Economic Growth and Economic Justice II. What Needs to Happen

 

In today’s fractious political climate, it is at least widely recognized that skilled blue-collar workers are often suffering from stagnant income growth and/or job loss. Unfortunately, the political parties often disagree on how to address this major problem.  There are several different perspectives from which to view the overall situation:

  • Slow economic growth, averaging only 2% per year since the end of the Great Recession in June 2009. From 1950 – 2000 the economy grew at over 3% per year and produced a prosperous American middle class. Now, with strong headwinds from globalization and constantly improving technology, we badly need faster overall economic growth to provide more and better paying middle class jobs.
  • Income inequality. There is increasing income inequality in the U.S. even though the top 25% or so are doing very well. But raising taxes on the wealthy could slow down economic growth by discouraging new investment. In addition, redistribution of tax revenue to lower income Americans will not give them much of a boost.

  • Income insecurity. This is a huge problem for the many blue-collar workers who are struggling to make ends meet. There are a number of specific government actions which could alleviate this enormous societal problem.
  • Economic justice. Poverty in the U.S. is widely distributed geographically, with almost as much in rural and small town areas as in big cities. This could provide an opportunity for Republicans and Democrats to work together to address a very challenging problem.

Conclusion. Our country has very serious economic and fiscal problems which are not being addressed because of severe partisan infighting in Congress. But slow economic growth, income insecurity and poverty affect a wide variety of people with different political outlooks.  It’s inexcusable to allow partisan bickering to get in the way of finding workable solutions.

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Growth vs Equitable Growth

 

There is a huge debate going on in political and policy circles between the advocates of increasing economic growth and the advocates of increasing income equality.  I generally argue that the best way to increase income equality is to increase economic growth overall.
CaptureI have just come across a series of articles from the Nov/Dec 2014 issue of the American Monthly, “American Life: an investor’s guide,” which are sponsored by the Washington Center for Equitable Growth, a progressive Think Tank.  The fact that this group is focused on equitable growth, rather than the narrower goal of income equality, is of great interest to me.
Capture1They advocate a number of things that I agree with such as:

  • The incredible importance of early childhood healthcare and education.
  • Improving K-12 education, especially in low-income areas.
  • Providing much more vocational education and apprenticeship programs.
  • Running a “high pressure” economy in order to tighten the labor market. They recognize that lower unemployment leads to higher wages (see above).
  • Expand the Earned Income Tax Credit especially for workers without children.

The authors want to “pressurize” the economy with a more stimulative fiscal policy which means increased deficit spending, a very bad idea in my opinion.  Much better ways to boost the economy are with policies such as tax reform, trade expansion, immigration reform and regulatory relaxation.
Yes, there is a high degree of income inequality and yes, it’s getting worse over time.  But, as Warren Buffett says, the poor are not poor because the rich are rich.  The best way to help the poor is to make them more productive.  That is exactly the purpose of the policies enumerated above.