Populism Will Destroy Unless We Address Inequality
Reactionary populism in its most dangerous form will tear at the very fabric of our society if we do not address the challenge of economic inequality. We see the scourge of authoritarian populist movements across the globe and believe there is a moral and economic imperative to reduce this widening gap.
Our backgrounds could not be more different, but we are motivated by our faiths to tackle this growing problem. One of us is a Republican Catholic representing a very conservative district in Florida and was the U.S. Ambassador to the Holy See from 2005-2008. The other is a Democratic Hindu, representing a very progressive district in California and had a grandfather who spent time in jail as a freedom fighter in Gandhi’s independence movement.
Both of our faiths teach us to care for the poor. Jesus taught us to be radical in our service. Gandhi drew inspiration from Jesus’ Sermon on the Mount and said his goal was to “unify the teaching of the [Bhagavad] Gita and the Sermon on the Mount.” He believed Jesus was one of the world’s greatest teachers.
St. Peter’s recent successors call on us to focus on decreasing economic inequality. John Paul II’s encyclical, "Centesimus Annus" declared that “the free market is the most efficient instrument for utilizing resources and effectively responding to needs”, but “there are many human needs which find no place on the market.” In his 2013 New Year message, Pope Benedict XVI said he was alarmed “to see hotbeds of tension and conflict caused by growing instances of inequality between rich and poor” and called for a new approach to the economy.
Free enterprise that rewards work and innovation has nurtured a standard of living for our people and level of innovation that all other nations aspire to reach. So why has capitalism come under attack in the last few years? Certainly, the financial and housing crisis of 2007-2014 led to a decline of confidence in free markets and suspicion among young people just entering the job market. But the crisis is deeper. The dramatic rise in income inequality over the last 30 years is alarming, and the transition in the United States from a manufacturing economy to services has replaced high wage and benefit jobs with lower wage ones.
Advances in global trade and automation has also had an impact, as has the increase in service industry jobs for entry level workers. Too many have been left out and the gains have not been realized equally.
In response, CEOs of 192 of our nation’s major corporations recently stated, “Many Americans are struggling. Too often hard work is not rewarded.” Even with historically low unemployment, wages remain stagnant, CEO pay has increased, and income inequality has grown. We must fix our system to make capitalism work for everyone if we are to prevent the ascendancy of authoritarian populism plaguing so many parts of the world.
America’s wealth/wage gap hasn’t been as high as it is today since before the Great Depression. By 1970, average CEO pay was 24 times higher than their average employees’ salary. Today, that disparity is 312 times. This rise has been driven by incentive compensation — shares of stock, restricted stock units and stock options granted as part of CEO compensation. Performance is largely motivated by the achievement of financial goals but are often short-term targets which may come at the expense of long-term corporate success.
Congress has an important role in reducing income inequality. There are some actions that are bipartisan. We should create more career and technical training (CTE) opportunities, invest in rural broadband, expand small business loans to rural entrepreneurs and fund infrastructure improvements.
Specifically, the government should target areas suffering bankruptcies and economic distress where it would help facilitate job creation, entrepreneurial opportunities and increased community involvement. Because corporations are often creatures of their markets and competitive pressures, they will respond to external influences including legislative or regulatory changes promoting CTE, the minimum wage and improved working conditions.
Expanding the Earned Income Tax Credit (EITC) is another important step Congress can take to address inequality. The EITC is a refundable tax credit for low to moderate-income workers and families created under the Nixon administration. President Ronald Reagan championed a major expansion of it in the 1986 Tax Reform Act. Since then, the EITC has successfully helped millions of low-wage workers and their families escape poverty. A further expansion today would give working families a long-overdue wage boost.
Preserving our free enterprise system with its potential to produce so much prosperity for so many must be addressed in a way that gives everyone an opportunity to participate and benefit from this system. We cannot let a new generation entering the workforce be left out of the new economy. We may have to experiment with many policy solutions to fix our income inequality crisis, but one thing is certain — our faiths teach us that we must act now.