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Thursday, March 5, 2009

Tax Wealth, Create Public Jobs

The U.S. Ranks 75th out of 126 Nations

The United Nations’ Human Development Index ranks the United States at 15th place, in 2009, out of 177 nations in its composite of rankings for human development, but in the category of “Income or Expenditure Inequality” the U.S. ranks down at 75th place. The inequality measure compares the incomes of the top 20% of households with the bottom 20%. All of the advanced economies rank higher than the U.S. In the top 50 nations only Hong Kong, Singapore, Argentina, Chile, Uruguay, and Costa Rica rank below the U.S. When the comparison is the top 10% vs. the bottom 10% the U.S. ranks at 81st place among 126 nations.

Using the Gini index, used by economists to determine inequality, the U.S. also ranks high on the inequality scale, 40.8, compared to western Europe and Japan, nations that score in the mid 20s. Here is a select listing of scores among a wide group of nations to compare inequality.

Nation Gini 20% vs 20% 10% vs 10% GDP/capita
Japan २४.9 .4 .1 35,484
Norway २५.8 .9 .5 63,918
France ३२.7 .6 .1 34,936
Germany २८.3 .3 .9 26,893
U.S. 40.8 ८.4 १५.9 41,890
Hong Kong ४३.4 .7 १७.8 25,592
Singapore 42.8 .7 १७.7 26,893
Mexico ४६.1 १२.8 २४.6 7,454
Brazil ५७.0 २४.8 ५१.3 4,271
China ४६.7 १२.3 24.6 1,713
Bolivia ६०.1 ४२.3 १६८.1 1,017

Naturally Japan scores high in the HDI, 8th in quality of life score, because it is an advanced economy and the wealth and income are shared more so than all other countries. Comparing Denmark (14th) with Singapore (25th), while their GDP per capita is roughly the same, their Gini scores and inequality scores are widely different. The benefit of high income is not shared in Singapore, it is sequestered by the ownership class and quality of life lags behind Denmark. Perhaps Singapore’s long-term strategy will change that, but perhaps not. (See Robert Kuttner’s article in Foreign Affairs, October 2008 for a review of the Danish economy as an example of economic justice and progress.)

The U.S. also ranks 2nd in GDP per capita but 13 places lower in overall HDI. In contrast Cuba ranks at 93rd in GDP per capita but 42 places higher in HDI, indicating that Cuba does a lot with a little.

Turgor pressure we learn in school biology is the opposite of the word “wilting.” In a metaphor, aggregate demand is to an economy what turgor pressure is to a plant. That is the crux of my argument here. An economy with high inequality will not respond quickly to slumps or wilting since a major portion of its population base is bereft, short, and lacking in economic pressure, and the entire system has to depend on the purchasing demand of the small wealthiest portion to keep the least wealthy section employed. The U.S. GDP, July 2008, was $14.2 trillion, with 141 million workers, each producing on average $100,000 per worker. At that, half of the workers were earning less than $33,000, and a good portion of the lower half much less than $33,000. This is inequality of income. Also, of course, the wealth of the bottom 50% is a paltry 2.5% of the total national wealth (2006 report of the Federal Reserve, Currents and Undercurrents).

The major portion of the U.S. population that is lacking in purchasing demand is the lower 60% whose combined annual earnings amounts to 20% of the GDP, and whose combined wealth is, approximately, less than 5% of the national wealth. The article “Striking It Richer” by Emmanuel Saez, professor of economics at U.C. Berkeley, indicates that the top ten percent of annual earners now receive about 50% of the total earnings, compared to 28 years ago when they received only 35%. The top 10% also own about 70% of everything that has a price tag.

Take also into consideration that 16.2% of the labor force earns less than the poverty threshold for a four person family, and that The Economic Policy Institute predicts that the underemployed sector, involuntary part-time workers, will rise to 17.7% of workers in 2010, and unemployment will reach 10.2%. Then in a matter of months you will have 44.1% of the labor force earning very little. The turgor pressure for the economy will be low, to say the least. Let’s see, out of work, not working enough, not earning enough --- what does that equal for 44% of the population?

I’ve recently read (March 2009) the predictions of Warren Brussee about the stock market, how it depends on the ratio of dividends to prices, and the conclusion is that the value of stocks will continue to languish. Brussee wrote the book The Second Great Depression, published in 2005. The economic commentator John Mauldin also predicts the same in his newsletter of March 4, 2009, titled “While Rome Burns.” And, also consider that the European banks are facing a blow-up owing to the collapse of the economy in eastern Europe. Multiple signs of a very weak and slow world economy. A few years ago I read in a Charles Schwab Company report that about 53% of China’s economy was devoted to export production, and now massive layoffs are occurring in China.

Wealth Tax and Public Jobs
To counter all this bad news we all need to consider the power of public job creation and a tax on wealth. We have had both these policies for over 100 years, so it’s nothing new. The military is a public jobs program, and that dates back to George Washington. We spend $1.1 trillion on the military today, that’s about 8% of the GDP. (See Chalmers Johnson’s Going Bankrupt at Zmagazine.) FDR put public jobs creation on the map, and the Second World War made it the savior of the rotten Depression Era, along with pro-union policies and other factors. A tax on wealth is as old as the property tax and the estate tax. (See Gar Alperovitz for an article on a wealth tax in Dollars and Sense magazine.) Warren Brussee calculates that Obama’s job creation policy, his stimulus of nearly $800 billion, will employ 2.3% of the workforce over a three year period. (Remember that 40% of that amount goes to tax cuts, not job creation.) We can surmise that the Obama program reduces unemployment by 2.3% from 12.5%, holding it at 10.2%. Brussee says the program will have to be renewed after three years for another huge amount. This is starting to sound like professor Jack Rasmus’ prediction of an Epic Recession, something between a depression and a recession.

I wish I knew of someone who like me sees inequality as a structural impediment to a vibrant economy. I think Paul Krugman does, but I’m not that sure. It seems clear that we will flounder around for a few years and slowly come out of it, or we create those public jobs at a living wage. See the National Jobs for All Coalition for more argumentation along the lines of public job creation. They report, from BLS statistics, that 15.7% or 25 million people are un- and underemployed in January, 2009. That’s almost one out of six. And there are 9 unemployed for every 1 job opening. Unemployment among African-Americans is 12.6%, almost depression levels. The Economic Policy Institute carries similar data about unemployment; that in 24 months, January 2011, there will be LESS jobs than today. And the Republicans are promoting their same panacea, “free” markets and lower taxes, if you still have income to pay taxes on, and if any market still has customers.

And don’t forget, the U.S. ranks at 75th place in inequality or expenditures according to the U.N. Human Development Report. In other words, there is still plenty of money at the top to tax that will pay for public jobs, which will create aggregate demand, which is the equivalent of turgor pressure for our wilting economy, which will restore prosperity to not just a few.

1 comment:

Matt said...

I think there is a better solution to spread the wealth and fix the economy than taxing the rich. Tax land. Before you reject the idea please read Progress and Poverty by Henry George. You can listen to the audio book here: Progress and Poverty free audio book

It is possible to have social justice and a functioning and fair free market. You simply need to ensure that the fruits of labor end up in the pockets of the individual who did the work. Oddly enough the way to achieve that is to tax land. I have some musings about how this works on my blog here: kiatoa blogspot