How Growing Inequality Led to Shrinking Democracy, the Meltdown and Mass Unemployment: and What We Can Do About It

Remarks by Trudy Goldberg at Rally for Economic Justice, New Canaan CT,
September 18, 2011

Inequality sounds un-American, contrary to our Declaration of Independence and other proclamations of the American creed. Yet, it is all too characteristic of contemporary America. Greatly increased inequality is undermining our democracy and our economic system. It’s bad for nearly all of us — not just those who are very bad off, but for those of us who are on the brighter side of the income distribution.

In this brief talk I want to point to the political consequences of this inequality, its significant contribution to our current economic crisis, and finally I want to emphasize how we can overcome our most critical problem — mass unemployment, clearly a major form of inequality. The best solution is direct job creation by the federal government, modeled on the work programs of the Great Depression that not only gave jobs to the unemployed but did much to improve the nation’s physical, social and cultural resources. The great influence of wealth on our political system subverts political democracy. Yes, we have one person, one vote, but money influences how we vote through its monopoly of the media and the information we get. I influences, who can afford to run for office and how likely they are to win because candidates need a lot of money and those with the most win nearly all the time. Once elected, officeholders are beholden to their big donors and influenced by heavily financed lobbying. That means of influence has expanded greatly since the mid-1970s when inequality began to rise. At the beginning of the seventies, only a handful of Fortune Five Hundred companies had Washington lobbyists; by the end of the decade about 80% of them did.

Our political system that is designed to be democratic might temper the inequality of our highly unequal economic system through progressive taxation and some redistribution of national wealth to those unable to garner a livable share through the market system. However, the political process is too heavily influenced by wealth to perform that democratizing and equalizing function. We are close to plutocracy, the rule of wealth, not democracy or people rule.

A strong case can be made for the contribution of economic inequality to the meltdown, the continuing poor performance of our economy and increasing inequality. We would expect poverty to increase in a time like this; it grew by 2.6 million in 2010, but the number of millionaires also increased– by 600,000. The data on inequality are voluminous–just a few here: the bottom 20%, one-fifth of families get under 4% of total income (3.8%). Never high, the share of the poorest one-fifth is nonetheless down one-third since the mid-1970s. The top fifth or 20% of families get nearly half of total family income, and wealth is much more lopsided than income. Household net wealth nearly doubled between 1995 and 2004 but almost all the net gains went to the top fourth of the income distribution; in 2004, the richest tenth owned 71% of private wealth. Currently, the top 2% have 80% of wealth.

How did — and does– growing inequality hurt the economy, not just the poor and the unemployed? Well, it was the influence of financial and corporate elites over the political system that led to deregulation and to the lack of oversight for such complex financial instruments as derivatives that were intended to minimize the risk of sub-prime mortgages. We all know they didn’t and that they were at the heart of the bubble and the burst and the need for costly government bailouts. It was inequality — including the decline in real wages — that reduced the consumption of lower-income groups or led them to borrow beyond their means. In a sense capital had double gains — lower wages for workers and profits from their increased borrowing. A pinched middle class became vulnerable to predatory lending.  Proposed regulation of derivatives was roundly opposed by Treasury Secretary Robert Rubin, then  on loan from Goldman Sachs, and Federal Reserve Chairman Alan Greenspan, among others. Unemployment, a form of inequality, continues to weaken the economy and even in good times inflicts income loss, if not poverty, on millions of Americans.

Our current crisis is unemployment, not the federal deficit or the federal debt. However, if we cured unemployment, we would also reduce the deficit because over half — 60% by one estimate– of recent deficits are attributable to unemployment — both reduced revenues and increased expenditures for the unemployed and their families. We had a federal stimulus that did some good but wasn’t enough—Obama’s top economic advisor said over a trillion was needed, not $787 billion. However, if spent more efficiently that money could have gone a long way toward reducing our unemployment crisis.  Much of it didn’t go into job creation. Instead, a big chunk went to unproductive tax cuts. Assuming that the $787 billion stimulus would save or create the Obama target of four million jobs, the cost per job would have been $200,000. Yet, experts at the National Jobs for All Coalition estimate that direct job creation would have cost about $50,000 per job (at the average weekly wage and including materials). With a direct job creation strategy $787 billion could have created over 14 million jobs, enough to eliminate official unemployment. President Obama’s latest proposal for a much smaller stimulus has some good initiatives such as repairing schools and work sharing. However, it would — even if it passed — which is unlikely, make a very small dent in unemployment. There are 14 million officially unemployed and about twice that if we count those who are not actively looking for work, some of them too discouraged to do so, and those forced to work part-time when they want and need full-time work. Further, another 17 million are working poor, employed full-time all year but making less than the federal 4-person poverty level of about $22,000.

The National Jobs for All Coalition website details these statistics, all from the Department of Labor or the Census Bureau. NJFAC also has a quiz, Can You Count the Unemployed? that illustrates how official unemployment is severely undercounted. Unemployment, as the website data also show, is not randomly distributed in the population: blacks have double the unemployment rate of whites, Hispanics are 40% more likely to be jobless, the disabled are sorely afflicted and young workers are hardest hit, particularly black youth. They are beginning their working lives jobless, told that the economy has no place for them. How can one practice the work ethic, what Martin Luther King, Jr. called “the creed of our society” if he or she cannot find a job?

Everybody knows that our roads need repair, our bridges are eroding, our children need more teachers, parents lack affordable child care, seniors lack elder care, and we must green our economy. All of these needs can and should be met by federal job creation. We need to emulate, improve and expand what was done during the Great Depression when millions of unemployed men and women were hired by Washington to do useful jobs that made a lasting contribution to our economy — roads, bridges, schools libraries, housing, parks, arts, culture, much more.

Isn’t it better that we get a return for our money once a person has been employed for more than a few months? Isn’t it important that they remain part of the work force, keep the habit of work, contribute to society, provide a service to the nation? We had even more unemployment in the Depression when direct federal job creation was first enacted and we had fewer resources, but the difference is that we had the political will to do something about our problems. That’s what we must recapture — a national will to improve our physical and social infrastructure and a recognition that today’s level of inequality is both destructive and un-American.

Gertrude Schaffner Goldberg
Chair, National Jobs for All Coalition
Professor Emerita of Social Policy, Adelphi University