James K. Galbraith on the Human Cost of Inequality in the Neoliberal Age

We live in an age of growing inequality: The policies of neoliberalism and the financialization of economic life have created a social order in which the rich are continually getting richer at the expense of everyone else. It is hardly surprising, therefore, that the middle class is shrinking in many Western societies, while there is a dramatic drop in the standard of living for the majority of the working population, the young and the retirees. It is also hardly surprising that the United States, with its free-market mentality and anti-social policy orientation, is leading the pack in rising inequality. The more than 46 million Americans who are living below the poverty line, meanwhile, are poor by global standards.

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Be that as it may, getting a real grip on economic inequality is not an easy task. It requires collecting and assessing hard economic data and avoiding impressionistic accounts based on questionable and largely meaningless historical comparisons.

Economist James K. Galbraith, a professor at the University of Texas at Austin, has become renowned for his cutting-edge research on inequality, which examines international data drawn from a variety of sources and provides arguments based on concrete facts, thereby avoiding sloganeerism and helping to put to rest some widespread misconceptions about the actual impact of certain policies on employment or job loss and economic inequality. Galbraith’s research on inequality has led so far to the publication of three books on the topic while a fourth one, titled Inequality: What Everyone Needs to Know, is scheduled to come out in March 2016 by Oxford University Press. In an exclusive interview for Truthout, I asked Galbraith to share his views on inequality in the current moment.

C.J. Polychroniou: Economic inequality has become in recent years the United States’ biggest and most difficult problem. Let’s start by telling us how economic inequality is actually measured.

James K. Galbraith: There are many ways and multiple approaches to measure economic inequality, although using income and wealth are the most common ones. However, since all approaches are based on mathematical constructs, the results should be similar if researchers are careful enough with their methodology and non-biased. So there should be little disagreement about the actual state of inequality in the US, especially since the Census Bureau had been gathering data at least since the1960s. Another highly reliable source is the Fed’s Survey of Consumer Finances.

According to many analysts, economic inequality in the US is at the highest level since the Gilded Age and among the highest in the advanced capitalist world. Does the available data support these claims?

It is really meaningless to make comparisons on economic inequality and poverty between the prewar period and our own era. During the Gilded Age there were no social protections or safety nets of any kind, so it is hard, if not impossible, to make meaningful comparisons, although the economic elite would like to see our society revert to that era in which social Darwinism was the rule of the day.

Economic inequality in the US has been growing dramatically in the last 25 or so years, although it is important to note whether we are talking about wage or income inequality, but the same trend is evident throughout the global economy. Even so, economic inequality in the US is comparable to inequality levels in countries like Italy and Spain but higher than those in northern Europe.

When we speak of economic inequality, isn’t the real problem the growing concentration of wealth into fewer and fewer hands?

Yes, of course. For example, household wealth distribution from the Fed’s Survey of Consumer Finances shows that the wealth share of the top 3 percent in the US rose from 44.8 percent of the nation’s wealth in 1989 to 51.8 percent in 2007 and 54.4 percent in 2013. Another way to look at the awesome concentration of wealth into few hands is by considering this daunting fact: The top 3 percent hold over double the wealth held by America’s poorest 90 percent of the population. These are socially worrisome trends, with tremendous implications for the future of American democracy. These are facts. However, how one wants to read the data is a different story. In the US, for example, many Democrats, let alone progressives and radicals, see inequality for precisely the serious problem that it is, but Republicans on the other hand prefer to ignore it completely.

What’s the main reason as to why the US shows higher inequality levels than many northern European societies?

There are several factors to explain the data. First, the US has a single administrative tax system, something which obviously does not exist in the European Union, thereby making it a lot easier for Germans or Swiss or French citizens to seek effectively tax havens. Second, the US has a larger share of corporate income stocks than most other western countries, which helps to explain the high levels of US inequality. In the US, even the middle class owns corporate wealth. There is nothing comparable in southern or northern Europe. Indeed, the rising inequality in the US is largely attributed to the large share of capital income.

In what ways has neoliberalism contributed to the increase in economic inequality?

Neoliberalism is mainly about transferring public assets into private hands. So, under neoliberalism, we have seen not only a rollback of social programs and the additional liberalization of the labor market, which includes an orchestrated assault on labor unions by corporate interests and the economic elite, but increasing valuation of assert income, which spearheads economic inequality. The financialization of the economy has also been a contributing factor to the trend towards increased inequality as it has given rise to a tax regime that favors stock accumulation. Among policymaking moves that have contributed to an increase in inequality I would also include the Fed’s stance on interest rates, which leads to a depreciation of capital asset markets.

NAFTA has long been regarded as a neoliberal trade policy regime that has contributed to the loss of US jobs and thus to an increase in poverty and inequality on account of establishing a lower wage regime. Myth or reality?

NAFTA was opposed by organized labor interests, but the truth is that it has had very little effect on the loss of American jobs. US companies could move easily to Mexico before NAFTA. What NAFTA did was to open up Mexican agriculture to American corn. The end result was the massive displacement of Mexican agricultural workers, not the loss of American jobs. NAFTA produced Mexican immigrants fleeing to the US in search of jobs.

Is there any evidence that immigration leads to lower wages and thus to an increase in inequality?

There is no evidence to support this claim. But it is true that undocumented immigrants will get the short end of the stick when it comes to wages in an economy where there are no minimum wage standards and very relaxed labor laws.

How do you assess the state of the US economy, and do you favor the introduction and the implementation of a new New Deal program, an idea propounded lately by a number of so-called pro-labor economists, especially in an attempt to deal with the problem of unemployment?

For the last 20 or so years, if not longer, the American economy has been growing by bubbles. In addition, wages have remained stagnant for the average working population and there has been no progress in living standards. Clearly, what is needed is a new economic approach, but I am adverse to slogans and prefer to deal with realistic and sustainable proposals.

The New Deal was about boosting growth, not about unemployment, as some seem to believe, although it did have significant impact in lowering unemployment rates. What I favor are specific policies such as lowering Medicare to a young age, moving away from fossil fuel, introducing progressive taxation and making investments in the quality of life. I am in favor of creating enduring institutions that make use of human resources, not of ideas advocating proposals and programs that will most likely have short-term duration.

Speaking of Medicare and Social Security, do you think these programs are in danger of ending up in the dustbin of history?

Republicans and the financial elite have been engaging in an ongoing propaganda battle against these social programs since the Reagan years. So they are always under attack, but it will take nothing sort of a major counterrevolution for Social Security to disappear altogether. But I think we will see in the years ahead constant efforts by the elite to limit and reduce Social Security earnings. This is, after all, the age of neoliberalism.