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Trust Me: Spending Won’t Cure Income Inequality

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BOSTICK REPORT-Can we spend our way out of income inequality? Unfortunately no, we already tried that and it failed. The housing market bubble that rocked the foundation of our banking system and kick-started the Great Recession we still suffer from was, essentially, an attempt at spending our way out of income inequality. 

How so? Mechanisms like NINJA loans and collateralized debt obligations acted as value-less infusions of cash into the hands of the middle class. Those infusions were intended to brace consumer demand in lieu of pay increases to reward productivity gains the growth of inflation over the last 30 years. 

Instead of income growth, regular people were allocated debt as money. By turning on the spigot of free flowing, value-less debt, people were led to feel as though their quality life was increasing alongside our growing economy. Sadly, raising consumer confidence by increasing their debt only succeeded in pumped-up corporate profits. 

All this masked the fact that we, the middle class, were slowly walking off the cliff. It’s like the old maxim about borrowing from Peter to pay Paul. You just can’t do it, or at least, we can’t do it any more. Peter doesn’t have any real money and Paul keeps stashing everything you gave him in a stateless corporate entity to avoid paying taxes. 

We need to stop bouncing from one asset bubble to another. It only results in a temporary sense of false confidence for us rabble while the richest one percent pursues its leeching of American resources. 

To clarify, we damned liberals aren’t against corporate profits. We aren’t against capitalism, the American Dream, competition, or the rewarding of first place to anyone. We aren’t advocating that our government should coddle anyone’s laziness or help our communist brethren leech off of someone’s success. 

We believe in the rights of all people to pursue life, liberty, and happiness. That includes ensuring everyone has adequate healthcare, a robust education that is equally accessible to the least and most of us, a peaceful community in which to pursue opportunity, and an economy that is based on fairness. Those last two are where income inequality fits. 

How did we get here? 

We once idolized captains of industry like the Rockefellers, the Carnegies, the Vanderbilts, but two things happened over the last 30 years. First, income growth disparities between the “super rich” 1% and the “average American taxpayer” grew tremendously between 1988 and 2008. In that period, the average American taxpayer’s income lost nearly 10% of its purchasing value while the incomes for the super rich grew by 33%. 

This imbalance of access to capital was leveraged well during our recovery from the Great Recession. While the value of the Dow has grown 257% since its low in 2009, the purchasing power of our current minimum wage has depreciated to 12.1% less than its value was in 1967. 

Our basic problem now emanates from the confluence of commerce and government where the Rockefellers of today have leveraged their access to capital to break private industry labor unions, uphold those "victories" by bankrolling political candidates, and employ that access to government in order to ensure dominance by the wealthy over wages, the financial markets, and taxation. 

This triumvirate of dominance with regards to how much employees are paid, how money is regulated, and how taxes are allocated permits those with massive capital reserves to ensure the protection of their wealth while locking out innovation. 

Innovation, historically, has been the great leverage point of opportunity and the main driver of our gross domestic product. Innovation is good for everyone in the sense that it raises our quality of life, creates jobs, and ensures our government has the revenue necessary to support our nation’s infrastructure. 

Most importantly, the ability for any old regular person to invest in discovery, patent that discovery, and monetize it through industry is THE REASON our country is great. Anyone could win here. It just takes spit, grit, a little no how, and determination. 

While there are systems with room for innovation (energy and finance are two off the top of my head), the wealthy elites best able to innovate are too busy exploiting their positions to accumulate more wealth or protect what they already have. Think oil barons. Why does Exxon want to divest itself completely from oil and gas in order to innovate energy systems? What economic interest do they have in that endeavor?  

None, really, and that makes sense for them. If you’ve monopolized a market – like in most of our major industries today – then you can only maximize the profitability of your investments by squeezing every last drop out of the status quo. You should only innovate when you can no longer profit. 

The second problem is that those with access to wealth and government have done a fine job of suppressing wages for the individual through the destruction of private sector labor unions. We as labor are too busy fighting to survive to innovate, let alone move beyond the day-to-day focus to survive. 

The third major issue is that the 1% has utilized tax loopholes and the privatization of education to undermine the quality of our educational system. Our public schools, the great equalizer, are under-funded and with too few people working there to help the average kid educate out of poverty.  

These things can and should be changed or income inequality will develop into a striated society of haves and have-nots. That can only lead to conflict and the destruction of our beloved country. 

I suppose we could also, perhaps, just all learn to accept “our place” and begin serving the elite class. But, that isn’t America.

 

(Odysseus Bostick is a Los Angeles teacher and former candidate for the Los Angeles City Council. He writes The Bostick Report for CityWatch.)

-cw

 

 

 

CityWatch

Vol 12 Issue 10

Pub: Feb 4, 2014

 

 

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