"Since the 1980s, we've been redistributing wealth upwards thanks to neoliberal ideology. We were told that giving the wealthy a bigger piece of the pie would make the pie bigger for everyone. But all they managed to do with that redistributed wealth was shrink the rate at which the pie grew.
It's time we admit that this experiment in upward redistribution has failed, and increase the taxes on those who had their taxes decreased courtesy of this economic farce.
Following WWII, there was a rapid growth in progressive taxation and social welfare spending in most of the rich capitalist countries. Despite this (or rather partly because of this), the period between 1950 and 1973 saw the highest-ever growth rates in these countries – known as the "Golden Age of Capitalism."
Before the Golden Age, per capita income in the rich capitalist economies used to grow at 1–1.5% per year. During the Golden Age, it grew at 2–3% in the US and Britain, 4–5% in Western Europe, and 8% in Japan.
Since then, these countries have never managed to grow faster than that. When growth slowed down in the rich capitalist economies from the mid 1970s, however, the free-marketeers dusted off their nineteenth-century rhetoric and managed to convince others that the reduction in the share of the income going to the investing class was the reason for the slowdown.
Since the 1980s, in many (although not all) of these countries, governments that espouse upward income redistribution have ruled most of the time. Even some so-called left-wing parties, such as Britain’s New Labour under Tony Blair and the American Democratic Party under Bill Clinton, openly advocated such a strategy – the high point being Bill Clinton introducing his welfare reform in 1996, declaring that he wanted to "end welfare as we know it."
In the event, trimming the welfare state down proved more difficult than initially thought. However, its growth has been moderated, despite the structural pressure for greater welfare spending due to the ageing of the population, which increases the need for pensions, disability allowances, healthcare and other spending directed to the elderly. More importantly, in most countries there were also many policies that ended up redistributing income from the poor to the rich. There have been tax cuts for the rich – top income-tax rates were brought down. Financial deregulation has created huge opportunities for speculative gains as well as astronomical paychecks for top managers and financiers. Deregulation in other areas has also allowed companies to make bigger profits, not least because they were more able to exploit their monopoly powers, more freely pollute the environment and more readily sack workers. Increased trade liberalization and increased foreign investment – or at least the threat of them – have also put downward pressure on wages.
As a result, income inequality has increased in most rich countries. For example, according to the ILO, of the twenty advanced economies for which data was available,
between 1990 and 2000 income inequality rose in sixteen countries, with only Switzerland among the remaining four experiencing a significant fall.
During this period, income inequality in the US, already by far the highest in the rich world, rose to a level comparable to that of some Latin American countries such as Uruguay and Venezuela. The relative increase in income inequality was also high in countries such as Finland, Sweden and Belgium, but these were countries that previously had very low levels of inequality – perhaps too low in the case of Finland, which had an even more equal income distribution than many of the former socialist countries.
According to the Economic Policy Institute,
between 1979 and 2006, the top 1% of earners in the US more than doubled their share of national income, from 10% to 22.9%. The top 0.1% did even better, increasing their share by more than three times, from 3.5% in 1979 to 11.6% in 2006. This was mainly because of the astronomical increase in executive pay in the country, whose lack of justification is increasingly becoming obvious in the aftermath of the 2008 financial crisis (see above about shareholder value maximization). Of the sixty-five developing and former socialist countries covered in the above-mentioned ILO study, income inequality rose in forty-one countries during the same period. While the proportion of countries experiencing rising inequality among them was smaller than for the rich countries, many of these countries already had very high inequality, so the impacts of rising inequality were even worse than in the rich countries."
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