Robert Reich identifies inequitable distribution of wealth as a major problem, but his solutions avoid the issue.

Someone in the mainstream news media is talking about what has been a major theme in this blog for some time now: the need to foster a more equitable distribution of wealth and income in the United States.  (see blogs for November 10, 2009 and June 14, June 15, June 17, June 18, July 22 and August 13 of this year). 

It’s Robert Reich, Clinton’s secretary of labor and now a professor at UC-Berkeley, in his opinion piece in today’s New York Times.  Reich says exactly what I’ve been saying: to fix the U.S. economy, we must address the growing inequality in wages, with much more money going to the top earners and much less to everyone else.  

Reich touches on why the current inequitable distribution of wealth is so bad for the country.  Unfortunately, he gives the same old same old complicated market-oriented anodynes instead of offering the obvious simple solutions that have worked in the past. 

None of Reich’s solutions distribute wealth more equitably, but instead propose to help low-wage earners keep more or earn more from a mythical growing economy.  Here’s what Reich suggests:

• Give tax breaks to more low and middle-class wage earners, which of course does not raise incomes, only allows those helped to keep more of what they’ve earned.  Since Reich does not link this idea to raising taxes on others, all this suggestion does is provide a government subsidy to the employers who pay the low wages and continue to pay low taxes.
• Make public universities free and then require graduates to pay back 10% of the first ten years of income after school.  There aren’t enough jobs for qualified college graduates right now, so how will this measure help?  And even if it did help to create more jobs, again, it’s a complicated scheme that insulates the high income/high net-worth crowd from contributing from their copious stash to a more equitable distribution of wealth.
• And I quote, “Another step: workers who lose their jobs and have to settle for positions that pay less could qualify for “earnings insurance” that would pay half the salary difference for two years; such a program would probably prove less expensive than extended unemployment benefits.”  In other words, we take money away from the unemployed and give it to people who have found work that pays less than what they used to make.  Again, how does this move distribute wealth more equitably?  It sounds as if all we’re doing is robbing a down-and-out Peter to pay a merely diminished-and-struggling Paul.

Here are some of the simple solutions that Reich ignores, all of which have been proven in the past to equalize the distribution of wages and wealth in the country:

• Raise taxes on the wealthy and either lower them for others or use the taxes to provide simple wealth-shifting programs such as lowering the cost of tuition at public universities or increasing food stamp payouts.
• Remove the $106,800 cap on individual and employer payments to the Social Security Trust Fund (known sometimes as SSI or payroll taxes), so that everyone pays on all income, which would secure the Social Security system well into the future.
• Raise the minimum wage.
• Foster unions by lowering barriers to unionization, ending “right to work” laws and requiring that charter school teachers join unions in areas in which the public school teachers are unionized.  It’s just a fact that the period in which the United States had the most equal distribution of wealth was the same age in which the economy was the strongest and unions were also the strongest: after World War II through most of the 70s.  Unions turn low wage jobs into middle class jobs—they always have and they always will.
• End government outsourcing for ongoing, non-manufacturing, non-research functions such as operating prisons and public parking and providing military services.  Government pays lower paid workers more and higher paid workers less than the private sector does, so when the government does it, there is a more equitable distribution of wealth.

All of these actions will raise wages.  To those who say that raising wages will make us less competitive in global markets, I answer, not if it means that the pay at the top is lowered and profit margins are thinned.  That’s what happened in Europe, which has suffered less in the current recession and seems to be coming back more quickly.  

Occam’s razor is the idea that the simplest explanation is usually the correct one.  Occam’s razor is one of the most important tools in science and philosophy.  So why do economists continually ignore this principle in devising solutions to economic challenges?  For example, they want to establish a carbon exchange market with trading and derivatives instead of just ordering polluters to install equipment or taxing these polluters so that that they and their users pay the social costs represented by pollution and global warming.  Regulation and taxes are easy, establishing a market is complicated.  Yet economists will write pages of gobbledygook to tell us why we’re better off going with the complicated.

And that’s what Reich thinks he’s done: created complicated solutions to the problem of inequitable distribution of the wealth to replace simple ones.  But to propose a complicated solution would require that Reich’s solutions really address and maybe even solve the problem.  Reich’s does neither.  He identifies the problem, but offers complicated, ponzi-scheme-like ideas that will do nothing to help.