American Incomes: Soaring or Static
Many are suggesting a transactions tax or a tax on financial assets. I'd propose a straightforward excess profits tax. The money could be used to invest in transportation, healthcare and infrastructure or to keep policy-makers' hands off Social Security. Such a tax would also dampen the persistent tendency of Wall Street to invest money where it is not needed but where financiers can generate the most fees. Trillions of dollars were misallocated in the housing market in the 2000s, an amount nearly comparable to the high-technology fantasies of the late '90s. Wall Street investors made fortunes, while the speculative bubbles only damaged the overall economy.
None of this is to say that a good education does not matter. College grads still do far better than high school grads; it's just that the gap is no longer widening. But a good education is now very much related to a youngster's relative privilege—the education and income levels of his or her parents. The better-educated are, in part, merely lucky to have that access and get better jobs. This is a good justification for raising income taxes on wealthier people.
Regarding executive compensation, shareholders should have more say. Stock options have been abused, and should be adjusted for any general increase in stock prices, so that CEOs don't merely benefit from a bull market. They should also be more tied to a company's actual earnings.
But stagnation of wages should be the nation's priority. It will require a multifold attack. First, there should be immediate fiscal stimulus, regardless of the federal deficit, preferably in the form of aid to the states and unemployment insurance. Even mainstream projections show there would be only a trivial increase in the deficit but enormous benefits in terms of mitigating the pain of the recession. There is a growing body of literature that indicates that recessions have long-term consequences—they reduce long-term rates of income growth [see Katherine Newman and David Pedulla's contribution to this forum]. So more deficits now may well reduce deficits in the future.
Second, the nation needs a serious industrial policy, directed at infrastructure and energy technologies. These produce double benefits: they create jobs at a time when Americans are in dire need of them, and they rebuild the foundation of the economy for future growth.
Third, trade policy has to include a lowering of the dollar to make US manufacturers more competitive and a continuing effort to persuade developing nations to improve their wages to build their domestic markets and thus level the playing field with the United States.
Fourth, education does still matter; it is just not the entire matter. There must be a renewed commitment to financial aid, at all levels, to equalize educational opportunities.
Finally, the government has to consider its role as employer of last resort. Ten percent unemployment rates, record levels of long-term unemployment and huge numbers of discouraged workers require such a "radical" solution. More than one out of six Americans can't find full-time work. These are wasted resources, and the longer they are neglected, the deeper the hole in which America will find itself.
It is not an accident that Wall Street has done well while much of the rest of America has not. The high dollar—a Clinton administration policy—punished manufacturing workers by placing exports at a price disadvantage. And it allowed Wall Street to channel huge dollar reserves, built up by China and other nations, to finance mortgage, auto loan and credit card securities and corporate takeovers. The Wall Streeters in the Clinton administration pushed for the policy. While the high dollar kept wages down, the flow of cheap debt encouraged Americans to borrow to keep their standard of living level—and perhaps mollify their political resentment. Meanwhile, the takeover movement stimulated rounds of worker firings to pay for the massive debt service taken on by these companies.
Will the government do what it must? Probably not. The nation is now squeezed by the enormous federal debt that was incurred to bail out Wall Street; this is the final blow dealt by Wall Street in this crisis. Markets turned up sharply from the desperate lows and bonuses soared again, but most of America kept on suffering.
Also in This Forum
Robert Reich, "Unjust Spoils"
Dean Baker, "The Right Prescription for an Ailing Economy"
Katherine Newman and David Pedulla, "An Unequal-Opportunity Recession"
Orlando Patterson, "For African-Americans, A Virtual Depression—Why?"
Matt Yglesias, "A Great Time to Be Alive?"