Reversing inequality

Over the past couple of months, I've been following an interesting series of posts by Kevin Drum on income inequality in America. His core thesis is that government policies aimed at keeping unions weak and inflation low have kept a lid on wage growth, allowing the wealthy to capture virtually all the economic growth of the last few decades. The result has been spiralling inequality, an enormous increase in the wealth of the already-rich - and stagnation or decline for everyone else. Median incomes have fallen across much of the US in the last six years (by 2.8% nationally, and more than 10% in some states), and the average, median-income-earning male is now worse off in real terms than they were in 1972. The US has become what Joseph Stiglitz calls "a rich country of poor people".

If this seems like a familiar story, it's because it is exactly what happened here during the 90's. The smashing of the unions under the ECA, the adoption of tight anti-inflationary policies, and the manipulation of unemployment levels to create a constant labour surplus neatly channelled the fruits of growth away from the many, and into the hands of the few.

How can we reverse this? One way is by more progressive taxation. Another is by strengthening unions and allowing them to fight (and win) improvements in wages and conditions. This will slowly begin to rebalance the distribution between wages and capital (which had shifted significantly over the 90's in favour of the latter), and slowly reduce inequality. Labour has done both of those things, and now it’s just a matter of time waiting for them to work. Unfortunately, all their good work could be upset if National gets back into power and restarts the Revolution...