Are the Chickens Coming Home to Roost?

The United States economy is teetering on the brink these days, as are most of the world’s economies. Many are predicting dire days ahead. Stock market watchers such as British investor Jeremy Grantham believes bubbles created by the longest bull market in history, interrupted briefly in 2020 by the Covid-19 pandemic, are about to burst. Coupled with extreme economic inequality and rampant inflation, he believes it’s just a matter of time before the bottom falls out. This has been a long time in the making beginning with Ronald Reagan’s supply-side tax cuts based on an interpretation of Frederick Hayek’s economic theories. These theories were promoted worldwide by economist Milton Friedman’s neoliberalism. You may remember Republicans touting the idea as “trickle-down economics” and the elder George H. W. Bush deriding the theory as “voodoo economics.”

The idea was to put enormous sums of money into the hands of the wealthy who would create industry and jobs. Income and wealth would then trickle down into middle- and low-income households. Reagan reduced the top income tax bracket from 70 to 50 percent and sharply cut capital gains taxes. Additional cuts to the top rates were made by George W. Bush and Donald Trump. Corporate profits have soared, but the benefits did not trickle down. They never were designed to benefit anyone but the wealthy. According to Friedman, corporations’ sole responsibility was maximizing shareholder dividends not promoting the general welfare.

According to Nobel laureate Joseph Stiglitz, between 1980 and 2013, income for the richest 1% increased by 142 percent (from $461,910, adjusted for inflation, to $1,119,315) and their share of national income doubled from 10% to 20%. The top 0.1% saw their income increase by 236% (from $1,571,590, adjusted for inflation, to $5,279,695) and their share of national income almost tripled, from 3.4 to 9.5%. Over the same 33 years, median household income grew by only 9%. And this growth occurred only in the very first years of the period. Between 1989 and 2013, it shrank by 0.9%. But even this underestimates the extent to which those at the bottom have suffered – their incomes have only done as well as they have because hours worked have increased. Between 1979 and 2007, workers in the bottom fifth of the wage distribution increased their average annual work hours by 22 percent – a greater increase than for any other quintile. Median wages (adjusted for inflation) increased by only 5 percent from 1979 to 2012, even though at the same time productivity grew by 74.5 percent.

The Federal Reserve has played a significant role in growing inequality by flooding the economy with trillions of dollars while holding interest rates at or near zero. At the start of the record bull market in 2009, the Federal Reserve’s balance sheet was just shy of $900 billion. It ballooned to $4.5 trillion in 2015 and now stands at nearly $9 trillion. You may know this as quantitative easing. Corporations were able to borrow enormous amounts of free money which they used for stock buybacks of shares which artificially inflated the value of the company without investing in the company’s growth. Republicans continue to blame Biden’s policies for inflation, but the evidence shows it was the profligate monetary policies of the Fed that caused high inflation. Most central banks worldwide followed the same policies which explains why rising inflation is not limited to the United States.

Rampant inequality is not a natural product of the free market. There is no invisible hand doing this. It is a result of policy choices made by governments. Lack of regulatory policies (laissez-faire economics) and less progressive taxation have led to the rich reaping the overwhelming benefits of economic growth since 1980. There is a price to pay as economic growth suffers when income and wealth are not distributed more evenly among income groups. Gross Domestic Product (GDP) is stilted by lower aggregate demand. It is estimated that economic inequality has cost the United States nearly $23 trillion in the past three decades. 

I am not an economist. I took courses in micro and macroeconomics during my doctoral studies at Columbia University as do MSW students in the policy concentration. I was taught econometrics by the phenomenal Robert Shapiro, chair of the Political Science Department. Social workers must be informed and engaged in the world of economics and business. These vital areas of society cannot be left solely to the purview of economists. Our researchers focus on outcomes often overlooked by economic models and rarely are socio-economic determinants of wellbeing included in these equations. Many in our profession are not aware of recent efforts to push corporations to be more socially responsible through ESG (environmental, social, governance) initiatives. We need not be economists, but we need to be paying attention.

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