“Rock star” economist attacks income gap

There’s a lot of talk these days about the income gap between the rich and the not-so-rich.  

At the top end, salaries and bonuses are measured in the tens of millions, while the minimum wage remains at $7.75 an hour, where it has been since 2000. 

Nowhere among advanced countries is the gap greater or growing faster than in the United States.  Reducing the gap is one reason for the drive to increase the minimum wage.

Some see a growing income gap as giving the wealthy economic and political power to dominate the lives of the rest of the population.  Such an outcome could undermine democracy and lead to bad decisions on matters ranging from the environment to health care, they say.

Along comes Thomas Piketty.  Chances are you have never heard of him, but he is one of the hottest thinkers around these days.  He’s a French economist with a rock star’s reputation.  He focuses on the increasing gap between the wealthiest and the poorest people.   

The income spread could be reduced by increasing pay at the bottom.  That could help, but Piketty’s best-selling book goes much further.

Because the wealthiest people receive incomes greater than they need for a good life, they save some of what they make.  Their savings go into investments producing even more wealth, gained without their having to put in any more work.

The rest of the people must live on their incomes, so have little or nothing to invest.  The result is their incomes grow slowly, dependent on pay raises and not much on income from investments.

After World War II, the gap between the wealthy and others declined in the United States, because of extremely high tax rates on those with high incomes.  They had less money available to make themselves wealthier.

But, since then, changes in tax rates have benefited the wealthiest people more than any other group.  While a considerable number of workers now mainly pay payroll taxes and little or no income tax, the amount of their tax relief is small compared to the cuts for the rich.

The top tax rate for the wealthy has fallen from 94 percent to 39.6 percent of their taxable income.

Piketty believes the income gap should be reduced and proposes two solutions.

You could reduce the gap between rich and poor, if you took away some of the wealth of the rich.  Piketty suggests a wealth tax, kicking in at about $1.4 million, should be levied.  By taking money away from the wealthy, you could reduce the gap and their clout.

What would be done with the revenues?  It could fund a higher minimum wage for the millions working for governments at all levels.  It could funnel more help to those at the bottom of the ladder. 

In short, Piketty’s wealth tax might lead to income redistribution.  In a country where virtually any government service may be branded as “socialist,” the American income gap is unlikely to be reduced by redistribution.

Money will not go from the investment accounts of the wealthiest into the paychecks of low-income workers.

The advocates of amassing great wealth say the wealthy will make investments in companies creating jobs for many others.  But those companies may create jobs in China or, through technology investment, reduce their need for labor.

Piketty’s alternative solution may be more practical.  He sees the wealthy also having more of a form of capital than the less fortunate – education.  In his ideal formula, higher taxes on wealth could fund greater access to education.

With more and better education, people could develop their own businesses or become qualified for new technological and higher paying jobs.  In other words, they would begin to have the kind of opportunities now more readily available to the rich and, in the process, reduce the income gap.

While the wealth tax idea is likely to go nowhere, at least in the United States, the proposal for improving education is both reasonable and possible.  And it pays off.  There’s plenty of proof that the better educated you are, the higher your income.

In some respects, this country is already moving on this point.  A high school education is no longer enough.  Community colleges are booming, because they produce graduates trained to meet the most current needs.  Maine’s are a great example of this.

With his wealth tax, Piketty may not understand how America works, but, with his emphasis on education, he does have a good idea about how to get America back to work.

“Who cares what the centrists think?” Politicians Should

Almost everybody who follows public affairs knows American government has been virtually immobilized by the deep division between conservative Republicans and liberal Democrats.

Conservatives believe the fault lies with the control over previous decades by big-spending Democrats.  Liberals believe the fault lies with obstructionist conservatives, who want to dismantle most government services.

These beliefs have deepened during the administrations of George W. Bush and Barack Obama, turning into self-fulfilling facts of political life.

Despite such attitudes, the supposed polarization has not prevented each side from gaining some of its major objectives.

Obama supporters point to health care reform.  Though many Republicans would like to repeal the Affordable Care Act, it has clearly begin to take root.  Repeal or even a broad revision is becoming increasingly unlikely as more people and insurers sign up.

Surveys show a majority want government action on climate change.  Recent Obama action to get the Environmental Protection Agency to limit emissions from coal-burning power plants is popular.

And, in the aftermath of the financial crisis, there have been some reforms intended to punish those responsible and make future collapse less likely.

On the other side, government spending has been reined in.  While it would be a good idea to have a federal budget, stopgap measures have provided some satisfaction to conservatives who believe government has been doing too much at too high a cost.

But there are some obvious problems that grow worse.

Congress formerly backed the president on foreign policy, because Americans believed we must present a single, unified position to the world.  Now, Republicans seek to dictate policy the minute a crisis emerges, and they second-guess each move by Obama on a daily basis.

No sooner did ISIS rebels challenge the Iraq government than some GOP leaders were calling for immediate military action.  The President was not given even a little room to consider an American response, before it became obvious that anything he proposed would be attacked.

While Obama does not project the kind of strong leadership style many Americans and even people elsewhere would like, he is entitled to a degree of deference he does not get.  The combination of his style and instant GOP opposition weakens the U.S. in the world.

Then, there is a policy failure on immigration reform.  Members of both parties accept the need to deal with the millions of illegal immigrants now in the country and new arrivals.

But House Republicans block the passage of any reform measures.  It’s obvious they believe a new immigration law would help the Democrats in the November elections.  So nothing happens.

It is possible the prolonged discussion about allowing the children of illegal immigrants now in the country to become citizens has served to encourage the new and sharply increased influx of Latino children now under way.  They have certainly been misled and given false hope.

And agreement on a badly needed comprehensive energy policy, dealing with both fossil fuels and renewable resources, is so remote it is not even discussed any longer.

Whether even more conservative and unyielding forces will gain power in the Republican Party is now an open question.  The elections this fall could provide a good indication of the answer.

Meanwhile, some liberals believe Obama can promote their agenda without GOP support.  That could turn out to be true only in the short run.

What about people in the middle?  The latest national NBC News-Wall Street Journal poll shows 39 percent consider themselves moderate, 36 percent conservative, and 22 percent liberal.  The rest don’t know.

The moderates say they want a government producing results based on compromises between the two sides.  That can yield more positive action, longer-lasting policies, and the image of a stronger country.

Liberal columnist Paul Krugman, who seems to think a well-deserved Nobel Prize in Economics makes him a sage on everything, writes: “Who cares what the centrists think?”  He is satisfied Obama is accomplishing some of his goals now and shrugs off the need for bipartisan policy mainly because he thinks the GOP makes it impossible.

Krugman fails to understand the purpose of a country governed on behalf of its people is action in line with popular sentiment.  It is not acceptable to sneer at those who want compromise.

Perhaps, as he believes, the conservatives will insist on their goals, even to the point of undermining government.  But the other side adopts the same tactics at its own risk, when it might win elections by pursuing bipartisan policies, however fruitless that effort in the short term.

Why did a crypto-Democrat endorse a GOP Senator?

In a politically unusual move, independent Sen. Angus King, who almost always lines up with the Democrats, endorsed Republican Sen. Susan Collins for re-election.

President George W. Bush labeled forecasting the political future based on today’s events as “punditry,” and King’s move was just the kind of tidbit pundits like.

While I make no claim to being a pundit, the endorsement stimulates some tantalizing speculation about Maine politics this year.  Not only is King-Collins worth a closer look, but so are other Maine campaigns.  But it’s little more than guesswork at this stage.

King endorsed Collins, providing her support she had not sought or almost certainly did not need.  He told Democratic candidate Shenna Bellows his endorsement was not “personal.”   Maybe not for Bellows, but quite personal for King.

An explanatory note for what follows.  The U.S. Senate is controlled by the majority party. The party “organizing” the Senate gets to name committee chairs and determine the flow of Senate business.

Right now, the Democrats control.  The sole GOP legislative power is to filibuster to prevent matters from coming to a vote.  And even that power has been cut, making it difficult to block most presidential nominations.

Independent King now backs Democratic control.  But the pundits say the GOP could well organize the Senate next year.  Does King’s endorsement mean he will change sides to keep prime committee slots?

He says that he will do what’s best for Maine.  Could anything be better to benefit his state than his keeping prime committee positions?

If the Democrats keep control, they may be less favorable to him simply because he endorsed a GOP senator.  No matter how much he tries to straddle the gap by pushing his independent status, he may find there’s a price to pay for such a strategy.

Collins looks sure to be re-elected.  Does the King endorsement hurt Bellows?

Like many endorsements, it may not matter much except to the person making the endorsement.  Already the underdog, one might wonder if Bellows is even discouraged.   

Why is she running in such a difficult race?

If she already recognizes how difficult it would be to win, perhaps gaining recognition and respectability will help her in another race for another office later on.  That’s what Collins did when she finished third in the governor’s race.

Is there anything Bellows can do this time around?  Instead of trying to defeat Collins on the issues, maybe she should find a single issue, keep hammering it, and become identified with it. 

The key issue could be that Collins, considered a moderate, helps give Senate control to the GOP and supports most filibusters, thus empowering fellow Republicans far more conservative than she is.

As for King’s endorsements, he’s not finished yet.  He seems likely to endorse Eliot Cutler, candidate for governor and like him an independent leaning toward the Democrats.

Cutler thought about running as an independent for the Senate seat King eventually won.  Instead, he endorsed King, who probably gained access to Cutler’s supporters list.  Repaying the favor, King would endorse Cutler and return to him an updated list.

Looking at the governor’s race itself, we are continually reminded that Paul LePage won only because the opposition vote was split between Cutler and the Democrat.  Supporters of either of them have almost certainly learned their lesson.

That means the anti-LePage voters will recall 2010 and begin to rally around either Democrat Mike Michaud or Cutler.  Once the flow starts toward one of them, it should keep on going. 

Which way?  Who knows, but having won repeatedly in the Second Congressional District, Michaud has political money in the bank.  Cutler will presumably press hard to win big in the seemingly more liberal First District.

The Second District race, to fill the seat left vacant by Michaud, has primary contests in both parties.  The candidates in each party probably wouldn’t differ much from one another if they got to the House of Representatives.

But in the GOP, candidate Bruce Poliquin is trying hard to show he is more conservative than Kevin Raye.  In the Democratic race, candidate Emily Cain is trying hard to show she is more liberal than Troy Jackson.

The outcome of those primaries and the ensuing general election may end up telling Mainers a lot about the political complexion of their state. 

One thing worth noting.  It’s at least theoretically possible that, when the electoral dust settles, women could hold three of Maine’s four federal offices.

 
Remember, though, this is all just guesswork, not punditry.

"Bigger is Better" not true in government, world affairs

Chances are you have seen an AT&T commercial on television in which a man gives a group of young kids a simple choice and concludes, “Bigger is better.  It’s not complicated.”

It’s as if everybody knows that bigger is better, which the man illustrates with swimming pools and cell phone networks.

Is there something to the message he seeks from the kids?

A recent Gallup survey in each state asked people if their state was one of the best states to live in.  The top-rated state by its inhabitants was Alaska.  The worst state was Rhode Island.  Maybe bigger is better.  Or maybe lower taxes were a factor.

Maine, “the way life should be” state, finished fifteenth, topped by both New Hampshire and Vermont in New England.

But whether bigger is better is a good deal more complicated than the television ad would have us believe.  

Russian President Vladimir Putin has begun talking about “New Russia,” which has its historical roots in an area far larger than the current Russia.  It would include the Ukraine, possibly Belarus and maybe even Lithuania, Latvia, and Estonia. 

Putin and many Russians have not recovered from the loss of their country’s world influence when the Soviet Union was broken up, and they would like to restore its standing by creating a new and bigger Russia.

Bigger may be better for the Russians, but it obviously worries their neighbors.  The way Russia took over Ukraine’s Crimean territory reveals how it might create a bigger, “New Russia.”

Americans, who generally like bigness, are beginning to worry about the rise of Russia as a new complicating factor in world affairs thanks to Putin’s version of “bigger is better.”

Then, there’s China.  With a population of almost 1.4 billion people, it is the biggest country in the world.  The United States is third, after India.

At the end of this decade, China is expected to have the largest economy in the world.  Americans, used to having the Number One economy for almost 100 years, may have trouble no longer being the biggest.

On a per person basis, the United States will continue to have higher wealth than China for quite a while.   And it should be pleased to be passed by China.

As countries become more prosperous, they seek to gain influence more often by economic means than by force.  The United States can compete well on an economic playing field, and almost everybody would prefer such competition to military conflict.  Bigger won’t necessarily make China better than the U.S., only better than China used to be.

And, of course, there’s the perennial debate about the American government.  Is a bigger federal government better?  That question is at the center of American politics now, just as it has been since the Constitution was written.

To some extent, government grows as the population grows.  When the government provides services or monitors those it funds or regulates, it needs the personnel and equipment to cover more operations and deal with more people.

But congressional Republicans argue the federal government is involved in too many programs and has grown too large.  They want to cut the size government and use the money saved to reduce either the federal debt or income taxes.

Much of the struggle with Democrats is over which programs to cut and by how much.  The bipartisan agreement on agriculture policy, cutting funding for both farm subsidies and food stamps, was a rare example of how the two sides can work out a compromise reducing the size of government.

The obstacle to reductions frequently boils down to people wanting government programs to be cut, but not the ones from which they benefit.

The two major target areas for reducing the federal budget are the cost of entitlements, especially Medicare, and military spending.  Savings in most other areas would be more symbolic than effective.

Medicare may look like a blank check to pay for ever-increasing costs.  The solution would have to be some kind of cost control, which competition alone cannot sufficiently provide.  But Congress has been unable to come close to agreeing on controlling health care cost increases.

As for the armed forces, according to some studies, the United States now spends more than the next nine countries combined.  Congress sometimes gives the military more than it requests or needs, because it creates jobs, though it blocks direct, job-creation programs.

When it comes to the federal government, many would agree, “Bigger is not better.”  How to get to “smaller” is the challenge.