Reprinted from Campaign For America's Future
We have become a profoundly unequal society. That reality is explored in new detail in a recent study from the Institute for New Economic Thinking (INET). Even more importantly, the INET study shows that it will take a dramatic shift in policy to restore the equilibrium. Unless we can build momentum for a new political agenda, we'll be divided into a small minority with fabulous wealth and a permanent underclass with few hopes or prospects.
Unfortunately, our mainstream political dialogue shows no sign of adapting to these realities. As the INET study confirms, mainstream Democratic ideas won't protect us from this dismal future.
Republican policies? Don't ask.
That's why it was discouraging to read in the New York Times this weekend that the presumed presidential nominee of the Democratic Party is "expected to embrace ... standard Democratic initiatives like raising the minimum wage, investing infrastructure, closing corporate tax loopholes and cutting taxes for the middle class" -- along with "newer" ideas like "providing incentives to corporations to increase profit sharing with employees and changing labor laws to give workers more collective bargaining power."
These ideas, while worthwhile, will not reverse our multi-decade descent into inequality. Nor does it seem likely that the "philosophy" of Hillary Clinton's advisers, as presented to the Times, will resonate with the voters who have lost so much ground during this process of decline.
They call it "inclusive capitalism," and that's a formulation which would not have been out of place in conservative Republican platforms of recent decades.
"The challenge," said Clinton adviser Lawrence Summers, "... is to address inequality without embracing a politics of envy."
The "politics of envy" is another favored conservative trope, and it's troubling to see it adopted by Democrats. But it fits with the overall message, as conveyed by the Clinton associates who spoke with Amy Chozick of the Times. Their consensus appears to have become slightly more liberal, but their policy prescriptions still seem to fall far short of what's needed.
For its part, the INET paper adds to a growing body of literature that shows that inequality is deeper than previously understood. It also illustrates how deeply our policies -- and our politics -- will need to change if we are to address the problem.
Authors Lance Taylor, Armon Rezai, Rishabh Kumar, and Nelson Barbosa ran model simulations and found that the range of policies considered "do not reduce rich vs. poor inequality by very much" when they are "applied at politically 'reasonable' levels."
In other words: If we continue to let ourselves be constrained by politicians' and pundits' definition of the political mainstream, our economy will become permanently unjust. It is left to the rest of us to wonder about the social implications of an economy based on permanent injustice.
The authors studied the "Palma ratio" between rich and poor, comparing the top 1 percent to the bottom 40 percent, and found that "the top 1 percent steadily increased its GDP share from 5 percent to nearly 15 percent over two decades ... while shares of the other groups have been stable or declined."
In one of their most significant findings, the authors concluded that 46.9 million American households spent more than they received, further intensifying the nation's wealth gap. Economist Lance Taylor, the paper's lead author, told Lynn Parramore that "the bottom 50-60 percent of households " have a negative savings rate."
"Their average wealth is close to zero," Taylor added.
The authors also noted that "the relatively rich have 50 times the average income of the poor. The share of the GDP of the top 1 percent is higher than the share of the bottom 40 percent."