Economic Growth

For the past several years, Italy under Prime Minister Silvio Berlusconi resembled a political comic opera, with a larger-than-life character of ravenous appetites and tragic hubris. But the recent "political death" of Mr Berlusconi represents only the end of Act One. Two more acts remain, and this drama could turn from comedy to tragedy quickly.

There are many reasons why America’s system of economic security is not working. Chief among them is a common factor in almost all of our social policies: they are designed with the assumption that people are constantly employed. For example, most social insurance programs, from Social Security to Unemployment Insurance to Medicare, require people to build up years of contributions before they can access benefits.¹

In his January 2012 State of the Union address, President Barack Obama called for cutting taxes for companies that produce in the United States, especially high-tech manufacturers. He proposed eliminating deductions for firms that move jobs abroad. And he suggested a minimum tax on all multinational corporations.

Fear, in any real market, is a natural emotion. There is the fear of not making a sale, not landing a job, not winning a client. Such fear is healthy, even constructive. It prods us to polish our wares, to refine our skills, and to conjure up—every so often—a wonder.

President Obama used his State of the Union address to argue that rising levels of inequality are undercutting the promise of America. He said “we can either settle for a country where a shrinking number of people do really well while a growing number of Americans barely get by, or we can restore an economy where everyone gets a fair shot, and everyone does their fair share, and everyone plays by the same set of rules.” The concrete proposal was modest tax reform. It’s not fair that Warren Buffet and Mitt Romney have tax rates half the size of the people that work for them. True enough. CEO pay has skyrocketed as average wages have fallen. But there’s actually much more at stake and a need for a larger policy response.

The growing concentration of wealth is bad for our democracy. It tips the playing field and leads to monopoly power cuts off competition and short-circuits innovation. It also means there are fewer resources available for everybody else to deploy, which makes it harder for striving families to move up the economic ladder. Upward mobility in America is too limited, and is lower than it is in other developed countries. It is particularly difficult for those born into families living in poverty. A poor child has a less than one-in-five chance of ending up in the top 40% of earners (roughly $50,000). Obama missed a chance to articulate a policy agenda focused on helping people move up and out of poverty. Access to a good education and good jobs is a start, but it isn’t enough. To make the upward climb, we know that families must be able to save and build up some pools of assets. This is because savings can help families cope with unexpected hardship, such as a job loss or illness, or be strategically deployed to pay for educational or training opportunities. Savings are a foundation for economic mobility and the President should have identified a set of policies that would help families save for their future.

Any renaissance of American manufacturing must begin by fundamentally reversing our trade policies—both in general and in particular toward China. Over the past two decades, leading U.S. manufacturers, both the venerable (like General Electric) and the new (like Apple), have offshored millions of jobs—by one recent estimate, 2.9 million—to China to take advantage of the cheap labor, generous state subsidies, and low currency valuation that are linchpins of China’s mercantilist development strategy.

This is the fifth column in a series by Bruce Jentleson, Professor at Duke University, and Jay Pelosky, Principal of J2Z Advisory. It originally appeared on the Huffington Post.

What is the purpose of a corporation? In America today we generally believe that corporations exist to generate profits for their share- holders, who “own” them. Indeed, we have structured much of our economy—and often staked our retirements—on this idea.

When Congress summoned Enron's top executives this February and made them sit, hands folded, in front of the TV cameras, we at home were treated to a familiar display of Washington theater. Because most of these men had invoked their Fifth Amendment right not to incriminate themselves, no one expected much new information to be revealed. But our congressmen certainly were not going to let pass a chance to broadcast to the world their indignation at the gross mismanagement of a company that had once been so powerful, and so generous.