[ The world economy, to the degree it still works at all, serves
to benefit the few at the expense of the many. The author of the book
under review does an economic deep dive into ways that can reverse
that antidemocratic equation.] [[link removed]]

PORTSIDE CULTURE

HOW CAPITALIST ECONOMICS STRUCTURES INEQUALITY  
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Gregory Heires
May 18, 2020
Portside

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_ The world economy, to the degree it still works at all, serves to
benefit the few at the expense of the many. The author of the book
under review does an economic deep dive into ways that can reverse
that antidemocratic equation. _

In a new book, the economist Heather Boushey illustrates how many in
her profession are returning to their discipline's roots by studying
the underlying factors of economic outcomes., Photograph by Win
McNamee / Getty // The New Yorker

 

Our national discussion on inequality tends to focus on the ethical
and political concerns about the depth of the disparities in wealth
and income we are willing to tolerate in a democratic society.

Less attention is paid to the economic cost of inequality. Economist
Heather Boushey helps fill this void with her recent book, "Unbound:
How Inequality Constricts Our Economy and What We Can Do About it"

Unbound: How Inequality Constricts Our Economy and What We Can Do
about It [[link removed]]
By Heather Boushey
Harvard University Press; 304 pages
October 15, 2019
Hardback:  $27.95
ISBN 9780674919310
 

 

Harvard University Press
Boushey's work certainly carries an undercurrent of moral outrage
about the vast inequality that has developed over the past four
decades.But beyond its moral underpinning, the book's refreshing
contribution to this debate is its systematic debunking of the theory
of mainstream economists whose work accounts for the public policies
and economic practices at the root our scandalous inequality, now at
Great Depression levels.

The book shows how over the last half century, the free-market
prescriptions of mainstream economists have failed to deliver the
broad-based social benefits for our society.

Inequality undermines economic growth

Boushey reviews a vast body of literature of a new generation of
progressive economists that documents how inequality undermines our
economy.

Along the way, Boushey provides a comprehensive public policy
prescription for addressing our social divide. Her analysis is
particularly welcome during a presidential election year when voters
are dealing with weighty issues like universal health care, tax reform
and the structural employment crisis made ever more evident by the
coronavirus pandemic.

Boushey argues that years of economic inequality have stifled
productivity by limiting the educational opportunities of workers,
discouraging investment, fueling discrimination and starving the
public sector. Today's slow-growth economy and periodic financial
crises are manifestations of the long-term failure of mainstream
economics.

Coming out the Great Depression, Boushey explains, the public policy
community coalesced around using the Gross Domestic Product as the
basic measurement of the of the health of the economy.While adding up
the goods and services of the economy, the GDP doesn't not adequately
reflect the well being of ordinary people.

The End of Shared Prosperity

President John F. Kennedy's notion of "a rising tide lifts all boats"
captured the philosophical underpinning of the economic view that
prevailed for decades. The feeling was that economic growth benefits
everyone; a certain amount of inequality was OK as long as long as the
standard of living of everyone improved.

But this consensus began to unravel in the 1970s with the breakdown of
the shared (though not fully inclusive) prosperity following World War
II. The income growth of middle class (particularly white) American
families stopped mirroring the rise in productivity as the economic
elite and corporations consumed a greater proportion of the economic
pie.

Boushey identifies the central assumptions of mainstream economists
and shows how their theory has diverged from reality. The executive
director and chief economist at the Washington Center for Equitable
Growth, Boushey isn't engaging in an abstract academic exercise. Her
policy recommendations point to a way out of our country's economic
malaise and an end to the frustrated living standards of the vast
majority of Americans.

Standard economic theory argues that market competition will drive out
firms that favor one group over another for any reason other than
their productivity. This assumes that the free market rewards the most
talented and hard-working people. But this scenario doesn't play out
in the real world.

Numerous studies show that economic inequality hinders productivity by
limiting educational opportunity and workforce development. The
careers and job prospects of our children are profoundly shaped by
such factors as health and nutrition, household income, quality
childcare, public assistance programs, community and faith-based
support, and the quality of their primary and secondary education.

Income and wealth inequality blocks children from having access to
resources. And educational inequality limits social mobility.By
obstructing economic opportunity, inequality hinders the development
of skills, talent and innovation.

The cost?

* "Lost Ensteins": A 2017 National Bureau of Economic Research Study
concludes that if women, minorities and children from lower-income
families had the opportunity to invent at the same rate of white men
from higher-income families, the total number of the inventors in the
United sates would quadruple.

* In 2016, companies with all-male founders received $58.2 billion of
venture capital investments while companies launched by women received
$1.46 billion, according to TechCrunch.

The mainstream market model plays down the need for the state to use
its power to use taxes to limit inequality and support progressive
pubic policies.For instance, the "Laffer Curve," which was popularized
in the 1970s, argues that lowering taxes can spur economic growth
while making up for lost revenue.

But, as Boushey documents in "Unbound," tax windfalls for the wealthy
and corporations have failed to stimulate economic growth as promised
while exacerbating inequality.

Tax cuts haven't paid for themselves.And tax-cut mania has provided
ammunition for anti-government conservatives.

The federal government has deferred budget cuts by increasing its debt
load. But by 2022, the federal deficit is projected to be $1 trillion,
or 4.5 percent of the GDP, the greatest peacetime deficit ever. States
generally must balance their budgets, so they slash spending when tax
cuts don't lead to more revenue.

Insufficient revenue has deprived the federal government and state
governments of funding for investment in transportation,
infrastructure, public health and education.Decades ago, California's
public university system was tuition free, but the state now only
covers 40 percent of the budget. Spending per student dropped from
$23,000 in 2000 to $12,000 in 2012.

Market concentration distorts prices, crimps wages

The prevailing model of mainstream economics assumes our economy is
governed by perfect competition, which is supposed guarantee fair
prices. But in reality, our economy is characterized by market
concentration, which distorts prices, contributes to economic
inequality, slows economic growth, hurts consumers and hinders
innovation.

Examples:

* A study by Leemoore Dafny and Robin Lee of Harvard University and
Kate Ho of Princeton University found that hospital mergers result in
7 to 10 percent price increases.

* From 2004 to 2009, pharmaceutical companies paid competitors to
delay the marketing of generic drugs, adding $3.5 billion to the cost
of drugs each year, according to a 2010 Federal Trade Commission 2010
study.

* Since 2000, business investments are increasing at a far lower rate
than the financial valuations of firms relative to their assets, a
team of New York University economists found. This brings to mind one
of the major criticisms of Trump's tax giveaway, which is that
companies have used their savings to reward shareholders and
executives rather than to increase their investments, a practice that
worsens inequality rather than fueling growth.

* The fatter profits resulting from market concentration, Boushey
says, mean that an increasing share of national income is going to the
corporate elite at the expense of ordinary workers. Labor's share of
national income used to be about 60 percent until the 1970s. But since
1980 that share has fallen to below 60 percent, according to
economists of Louskas Karabarbounis of the University of Minnesota and
Brent Neiman of the University of Chicago.

Economically squeezed workers

So, monopoly power and economic concentration gives firms greater
power over the marketplaces where they sell their goods and services.
This clout also gives them great control over labor markets. It allows
firms to hold down wages and other labor costs (through smashing
unions, shifting the cost of health-care and other benefits to
workers, and contracting out work), thereby fueling inequality.

The financial squeeze on ordinary Americans caused by inequality
restricts consumer spending, which debilitates and distorts the
overall economy, according to Boushey.

As pointed out by Boushey, demand suffers when most income goes to a
small number of people. In a country where consumption accounts for
nearly 70 percent of our economic growth, a strong demand for goods
depends upon a strong middle class.

As ordinary Americans become more economically squeezed, they are
taking on more and more debt. Middle class families have borrowed
heavily to pay for their homes and their children's education, leaving
them less funds to purchase consumer goods.

Economists Joel Slemrod and Matthew Shapiro at the University of
Michigan  found that many low-income workers used their 2001 and 2008
tax rebates in 2001 and 2008 to pay down debt.

Increasing inequality resulted in an annual transfer of a $1.1
trillion in 2007 dollars to the very rich from 1979 to 2007. Economist
Alan Kruger, chair of the Council of Economic Advisers during the
Obama administration, found that if that inequality hadn't occurred,
aggregate consumption would have been up 5 percent higher each year.
 That translated into an annual loss of $480 billion (in 2008
dollars).

A rise in inequality means corporations have enjoyed a substantial
increase in savings. But little evidence exists that they are using
their super profits to invest heavily in the economy. Instead, many
corporations are using the additional profits to benefit shareholders,
boost executive compensation and park capital in tax havens. In this
way, inequality has a distorting effect on the economy.

Boushey calls for bold action to address the economic and social
challenges posed by inequality. To begin with, she says, the
government needs to disaggregate growth data to provide a measurement
on economic distribution. Such a "distributional national income
account" should be given equal weight as figures on the GDP,
inflation, trade deficit, and the unemployment rate.  Shining a
public spotlight on the distribution of wealth and income would give a
clearer picture of our living standards of the people and what public
policies should be adopted to make improvements.

Boushey's proposals for more equitable growth include:

* fairer taxes
* expanding economic opportunity through policies such as universal
early childhood education and better public education
* eliminating economic discrimination and ensuring true equal
opportunity for all Americans
* revitalizing the labor movement
* ensuring that economic inequality does not subvert political
debate and that government has the needs to address social needs, and
* fiscal and regulatory policies that support sustainable and
productive investment by encouraging savings toward public
infrastructure and addressing climate change.

""Let's take seriously the binding power of inequality and work to
release our economy-and our society-from its grip, while retaining the
vibrancy of a market economy so that we have an American economy that
works for the many, not just the luck few," she says.

_Book Author Heather Boushey is the president,  CEO and co-founder of
the Washington Center for Equitable Growth, which was launched in
2013. The center's purpose is described "founded to accelerate
cutting-edge analysis into whether and how structural changes in the
U.S. economy, particularly related to economic inequality, affect
economic growth and stability." Boushey is one of the nation's most
influential voices on economic policy and a leading economist who
focuses on the intersection between economic inequality, growth, and
public policy._

_[Essayist Gregory Heires served for many years as an editor of the
Public Employee Press, the newspaper of AFSCME DC 37 in New York City.
He is also a labor moderator on Portside.]_

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