Bill de Blasio and the politics of inequality
The election of a new New York mayor usually has little political significance for the rest of the nation. Often it is a local anomaly in a city that makes its own political weather and does not follow trends found in the rest of America. Sometimes it is an expression of private grief. But the inauguration of Bill de Blasio was different.
Not only did he win handily on an unapologetically progressive ticket, his installation was presided over by President Bill Clinton and endorsed by the presence of Hillary Clinton, whose failure to declare whether she will run in 2016 is causing all other Democratic wannabes to stay their hand. The Democrats appear to be saying that if Mrs. Clinton wants the job, it is hers, so until she decides, donors won‚Äôt waste a single cent on backing anyone else.
Ever aware of the latest undercurrents of Democratic thought, President Clinton alluded to the debate that is gaining traction among not only Democrats but among Independents and even some Tea Party members, too: the gap between the rich and the poor is too much to bear and must be addressed.
Referring to ‚Äúthis inequality problem [that] bedevils the entire country,‚ÄĚ President Clinton described income inequality as ‚Äúnot just a moral outrage. It is a horrible constraint on economic growth. ‚Ä¶ We cannot go forward if we don‚Äôt do it together.‚ÄĚ It echoes President Obama‚Äôs belief that ‚Äúdangerous and growing inequality and lack of upward mobility‚ÄĚ is ‚Äúthe defining challenge of our times.‚ÄĚ
The Democrats think they are on to a winner. Poll after poll after poll shows that Americans of all stripes are appalled by what they perceive as income inequality and what that is doing to the American dream of being able to rise from nothing through the ranks if you have the ability and the persistence and are willing to work hard. While Republicans think they can win by harking on past events, exploiting the inadequacies of Obamacare and resurrecting the raid on Benghazi, Democrats think they will prosper by highlighting the twin evils of greed and inequity.
Is it true that America has become an unjust place that threatens the American dream? Here is President Obama. ‚ÄúSince 1979, when I graduated from high school, our productivity is up by more than 90 percent, but the income of the typical family has increased by less than 8 percent. Since 1979, our economy has more than doubled in size, but most of that growth has flowed to a fortunate few.”
‚ÄúThe top 10 percent no longer takes in one-third of our income — it now takes half. Whereas in the past, the average CEO made about 20 to 30 times the income of the average worker, today‚Äôs CEO now makes 273 times more. And meanwhile, a family in the top 1 percent has a net worth 288 times higher than the typical family, which is a record for this country.‚ÄĚ
On the face of it, that is an enormous indictment of the way the rich have arranged matters to keep more of the nation‚Äôs wealth for themselves. But does the indisputable increase in inequality of incomes of the last 25 years, as President Clinton argues, threaten general prosperity? What are the economic implications of inequality? Does it matter that the ratio of wealth in poor to rich families is now 1:288?
The ratio of incomes — even as large and memorable as 1:288 — is a great campaigning gimmick but something of a red herring. It matters far less how much the rich are snaffling than how little the poor are earning. Or, more importantly, whether they are earning at all. Unemployment is a drain on growth, on the economy, and on the public purse. The jobless do not add to the wealth of the nation, they pay no taxes, and by taking assistance — so long as the hard-hearted Congress provides it — they merely add to government spending and the nation‚Äôs debt.
The most commonly recommended remedy for raising incomes of the lower-paid is to increase the minimum wage. The standard riposte from conservative economists is that there is only a certain amount that businesses set aside for labor costs and that if everyone has to be paid more, fewer will be employed. In brief, they argue, the minimum wage causes unemployment.
That is a canard. While in theory it appears to make sense, in practice the sort of businesses that employ people on the minimum wage — unskilled workers in restaurants, warehouses, security, and the rest — long ago reduced the numbers they employ to a bare minimum. They have sent what jobs they can abroad and mechanized human labor out of existence. For those businesses there is no alternative but to pass on the added costs to customers, which they successfully do.
Such firms could reduce their labor costs by reducing the remuneration of their senior employees, but that would entail treading on the sacred right of America‚Äôs rich to vastly overpay themselves. The cry always goes up that executives who lift seven or eight figure sums, plus bonuses, plus equity options, plus benefits, plus expenses, plus a golden handshake and a golden parachute, need every penny because there are so few of them sufficiently talented to perform the tasks allotted to them.
That is hard to credit. In 2012, Lawrence J. Ellison of Oracle Corp was paid $96,160,696 to perform his duties; Elon Musk of Tesla Motors, $78,150,010; Mario J. Gabelli of Gamco Investors, $68,970,486; Robert A. Kotick of Activision Blizzard, $64,942,306; Les Moonves of CBS, $62,157,026. Good luck to them.
But their Croesus-like annual haul does not suggest they are so valuable and so uniquely gifted that only they can achieve their company‚Äôs aims. If any of them were, heaven forfend, abducted by Martians, it is inconceivable that their successors would be hired for what they are currently paid.
There is a long line of alpha males (and females) ready to step into the boss‚Äôs shoes if only he were foolish enough to step out of his corner office for too long. When it comes to labor, there is a free market for those at the bottom and the middle and a snug old-boys‚Äô secret-handshake fix for those at the very top.
Which leads to the overriding reason that income inequality is bad for the economy. In the days of Ronald Reagan it used to be argued it was fine for some to be paid way beyond their genuine commercial value because everything came out right in the end thanks to ‚Äútrickle down.‚ÄĚ
Using a Keynesian notion that when applied to public spending they dismissed as nonsense, conservative economists suggested that a multiplier or waterfall effect operated from the top to the bottom. As the rich bought goods, the cash was passed on from hand to hand and, like the miracle of Scrooge in Dickens‚Äôs Christmas Carol, the wealth was passed down the line until everyone was comfortably well off.
Perhaps in the days of the robber barons this contained an element of truth. The rich hired large numbers of skilled construction workers to build large and lavish homes where they employed dozens of upstairs and downstairs maids, indoor butlers and cooks, nannies and governesses, outdoor grooms, gardeners and chauffeurs.
Now the rich are so cheap they appear to resent paying anyone, except perhaps their personal trainer, even the going rate. The days of the personal valet are long gone. If you want to watch trickle down freezing to a halt before it even starts, listen to the ignominious sounds of Upper East Side New Yorkers haggling over every last dime with those who try to serve them.
Nor do the rich invest as they should. Too often their wealth is stashed in dead-end commodities like useless gold, or tasteless Hamptons real estate, or banal contemporary art — stores of value that have little or no productive capacity, employ few or no workers, and only change hands between the ultra-rich. The problem with giving money to the rich is that too often they simply hoard it rather than spend it or risk it in a venture that may employ others.
So de Blasio‚Äôs arrival in New York‚Äôs City Hall may prove the beginning of something big. It certainly heralds the launch of a campaign theme that will blossom in the 2016 White House race. It is not only an economic argument, it is a moral issue, too, that rings true as much among Tea Party members as on the redistributive left. It is an issue that puts to the test whether the Latin words e pluribus unum that grace the seal of the United States are a democratic rallying cry or an elitist empty phrase.
PHOTO: New York City Mayor Bill de Blasio (R), with his family (front, L-R) daughter Chiara, son Dante and wife Chirlane McCray, waves after his formal inauguration ceremony on the steps of City Hall in New York January 1, 2014. REUTERS/Adrees Latif¬†