Part One: Inequality–My Starting Biases

Feb 8, 2014

Inequality

This will begin a new series of articles about inequality. I’d like to start by confessing my biases:

I’m a Democrat, although I have occasionally voted for Republicans. I come from a long line of North Carolina farm folks, relatively poor, and clearly of a Democratic persuasion.

I do not pretend to be an expert on these matters, but I recently (2013) completed a Masters degree at the University of London, in which a great deal of focus was on the world economy since about 1950, looking at such issues as economic growth, poverty, inequality, and policies and endowments which led to the success or failure of nations. I’ve been assiduously studying these issues since.

I believe the problems of poverty and inequality (and others) are complex. In most cases, there are no effective universal solutions. Best recommendations usually consider local history, culture, endowments, institutions, and politics. What works for China will be different from what works for the US. Both countries’ leaders have made bold promises to reduce inequality.

Also, there are many forms of inequality–income, wealth, racial, gender, and many other ways in which some people feel and find themselves inferior to others.  For example, people who speak only Cantonese find themselves feeling unequal in the US, whereas those speaking only English may find themselves feeling unequal in Hong Kong.  All of these are worthy of attention. Top of my list will be income and wealth inequality, but that’s not intended to diminish the importance of the many other ways inequality is experienced.

I acknowledge that it is not yet clearly determined that the rise in income and wealth inequality in many countries since about 1970, will continue rising (if unchecked), or will level out or reverse without policy change. There are some who argue that it will reverse direction and should be left alone. Inequality improved (moved toward greater equality) in the US between 1925 and 1970. Some think this could happen again.

Nevertheless, I believe that in virtually all cases (and in the case of the improvement between 1925 and 1970), the improvement was not “automatic,” a factor of nothing other than the natural evolution of economics. It was also and largely the product of policy changes. For example, Lyndon Johnson’s “Great Society” program was a major factor during that period of improvement.

I also believe we should be concerned. Very concerned. There are many negative impacts to the high levels of inequality currently experienced in the US, China, most OECD countries, and many other countries in the world. I will discuss these in future articles here.

I applaud the growing array of philanthropic efforts by those in the upper echelons of income and wealth, devoted to a very wide variety of social improvements, many seeking to improve one or another of the many facets of inequality. For example, reducing poverty, improving access to health care, and improving access to quality education for children of lower incomes, all result in improved equality. I do respect that many of these are very well intended and some are effective in improving the lot of many. However, I feel that in the aggregate, they lack the impact of a cohesive set of policies and focus which can only be provided by IGO’s, NGO’s, and by national governments.  With few exceptions, most are a drop in the bucket.  Nevertheless, considering the difficulty of motivating effective government action and adjusting the basics of capitalism, we should aggressively pursue best philanthropic efforts, of course!

But, I hold the view that it is simply not enough for us to allow the continuance of the income and wealth aggregation at the top, and hope that the philanthropy of the ultra wealthy will result in sufficient re-allocation, poverty reduction, and improvement in inequality, etc.  That is good work on the part of the wealthy, to be applauded, but it simply is not remotely sufficient.

For one, I am willing to pay more in taxes. More later on the whole issue of the inefficiency of government, democratic government in particular, in addressing these problems.  There are two major issues here which trouble many–getting agreement on effective policies, and then getting cost efficient administration of those policies. Regrettably, many Americans have lost confidence in both these elements of government.

Nevertheless, I feel government has to be a big part of the solution, both in the host country and also in terms of foreign aid to lesser developed countries. I recognize that the US governmental process is gridlocked at this time, but that doesn’t mean we can allow it to stay that way. Changing government anywhere is tiring and slow, but it is the major element in significant change, I believe.

I also believe that private enterprise is part of the solution. It would be great to somehow motivate and accelerate corporate leadership to take the longer view, to re-set guiding principles around objectives other than only the bottom line–such as providing a living wage, minimizing lay-offs, more emphasis on environment, ethics, morality and corruption, and taking a longer than quarterly view. But these kinds of adjustments expose leaders who would like to make these major adjustments to price competition from those who do not choose to participate. Thus, I place somewhat less emphasis on the practicality of the private industry solution.  I don’t fault our corporate leaders for their focus on the short term bottom line–it’s indigenous to the pure capitalistic system which we are committed to–and I don’t have a better system to recommend.

I do not believe that the current version of the neo-liberal Washington Consensus (open borders, reduced regulation, smaller government, flexible labor policies, etc.), is the solution to worsening inequality and poverty reduction in the world. Simply increasing free foreign trade is not going to solve the problem. It didn’t accomplish that in Sub-Saharan Africa in the 80’s and 90’s. Economic growth is necessary for the alleviation of poverty, but foreign trade is not the only way for economies to continue growing. One evidence of this is the fact that virtually all developed economies protected their infant industries for decades in periods of early development, grew rapidly while doing so, and even now there are substantial protective measures in place in most developed economies. How can the US argue for open borders and free trade, when we subsidize the cotton growers in the US?

I believe that even if there is a possibility of some element of natural correction ahead, we cannot afford to wait for the possibility of that happening.  As Keynes said once, we may all be dead by that time.

I believe we cannot just look at our city, our State, and our country. There are almost 200 countries out there, and another 5.7 billion people or so. I believe we have a moral obligation to concern ourselves with inequality in South Africa and Brazil, as well as in the US.

I believe high levels of inequality, such as we have come to experience in the US and many countries, does restrain economic growth. Thus, inequality actually inures to the disadvantage of the wealthy, who benefit most from economic growth, as well as to the middle class and the poor. This should be a rationale for the conservative right to address the issue. They should remember that the middle and lower classes spend more of their income, thus powering economic growth. Unfortunately, many of the wealthy do not invest their greater savings in job promoting growth, but set it aside in liquid assets or possessions such as art. This is one of the problem with persistent conservative arguments for more tax reduction.

Fundamental to this whole issue is the concept of incentives. Everyone agrees that incentives are important, critical to motivate all of us to try harder to better ourselves. There are many on the right who feel what they have gained is due only to their superior talent and/or hard work, and thus it is only right that they should enjoy it. There should be no obligation to share. Let the “invisible hand” of the market determine each person’s outcome. This view, in my opinion, fails to consider luck, inheritance, and the privilege of social standing and opportunity afforded by parents who pay for private schools and ivy league universities, leaving the remainder of public education with only the “exit voice” (Albert Hirschman, 1970) of the poor, unable to motivate political focus.

I do not dispute the value of incentives. I have enjoyed some of the benefits. I dispute that what I have gained (modest as it is) is entirely the fruits of my own talents and labor. It is also the product of the times we baby boomers grew up in, the totality of national and global policies and developments across that period.  It is the product of my providentially being born a WASP during they heyday of WASPism. It is certainly (and most) a product of my being born in the USA. Branko Milanovic, noted World Bank scholar, has determined statistically that 80% of one’s economic destiny is determined by the country in which one was born and the income class of one’s parents (Milanovic, The Haves and the Haves Not). Furthermore, I believe that if we share, there will be greater good for all, and if we do not, there is a risk of revolution and disaster, eventually.

Finally, I acknowledge that in terms of the language, the term “inequality” has been rejected in most circles, with “opportunity” substituted. I am equally concerned with equality of opportunity, but I do not choose to shy away from inequality. The objection is that when “inequality” is used, it fails to motivate those of wealth. It may imply that their acquisition of wealth may have been illicit or unfairly obtained, or if honestly gained, that they nevertheless have an obligation to share it–none of which is welcomed by the wealthy, who would prefer to consider their philanthropy to be motivated entirely by generosity, preferring to focus on poverty alleviation than on reducing inequality. Focus on equality of opportunity resonates well with both Democrats and Republicans. Even the Conservative Right promotes the Horatio Alger motif.

That’s about it in terms of biases to which I readily admit. I acknowledge that many of the beliefs I have admitted above remain in dispute among respected economists. I will make my own attempt to defend some of them in later posts.

However, I honestly hold that I am open to solid argument and proof, to change any of the above beliefs.  Please post your arguments to the contrary.

I welcome your comments

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