Sunday, October 19, 2014

Inequality, Why and How to Fix it

When most of the rewards of productivity go to a few people they control the economy for their own benefit. They create a labor surplus to drive to wages down by offshoring and mechanizing production. There would be nothing wrong with offshoring and mechanization if the benefits were not going to just a few people. With wages down for the great majority of people, demand is reduced and the economy tanks. With excess wealth at the disposal of capital owners and managers, and little wealth available to the great mass of people, the owners and managers of capital can buy the government through lobbying and campaign financing. It’s a vicious circle that can only be turned around by direct steps to reduce inequality.

So, how can this be done? Right now the efforts to make changes are thwarted by too many different proposals: increased government regulation, changes in the structure of taxation, subsidizing low wage and impoverished people, etc. There are too many ideological elements in all of these proposals.

Instead, only two simple proposals need be implemented initially: increase the minimum weekly wage and shorten the work week. Raising the weekly minimum wage would put more money in the hands of working people and shortening the work week will employ more people, creating a greater demand for labor.

Once the demand is up, more money will flow into the pockets of labor and less into the pockets of the capitalists, reducing inequality and providing more resources for the great mass of people to influence their government, taking power away from the owners and managers of capital.

This solution is largely market driven, taking subsidies, welfare, and government size out of the argument. The only thing that must be recognized is that government has a role in protecting the general welfare of the people.

Once the people again have control of their government, changes can be made in other aspects of government, like balancing domestic and military spending, creating a fairer tax system where taxes on labor and capital are more uniform, etc. It’s just a matter of giving the great mass of the people a larger voice in their government through increases in their wealth relative to that of the owners and managers of capital.