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JPMorgan Chase (JPM) CEO Jamie Dimon says income inequality and the subsequent discord in the U.S. create a “fraying American dream" that threatens America’s global preeminence.
“Many of our citizens are unsettled, and the fault line for all this discord is a fraying American dream – the enormous wealth of our country is accruing to the very few. In other words, the fault line is inequality. And its cause is staring us in the face: our own failure to move beyond our differences and self-interest and act for the greater good. The good news is that this is fixable,” Dimon wrote in his firm’s widely-read annual letter to JPMorgan shareholders.
In the letter, the 65-year-old banker pointed out that China, the world’s second-largest economy predicted to be the largest by 2030, views the U.S. in decline in part because of its inequality.
“The Chinese see an America that is losing ground in technology, infrastructure and education – a nation torn and crippled by politics, as well as racial and income inequality – and a country unable to coordinate government policies (fiscal, monetary, industrial, regulatory) in any coherent way to accomplish national goals. Unfortunately, recently, there is a lot of truth to this,” Dimon wrote.
Dimon added that economic growth in the U.S. over the last two decades has been “painfully slow,” while income inequality has increased with “virtually no growth in income at the lower rungs of the economic ladder.” The banker later noted that growth in incomes from 1980 to 2000 “was healthy,” with the two lowest quantiles seeing growth cumulatively at 18% and 19% adjusted for inflation, respectively between 2000 and 2019, that growth “slowed dramatically, particularly for the lower quintiles, with growth up 1% and 8%. In the last 20 years, the labor force participation for prime working-age men went from 92% in 2000 to 88% in 2020.
Dimon also pointed out that nearly 30% of American workers make less than $15 an hour, which he added is “barely a living wage” for two adults working with two kids. On top of that, 30% of Americans lack the savings to deal with an unexpected expense of $400.
“The COVID-19 pandemic, for which our nation was totally unprepared, capped by the horrific murder of George Floyd, shoved into the spotlight our country’s profound inequities and their devastating effects – inequities that had been there for a long time. Once more, our country suffered, and its least well-off individuals suffered the most. Unfortunately, the tragedies of this past year are only the tip of the iceberg – they merely expose enormous failures that have existed for decades and have been deeply damaging to America,” Dimon wrote.
According to Dimon, the other issues facing the U.S include capitalism versus other economic systems, healthcare, immigration policy, and the U.S.’s leadership role globally. What’s more, he wrote, institutions such as governments, schools, media, and businesses “have lost credibility in the eyes of the public.”
These failures fuel populism on both sides of the political spectrum, he said.
“But populism is not policy, and we cannot let it drive another round of poor planning and bad leadership that will simply make our country’s situation worse,” Dimon added.
The problems are 'fixable'
Dimon asserted that America’s problems, although "complex and frustrating," are “fixable” if those problems and the damage they have caused can be acknowledged.
Among the solutions Dimon outlines include improving the social safety net, making the healthcare system work better, modernizing infrastructure, thoughtful trade policies, intelligent industrial policy, maintaining a strong financial system, proper immigration policies, affordable housing, proper and consistent tax and fiscal policy, and more.
He also emphasized the importance of training for jobs, increasing wages, and creating opportunities for employment.
“We need to build an education system that includes training for skills that lead to good jobs (and this will improve labor force participation),” he wrote, adding, “Business must be involved in this process, and it needs to be coordinated locally because that is where the actual jobs are. Proper training and retraining mean being sensitive to our rapidly changing technological world. Expanding digital skills and training opportunities for workers and students will be critical, as the pace of AI will likely accelerate to meet future business demands and foster innovation in high-risk jobs, especially across healthcare and the supply chain.”
Dimon noted that improving wages for low-skilled workers would improve labor force participation.
“While a living wage differs by state, the national average is currently $68,000 a year for a family of four. With two adults working full time, each would need to earn $16.50 an hour to reach that level,” Dimon wrote.
He called for an increase in the federal minimum wage and the ability for states to make adjustments based on the cost of living. Dimon also pointed to the Earned Income Tax Credit (EITC), a refundable tax credit that goes to millions of low- to moderate-income workers, particularly parents, to supplement their earnings, and the Child Tax Credit as ways to help ensure every job “essentially pays a living wage.”
Dimon said the U.S. needs to make it easier for those with a criminal record to get a job to increase labor participation.
“Our criminal justice system disproportionately impacts people of color — Black adults are over five times more likely to be incarcerated than white adults. This is institutional racism in its clearest form. Reforms to the criminal justice system and business screening and hiring practices can open the door of opportunity to significantly more people,” he wrote.
Dimon said it’s his “fervent hope is that America will roll up its sleeves and bring bold leadership to our self-inflicted problems.”
“Business and government collaborating together can conquer our biggest challenges – income inequality, economic opportunity, education and healthcare for all, infrastructure, affordable housing, and disaster preparedness, to name a few. We can be unabashed about the exceptionalism of America while acknowledging that we have problems. As we work together for an inclusive recovery that is long lasting, we must never forget that America’s economic prosperity is a necessary foundation for our military capability, which keeps us free and strong and is essential to world peace. America is still the arsenal of democracy.”
Julia La Roche is a correspondent for Yahoo Finance. Follow her on Twitter.