© Josh Sager – July 2013
A recent study by the Associated Press—an extremely well-respected media organization—concluded that approximately 80% of all Americans today have suffered, or are currently suffer from, “joblessness, poverty, or reliance on welfare.” According to this study, globalization and the stagnation of wages for lower-level workers are primary culprits for this terrible economic result—put simply, many jobs are being outsourced to countries with lower labor costs while the jobs which are remaining here are not paying survivable wages.
In the current economic climate, the rich are getting richer and everybody else is getting poorer—in fact, from 2009 to 2011, 121% of income increases went to the top 1% of the population (a gain rate of over 100% is possible because the lower income brackets had such large negative losses). For a clear example of this widening divide, we can simply look at worker pay versus executive pay in American corporations. According to a study by the non-partisan Economic Policy Institute, in the time period between 1978 and 2011, the average CEO pay increased by a factor of 726.7% while the average worker pay increased by a mere 5.7%.
To further compound the disparity in compensation for work the wealthy have often found themselves paying a much smaller portion of their income in taxes than the poor. The wealthy often pay capital gains taxes, which are far lower than the income or payroll taxes paid by those in the lower classes. In addition to the capital gains loophole, wealthy Americans utilize a wide variety of offshoring and tax-deduction tricks which dramatically decrease their tax burden. With the money that they save, they can re-invest and grow their fortunes, while other people are left simply scraping by.
Corporations and executives can get away with this dramatic divide within their pay structure because of a combination of globalization and decreased worker protections. In the current jobs crisis, workers are acutely aware that their jobs could be outsourced to China, India, or Pakistan, thus they are unlikely to rock the boat in protest of their meager compensation. In cases where protests have occurred, we have seen corporations like Walmart simply plan to close up shop and move rather than pay their workers a living wage.
At some level, these corporations understand how badly they are treating their workers; we know this because of high-profile gaffes, like when McDonalds’s own website presumed that its workers had a second job when doing a sample budget for them.
While the result of the AP study is by no means shocking, it provides a stark quantification of the economic troubles that our country is currently experiencing. The idea that 80% of the American public is hanging above poverty by a hair is truly troubling, particularly considering the political situation in the USA.
Washington is currently broken and it is unlikely that a comprehensive solution to this crisis will be passed in the federal legislature any time soon. The Democrats are heavily dependent upon corporate money and are skittish of antagonizing their donors by proposing the tax increases which would be necessary to fund a solution to this main-street economic crisis. The Republican Party is nothing more than a subsidiary of corporate lobbying and has done everything in its power to obstruct help to the poor and pile on benefits for the already wealthy. In short, nothing that significantly helps main-street is likely to survive and pass in a political climate so powerfully dominated by moneyed interests.
Unfortunately, far from passing beneficial laws, Washington appears to be continuing down a path which will exacerbate the pain on the lower 80%. Austerity and “trickle-down” economics are alive and well, while stimulus and increased worker protections are nowhere to be found. In order to solve the economic crisis facing the 80%, we must take careful action and avoid making the same mistakes which got us into this mess in the first place:
Policies which are necessary to fix this situation:
Increase the Minimum Wage – The minimum wage has been stagnant for years and needs to be dramatically increased in order to ensure that people are paid a living wage. Increasing the minimum wage would increase the buying power of the American public and would help bolster the economic security of those working the hardest, at the lowest-paying jobs (ex. McDonalds workers). Ultimately, there are few downsides to increasing the minimum wage (within reason), as studies have shown that such increases have little effect on employment levels and, in most cases, no effect on the overall prices of goods (production is more expensive, but more people are able to buy).
A Second Stimulus – Currently, unemployed Americans need decently paying jobs and the American infrastructure is in need of re-investment and repair—these problems solve each other, if only the government decides to invest in the national infrastructure with a second stimulus project. Eventually, we will need to renovate our infrastructure (if only to stop our roads and bridges from continuing to fall apart) and this is the perfect time to do so; not only are we in need of jobs, but the projects are comparably cheaper than they will be in the future due to the low prices of raw building materials (if we wait 10 years and the problems with our infrastructure become impossible to ignore, the projects will cost far more than they do now and we won’t reap the benefits of the job gains).
Disincentivize Outsourcing – Corporations should face tax consequences if they choose to leave the United States in favor of countries with low labor costs. Conversely, corporations which invest in the USA and keep their production lines within our borders should be given incentives to stay, regardless of the higher labor costs.
Tax the Rich and Corporations – At a time where we are facing economic crises, those who are able to pay more need to stand up. Currently, the rich pay an incredibly low percentage of federal taxes relative to their wealth, thus the burden is shifted onto the already-besieged poor. According to several studies, the optimal point for the top marginal tax rate in regard to maximizing economic gains is approximately 68.7% (far higher than our current rate of 43.4%, not even including the capital gains loophole), thus this is what I would suggest in order to balance the tax code. Once the wealthy pay their fair share, it will be easier to fund stimulus and to reduce the deficit which poses a long-term economic threat to our country.
Fund Education – In order to stimulate skilled labor sectors, we must ensure that our public schools are producing large quantities of well-educated students. Both on the primary and higher education levels we must increase investment in education funding and ensure that every American has the opportunity to learn. Rather than cutting education budgets and slashing compensation for teachers, we need to draw in the best teachers by increasing school funding, all the while ensuring that every district has proper funds (overall spending can be high, but that is meaning less of some districts get most of the money while other languish). In addition to school budgets, we must deal with college affordability by ensuring that every student can afford a public state university education and offering low-interest loans to those who wish to attend private institutions.
Policies which will make things worse:
Austerity – In the current job crises, the absolute last thing that we need is a decrease in investment by our government. There is certainly a time to address the deficit, but it is not now. Across the world, we have seen the results of austerity during a demand-side recession and none of them are positive (Case in Point: Greece). On the other hand, we have seen stimulus work and help countries get back on their feet (ex. Iceland).
Cutting Welfare – Currently, 80% of the American public is walking on a very high tightrope and welfare programs are the only safety-nets. As such, cutting welfare and jobless security programs at this time is simply bad policy and an invitation to disaster. Contrary to the juvenile and selfish notions of many in the political establishment (ex. Paul Ryan), people who are kicked off of welfare don’t just go away or pull themselves up by their bootstraps—some get numerous low-paying jobs, others go into lucrative but risky illicit industries (ex. drugs), and the rest simply starve. We cannot let any of these things happen if there is any alternative and, fortunately, we do have choices other than throwing people overboard (read my suggestions in the previous section).
A Race to the Bottom – Many people, including significant portions of our right wing, believe that a regulatory and compensation race to the bottom will solve our jobs problems. By removing worker protections and regulations on business, these people hope to attract companies back to the USA and promote job growth. The thing is, all of these jobs would be very low-wage and Americans would become little better-off than the millions of poor Chinese workers who currently slave to produce our goods. If we want the economic results of China and India (low wages, poor conditions, and massive pollution), we can simply deregulate to the point where we compete with those countries in terms of wage guarantees and regulations—that isn’t what we need and that won’t solve our problems.