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Sun Dec 15, 2013, 03:51 AM

The 1% is Hogging So Much of Our Income That It’s Holding the Economy Back [View all]


The 1% is Hogging so much of our Income that it’s Holding the Economy Back

(By Anthony W. Orlando)

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Or, as the late economist Michal Kalecki used to say, “The workers spend what they get and the capitalists get what they spend.” What he meant by that was that the rich can afford to save more of their income—and, indeed, we find that the One Percent continue to save 15 to 25 percent, while the saving rate of the 99 Percent has plummeted close to zero. If too much money goes to the One Percent and not enough to the 99 Percent, the economy will save more and more and spend less and less, until there isn’t enough consumer demand to justify increasing production and investment. Thus, the economy will slow down.

For awhile, the 99 Percent were able to make up for lower incomes by saving less and borrowing more, and for awhile, the economy indulged them with rising asset prices—first in the stock market, then the housing market—and falling interest rates. But this was not sustainable. Eventually, interest rates hit zero, households spent all their savings, incomes couldn’t keep up with debt payments, and asset prices stopped rising. Hence, the Great Recession.

The only real solution is to pay them higher wages.

Here’s how Hanauer frames it: “If the typical American family still got today the same share of income they earned in 1980, they would earn about 25 percent more and have an astounding $13,000 more a year. Where would the economy be if that were the case?”

When those workers earn more, they also invest in health and education, making them more productive. They’re also less likely to go out on strike, resulting in less uncertainty and more investment. Higher wages also force companies to invest more in advanced technologies that reduce costs, increasing productivity and global competitiveness.

More equal societies also don’t have to waste resources on what the economist Samuel Bowles calls “guard labor,” employing people to keep the lower classes in line. Bowles estimates that one in four Americans are working as guard labor, everything from factory supervisors to police officers.

And our government is more likely to invest in public resources that we all need to be productive—infrastructure, research and development, safety and quality standards—if all Americans feel that they’re “in it together” and not separated by class, and thus they’ll all benefit from the investments.


Anthony W. Orlando is a Lecturer in the College of Business and Economics at California State University, Los Angeles. This op-ed is an excerpt from his new book Letter to the One Percent, published this month by Lulu Press, Inc. To learn more, visit www. LetterToTheOnePercent. com.

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