Until economic and social rules work for all Americans, they’re not working. Inspired by the legacy of Franklin and Eleanor, the Roosevelt Institute reimagines the rules to create a nation where everyone enjoys a fair share of our collective prosperity. We are a 21st century think tank bringing together multiple generations of thinkers and leaders to help drive key economic and social debates and have local and national impact. TABLE OF CONTENTS EXECUTIVE SUMMARY 7 INTRODUCTION 11 THE CURRENT RULES 23 More market power, less competition 24 The growth of the financial sector 28 The ‘shareholder revolution,’ the rise of CEO pay, and the squeezing of workers 33 Lower taxes for the wealthy 36 The end of full-employment monetary policy 40 THE STIFLING OF WORKER VOICE 43 The sinking floor of labor standards 45 Racial discrimination 48 Gender discrimination 53 REWRITING THE RULES 57 Make Markets Competitive 58 Fix the financial sector 62 Incentivize long-term business growth 67 Rebalance the tax and transfer system 69 Make full employment the goal 73 Empower workers 75 Expand access to labor markets and opportunities for advancement 78 Expand economic security and opportunity 82 APPENDIX: OVERVIEW OF RECENT INEQUALITY TRENDS 91 ENDNOTES 98 This paper is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License. This is version 1.1 of the report, originally published in May of 2015. ACKNOWLEDGEMENTS This report was authored by » Axel Aubrun, Topos Partnership » Dean Baker, Center for Economic Policy and Research Joseph E. Stiglitz, Chief Economist & Senior Fellow, » Mark Barenberg, Roosevelt Institute Columbia University School of Law » Craig Becker, AFL-CIO with coauthors » Suzanne Berger, MIT (in alphabetical order) » Jared Bernstein, Center on Budget and Policy Priorities » Nell Abernathy, Roosevelt Institute » Josh Bivens, Economic Policy Institute » Adam Hersh, Roosevelt Institute » Kate Black, American Women » Susan Holmberg, Roosevelt Institute » » Raphael Bostic, Mike Konczal, Roosevelt Institute University of Southern California Price School » Heather Boushey, and research assistant Washington Center for Equitable Growth » Beth Ann Bovino, Standard & Poor’s » Eric Harris Bernstein, Roosevelt Institute » Julia Bowling, Brennan Center for Justice and with contributions from » Ellen Bravo, Family Values @ Work Consortium (in alphabetical order) » David Card, University of California Berkeley » Frank Clemente, Americans for Tax Fairness » Carola Binder, University of California Berkeley » Michael Cragg, The Brattle Group » Andrea Flynn, Roosevelt Institute » Sheldon Danziger, Russell Sage Foundation » Violetta Kuzmova, Columbia University » Mike Darner, Congressional Progressive Caucus » Tim Price, Roosevelt Institute » Xavier de Souza Briggs, Ford Foundation » Mark Stelzner, University of Massachusetts Amherst » Brad DeLong, University of California Berkeley » Anastasia Wilson, » David desJardins, Consultant and Investor University of Massachusetts Amherst » Geert Dhondt, John Jay College of Criminal Justice Joseph Stiglitz and the Roosevelt Institute » Lisa Donner, Americans for Financial Reform » Steven Fazzari, Washington University in St. Louis would like to acknowledge the following people » Amanda Fischer, (in alphabetical order) for their input and/or Office of Representative Maxine Waters » Sarah Fleisch Fink, participation in convenings that helped to inform National Partnership for Women and Families this work. This is not a list of endorsers, and » Nancy Folbre, University of Massachusetts Amherst mistakes are the authors’ alone. » Daniel Geldon, Consultant » Richard Gilbert, University of California Berkeley Organizations are listed for affiliation purposes only. » Michelle Holder, John Jay College of Criminal Justice » Olivier Giovannoni, Bard College » Emmaneul Saez, University of California Berkeley » Stanley Greenberg, » Aimee Santos-Lyons, Western States Center Greenberg Quinlan Rosner Research » Steve Savner, Center for Community Change » Robert Greenstein, » John Schmitt, Center on Budget and Policy Priorities Center for Economic and Policy Research » Martin Guzman, Columbia University » Dan Schwerin, Office of Hillary Rodham Clinton » Jody Heymann, » Adrianne Shropshire, Black Civic Engagement Fund University of California Los Angeles » Zach Silk, Silk Strategic » Bart Hobijn, Federal Reserve Bank of San Francisco » Damon Silvers, AFL-CIO » Matt Hollamby, Wyss Foundation » William Spriggs, AFL-CIO » Chye-Ching Huang, Center on Budget and Policy Priorities » Graham Steele, U.S. Senate Banking Committee » Taylor Jo Isenberg, Roosevelt Institute » Lynn Stout, Cornell University Law School » Arun Ivatury, SEIU » Dorian Warren, Roosevelt Institute » Elizabeth Jacobs, » Felicia Wong, Roosevelt Institute Washington Center for Equitable Growth » David Woolner, Roosevelt Institute » Simon Johnson, MIT Sloan School » Ianna Kachoris, MacArthur Foundation » Julie Kashen, Make it Work Campaign Special thanks to Roosevelt staff, Initiative for Policy Dialogue staff, and consultants for their » Stephanie Kelton, U.S. Senate Budget Committee support and contributions: » Richard Kirsch, Roosevelt Institute » Anna Lefer Kuhn, Arca Foundation Hannah Assadi, Aman Banerji, Johanna Bonewitz, Lydia Bowers, Brenna Conway, Samantha Diaz, » Mark Levinson, SEIU Renée Fidz, Joelle Gamble, Kathryn Greenberg, Laurie » Tara Magner, MacArthur Foundation Ignacio, Jiaming Ju, Eamon Kircher-Allen, Gabriel » Brad Miller, Roosevelt Institute Matthews, Joe McManus, Camellia Phillips, Marybeth » Larry Mishel, Economic Policy Institute Seitz-Brown, Liz Sisson, Alan Smith, Kevin Stump, » Markos Zúniga Moulitsas, DailyKos Alexandra Tempus, and Patrick Watson. » Marcus Mrowka, Roosevelt Institute » Jessica Gordon Nembhard, John Jay College of Criminal Justice This report was made possible » Dave Palmer, Roosevelt Institute with generous support from the » Manuel Pastor, University of Southern California Ford Foundation, the MacArthur » Aaron Pickrell, Remington Road Group, Foundation, and Bernard L. on behalf of NYC Mayor Bill de Blasio Schwartz. » Kalen Pruss, Office of Martin O’Malley » Robert Reich, University of California Berkeley » Rashad Robinson, Color of Change » Christina Romer, University of California Berkeley EXECUTIVE SUMMARY REWRITING THE RULES OF THE AMERICAN ECONOMY: AN AGENDA FOR SHARED PROSPERITY Inequality is not inevitable: it is a choice we make with the rules we create to structure our economy. Over the last 35 years, America’s policy choices have been grounded in false assumptions, and the result is a weakened economy in which most Americans struggle to achieve or maintain a middle-class lifestyle while a small percentage enjoy an increasingly large share of the nation’s wealth. Though these lived experiences and personal challenges are important, they are only the tip of the iceberg that is the crisis of slow income growth and rising inequality. To fully understand the scope of the problem, we must also examine the array of laws and policies that lie beneath the surface—the rules that determine the balance of power between public and private, employers and workers, innovation and shared growth, and all the other interests that make up the modern economy. Given the scale and interconnected nature of the issues we face, a tentative, piecemeal response Dominant economic frameworks over will not suffice. Instead, this report lays out both the past 35 years—like “trickle-down” a new framework for understanding the current economics, and the idea that markets structure of our economy and a comprehensive work perfectly on their own—paved the policy agenda that rewrites the rules to promote way for an onslaught of policies that stronger growth and broadly shared prosperity. decimated America’s middle class. This paper presents an evidence-backed The United States bills itself as the land of alternative framework: opportunity, a place where anyone can achieve success and a better life through hard work and u Markets are shaped by laws, determination. But in fact, the U.S. today lags regulations, and institutions. Rules behind most other developed nations in measures matter. of inequality and economic mobility. For decades, u The rules determine how fast the wages have stagnated for the majority of workers economy grows, and who shares in while economic gains have disproportionately the benefits of that prosperity. gone to the top 1 percent. Good jobs that provide u Concentrated wealth can hurt access to the middle class are increasingly scarce, economic performance. Under the while essentials like education, housing, and health right rules, shared prosperity and care are growing ever more expensive. Deeply strong economic performance rooted structural discrimination continues to reinforce each other. There is no hold down women and people of color, and more trade-off. than one-fifth of all American children now live in u A tentative, piecemeal policy poverty, meaning that these trends are on track to response to help the neediest will become even worse in the future. To solve these not suffice. We must rewrite the problems, we must better understand the causes rules of the economy with a focus on of today’s inequality, and traditional economics restoring a balance of power between provides little guidance. the competing interests that make up the modern economy. For decades, economists have claimed that there is a tradeoff between inequality and economic REWRITING THE RULES OF THE AMERICAN ECONOMY: