Addressing economic inequality in 2014

By Eleanor Bloxham,

The central threat to capitalism today is snowballing inequality. There’s a lot that could be done to turn the tide, if we muster the will. Here’s how we can start.

While shoppers rush full tilt toward Christmas, the number of people living in economic distress is on the rise.

We face an economy of “exclusion and inequality” in which “the hearts of many people are gripped by fear and desperation, even in the so-called rich countries,” wrote Pope Francis, Time Magazine’s Person of the Year, in late November.

U.S. Senators wrote to the SEC just before Thanksgiving that 95% of the rebound in incomes since the crisis has gone to just 1% of the population.

The central threat to capitalism today is snowballing inequality and crises that destroy the lives of those least able to absorb the shocks. Real median incomes, the senators wrote, are lower today than they were in 1999.

Measures in the nearly three-and-a-half year-old Dodd-Frank Act along with other actions could help.

… in 2008, I supported a ban of proprietary trading because I believed it did not provide long-term benefits, gratuitously goosed CEO paychecks, and fueled excessive risks for banks and their customers.

To grow, thrive, and create jobs, companies need long-term, patient capital — not traders’ churns. As a policy move and a boost to the economy, a financial transactions tax would help this effort.

But laws and regulations, it appears, can move wayward professionals in the right direction. One-third of those surveyed believe that “in the financial services industry, it is more important to ensure business practices are legal rather than ethical.”Even former Goldman Sachs (GS) CEO and Treasury Secretary Hank Paulson believes regulatory action is important: People have viewed banks unfairly and “flawed government policy” is to blame, he said in October. Whether you view banks as victims or villains, policy matters.

The comment period for another important Dodd-Frank measure just concluded. Section 953 mandates corporations disclose a ratio of CEO to median worker pay. SEC Chair Mary Jo White did a good job outlining a fair and useful rule with flexible implementation.

mprovements in minimum wage requirements can also help. There has been some recent success on this front. Washington State’s SeaTac community raised its minimum wage to $15, and multiple Washington D.C. suburbs agreed to raise the minimum wage at the same time. These are hopeful trends.

Economist Dean Baker wrote last month that an “aggressive stimulus to bring the economy back to something resembling full employment” would give workers the ability to negotiate decent wages. So too would trade policies that don’t undermine U.S. wage rates, he said.

Inspired by Warren Buffett’s call for higher taxes on the rich, Jon Justesen, a successful rancher and candidate for governor of Oregon, wants to establish a fairer tax system in that state, eliminating income tax on earnings below $100,000 and progressively taxing those with incomes above that. “It’s a privilege to be able to pay a higher tax rate … This has to be our leadership role going forward,” he told me.

Growing public resolve is a welcome sign … With 2014 right around the corner.

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