Over the last month, I’ve tried to convince readers that increasing taxes on the wealthy will both satisfy the demands of justice and help our economy recover from the worst financial disaster since the Great Depression. In my final column on tax increases, I would like to leave readers of this column with a question; what kind of society do you want to live in – one characterized by an obsession with economic growth, or one that values equal opportunity and egalitarianism?
Nations are more than economic units. They can be described in terms beyond GDP or Growth Trend Rate. Indeed, nations are defined by the attitudes and behavior of the people living within that society. The values expressed in the social contract we build with our fellow citizens are ultimately more important than the economic outcomes that result from such a contract. Unfortunately, our societal values have become drowned out in our obsession with growth.
Most people think of the economic boom of the early 2000’s as “good.” Sure, GDP was on the rise, unemployment was relatively low, credit was cheap, and American household consumption was driving growth. However, when we reflect on that time now, we see that most Americans did not in fact enjoy the benefits of a bustling economy. Most of that growth occurred in the financial sector.
Between 1997 and 2007, finance became the fastest-growing part of the U.S. economy. The gains reaped by financial executives, traders, and specialists represented almost two-thirds of growth in the gross national product. By 2007, financial and insurance companies accounted for more than 40 percent of American corporate profits and almost as great a percentage of pay.
So long as profits were soaring in the financial sector, the subsequent influx of capital meant free flowing credit for everyone. Most Americans thought they were benefitting, because it was easier to get a loan to keep with the rise of the rich, but in fact they were floating on the top of an economic bubble that was destined to burst.
In societies with gross economic inequality (read: The United States), soaring incomes at the top create conditions more conducive to “boom and bust” markets. In the last 100 years, economic inequality has been highest during times of boom and bust economics. This is because the wealthiest Americans use their soaring incomes to speculate on a limited range of assets (as I argued in my last article, millionaires are hardly “job creators). With so many dollars pursing the same assets, values exploded. This is what happened in the housing market. Mortgage backed securities and collateralized debt obligations are assets most Americans can’t afford to invest in. But to hedge fund managers competing for social status, these assets could mean the difference between the 260-foot yacht, and the 300-foot yacht with the helicopter pad.
Why are we okay with this kind of investing? Free flowing capital in the financial sector might mean cheaper credit for everyone, but is this how we want to live?
Do we want to live in a society wherein our access to student loans, mortgages, and car loans is dictated by the prudence (or lack thereof) of hedge fund managers? Are we satisfied with stagnating wages for most Americans, while the rich continue getting richer? As a country we can do better. Ultimately, we must come together as a united people that recognize our mutual desires for freedom and equality.
We need to empower the middle class, not with credit, but with real increases in wages. This means preserving collective bargaining power to establish fair wages. This means greater participation in our democracy. This means everyone pitching in to help put our country on track. Spending cuts are a necessary step. But if the poor and middle class are asked to sacrifice, then the rich should sacrifice too. For the sake of our country’s economy, our principle of justice, and our shared national spirit, we must increase taxes on the richest Americans.