Why Income Inequality is Bad for Business

There's a very good, straightforward and powerful explanation of the importance of economic fairness in today's StarTribune, written by David Morris.

Income inequality as it exists in the U.S. today, an extreme inequality which the Republican Party is sworn to continue and increase, is bad economics, very bad for business, bad for the future of private enterprise, bad for our health, bad for our children and grandchildren, downright stupid when you measure its effects on education, and (today being Sunday, maybe we should consider this) it turns Christianity on its head. Why do these "super-Christian" and supposedly pro-business Republicans support policies which undermine everything they stand for? My explanation? It's a shell game, a trick, a sham, a con game. To use a phrase popular in the South "They'd climb a tree to tell a lie." They don't give a damn about the things they trumpet in speeches and commercials. Their loyalty is to money in their own pockets and power in their own hands.

One of the chief lies they tell is this: Democrats who favor greater income equality want everyone to earn the same. This is untrue. What we want is a return to the system which functioned well during the longest prosperity in American history, the period between the New Deal and the inauguration of Reagan, a period when workers' earnings rose as a companies profits rose. Since Reagan it's all been taken apart. Since 1980, the American Dream has been narrowed to the upper classes, to people who own stock for a living rather than working for a paycheck. They forget, and would like Americans to forget, that prosperous working people are the engine of a strong economy. Republicans treat them like the enemy.

Farm Politics

A good story from NPR. (Does NPR do any other kind?)

This quote seems to catch the gist of it: "According to the Environmental Working Group's crunch of USDA numbers, between 1995 and 2010, 10 percent of farmers who received subsidies took home three-quarters of farm subsidy dollars. About 62 percent of American farmers don't receive any subsidies at all, according to 2007 data."

When FDR created the idea of farm subsidies it was to keep poor farmers on their farms during years of low commodity prices, and to help stabilize the prices of those commodities. It worked. Since then, though, farms have consolidated into immense businesses. Agri-business owns farmland. Farming has gone corporate, and the corporate side of farming is taking most of the subsidies. To borrow a farm analogy, the larger pigs have a way of shouldering the smaller ones away from the trough. Wrong? Maybe not, but we should know what is going on. There are good reasons for having small farms, family farms, just as there are good reasons for having small towns. But is modern farm legislation helping either?

Only Deficit Spending Will Save Us

Today's must-read comes from the chief economist at the Financial Times.

People have been bullied and misled about the so-called "ogre" of deficit spending. During a recessionary period, when businesses are not spending and tax revenues are down, the government becomes the key player. All other players are sitting on the sidelines, so government has to act. Government has to spend when no one else will. It may be the most crucial role government plays in our lives––unless you subscribe to the idea that government's only role is blowing up our enemies and fencing our borders.

The founders knew the importance of a national debt. Alexander Hamilton created a robust national economy by creating the national debt. Washington presided over this. Business wealth grew in America because we had a national debt. The great presidents knew this and used this tool to create infrastructure. Eisenhower didn't win WWII, rebuild Europe or build the interstate highway system with ready cash.

FDR got us through the Great Depression with deficit spending. Without it millions would have died of starvation and disease, not to mention millions more households that would have been broken up, homes and businesses lost. Instead, well built bridges and parks, roads and dams, electrical grid work in rural areas, hospitals, schools and public buildings were the result. We still see those projects in use today. We also see several generations who got higher education through the G.I. Bill, the last liberal "good deed" created by FDR. Millions would never have gone to college but for the New Deal.

FDR did make one key mistake, though. In 1936 he promised to balance the budget. His attempt to do so when the economy was still weak caused a second recession in 1937. It was only the massive deficit spending of WWII that finally ended the Great Depression.

In good times we pay our debt back... unless we have a Republican leadership that decides good times are a reason to loosen up, to throw no-strings tax breaks at corporations that are shifting jobs overseas.

Government needs to do the opposite of what businesses do. In bad times, government must spend. In good times, government spending is less important than government oversight to make sure the private sector doesn't create another financial collapse. Think if it as Id and SuperEgo. In good times the private sector needs a grown-up in the room, a conscience. In bad times, it needs someone to clean up its messes.