Forgotten: The Threat of Inequality

Greetings all!

This post comes amid serious political debate in the United States over gay marriage. Protests have erupted mainly in Washington DC both for and against gay marriage, and the Human Rights Campaign has started a wave of changes in Facebook profile photos in support of LGBT rights. And, while I feel more strongly about this issue than most anything else at the moment, I have already made my position clear. I support the absolute equality of marriage on a federal level; no couple should be denied the right to marriage or the benefits said marriage entails no matter what in my eyes. Instead of writing further on this than I have in the past, I have decided to address something that mostly goes forgotten in debates and is shoved aside when presented. Tonight, I will address why we cannot forget inequality among the rich and the poor, in any nation.

Inequality is a mostly ignored issue in America; our capitalist model is more fixated on an unimpeded market than social benefits. The reasoning for our sidelining of inequality comes from Ronald Reagan, unsurprisingly. It begins in 1976, when Reagan coined the term welfare queen in a speech where he described a woman as follows: "She has eighty names, thirty addresses, twelve Social Security cards and is collecting veteran's benefits on four non-existing deceased husbands. And she is collecting Social Security on her cards. She's got Medicaid, getting food stamps, and she is collecting welfare under each of her names. Her tax-free cash income is over $150,000." While grossly inaccurate, the truth (or lack thereof) of Reagan’s words resonated with individualist Republicans of the time. The New Conservative movement was beginning, one which would challenge egalitarianism in America and effectively win.

Reagan lost the 1976 election, but won in 1980. He then embarked on two full terms of selling America to businesses and selling out common people in the process. National welfare programs were reduced drastically in an effort to essentially remove the Great Society completed by LBJ in the 1960s. And while conservatives championed this change as fighting abuse of public funds by ensuring every person works and gets what they deserve, it damaged every worker’s right we ever fought for. We never put much effort into restoring these rights again; after Reagan left office, Bush Sr. took over and did relatively little. Clinton did make reforms, stating that he was “changing welfare as we know it,” but in reality this likely only exacerbated the problem by encouraging welfare-to-work programs that needlessly stress and damage those whom need our help the most. While a growing economy in the 1990s did lift some from poverty, the environment around those in it was increasingly restrictive.

The years of the next Bush presidency made inequality a niche issue; our budget was pushed towards national defense, especially with two new wars on the credit card. But now that these wars are ending and we have the chance to change, we should.

It is often argued that inequality is a natural part of a free market economy, and that we therefore should not interfere. I have trouble seeing the free market as some all-powerful force, however. If the free market is always right, then no government regulation would be logical or necessary. Slavery could be pushed because “the market supports it.” There are many things which are endemic in capitalism which we regulate anyway. We do this because it is in the public interest to do so. We regulate our food production industry so that our meat is not grossly contaminated and unfit for consumption (although we clearly need more regulation on this front). We regulate the gun industry so that citizens don’t get their hands on anti-tank weaponry. We regulate jewelry so that people do not purchase blood diamonds. We do this because we wish for people to be safe and secure in their purchasing options in America. We cannot depend on every single person to know for themselves about these things in their day-to-day lives; to do so would be putting a great deal of unfounded faith in humanity.

Even if inequality were natural, that does not mean we shouldn't try to alleviate it. The fact of the matter is that inequality is damaging to our economy, and the more unequal we are the more damaging it becomes. We already post a Gini Index score of 45.0, just a step worse than Iran on equality. That’s right, we are worse than our greatest geopolitical foe when it comes to inequality. Even though the Iranian state is laden with sanctions, bureaucracy, and subsidies, it still manages to pull more of its poor to a better status than we do. I will grant that being poor in America is definitely better due to the lack of Islamic theocracy, but with Christian conservatives trying to impose religion on governance more and more these days we are not as far off as we should be.

But what can we do, and how far should we go? I redirect us to the Gini Index, where Sweden has the lowest score among 136 recorded nations. As such, Sweden is the most equal country on record so far, although comparable nations like Norway jockey for that position frequently. The Swedish welfare state is one of the most extensive—and well-funded—endeavors among first world economies. In total, the average Swede gives about 70% of their salary in taxes away (yeah, you heard me). In return, healthcare and education are free. The social security system has more than enough money to pay for elderly care for all Swedes. Most common worker’s benefits, like maternity leave and vacation days, are greatly extended without trouble to businesses. Significant opportunities are given to Swedes of all economic strata. And while not a perfect system (the Swedish economy is vulnerable to swings in export prices), it does quite well. Like most other Scandinavian nations, it did not suffer much at all during the 2008-2009 financial crisis. It has resisted contagion from the Eurozone debt crisis as well, despite being a member state (although it does not use the euro).

I do not advocate that we make an immediate switch to this model. That would cause a great shock to our economy, and would be met with swift unbearable resistance. I do not even suggest we have to go that far; comparable first world economies have reached significantly more equal societies with lower tax rates than the country with the highest single rates on the planet. Switzerland manages to pull off a healthy welfare state while allowing its citizens to pay the lowest tax rate in Europe. And while everything isn't as great as it used to be, Switzerland does prove that we don’t have to change our tax rates quite so radically. Nor do we have to raise public spending to the levels of France, which spends more on each person than any other country in Europe (outside Sweden, of course). As long as we exist in a capitalist market, we cannot risk immediately changing ourselves and scaring off chances of private investment. Our government simply doesn't have the finances or the political will to fill that hole with public investment entirely.

I advocate we bring our public spending up to the OECD average (p. 5) of 43.6% through taxation. And while it took an annoying amount of calculations, I think I've found the most agreeable ways we can do this. In the first more radical option, individual income tax rates on those making $250,000 a per annum would be raised to about 45%, with the capital gains tax rate being raised to 35%. Because I saw this change as somewhat harsh to swallow, I came up with a secondary option; raising the top income rate to about 40% and the capital gains rate to about 33%, while raising taxes on incomes for most middle class families (those making between $90,000-$250,000 per year) by 1.5%. I realize that sounds like financial suicide, but it is the more moderate (and likely to pass Congressional approval) option of the two. In both cases, none of the current tax loopholes are changed; doing so would likely make this much easier on the common taxpayer. If we were to cut the subsidies to large oil companies which top $52 billion per year, I’m certain those rate increases wouldn't be nearly as large, especially if we cut other loopholes which get abused easily.

We should then ensure that our newly increased public spending does not go to waste. If we put that increase in spending all towards defense, we will not feel any of the effects of our taxes and the heightened taxation will become justifiably unpopular. To be specific, with new tax revenue I propose we bring our spending on social protection to between 35%-40% of our total budget. We should also divert at least some of our defense spending towards education and general public services. I’m not sure increasing spending on health here would be intelligent or not, given that we already spend more on healthcare than pretty much all countries. We should probably wait for a more efficient healthcare system before we propose greater spending on it (good thing Obamacare takes effect soon). All this would assuage the high level of inequality in our country and provide greater opportunities to common Americans, making our economic model more stable in the present and more sustainable in the future.

That is all for tonight, and I honestly hope that my calculations and sources back up my viewpoint here. If you have questions or comments about this, please feel free to post them right here in the comments section. Otherwise, my email at zerospintop@live.com is still open, along with my Facebook, Twitter, DeviantArt, Google+, Steam, Tumblr, and Reddit accounts. Good night, and this is KnoFear, signing off. 

A Final Promise: The Cypriot Debt Crisis

Greetings all!

This post comes after a somewhat prolonged break from my writing, due to a combination of technical difficulties and large amounts of school work predating a brief break from school which I have just begun. Because I am guilty of not finding enough time to write and now have extra time, I will be making several posts this week to make up for my absence. Tonight, I address the Cypriot financial crisis going on at this very moment, along with the entire European debt and capitalism crisis. This week’s quote comes from Néstor Kirchner, a former Argentine president and renowned economic hero of said nation.

The current trouble in Cyprus is one that is not new to the EU, but the proposed solution for it certainly was. Cypriot banks, which had assets much larger than the entire Cypriot economy, made some dangerous and risky investments in Greece. When the Greek economy began to tear at the seams, Cypriot banks were found trapped in a mire of financial burden and uncertainty. In order to ensure the liquidity and stability of the Cypriot economy, the government was forced to seek a deal with the troika, composed of the IMF (International Monetary Fund), the EC (European Commission), and the ECB (European Central Bank). Because the Cypriot government could not bail out the banks on its own and it was impeded by slow growth, it was essentially forced to ask for international help. While the former communist president, Demetris Christofias, was less willing to give in, the country recently elected a more negotiable conservative leader, Nicos Anastasiades. You read that right, Cyprus had a communist president. Too bad he came in at the exact wrong moment. For a fuller description of the origins of the crisis, see this.

The original deal proposed by the troika was horrifying, and a close call. At first, a bank levy on all deposits in Cypriot banks was suggested, starting at 6.75% for smaller deposits and up to 10% for larger ones. This was the greatest breach of trust yet in the European debt crisis; governments and organization had promised no bank levies would occur. Citizens were ensured that their savings deposits would not be endangered, no matter what. By making a bank levy on all Cypriots the first option, the hopes of ensuring the safety of each person’s money were broken and shattered. This was reflected by protests across Cyprus. The very notion that this issue has made common Cypriots forget the divide between Turks and Greeks proves how serious this has become. Luckily, this deal was protested feverishly and struck down by the Cypriot parliament.

The new deal is not very much better. Taxes on the average Cypriot will be coupled with privatizations of state holdings. The second largest bank, Laiki Bank, will be closed, and deposits over 100,000 euros will be moved. Deposits under that level are being moved into the biggest bank, the Bank of Cyprus, which has to undergo restructuring. Deposits over that limit will then be used to finance the bailout. And while this does not target as many Cypriots as it does Russian oligarchs (wealthy Russians enjoy investing in Cyprus), it stands as testament that Europeans have been lied to and they are not safe. We now know for certain that the troika does not see citizens as something worth protecting, they just see them as assets to exploit to ensure capitalism doesn't break.

The most important thing we should consider when looking at all this is that this is not a problem for Cyprus alone. It should be clear to just about everyone that austerity doesn't work, in all cases. These economic policies force severe damage to those nations that pursue them, causing a shrinking economy, spiking inequality of wealth and income, and inject structural flaws into systems that cannot handle such problems. However, jam the idea of bank levies into austerity packages and you have a full plan to sabotage any economy. Combined, an austerity-oriented economic model with bank levies would surely speed any afflicted nation towards plutocracy. While all common citizens will have their jobs, their savings, their education, and their healthcare jeopardized, the wealthy will suffer comparatively less and not be prosecuted afterwards. A more dangerous system of capitalism will be left in the wake of these crises, a system even more dependent on the rich and corporations and less willing to fight against them.

We like to point towards Germany as an example of why austerity should work. But while Germany appears safe, the truth is murky. We forget that German austerity did not work as intended, and was modest in comparison to those nations forced to pursue it like Greece, Italy, and Spain. What we should know is that German austerity has not justified itself in terms of economic output, and this is reflected by nervous chattering among the Christian Democratic Party which currently leads Germany and fears losses in coming elections due to austerity failures.

What we must realize is that austerity, while it appears like it should work, does not and is counterintuitive to the best interests of any people. The French people realized this, and attempted to rectify the problem by electing Francois Hollande, an anti-austerity socialist. Instead, governments should focus on preserving the social safety net by stimulating growth of the economy. Because the poor and the middle class are the most vulnerable in crisis, it is the programs which help them which must be protected first and foremost, not the banks, the corporations, or the wealthy. They can handle themselves, and are not in severe danger. We must not fall prey to them.

That is all for tonight, and I hope I have provided sound reasoning behind my argument. If you have comments or questions, please feel free to comment on this site. If you would prefer other methods of contacting me, I can be reached at my email at zerospintop@live.com, my Facebook, Twitter, Google+, Steam, DeviantArt, Tumblr, and Reddit accounts. Good night, and this is KnoFear, signing off.