Inequality: Government Is a Perp, Not a Bystander

http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/inequality-government-is-a-perp-not-a-bystander

Dean Baker
Truth Out, December 23, 2013
See article on original website

In his speech on inequality earlier this month President Obama proclaimed that the government could not be a bystander in the effort to reduce inequality, which he described as the defining moral issue of our time.

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Inequality did not just happen, it was deliberately engineered through a whole range of policies intended to redistribute income upward.

Trade is probably the best place to start just because it is so obvious. Trade deals like NAFTA were quite explicitly designed to place our manufacturing workers in direct competition with the lowest paid workers in the world. The text was written after consulting with top executives at major companies like General Electric. Our negotiators asked these executives what changes in Mexico’s law would make it easier for them to set up factories in Mexico. The text was written accordingly.

When we saw factory workers losing their jobs to imports from Mexico and other developing countries, this was not an accident. In economic theory, the gains from these trade deals are the result of getting lower priced products due to lower cost labor. The loss of jobs in the United States and the downward pressure on the jobs that remain is a predicted outcome of the deal.

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The subsidy for too big to fail banks, which makes the Wall Street crew incredibly rich, is another way that the government redistributes money to the top. Bloomberg estimated the size of this annual subsidy for the Wall Street gang at $80 billion a year, more than the government spends on food stamps.

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And the macroeconomic policy run by the government has also worsened inequality. Budgets are crafted by politicians, not the gods or nature. The decision not to run a more stimulatory policy to reduce unemployment is every bit as much a conscious act as would be the decision to try to bring the economy to full employment with further stimulus.

In other words, Congress and the president have decided to craft budgets that lead to tens of millions of people being unemployed or underemployed. As Jared Bernstein and I point out in our new book, high levels of unemployment put downward pressure on workers’ wages, especially those in the bottom third of the labor force. This means we have a federal budget that limits growth and employment in a way that redistributes income upwards.

[It is the Republicans who blocked a larger stimulus precisely in order to keep the economy down, in the expectation that it would lead to the voters turning against President Obama and electing a Republican president]

There is a much longer list of ways in which the government has acted to redistribute income upwards over the last three decades. I have a fuller discussion in my book, The End of Loser Liberalism: Making Markets Progressive (free download available).

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