The Quandary of Cause vs. Solution

Donald Trump rightly saw the economic distress of a large swatch of American workers as the opportunity to build a base for his eventual election. Workers had been suffering with no real wage increases for 40 years, ever since Reagan. And neither Democratic nor Republican Presidents had even slowed the steady advance of inequality. Inequality was approaching the level of the Robber Baron era of the 1920, and inequality has subsequently increased under Trump. Inequality in the US is the highest among developed countries.

Trump put his energy into excoriating immigrants and foreign countries as the cause of the economic woes of the working class. They were the “cause” in his hundreds of speeches. The workers were hungry for identifying a cause, culprits, and they bought it. It was simple (too simple), easy to understand. It gave them opponents to focus on, to rail against. Thus, all the working class support for the wall. This, notwithstanding extensive economic analysis showing only rarely do immigrants reduce wages, and as a whole they make a huge positive contribution to our economy, far in excess of any government assistance they may receive.

We have dramatically and tragically witnessed how easy it was to identify tangible culprits, and how easy to sell simple causes to a generation of economic woes for our workers. Regrettably, these were not the real causes. These were fake causes. It was not immigrants who caused the problem. It was not Mexico or China, or any other of our trade partners. Every legitimate economist took great exception with the trade wars. Peter Navarro was ridiculed by Larry Summers of Harvard and others who explained that the trade deficit is a fake cause and “fixing it” is a fake solution.

As an example of the problem: I took a class under Summers and Robert Lawrence, who spent several sessions carefully walking us through the workings of the global economy, explaining why the trade deficit is a fake problem and that fixing it is a fake solution. It’s not simple, but it’s absolutely clear when explained. With the cost of education as it is, with wages as they are, how many of our workers have the opportunity or even the time to take such an economics class? No wonder they’re vulnerable to simple solutions offered by a President who appears to have little understanding of economics.

Properly identifying the causes is complex and challenging. Voters need opportunity and information and education to get to a decent understanding.

But here’s my main point today: Identifying the causes is not nearly as important as offering a good solution. That’s really complex. Otherwise, how is it that every President since Reagan, regardless of your political affiliation, failed to arrest the advance of inequality, failed to fix the income tragedy of our workers? It wasn’t because none of them cared. It is complex!

Trump’s solution was to kill or punish the identified fake culprits. How has that worked? Wages are up 3% after 40 years of no real wage increases. Is that success? No. Probably just the result of a global recovery which is now slowing. Our gdp is now back to a sluggish 2%.

What’s the real solution? Well, it would take a huge study, a great collaborative effort to design it, and it wouldn’t fit into anyone’s blog post.

Here’s what it’s not:

  • It’s not reducing immigration or fighting trade wars. None of that is going to bring back manufacturing, as promised by Trump.
  • It’s not as simple as universal basic income alone, or taxing the wealthy and corporations, or wealth taxes, or free health care or free education, any of these taken alone. These are possible components, but not a comprehensive solution.
  • It is not a solution built primarily around increased welfare to the working class.

Here’s what the solution must include:

  • A steady reduction in inequality to a more moderate and sustainable level.
  • The realistic achievable of living wages for the vast majority of workers–in a generation.
  • Engagement of all stakeholders to make this happen: citizens, communities and states, corporations, educational institutions, and our federal government.

This is our opportunity and our necessity. Let’s get to it!

Critical 2020 Issue for Democrats

When I had the privilege of studying at Harvard during 2017, I focused much of my study on economic inequality. I had previously decided inequality is the greatest problem facing the world today–greater than climate change, greater than drug prices, greater than opioids and many other also legitimate concerns facing the US and most other countries around the globe.

Why? Because human existence depends on a safe level of income.  Without sufficient income to provide for one’s family, decent housing, health care, education, and healthy food, without these fundamental basics, how can one hope to advance even minimally on Maslow’s ladder? Every day for many of our workers is all about survival, and only survival. It’s immoral and also dangerous (for all of us) for us to allow such conditions to exist widely throughout our country.

Inequality has now risen to the level equal to that of the Robber Baron era of the 1920’s. All the gains from WWI and Lyndon Johnson’s Great Society began to be erased with the neo-liberal economic era begun with the Presidency of Ronald Reagan in the US and Margaret Thatcher in the UK. Decades of both Democratic and Republican administrations have failed to arrest the steady advance of inequality. Inequality in the US is the highest among developed countries.

High levels of inequality slow economic growth, expose vulnerable populations on the bottom to dangerous levels of crime, drugs, pollution, and health, reducing longevity. Inequality at this level results in homeless camped outside gated communities, children without housing or available parents.

No Liberal wants total equality, not even Bernie Sanders. But we need a significant adjustment. There’s a lot of room for that, without reducing motivation for innovators and investors to take risk.

If we do not reverse the pendulum, the nation will face a revolution–perhaps in the next generation–ala the French Revolution or the Chinese Revolution. No one should welcome that solution to the problem, least of all our wealthy.

in my year of study, one thing was clearly indisputable: It is virtually impossible to fix (even to just measurably reduce) inequality without economic growth. The Trump administration doesn’t appear to care much about inequality, but at today’s 2% GDP growth, they couldn’t do much anyway.

I am asking our 12 Democratic candidates to focus on inequality. Fixing it with higher taxes on the wealthy financing more in government welfare for the working class is not the solution: (1) it won’t sell to the voters; (2) workers don’t want handouts–they want work with living wages; and (3) the welfare approach is not sustainable fiscally and economically.

Fixing it means creating faster gdp growth. The fillip to growth from the Trump tax cut has now burned out, so Democrats must show a way to stronger economic growth. In fact, the history of the last 70 years shows Democratic administrations have consistently generated greater growth than Republican administrations.

Then, fixing it means creating a new environment of work in the US, braced against the winds of technology replacing workers and foreign countries offering better sources of some of our simpler and less complex goods and services. This means much more than Trump’s trumpeted low unemployment rate. Unemployment rates do not translate into wages, and wages for the working class are far short of “living wages.”

It’s nice and good to raise taxes on the wealthy and corporations, add a wealth tax and estate tax, use the money to pay for better health care and more affordable education. This is all good, but it’s not sufficient to win the election or to reverse 40 years of job and wage degeneration in the US.

DEMOCRATS: Your challenge is to lay out a plan involving communities, educational institutions, employers, and government motivation, to spawn the beginning of a new work paradigm for American workers.

A Word of Caution

My 12 Democratic candidates for US Presidency, you’re all far more capable than our President. I’ll vote for any one of you who is our final candidate. I hope all Democrats will do the same, regardless of your differences.

Here’s my word of caution: I believe the ultimate platform has to focus first on jobs and income for the working class. I believe the tragic state of 40 years of no real wage increases were the primary problem/vulnerability that resulted in the Trump presidency. Of course, we know he sold a fake set of reasons–immigrants stealing jobs, foreign countries stealing companies and jobs, weak trade deals, etc.

The opportunity we have is to show that 4 years of Trump’s focus on these fake culprits has only resulted in a 3% wage increase for the working class–and that this is NOT satisfactory. Unemployment rates do not translate to living wages for American workers! Of course, this sets aside that he simply inherited a global recovery.

At this time, I know you’re trying to distinguish yourselves with primary personal foci–e.g., climate change, environment, wealth and income taxes, women’s reproductive rights, universal basic income, etc. All of these are valuable, and perhaps you all agree with my point, but you’ve planned to get to the key issue at the right time.

But if you’re not thinking this way, please give serious consideration. Two reasons: (1) to the Trump supporters, I am 100% convinced this is the basic issue–how to make a living, care for my family, provide for health care, education, and see some real wage increases (not 3%). They are vocal about guns, abortion, Israel, and other concerns, but it should be very clear that a good living is fundamental. (2) What can be more essential than basic living conditions for me and my family, and opportunity for me to realistically hope for a better future for myself and especially for my children? If I don’t see this, I’m sorry, but I can’t get around to worrying much about the environment or abortion, etc.

So far, I haven’t seen any of you clearly enunciate a plan which offers the working class better working and earning and living opportunity. Additional welfare will not sell to voters as the answer, plus our citizens don’t want government assistance except where that’s critical. They want to make it on their own–but working two jobs in a low unemployment/low wage economy is NOT leading a promising direction.

If we have nothing more to offer than that, nothing more than $1,000 per month in UBI for everyone, nothing more than free health care, etc., we will not beat Trump in 2020! He won on promising the workers a better life. If you want to give him credit, he delivered a tiny tax cut and a tiny wage increase, along with destroying alliances, skyrocketing the deficit and debt, etc. We must show that (a) this is totally unsatisfactory, an abysmal failure: and (b) we have a plan to offer something believable, far better, that is realistic, achievable.

If we don’t do this, I doubt our success in 2020. Decades of both Democrats and Republicans have failed to deliver such, inequality continues to increase. Now is the time to address and sell the beginning of the future for American workers.

26 Billionaires vs. 3.8 Million Poor

OXFAM has just released its annual study of inequality. Looking at wealth, OXFAM estimates that the 26 richest in the world now own as much as the poorest 3.8 million.  They own as much as half the world owns! It’s getting worse. 82% of the wealth creation last year went to the top 1%, and none went to the bottom 50%.

This is tragic, bad for everyone on the planet. More tragic is that many tools exist to moderate inequality, but they’re not being used.. If high inequality is the invisible hand of the market working, we need a strong visible hand of government to restrain the market forces, and redirect them to both profitable and also sustainable and equitable outcomes.

I have been studying inequality for the last 7 years, first at SOAS in London in 2012, at Harvard in 2017, and on my own. I have continually argued in this blog that inequality is the worst problem for the world, and certainly for the US, where inequality is higher than in other developed countries.

The tragedy of inequality for the poor involves forced focus on survival only, on nothing but food and shelter, meanwhile getting the worst effects of climate change, pollution, and poor health care. Without adequate food, shelter, safety and education, what chance can they have?

Critics argue a version of “fairness,” that those who earn or own these rewards are entitled to 100% of them. Of the 26 in Forbes’ list of 400 billionaires, some earned their fortunes–Gates, Bezos, Buffet, Ellison and others. Some inherited theirs–Waltons, Bettencourt-Meyerrs, Ambani, the Kochs.  There have been questionable practices along the way for some, but this blog post is not about finding and arguing the case on that basis. For these purposes, I’ll stipulate that every dollar was legally obtained. The case is strong without disputing legal rights.

“Fairness:” Leaving legality undisputed, I condemn the system on two major points. First, this is morally wrong. The 3.8 million did not have equivalent opportunity. Some of the billionaires, such as Gates and Buffet, started with little and built their fortunes. But, they were born in circumstances which offered enormous educational and other supportive benefits to leverage–safety, rule of law, institutions, and more. They didn’t have to scrap for food on a day to day basis. Most of them are American, and that in itself is a huge advantage. 9 of 10 are men, regrettably another huge advantage..

Where is the fairness for the 3.8 million? The vast majority of them are hard working and intelligent–intelligent enough to produce much greater results for themselves, if given the opportunity. But, the opportunity is not there for most of them. This is my message to those who say the underprivileged just need to get out and show some gumption, and they can all be millionaires or even billionaires. The point is that the opportunity is not the same. Opportunity is critical. Gumption is necessary, but not sufficient if you’re in the bottom 50%.

Second, It isn’t particularly painful to the 400 for us to fix it–just to moderate inequality–ratchet slowly back to where we were before Reagan. It is actually to the advantage. of the wealthy.  Academic studies show that high levels of inequality restrain economic growth. Economic growth is critical to wealth creation, so even the wealthy will be more successful in a somewhat more moderate climate of inequality.

And, fixing it doesn’t have to be dramatic. A modest wealth tax, as proposed by Philippe Paillart in his famous book, and as recently endorsed by Elizabeth Warren, would do wonders, with little impact on existing wealth. A much more progressive estate tax would help. Many studies have shown a higher income tax on the highest incomes (for the amounts above say $1million) would not dampen investor or entrepreneur motivation, or economic growth. See Saez and Diamond for one such study.

Government revenues (taxes) are not the only opportunity for reducing inequality. Government expenditures are another opportunity–e.g., less on military or bloated inefficient government agencies, more on education. And, numerous studies have shown that non-tax policies across the last 40 years of advancing neo-liberal economics, have provided thousands of benefits to the wealthy, at the expense of rising inequality. Remaking America by Soss, et., al. is one such recent compilation. The rise in inequality since Reagan is not a simple natural occurrence. It’s not inevitable. It is the result of a steady progression of policies advantaging the privileged. Rolling back some of these will open up opportunity for the 3.8 million, or the US share of those. The US Census Bureau reports that we had 39.7 million Americans living in poverty in 2017.

The Financial Times this week highlights the policies of the S. African government to stimulate and support opportunities for entrepreneurs. S. Africa has the world’s worst inequality. Government programs seem to be working there. Do we have to wait until we are at that level to do something?

I have been insisting for years that inequality is the world’s worst problem. It continues amaze me that it is not recognized as such. Lately, the press and the Trump administration claims the American Southern border is the biggest problem for the US. The Washington Post chided Trump this week by providing their list of bigger problems: climate, guns, opioids, debt, populism, China and Russia.

I argue that the world’s inequality is strongly evident in all of these, and we’d better start to address it. I say again–if you don’t have food, shelter, education, and basic institutions, you don’t have opportunity. The Yellow Jacket protests have French inequality at the center of their demands.

Revolution is the end state of rising inequality.

The Big Problem Not Discussed

December 30, 2018

Inequality may be the biggest problem for the US and for the world. Why?

Among the many reasons:

  • Inequality has risen almost to Robber Baron levels,
  • The wealthy and ultra wealthy have seen steady gains, while the working class has seen stagnant wages for 30 years.
  • Inequality breeds discontent with government, and opens the door to populist demagogues offering false solutions.
  • Inequality is at the root of the problems of poverty, immigration, and terrorism, breeds crime.
  • The underprivileged suffer the most from pollution and climate change, which are other facets of inequality.
  • It is morally wrong for some to have everything they want and many to lack basic food, shelter and health.
  • It isn’t even good for the economy for a vast wealth and income gap to exist. An impressive body of economic study finds economic growth is slowed when inequality is very high. Thus, even the rich suffer if they allow inequality to rise to this level and higher.

Yet inequality gets little attention in the press. And, neither of our American political parties seem comfortable to directly address it. Why?

One reason is that the word “inequality” creates an inference that the “objective” is to achieve 100% equality–everyone with the same income and wealth. That’s socialism, and that’s not what anyone wants.

Another reason is that there is a suggestion of obligation which goes along with the word “inequality.” That if I am among the better off, I am obligated to share some of mine with the less well off.  Inequality is a condition involving both the wealthy and the poor. “Poverty,” on the other hand, is seen as only a condition of the poor, for which I can choose (of my voluntary generosity) to help, or not to help. I have no obligation.

Associated with this connotation, “inequality” is an inference of a need to take from the wealthy and give to the poor. Many Americans object to that.

None of these implications, inferences, or connotations need be the reality of inequality or the solution to fixing it.

For the ideal solution to inequality, it is not necessary to take from the rich to provide for the poor. Harvard’s Dr. Roberto Unger proposes a flat tax, same for everyone, sufficiently high in percentage terms to provide for a great free education for all who want it.  Then, a collaboration between local businesses, educational institutions and local governments could generate an environment of experimentation and innovation such as to provide a satisfactory work opportunity for all who want to work, at a living wage. Utopian? Maybe, but just imagine what could happen if we set out a goal such as that? 

As to total equality, very few think the goal is total equality–in income or wealth. But Americans have a uniquely high individualist ethic,  prizing motivation to risk and work hard. That comes from knowing individual successes, if achieved, will result in significant personal rewards. If income is taxed too highly, motivation to risk and work is dampened or destroyed. Americans don’t want that:

Individualism Chart--US vs others.pngAmericans don’t like inequality, but the argument over the dividing line between sufficient motivation and dampening or destroying it is fierce and complex.

What is it about Americans that has a hard time with “balance?” There may be a few of the wealthy who want it all and a few of the impoverished who want total equality. But the vast majority of us want something in between.

Here’s a graph displaying the pattern of wealth and income inequality from 1930 to 2010. Inequality on both measures has risen significantly since 1970-85.

Image result for income and wealth inequality US

Each of us might stick a pin in this chart at a different point, to indicate the ideal level of inequality of we’d prefer. I’d choose around a point around 1975. In that year.  Most of us would choose a point well below the .47 of current times.

In summary, even giving recognition to the American individualist ethic, it seems all could agree that inequality is too high. For these reasons, we have been putting our heads in the sand, but it’s time to take on this subject, wrestle with our respective positions, and do something about it. Far beyond the value of border control or trade deficits, an improvement in inequality could really make America great again.

 

No One Wants Handouts!

November 12, 2018

There seems to be an opinion among Republicans and Conservatives that Liberals and Democrats believe the answer to dangerously high inequality and continuing significant poverty in the US is just more ‘handouts’ (welfare). Every time I hear this characterization, my blood boils. I’d like to correct this misunderstanding.

I speak for myself, but I think most of those on my side of the political and social aisle would agree. What our underprivileged citizens need (and want) is good jobs with living wages. I firmly believe the vast majority of our poor would prefer to receive no handouts, would prefer to pay their own way.

I have faith in human nature. I believe only a tiny fraction of our needy want to exist off welfare.  For one thing, our social support budget is lower than that of many other developed nations. It’s almost impossible to “live off” welfare only. For another, it just doesn’t feel good to people to depend on charity. People want to earn their way.

Furthermore, Democrats don’t want to dole out precious government resources on welfare, resources which could go to infrastructure, education, basic research, and much more.

Those characterizations of Democrats, Liberals, and our poor are simply not true and are promoted for political advantage only.

Given that we all agree that handouts are not the answer, what is the problem? Here’s my list:

1-While unemployment is very low, wages remain very low. Recent wage increases fall far short of re-balancing the decades lost in stagnant wages (since the late 70s).

2-Furthermore, a huge skills deficit results in good jobs going unfilled and millions of Americans working at very low minimum wages. A major factor in this is the wage-educations costs gap which has widened dramatically across the last few decades.

3-Creating an economy where there is a healthy balance of good jobs and training to qualify workers for those jobs has not been the focus of this or previous US government administrations. Neither Democrats nor Republicans have presented an agenda to resolve this huge problem. Trump’s government seems determined to focus only on “manufacturing.” Some focus on manufacturing is fair, but there is a much broader set of skills needed, especially in the service and knowledge economy for which the US wage scale is best suited.

My questions to my Conservative friends are these:

  1. Since we all agree handouts are not the best answer, why aren’t you offering policy and solutions designed to create those jobs? This would best involve collaboration between local businesses, local educational institutions, and local governments. The federal government is not the best source of solutions and plans, but can be a valuable enhancer with a variety of incentives to boost promising local initiatives. Since nothing like this has been underway to date, it is likely to take years to produce results–but it’s time to get started.
  2. What do you propose we do across the years of development toward jobs and skills balance? Isn’t there a temporary (and hopefully diminishing) need for welfare to prevent people starving while we work toward a better economy with opportunity for “shared prosperity”? Do we have to sacrifice a generation?

My guess as to the answers to these questions (why critics of welfare do nothing to solve the jobs problem):

-They  believe such an economic and societal improvement is hopelessly utopian (just a waste of time and money to try)–e.g., let the free market deal with jobs and wages. They believe it is dangerous to try to influence the pure market. They fear unintended negative consequences. But how well has that worked across the last few decades?

-Many Conservatives believe in total self determination. They believe there is ample opportunity for our underprivileged to “make it” if they will just get off the sofa and find the training and the jobs. They believe workers should get themselves trained as plumbers or electricians if they are not able to handle computer science.

-And, I hate to say it, but maybe some just don’t care about working toward shared prosperity. How can anyone not care about our inequality, which is back to robber baron era level?

I have argued for years now that our very high level of inequality is the biggest problem for our United States. It’s not immigrants at the border, not Iran or North Korea, not an underfunded military, not the economic threats from foreign countries. These are among our many problems, but inequality is the worst problem. This is what results in poverty, homelessness, health and longevity problems, despair and much more, including death.

To my surprise, even Tucker Carlson (for whom I have little patience) is quoted as agreeing that inequality is our greatest problem.

An unhappy, under-skilled segment of our voting public went for a demagogue populist who promised to fix their pain from low wages and poor jobs. If he really wants to put America First, then he should focus and thoroughly address America’s First Problem.

 

Republicans and tax “relief”

http://www.sfexaminer.com/republicans-shown-hand-now-vote-accordingly/

Published in San Francisco Examiner Nov 4, 2018

Republicans have shown their hand, now vote accordingly

By Dale Walker

Republican presidential nominee Donald Trump speaks during the grand opening of the Trump International Hotel on Oct. 26, 2016 in Washington, D.C. (Olivier Douliery/Abaca Press/TNS)
By Dale Walker on November 4, 2018 1:00 am
In Trump’s latest efforts to enrich wealthy people like himself, his administration recently proposed indexing the capital gains’ cost basis for inflation. If successful, this change would cost $100 billion, the bulk of which will go to millionaires and billionaires. On the heels of last year’s tax cuts that are not only exceedingly unpopular but also unsuccessful in promoting wage growth, this latest ploy should be seen for what it is – a payoff to wealthy political donors.

Even President Reagan knew that lowering the capital gains tax rate was completely unhelpful for the majority of Americans, and during his administration the lower rate of taxation on dividends and capital gains was removed, leaving capital gains taxed at the same rate of normal income. This was achieved through the Tax Reform Act of 1986, and while it was only in effect for two years, it proves that it can be done. With the growing concentration of wealth in the hands of an ever-shrinking segment of our population, now is as great a time as any to revive similar tax equity legislation.

This is because, simply put, there’s no real, proven reason to give investors a lower tax rate than workers. It does not spur investments, nor does it grow the economy at a higher rate than, say, tax cuts on the middle class. All it does is penalize Americans who are not wealthy, as the highest marginal income tax rate is 39.6%, while the top marginal tax rate for capital gains is just 20%, and capital gains income is almost exclusively earned by people who are already wealthy. This is clearly an area of our tax code that needs to be reexamined, but when given the chance to do so, Republicans punted. In passing the Tax Cuts and Jobs Acts last December without addressing this inequality, the GOP quietly continued the practice of taxing doctors or professors in the highest bracket almost double that of the investor with the same amount of income.

We cannot allow Republicans to continue chipping away at the donor class’ tax responsibility. Last year’s tax cuts have already contributed to our country’s massive wealth inequality and facilitated an absurd number of stock buybacks. It’s pure gall that Trump’s Treasury Department now wants to do the somewhat sensible act of accounting for inflation on an insensibly halved tax rate. We should not allow them to attempt this half-step forward when they have already taken a dozen steps backward. If anything should be done to the capital gains tax rate, it should be increased so it is those who work for a living that receive the lower marginal rates. After all, investors don’t need an incentive to invest. Chances are, even after taxes they come out ahead by investing rather than letting their wealth remain in a savings account. Plus, investing in the stock market does not normally result in new businesses and new jobs. For workers, however, a tax cut means more expendable cash that will be put back into their communities. With an economy that’s 70% consumer driven, this could mean growth across the board.
Ultimately, we need Democrats to start playing defense. This week, Mitch McConnell outright admitted he’s after Medicare, Medicaid and other elements of our social safety net. With continuous Republican-driven tax cuts for the rich, and a ballooning deficit and public debt, these critical programs are seriously at risk. Republicans won’t cut military spending, so this is the largest bundle of costs to go after. This latest proposal will not be the last, and unless there is consistent, concerted pushback in both the House and Senate, Tax Cuts 2.0 will forge ahead, and spending cuts to social programs will follow.

Dale Walker is a retired financial services executive, having worked for Citibank, Wells Fargo, and AIG, among others. Interested in the impact of globalization on world economies and inequality, he received his MBA from the University of North Carolina and an MSC in Globalization and Economics from the University of London. He was a 2017 Fellow in Harvard’s Advanced Leadership Initiative. Mr. Walker is also a member of the Patriotic Millionaires.