An Equitable, Stable Economy

 

January 3, 2019



As 2019 begins, people have a variety of goals and aspirations. Besides wishing for good health, individuals often hope for a better year economically – for themselves individually, their community and their nation.

2018 was a mixed bag economically. Jobs continued to be added and unemployment reached the lowest point in several decades. That is good news.

However, many of those new jobs were minimum wage or low-paying jobs. There was little increase in the number of living wage jobs, particularly in the manufacturing sector.

For most working people, wages also did not increase much. According to information provided by the Bureau of Labor Statistics, from the 2009 to 2018, the greatest wage gains occurred with the highest and lowest wage earners. Workers with wages in the lowest 10 percent saw their real wages increase 4.8 percent. Part of that was due to several states increasing the minimum wage. Workers with wages in the highest 10 percent saw their wages increase 3.25 percent. However, workers whose wages fall in the middle 80 percent saw their income increase by just 0.6 percent.


While both ends of the economic spectrum saw the greatest increase in wages, only those at the highest end of the economic spectrum saw significant gains from the $1.5 trillion federal tax cuts. The tax cuts were promoted with the idea businesses would use them to invest in buildings, research and development, thus spurring job growth for middle class Americans. That did not happen. Forbes magazine reported in September of 2018 that “The Federal Reserve Bank of Chicago’s current capital spending indicates private business investment plans have remained in negative territory since 2015.” Instead, the money was used to increase companies’ profits and buy back stocks. As Forbes stated, “Companies are using the cuts to further push up stock prices, not make productive investments.” This created several problems.

First, it increased income inequality. According to the Tax Policy Center, households earning more than $1 million received, on average, a tax break of $69,660. Households earning between $50,000 to $75,000 received, on average, a tax break of just $870.

Second, it inflated stock prices. The tax cuts, according to Forbes, pumped another $30 billion into the S&P Index, accounting for more than 40 percent of S&P equity earnings growth. That growth was a chimera; it was not linked to “real performance” or “productive capital expansion.”


As a result of the inflated stock prices, as well as other issues – increasing corporate and federal debt, interest rate increases, volatile international and trade relations, etc. – the stock market suffered a precipitous drop, falling more than 3,000 points from an all-time high of 26,828 in October to 23,327 on Monday, Dec. 31, 2018.

In 2019, it would be better if we had a stock market whose growth was based on “real performance” – greater productivity and plant capacity. It would be better if any tax cuts or other stimulus went directly to those 80 percent of Americans who have not experienced any real wage increases in the last decade. It would be better if the new jobs being added paid a living wage. It would be better if we had a stable economy with real growth in which all Americans benefited equitably, not just those at the very top and very bottom.

 
 

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