tax, which funds Social Security, is the most regressive of the federal taxes. We should exempt the first $15,000 of a worker’s earnings. In turn, we should remove the current limit of $113,700 on how much income is taxed.

Tax burdens have shifted over thirty years from taxing income derived from wealth to taxing income derived from work. From 1946 to 1978, the top marginal tax rate was never below 70%, and we had greater economic growth than at any time since. Returning to historical marginal and capital-gain tax rates would directly reduce inequality while financing investments in future economic growth and in reweaving the tattered social safety net.

Tax loopholes allow the richest corporations and individuals to dodge their fair share of taxes and to offshore their profits. Both political parties condemn them but lack the political will to act.

The Earned Income Tax Credit is a subsidy for low- and moderate-wage workers. It encourages and rewards work and should be expanded.

Achieving any or all of the foregoing reforms is not easy. Pope Francis writes, “A financial reform open to such ethical considerations would require a vigorous change of approach on the part of political leaders.”

The vigor of our political leaders is weakened and perverted by big money in politics, as is the electoral process that selects them. Some activists have proposed a Constitutional amendment, establishing that corporations are not people, and money is not speech. It would encounter fierce and fiercely financed opposition, but I think that Americans are ready for it.

Reforms also require empowered workers. For a century, equality of income in America has been directly proportional to the percentage of the workforce that is unionized. That relationship is unequivocal and compelling.

Legislative and administrative changes have gradually chipped away at unions’ ability to organize. A case now before the Supreme Court could deal another serious blow. Strong labor standards would give workers greater bargaining power, affirm the work ethic, and sustain economic growth through stable consumer demand.

All of the foregoing solutions represent ways to patch up institutional arrangements that Pope Francis describes as a system wherein “everything comes under the laws of competition and the survival of the fittest, where the powerful feed upon the powerless.”

He dismisses, “trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system.

I would hope that, a quarter-century after the fall of the Soviet Union, we could discuss prospects for an institutional arrangement that is neither corporate capitalism nor state socialism. It would be, quoting Francis again, a system in which “Money must serve, not rule,” a system that nurtures humanity and sustains life on the planet.

Let’s begin the discussion.