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It's Economic Inequality Stupid -- What to Do About the Biggest Crisis Facing America

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In 1992, the Clinton for President campaign is said to have had a poster on the wall of its war room that read: It's the Economy Stupid. The object of the slogan was to keep the campaign on task.

Its goal was to make sure that every campaign message ultimately returned to the question of the economy. The campaign was convinced that no matter what else diverted their attention, the ultimate outcome of the election would hinge on who the voters thought would fix that broken economy.

Today, we would do well to have a poster that reminds us: It's Economic Inequality Stupid. That's because a good case can be made that to deal with any of our most pressing economic, social and economic problems, we must end the massive -- still growing -- disparity in distribution and control of the fruits of our economy.

In fact, whether it's the federal deficit, increasing economic demand and growth, investment in education, preventing climate change, or simply the expectation that our children will have a better life then we do - serious progress is likely impossible, unless our country deals with the growing crisis of economic inequality.

Today, to qualify for the top 1%, your family has to have an income of at least $394,000 -- and the average income of the top 1% of the population is $717,000. The average for the rest of the population is $51,000. The difference in net worth is even more stark. The top 1% have net assets that average $8.4 million. That would be 70 times the average net worth of the rest of the population.

And this inequality is growing. In 2012, the share of income flowing to the top 1% soared to almost 20% of the income generated by the entire economy. That is the highest level since 1927 - the height of the "Roaring 20's" that set the stage for the Great Depression.

This increase in income and wealth inequality has gone on for some time. According to a study by UC Berkeley economist Emmaunuel Saez, from 1993 to 2012 average real income for the bottom 99% of the population increased 6.6%. Average real income for the top 1% went up 86%. In other words, over the last two decades, the top 1 percent received two thirds of the overall economic growth in real income per family.

During the Great Recession (2007 to 2009), Saez found that the one-percenters saw their incomes drop by 36.3 percent while the 99% fell 11.6%. But during the recovery -- between 2009 and 2011 - incomes of the top 1% increased 31.4% while those of the bottom 99% went up only .4%.

In other words, over that period, 95% of the total increase in income went to the top 1% of the population.

When it comes to wealth, the top 1 percent controls 43% of the wealth in the nation - the next 4 percent control an additional 29% -- and between us, the other 95% of the population control only 28%.

But if you want to look at real inequality, cast a gaze on the top .1%. According to Forbes, their annual incomes average $27 million. That would be 540 times the national average income.

Economic inequality is not simply unfair - it has dire consequences for virtually every major problem facing our society.

Because average people have not had a significant raise in over three decades, it is easy to convince people that our country is living through a time of economic scarcity where we "can't afford" to make the investments in our future we once did - investments that are critical to our long-term success - and even to our survival.

In fact, America is wealthier than ever. We have higher average income per capita than at any other time in our history. Productivity has increased 80% since 1979. That means that ordinary people should be 80% better off today than 30 years ago - but we aren't. The problem is that for thirty years, all of the increased income that resulted from that increase in productivity went to a tiny sliver of the population.

That has created an environment where it has been easy to starve the public sector - since everyday Americans have no appetite to pay higher taxes to support education, critical investments infrastructure, or basic research when they are struggling to make ends meet. And, of course, the very rich have done a very good job of cutting their own tax rates and keeping them low.

There were two exceptions in the last three decades. First was the Clinton era tax increase - especially on the wealthy - that yielded the first balanced budgets in decades, substantial economic growth and a temporary narrowing of economic inequality. That brief period of economic sanity came to a shrieking halt with the Bush tax cuts that plunged the country into fiscal chaos.

The second, of course, was the modest increase in taxes on the wealthy championed by President Obama that flowed from the "fiscal cliff" crisis earlier this year.

There is growing agreement that the increasing volume of violent weather events like Hurricane Sandy in the U.S. and Typhon Haiya in the Philippines that have cost billions in property damage and thousands of lives, result directly from the discharge of more and more greenhouse gases into the atmosphere. To address the menace of global climate change requires that we change the rules of the economy and put a price on discharging carbon into the atmosphere. But that would cause economic dislocation, cost ordinary people money and threaten many scarce jobs in the short term -- even as it will open massive economic opportunities in the long term.

The stagnation in wages for everyday Americans has also made it easy for energy companies to prey on economic insecurity to prevent the serious action that is necessary to forestall global ecological disaster.

Finally, growing economic inequality is an anchor that weighs down and stifles the economic growth that would benefit everyone. To grow, the economy needs consumers with money in their pockets to create demand for goods and services. Companies make investments if they see growing demand in the market place for their products. Economies grow from the bottom up, not the top down.

Last summer, President Obama put it this way:

"This growing inequality isn't just morally wrong; it's bad economics, because when middle-class families have less to spend, guess what, businesses have fewer consumers. When wealth concentrates at the very top, it can inflate unstable bubbles that threaten the economy. "

But is this increasing economic inequality a natural, inevitable product of the "modern" economy? Absolutely not.

Increasing inequality is not the inevitable consequence of some "natural law." It is a result of the rules society has set for the economic game -- rules we can change. Economist Paul Krugman points out that at the beginning of the Great Depression, income inequality, and inequality in the control of wealth, were very high. Then came what he calls the great compression between 1929 and 1947. Real wages for workers in manufacturing rose 67% while real income for the richest 1% of Americans fell 17%. This period marked the birth of the American middle class. Two major forces drove these trends - unionization of major manufacturing sectors, and the public policies of the New Deal.

Then came the postwar boom -1947 to 1973. Real wages rose 81% and the income of the richest 1% rose 38%. Growth was widely shared, but income inequality continued to drop.

From 1973 to 1980, everyone lost ground. Real wages fell 3% and income for the richest 1% fell 4%. The oil shocks, and the dramatic slowdown in economic growth in developing nations, took their toll on America and the world economy.

Then came Ronald Reagan - the resurgence of the political Right and what Krugman calls "the New Gilded Age." Beginning in 1980, there were big gains at the very top. The tax policies of the Reagan administration magnified income redistribution. Between 1980 and 2004, real wages in manufacturing fell 1%, while real income of the richest one percent rose 135%.

Growing income inequality is caused by the human decisions and the economic rules of the game we create. And shamefully, America lags behind every other first world nation in closing that income gap. That can be changed. There are seven major steps that must be taken to seriously address the crisis of economic inequality. All of them are popular politically:

1). Rein in the financial sector. Nobel Prize winning economist Joseph Stiglitz argues that an underlying cause of inequality is the degree to which our policies have created a "rentier" economy -- one where income comes more and more from what we own, rather than what we do or create. That creates a vicious cycle of increased inequality. As wealth pools at the top of the society, income follows the wealth and inequality accelerates.

That trend has been amplified by the increasing dominance of the financial sector. In the last thirty years the financial sector has exploded. The big profits in the financial sector aren't generated by creating a good or service - by work you perform. They are generated by making the right financial bets - by financial speculation.

We've made progress at reining in Wall Street with passage of the Dodd-Frank bill and creation of the Consumer Financial Protection Agency. But to make real progress we need to break up the giant financial monopolies and install a regime that seriously addresses the continuing epidemic of reckless speculation.

2). Increase the Minimum Wage. Over the past 40 years, the real value of the minimum wage has fallen sharply. If Congress had linked the minimum wage to inflation, it would currently be $10.74 per hour instead of $7.25 - two thirds of its previous purchasing power. That has a big impact on income inequality in America, not only for minimum wage workers themselves, but as a wage floor for everyone else.

According to a recent Gallup poll, three fourths of Americans (including 58% of self-identified Republicans) agree its time to increase the minimum wage. And polling shows that's because Americans agree that no one should work full-time and live in poverty -which is currently the case for million of workers employed by some of America's biggest corporations like Walmart and McDonalds who pay the current minimum wage of $7.25 per hour.

By itself, the market does not provide a living wage for all employees - it never has and it never will. That's because the market functions entirely based upon the laws of supply and demand. But people are not commodities to be traded like wheat or corn. They are the point of the economy.

Human beings deserve the basic necessities of life because they are human beings. And corporations must be required to pay their employees a living wage when they work hard every day. If they aren't required to do so, they won't do it - it's that simple. And those corporations are perfectly happy to pay their employees poverty wages and allow the taxpayers to - in effect - subsidize their operations though Medicaid and food stamp benefits.

President Obama and the Democratic leadership in the Senate are pushing for passage of a bill to raise the minimum wage to $10.10 per hour and index that wage to inflation. The bill is likely to come to a vote immediately after Thanksgiving. Call your Senators.

3). Trade agreements must put as much emphasis on worker rights as property rights.

The globalization of the world economy is inevitable. But the race to the bottom to cut wages and benefits is not. No other first-world nation has been so reckless with the well-being of its workers in its trade negotiations as has the United States.

One reason corporations push for pacts that open trade is to move their production overseas and employ foreign workers at sweat shop wages. Fair trade requires that agreements demand the same protections for the rights and remuneration of workers in other countries that we should be providing in the United States.

Otherwise - particularly while we allow corporations to systematically undercut the power of unions - there is nothing to stop wages from continuing to fall since there is a virtually unlimited number of workers in the developing word that are willing to work very, very cheap.

4). Change the labor laws to make it easy to exercise worker rights to collective bargaining.

There is no greater reason for increasing income inequality than the decline of union representation and collective bargaining in the United States.

In 2012 only 11.3% of workers were union members - down from 32% in 1950 during the "great compression" of incomes and the explosion of the middle class. Today only 6.6% of private sector workers are in unions, and 35.9% of public sector workers. Of course if Republicans have their way, many public sector workers will lose their collective bargaining rights as well.

The decline of union membership is no accident. It is the product of a massive, long-term campaign to limit the rights of workers to organize unions and collectively bargain over wages and benefits.

The Wagoner Act gave all employees the right to organize unions and bargain collectively. But over the last thirty years those rights have been systematically eroded by corporate abuses that can only be addressed by major labor law reform.

In 2009, President Obama and Democrats proposed the Employee Free Choice Act (EFCA), but it has been stymied by a GOP filibuster in the Senate, and now by the Republican Majority in the House.

Without unions to demand their share of growing productivity, corporations and the financial sector will continue to siphon it all off for themselves. We don't have to speculate about whether they will do it. They have done it for over 30 years. Now if we are serious about dealing with the crisis of economic inequality we have to act to restore the right of collective bargaining.

5). Refuse all efforts to cut benefits that have been earned by everyday Americans --and raise the cap on Social Security taxes paid by the wealthy.

We must stop cold attempts by the Right to eliminate Medicare, slash food stamps, and cut Social Security benefits. If we don't, those cuts will simply increase economic inequality since they come right out of the hides of ordinary middle class families.

Everyday Americans know we don't need "shared sacrifice" to solve the problem of the federal deficit. Most Americans have sacrificed for decades without increases in their standard of living, while all of fruits of the massive increase in productivity have flowed to the top 1%.

We live in a country that is richer than ever - by a lot -- yet the Right claims we "no longer can afford" Medicare or current levels of Social Security benefits - or food for children - or funding for education? That's just hogwash.

And to make certain that Social Security is there for generations, we must raise the cap income covered by the Social Security (or FICA) payroll tax.

Right now individuals don't pay the FICA taxes that finance Social Security on income above $113,700. But the average income of the top 1% is $717,000, so $603,300 - or 84% of the income of the highest income Americas is exempt from paying Social Security taxes. The idea of progressive taxation is that those who can most afford it - who have benefited the most by our shared economic activity - should pay the most. Here just the opposite is true. That's absurd.

6). Make certain the Affordable Care Act (ACA) functions as it was intended.

The Affordable Care Act - or ObamaCare - is the most far-reaching attack on economic inequality enacted in years. The major cause of bankruptcy is medical bills - very often for people who thought they were insured. The ACA ends that.

The law's most important provision may be the expansion of Medicaid for the working poor. Before its passage, many people in low wage jobs were not covered by employer based insurance, unable to afford private insurance, and could not quality for Medicaid. Now, if employers don't provide insurance for low wage workers, they can either qualify for Medicaid or for substantial subsidies toward private coverage.

We have to make certain that the ACA is not undermined by Republican critics and ultimately functions properly. That's important both to make certain that it delivers on its promise, and also because its ultimate success will demonstrate that government action can in fact address the inequality crisis and bring people a better life.

7). Create a new tax rate for income above $1 million - close tax loopholes that benefit the wealthy and big corporations - and increase the maximum estate tax rate.

Right now the top 1% -- and the super rich in the top .01% -- pay the same tax rate as upper middle class families who make $450,000 a year. While $450,000 a year is a lot of money, it is qualitatively different than people like hedge fund manager John Paulsen who several years ago made $5 billion in income.

The super rich - who have benefited so incredibly from the American economy - must be taxed at a level that is reflective of their qualitatively different income status.

The top tax rate went up to 39.6% as a result of the fiscal cliff deal earlier this year. That's a big improvement over the 35% rate that resulted from the Bush tax cuts. But that is a far cry from the 92% top tax rate in effect during the early Eisenhower years - or the 77% top rate that pertained during the Nixon Presidency - or the 70% rate under Gerald Ford.

Under the fiscal cliff deal, the estate tax imposes a levy of 40% on inheritances of over $5.2 million. That is a long way from the 77% top rate that applied from 1916 to 1975. One critical way to decrease long-term economic inequality is to increase the taxes paid on the inheritances by the sons and daughters of multi-millionaires who did nothing to earn these fortunes except benefit by the accident of birth.

And how smart do you have to be to know it's a bad idea to give big tax incentives to companies who outsource jobs from the United States.

We can stop our headlong decent into economic inequality. But we have to act.

At his major economic address at Knox College in July, President Obama declared that battling economic inequality will be the top priority of his last three years in office. We must join him.

Robert Creamer is a long-time political organizer and strategist, and author of the book: Stand Up Straight: How Progressives Can Win, available on Amazon.com. He is a partner in Democracy Partners and a Senior Strategist for Americans United for Change. Follow him on Twitter @rbcreamer.