OUR TASK AHEAD 8/09/14 Over the past 2 months, I have intermittently posted to this blog what I have concluded from reading French economist Thomas Piketty’s magnificent “Capital in the Twenty-First Century.” In my posts on 8/03, 8/05, and 8/07, I summarized our American economic history over the past 100 years, showing the background for our “golden age” from 1945 to 1980, when income and wealth inequality was minimized, a property-owning middle-class arose and thrived, our economy boomed, and virtually everyone prospered. In my 8/07 post I described how liberal government tax and spending policies fostered this prosperous time and how the reversal of these policies by Republican administrations since 1980 has contributed greatly to the economic and employment problems we have now. I believe solving our problems is based on recognizing that government actions which increase private sector physical and financial capital and the after-tax return on capital increases inequality and harms our economy. This is because the return on capital is virtually always significantly greater than the growth in our economy. Because nearly all the private capital is owned by high-income and wealthy individuals, they can use the disposable income they gain from their capital to increase their capital holdings, thus increasing our nation’s capital to income ratio. This process feeds on itself to divert more and more of the national income to the owners of capital, thus inexorably increasing inequality in income and wealth. This situation is further aggravated by the accelerating pace of automation, mainly in our manufacturing sector but also in the lower-paying service sector. The digital revolution is driving the destruction of jobs faster than we have recognized and before we can take action to save our middle-class. The plain fact is that we can make all the products we can use with only a fraction of the workers we needed in the past. As the capabilities of robotics and artificial intelligence rapidly increase and their costs keep declining, it is cost-effective to eliminate job-hours. This pressure has stagnated wages since about 1972 and caused unemployment and underemployment. With low- and moderate-income workers having to spend all their income on necessities there is not enough money to increase overall demand and grow the economy. It is imperative that we recognize these trends and implement policies to slow and then reverse them. I will suggest some corrective policies that could be taken in future posts.
Posted on: Sat, 09 Aug 2014 20:07:02 +0000