Thursday, August 14, 2008

How Much Added Inflaion NECESSARY to reset income share?

Broad and deep progressive thinker, Thomas Palley, surprisingly seems not to have calculated any specific path at all to escape what I call America's "Great Wage Depression (1973-2008") when he wrote: “…since inflation involves conflict over income distribution, there remains an unsolved policy challenge of how to fairly distribute income at full employment without triggering inflation.”

How can we possibly redistribute the 12.4% of income share that has migrated from the pockets of the bottom 90 percentile of earners to those of the top 3-4 percentile earners, over the past three decades and a half, without adding at least 12.4% price inflation to regular inflation – or even more due to round-robin adjustments as the bottom 90 percentile sort and re-sort their relative shares (shifting income in the same way that inflation shifts wealth from creditors to debtors – and deflation vice-versa)?

The use of inflation to reset overall income share becomes immediately obvious once you begin to work through the most critical steps needed to produce that result: minimum wage doubling (with mandatory inflation adjustments below $100,000/yr?) and sector-wide labor agreements.

The share shift follow up to minimum wage doubling can come only from American labor seriously upgrading its bargaining muscle via modernized labor laws and probably, at least a temporary hefty marginal tax hike. Top 10 percentile incomes now eat up 40 percent of overall income (up from 27.5%, 40 years ago), so there is plenty of buying power in the purses of top 10 percentile folks from which inflation bleed back can recapture bottom 90 percentile income share.

Given that top incomes climb exponentially the bleed-chain (if you will) may be able to extend and restore a good way. Ultimately though, folks now earning 25X more than folks who did similar work 25 years ago are not likely to lose back most of that 2500% gain through 12.4%-25% price inflation (the latter number allowing for some round-robin inflation). An at least a temporary marginal tax hike might need to be thrown in to sufficiently douse decades of overbuilt compensation expectations at the top.

The Fed would need be to brought on board, to understand that this is one-time price inflation regime deliberately calculated to reset 35 years of wage deflation. I just read on p. 150 of Chang’s Bad Samaritans: “…even many neo-liberal economists admit that, below 10% inflation does not seem to have any adverse effect on economic growth.” If necessary, a recession can be induced when it is all over to reduce built-in inflationary expectations – a small price to pay for ending 35 years of wage depression.

What worries me most is that if deep thinking, labor oriented Palley has not thought through some kind of simple concrete steps to a fair economy, then probably, most of the other top progressive thinkers never do either. Maybe it is the seeming impossibility of any immediate income reset while in the grasp of a mentally retarded Washington administration that is choking their imaginations.

I am sure that the top progressive thinkers would eagerly support both minimum wage doubling (w/inflation guarantees?) and sector-wide labor agreements (French-Canadian "lite") as practical paths from living-to-work to working-to-live for the underpaid majority if the two happened to be current big political footballs. Someone ought to tell top progressive thinkers that unless they get real busy and inform the world of the possibilities of what (I take for granted) would be their two most promising programs, that the two (three: temp higher tax?) may never become big political footballs.
Best ever income re-mix graph:

No comments: