Instead of just relying on job-killing interest rate hikes, policymakers should directly address the problem of price gouging.
On February 12, 2013 US President Barack Obama will give his fifth state of the union address to Congress. Early reports are that he will focus on economic growth.
The cumulative inflation-adjusted growth in the US economy since Barack Obama took office has been just 3.2%. Not per year. Total. Over the past four years the US economy has grown by less than one percent per year.
The US population grows by about 0.95% per year.
The net result is that the income per person generated by the US economy has been essentially flat for four years. You can’t blame the President for wanting to focus on boosting economic growth in his second term. Too bad he didn’t feel the same way in his first term.
But that’s not the real story. Today’s levels of income per person in the United States are essentially the same as those prevailing in 2006. That’s not great, but that’s not terrible.
Some of us are old enough to remember 2006. The unemployment rate was 4.6%, not 7.9% as it is today. The long-term unemployment rate was one-third of current levels.
The poverty rate was 10.6%, not 13.1%. Homeownership rates were higher. Labor force participation rates were higher. Most Americans were, simply put, better off.
How can things be so much worse now when the economy is essentially in the same place it was five or six years ago?
The answer in two words is: Rising inequality.
[pullquote]How can things be so much worse now when the economy is essentially in the same place it was five or six years ago? The answer in two words is: Rising inequality.[/pullquote]
As the economy as a whole has remained flat, the plutonomy — the economy of the super-wealthy — has continued to rise. Executive pay continues to rise. Bankers’ bonuses continue to rise. Corporate profits continue to rise.
The only way the plutonomy can rise while the economy remains flat is for the realonomy — the economy of ordinary people — to decline. Your eroding pay, your lost benefits, and (God forbid) your lost job have paid to keep the party going in the plutonomy.
It’s not advanced statistics. It’s simple arithmetic. We have the same real national income per capita as we did in 2006. If we had the same income distribution as we did in 2006, everyone would be living just as well as they did in 2006.
Rising inequality since 2006 has meant that the rich are getting bigger and bigger slices of the same pie, leaving less and less for the rest of us.
Growth is great. Hopefully President Obama will get the growth he’s looking for. But it’s not that easy to foster growth. If it were, every president would do it.
Reducing inequality, on the other hand, is easy. Raise taxes on the rich, or at least enforce the taxes that are already on the books, and spend the money on everyone else. That’s how you reduce inequality. It’s not statistics. It’s arithmetic.
We had 4.6% unemployment in 2006. We can have it today. All we need are different priorities. Realonomy priorities, not plutonomy priorities. Mr. President, are you listening?