A Case for Economic Equity and Long-Term Growth

Framework: Examine macroeconomic policy issues as well as the theoretical assumptions underpinning their conclusions within a political Liberalism framework that ensures and upholds the democratic values of liberty and equality inherent to the constitution. The complexity of economic development requires a holistic empirical approach that accounts for the historical, political, sociological, and business factors contributing to the makeup of society when crafting and recommending economic policy.

Overview: Economic growth is the aim for any society. Inequality is a product of increased bargaining power resulting from increasingly powerful institutions in the business, financial, and governmental sectors. Research has repeatedly confirmed growing inequality globally and domestically. Inequality, manifested as widening income and wealth disparity, contributes to domestic and global account imbalances, consumer debt, and economic stagflation, i.e. inflation and unemployment. In addition, inequality is linked to key social variables such as political stability, civil unrest, democratization, education attainment, health and longevity, and crime rates. Greater economic equality always results in greater long run economic prosperity for the whole.

Thesis: Bargaining power inequalities causally contribute to economic and socioeconomic inequality due to path dependency, organizational inertia, and habit formation. Bargaining power inequalities increase proportionally with capital accumulation, concentration, and centralization. Restoring bargaining power will rectify financial and labor market imperfections and spur economic growth.

The Problem

  1. Increasing debt, unequal capital accumulation, stagnating wages, and increasing inflation are responsible for the steadily rising economic inequalities experienced the past several decades. The habit formation of conspicuous consumption has compounded the impacts of income inequality.
  1. Inequality has deleterious effects on social well being and long term economic growth, and is the source of a host of cultural ills, affecting education, healthcare, political corruption, etc. It also affects entrepreneurship, creativity, and technological innovation in the long run.

The Cause

  1. Historical monetary policy, financialization, and financial liberalization (deregulation) have directly contributed to exacerbating economic inequality by negatively affecting business cycles through the misdirection of short term economic incentives and failing to consider the long-horizon. In addition, credit market imperfections, due to asymmetrical preferences and institutional constraints, causally contribute to inequality, in both physical and human capital accumulation.
  1. Bargaining power increases with capital accumulation, concentration, and centralization both domestically and globally, establishes organizational inertia in business and legal exchanges, and further compounds the effects of inequality. Avoiding full employment decreases labor demand, in turn decreasing wage bargaining power, leading to wage stagflation.

The Solution

  1. Increasing economic equity yields the highest long term economic growth, improves social well-being, facilitates creativity and innovation, and empowers society to resolve its cultural ills.
  1. Economic equity can be achieved by restoring bargaining power, regulating financial investment activities, incentivizing real-asset investment, and implementing a single structured tax policy on the wealthiest.