Fairness Contributes To Economic Growth

Robert Reich argues that income inequality constrains economic growth. His rationale is right out of econ 101.  Wealthy households save a large percent of their income.  Increasingly, their savings are used by investors to make highly leveraged bets in the derivative markets. This does nothing to support economic growth, and it creates systemic risk in the credit markets. Middle class households would spend most of their incomes and that would help the economy to grow. He believes that Obama should build his campaign around the relationship between a more fair economy and a stronger economy.

For that strategy to work, Obama would have to have a plan to reduce income inequality.  He does not have such a plan and it would not be an easy sale if he had one.  Republican's argue that income inequality is good because it provides the incentive to work hard and to invest.  It would kill the goose that lays the golden eggs.  That strategy has worked for the last 40 years.  It could be undermined.  But it would require Obama to develop, and sell a plan that directly deals with the factors that contribute to inequality.  Its much easier for politicians to talk about reforming education; especially if it does not require increased spending.  Tax policy could be made more progressive, and that would reduce post-tax income inequality. It would take a more aggressive change than Obama has been willing to make.  His modest proposals to restore tax rates to what they were during the Clinton administration is a step in the right direction, but the resistance to that plan has been difficult to overcome.  Nobody likes taxes.  The GOP gives large tax breaks to the super rich, and they throw a small bone the middle class. That seems to make everyone happy.  A famous American jurist once said that taxes are the price that we pay for civilization.  Can Obama define the civilized society towards which we aspire to justify tax increases?  I would love to see him move in that direction.  One of the problems that he would have to overcome is that many Americans believe that they are not getting value from their tax payments.  Middle income Americans need to have a better understanding of how they benefit from public spending.  The GOP tells them that the money is taken from hard working Americans and given to those who do not deserve support.  That is an easier story to sell.