At today’s Financial Services Committee hearing with Secretary Jack Lew, Ranking Member Maxine Waters
discussed the issue of growing income inequality and called for action by increasing the minimum wage, extending unemployment insurance, and providing trade adjustment and other assistance for those in the U.S. clustered in the low-skill end, who are disadvantaged by globalization. She delivered these remarks during today’s hearing on “The State of the International Financial System.”
Her full remarks are below.
As prepared for delivery:
“I want to thank Chairman Hensarling for holding this hearing, and I am delighted to welcome you, Secretary Lew, before our Committee today to testify on the state of the international financial system.
I would like to discuss what I believe to be one of the biggest social, economic and political challenges we face today, both domestically and internationally -- and that is the problem of growing inequality.
Over the past 30 years, income inequality in the United States has been steadily increasing. This was the case even during periods of growth. Before the financial crisis, levels of inequality in the U.S. reached peaks not seen since the late 1920s.
While other advanced and emerging market economies have also experienced rising income inequality, the most shocking shortcomings are right here in the United States, which has the highest level of inequality of any advanced industrial nation.
In fact, today, 20 percent of the income in our country goes to the top 1 percent of Americans. If you look at inequality of wealth, it’s even worse. The top 1 percent holds about 40 percent of the country’s wealth. The gap between the rich and the poor in America has become a chasm.
Moreover, the gains from growth during the recent recovery have accrued overwhelmingly to the wealthiest people in society. Almost 95 percent of the income gains since the recovery began have been captured by the top 1 percent. This means that the most unequal advanced industrial economy in the world is becoming even more so.
I recognize that in a capitalist system, some degree of inequality is necessary for the function of a market economy, since it creates incentives to work hard and take risks. But left entirely to its own, the market system will produce more inequality than is economically necessary.
And here in America, we have much more inequality than is necessary for efficiency. I believe this is a moral problem, from the standpoint of social equity.
But excessive inequality not only undermines social and political cohesion, it has also recently been shown to have negative effects on growth and stability as well.
Recent research at the IMF has shown that excessive inequality slows growth because depressed earnings lead to weaker demand and lower consumption. Reducing inequality is increasingly understood to contribute to economic growth.
Inequality is also a political problem. We now have an increasing degree of resistance on the part of many Americans to new trade agreements because they see themselves as victims of globalization – rather than as participants in its benefits.
I believe our international economic policy has, in fact, been too one-sided – too focused on elevating the interests and mobility of capital over all other considerations. This was based on the misguided belief that unfettered markets would not only create wealth and stability, but would also trickle benefits down to others in society.
But this isn’t what has happened.
In fact, one of the most important lessons we have learned from the recent financial crisis is that markets must be deeply embedded in systems of governance. The idea that markets are efficient and self-correcting has received a mortal blow.
I believe in capitalism, and I believe that the markets are the main engines of wealth creation in our country and elsewhere.
But in order to be truly supportive of the free market, I believe you must also be supportive of government. This is because we need to have an appropriate set of public policies in place to reign in the excesses of the market, to help maintain stability, and to ensure that the benefits of capitalism and growth are broadly shared.
We need to do a better job of dealing with equity questions at home. For example, we should be increasing the minimum wage, extending unemployment insurance, and providing trade adjustment and other assistance for those in the U.S. clustered in the low-skill end – who are disadvantaged by globalization. Until we do that, and people begin to feel secure at home, we will not have the political support we need for a more active engagement by the United States with the international economy.”