The word of the year for 2014 could be "inequality." Since the publication of Thomas Piketty's seminal work, Capital in the 21st Century, early in the year, next to immigration - the nature and effects of inequality in the American economy have been written and talked about more than any other topic of social import.
That's bad news for the vast majority of Americans who are on the wrong side of the inequality divide. The worse news is that nothing will be done about inequality in 2014 and most probably - given the current state of affairs in Washington, D.C. and across the country - not in the next two years before the presidential election of 2016 either.
That's problematic. Even more problematic are the conditions of inadequacy and instability that account for that inequality and in conjunction with it define the dimensions of our current American quandary.
One of the primary reasons that little will be done to address inequality is that it is a politically and ideologically divisive topic. Liberals/progressives tend to see this difference in economic circumstances as a manifestation of greed and capitalism run amok. Conservatives see it as the personal failure and fault of the individual at the lower end of the earnings scale.
As a case in point, consider the following. Eduardo Porter of the New York Times wrote a recent column on the issue of economic inequality in which he observed that governmental redistribution of income to address this situation seemed unlikely and opined that a solution might be for corporations to be a source for accomplishing such a redistribution.
Shortly after Porter's syndicated column ran in the Sarasota Herald Tribune, two letters were published next to each other on November 17 in the "Letters from Our Readers" section of the paper.
One letter writer, we assume of the more liberal persuasion, asserted, "Unless we all agree that in 2015 wages have to match the cost to live, we will wipe out the middle class sector of our society. The problem is, too many of those who have, simply don't care about those who don't."
The other letter writer, we assume of the more conservative persuasion, stated, "I am of modest means. The vast majority of wealthy people I have known started at the bottom. They just made a better go of it. They earned it. I didn't."
The chasm between the perceptions of these two letter writers is ten miles wide and one mile deep and will never be bridged. The question becomes whether there is a way to build a bridge that unites Americans around issues that matter rather than separating them from one another based upon philosophical predispositions.
This might be accomplished by framing the problem not in terms of "inequality" but as one of "inadequacy." These include an:
- Inadequacy of jobs
- Inadequacy of wages and income
- Inadequacy of entrepreneurs
There is clear and convincing evidence that these inadequacies exist.
Inadequacy of Jobs: Over the past nine months, the American economy has generated over 200,000 jobs a month and the unemployment rate has fallen from 6.6% to 5.8%. This sounds like progress - and it is - but is no where near sufficient to the need.
Just to meet the number of new people entering the workforce monthly depending on whose data one is looking at, the economy would have to generate somewhere between 100,000 to 200,000 jobs a month. So, given this influx, the American job machine is not performing quite as well as it appears
Research by Paul Solman and others shows that the decline in the unemployment rate is driven primarily by individuals leaving the work force and not being counted as unemployed using traditional metrics employed by the Bureau of Employment Security. (See our earlier blog on this.) The "fully loaded" unemployment rate for October including "missing workers" was 9.1%.
Inadequacy of wages and income: While the inadequacy of jobs is depressing, the statistics on wages and income are even more so. Since the Great Recession the median household income has fallen by almost $3,500 - approximately an 8% decline. The Economic Policy Institute reports that in 2011, "the minimum wage was worth only about 37 percent of what an average worker earned per hour, not far above its lowest point, reached in 2006,in 47 years."
Tellingly, the jobs created during the recovery have been low wage ones as opposed to the mid to higher wage ones lost during the recession. According to the National Employment Law Project through the first quarter of 2012, "employment gains in low wage occupations were 2.7 times as fast in mid wage and higher wage occupations," and, "employment in mid-wage occupations has fallen by 7.3 percent."
Inadequacy of entrepreneurs: Although there is some debate over which businesses are the true job generators in the American economy, conventional analysis is that small businesses and start ups - especially of "gazelle" or fast growth companies- are key drivers of job creation.
Regardless of the debate over who creates jobs, the fact of the matter is that new business creation has declined significantly since 2007. The Bureau of Labor Statistics reports that the number of "new establishments for the year ending in March 2010 was lower than any other since the series began in 1994." The BLS further notes that the number of jobs created by establishments of less than one year old decreased from 4.1 million in 1994 to 2.5 million in 2010.
The difference between inequality and inadequacy is more than semantic. The aforementioned inadequacies are some of the causes that produce the effect of inequality. To correct that effect, we need to address and treat the causes.
The results of the most recent elections in the four states (Alaska, Arkansas, Nebraska and South Dakota) where the minimum wage was on the ballot demonstrate that the voters who participated in those places understand the distinction between cause and effect. The minimum wage measures passed by solid majorities in all of those states.
This occurred in spite of the fact that in these same states the voters overwhelmingly elected Republican representatives to state houses and to the U.S. Congress. In general, Republican politicians and candidates tend to be opposed to a minimum wage increase while Democrats tend to favor one.
Why did those voters opt for a minimum wage increase but choose to elect officials who do not support it? Is it because of cognitive dissonance?
No, we attribute it to cognitive coherence. Analysis has shown that the Republicans won the turnout battles in the most recent elections in what was an appallingly low year for voter participation. So, it should be no surprise that these Republican voters elected Republican candidates for office.
Those voters who do not trust the government and want smaller government voted their self interest by electing representatives who reflect their positions. Likewise, they voted to increase the minimum wage which was also in their self interest - as long as they were mandating the increase rather than letting the government make that decision.
In this instance, the self interest of Republican voters on the minimum wage aligned with those of the independents and Democrats who voted in the mid-terms and most likely the majority of non-voters as well. That was fortuitous because it will not always be thus.
This is especially important because our American democracy and electoral process today is characterized by instability. That instability is fueled by increasing citizen distrust and cynicism regarding our political institutions and the dramatic increase in dollars being invested in political campaigns.
But, it is attributable in the main to another form of inadequacy - inadequate civic engagement and participation by the citizenry at large in the political process. We addressed this instability at length in our last blog written shortly after the mid-term elections.
Put simply, the lack of civic engagement and participation cedes the power to the few. The few can legislate and elect legislators whose positions are not necessarily consonant with the will or desires of the majority. In essence, it devolves the political system to one of minority rule.
In sum, that is our American quandary. It is a complex and confounding one.
The quandary needs to be confronted by reducing the sources of instability and inadequacy. This will increase opportunity and decrease the size of the inequality gap.
There are no full-proof answers on what to do to accomplish this turnaround. There is an easy one, however on whose job it is.
It is the responsibility of all citizens and leaders of good will in the public and private sectors who want to be engaged in positive problem-solving rather than in partisan posturing and finger pointing.
It is an essential job. It begins with an individual commitment to integrity, ingenuity and impunity as antidotes to inequality, inadequacy and instability. It ends with rediscovering the promise that is uniquely American and realizing the full potential of this country for its citizens.
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