Why Rising Wealth Disparity Actually Creates Poverty
Rising wealth causes overproduction and hence unemployment and destitution. How? It's all a matter of supply and demand. Inequality goes up when official economic policy does not allow wages to catch up with ever-growing labor productivity. Profits then soar because employers are taking much of the share that should have gone to workers. By this means, rising productivity increasingly raises the incomes and bonuses of business executives. Then those excess profits sit idly in the vaults of bankers and big-business CEOs, and this consequent shortage of cash in the pockets of workers restrains consumer demand, leading to overproduction, backed-up inventories, and then, inevitably, to layoffs and poverty. This toxic combination of mounting layoffs and woefully insufficient job creation naturally causes poverty to grow, which, according to official figures, is now the highest in 50 years.
How has the government helped restrain wages relative to productivity and thereby made the rich richer and the poor poorer?
When reading the following list of answers to this question, keep in mind that almost all of these official economic measures or policies, adopted since 1981, have combined to devastate the middle class.
1. The Reagan income tax cut of 1981 that so nicely benefited the rich, made it necessary to sharply raise all other federal taxes, which were of course paid mostly by the middle class and the poor, so as to finance that tax cut.
2. Unenforced antitrust laws, leading to mergers among large and profitable firms, killed high-paying jobs in numerous industries (and thus provided additional profits for the rich).
3. Permitting the oil industry mergers in the 1990s now prevent oil prices from falling -- and this in the middle of the worst slump since the 1930s, when people can least afford these unnecessarily high prices (prices that only benefit the rich). Did workers get a share of those increased profits? Of course not.
4. Permitting relentless mergers among pharmaceuticals and health insurance companies, so that America, far more than any other nation, now spends almost 15 percent of its gross domestic product (GDP) on health care that is (for everyone except the top few percent) mediocre by European and Japanese standards.
5. Unchecked use of outsourcing (5 million jobs sent to China and elsewhere) that killed the relatively high-paying jobs that used to exist in American manufacturing and many services. A 2008 Harvard Business School study concluded that as many as 2 out of every 5 U.S. jobs could eventually be sent abroad.
6. Ignoring the growth of the trade deficit that has destroyed our manufacturing base. (More on this later).
7. The 1999 repeal of the Glass-Steagall Act under President Clinton, which led to reckless lending by banks and an unprecedented housing bubble, which collapsed in 2007 to trigger the ongoing slump that reduced home values by a third and left a quarter of all American homes "underwater," with trillions of dollars of middle-class wealth destroyed in the process.
8. The Bush tax cuts and bailouts that further benefited the rich while nearly doubling the government debt -- on which we must all pay interest every year at tax time.
9. The decimation of the real minimum wage by President Reagan and other Republicans: In 1981, an hour of minimum wage work allowed the worker to purchase $8 worth of goods, compared to the $6 worth of goods that the same work-hour bought by the end of Reagan' presidency in 1988, compared to a mere $5.15 worth of goods that the hour allowed the worker to buy in 2006 under George W. Bush. (Reaganomics in action.)