Tags: Gross | Capitalism | Income | Inequality

Bill Gross: Capitalism Teeters Because of Income Inequality

By    |   Tuesday, 15 July 2014 08:52 PM

Bill Gross, founder of the bond fund giant Pimco, believes income inequality is threatening capitalism.

In an opinion column for USA Today, Gross said the last time in American history that incomes were this unequally distributed was around the time of Warren Harding’s presidency – during the 1920s.

He noted after-tax corporate profits are at record heights, while American workers' wages have shrunk to 42.5 percent of GDP from 57.4 percent in 1970.

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Gross said the national minimum wage of $7.25 per hour would be $22 per hour if it had kept pace with worker productivity.

“All these statistics point to an enduring loss of purchasing power by American workers, relative to inflation and corporate profits. Wall Street can secretly slap itself on the back, but it shouldn't. It can thrive with a more balanced partnership. It could wither without it."

The economy is so skewed that capitalism is in danger, according to Gross.

“Corporations might not be eating their seed corn, but they're not planting it, either. Better to pay it out in the form of higher wages so that increased consumption will stimulate the capitalistic ethic to take risk.”

Part of the problem can also be solved by tax reform, in Gross’ opinion. He said that while U.S. corporate taxes are high relative to other nations, domestic and offshore tax shelters take the real rates considerably lower.

“Additionally, wealthy individuals have been allowed to transform their salary and bonuses into carried interest, effectively creating a capital gains tax rate with little if any risk of capital.”

The Washington Post reported President Obama has recently abandoned talk about fighting income inequality amid election-year debate within the Democratic Party about economic populism.

“During the first half of this year, Obama shifted from income inequality to the more politically palatable theme of lifting the middle class, focusing on issues such as the minimum wage and the gender pay gap that are thought to resonate with a broader group of voters,” the Post said.

An Investor’s Business Daily editorial said the real blame for income inequality in the United States is the lack of modern education and job-training skills appropriate for the new knowledge-driven economy – not a continuation of an educational system appropriate for the industrial era.

“Educational inequality is the root cause of most income inequality — the de facto dividing line between the ‘haves’ and ‘have-nots.’ So improving the education of American workers, especially at the bottom rungs of the income distribution, would reduce inequality — and, even better, raise productivity and enlarge the economic pie,” Investor’s Business Daily said.

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Bill Gross, founder of the bond fund giant Pimco, believes income inequality is threatening capitalism.
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Tuesday, 15 July 2014 08:52 PM
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