Wealth Inequality Income Inequality
This blog is heavily oriented toward inequality, which I believe to be the greatest challenge facing our country and the world. This post is intended to summarize some key elements for those who may not study it quite as much as I do, along with my opinions (of course).
We can’t talk about inequality too much. I welcome your feedback.
- Inequality in the US is very high. Both inequality of wealth and inequality of income are very high.
- Inequality has been steadily rising since the late 60s.
- According to the Huffington Post, we are now among the 5 most unequal countries in the world. Only Turkey, Mexico, and Chile are worse.
- Some of the reasons we should be very concerned: the human impact on health and happiness of the middle class and below; the transformation of a once egalitarian nation into a nation of elites and poor; a growing number of economists agree that above a certain level of rising inequality, economic growth is slowed; the threat of protests rising; our nation’s image in the world and the attendant loss of influence, increased resentment, terrorism and war (yes, war–inequality is a major factor in wars); the ultimate threat of revolution; the future of our children and grandchildren.
- Most politicians avoid directly addressing “inequality” because the wealthy (who have substantial influence on elections) insist on terms such as “poverty,” “opportunity” or “social mobility.” “Inequality” suggests something is unfair about the current state of outcomes, that I “should” do something to improve it, while other terms may allow me freedom to help only if I want to, not because I “should.”
- “Redistribution” is seldom seen in a political agenda either, for the same reason. There is objection to the suggestion of taking from those who have earned it and giving to those who might not have tried their best.
- But, “redistribution” does not necessarily mean taking from the wealthy and giving directly to the poor. That’s not even the best solution in many cases. Education and infrastructure are great choices for redistribution–and the outcomes would benefit both the wealthy and the poor. The poor will get to work faster on better roads and public transportation, and the wealthy will benefit from having more and better workers, and transportation for their products. Same for education. Better jobs and incomes and better workers, especially in our advanced service economy.
- Conservatives continue to argue that we should not be concerned with inequality. All we need is economic growth–that will generate jobs and increasing income for all. This is the “trickle down” theory. But, there are now few economists who buy this theory. It simply has not worked. Since 1980, the US has increasingly strengthened neo-liberal (conservative) policies which have weakened unions, given corporations more power over employees and withdrawn social services to the underprivileged. During this time, under both Democratic and Republican administrations, during periods of both slower and faster growth, inequality has only steadily increased.
- In fact, one reason we are among the worst nations in inequality is that we redistribute less than many other nations:
- And, no wonder there is less for the poor. We have significantly reduced tax rates on the wealthy and (of course) a greater share of national income has gone to the 1%:
- Reduced tax rates and reduced social services are only part of the reason for increasing inequality. There are also structural factors. There is expanded globalization, which is promoted by conservatives (open borders, more trade, etc.). This means factories and jobs move without restriction to lowest wage locations, sometimes abroad, often leaving middle-aged workers suddenly adrift. Government protection for these workers existed under Lyndon Johnson, but no longer does. Another factor is technology, robotics, etc., leading to the need for fewer workers in factories, grocery stores, and at toll booths.
- So, both our policies and these structural factors combine to drive this ominous acceleration in inequality. No one wants to stop advances in technology, but we have to figure out a way to make the country (and the world) more equal. Reversing the trend takes time. We should use the policy levers we can, and do it now.
- Conservatives try to find fault with the comprehensive analysis of decades of data by Thomas Piketty, presented in his best seller of 2013, but his arguments are compelling. He shows that the rate of growth in wealth will exceed the rate of economic growth, globally, driven largely by demographics. He predicts inequality will inevitably increase over time, unless we take action.
- No critic has yet come forward to present a comprehensive argument backed by data, showing the opposite–that there is no reason for concern–that the trends will reverse themselves without any policy changes! No-one. If you’ve seen it, please bring it to my attention.
- Action involves some clear and indisputable steps, but also some very complex decisioning, which depends on different circumstances for different populations. Indisputable is the need for investment in infrastructure and education, which benefits both the wealthy and the poor. Why aren’t we at least doing that? No one has a good answer.
- However, much of the solution requires careful study and balancing. Immigration is an example. Certainly, immigrants do take some of the low paid jobs that some (few) Americans might want, but immigrants also bring enormous energy and talent to our economy, over time. Studies have shown they pay for themselves in taxes. Immigrants may not be Americans yet, but our concern should be for all citizens of the world, not just our country. Our forefathers didn’t pull up the ladder, and neither should we. We cannot take all applicants at one time–even the capacity of the US is limited, but we can take more than we are taking.
- Free trade is another complex issue. It can be beneficial, but if some foreign countries subsidize industries which then compete unfairly, we lose business and jobs. Even when that is not the case, free trade finds low-cost labor in foreign locations, and jobs are lost. A big part of the solution is in government support to the displaced, including re-training for better service economy jobs–but the nature of our political system today does not tolerate expansion of government, even to re-train our citizens who are hard-working, tax paying, and want to work, but experience sudden loss of jobs to offshoring or technology.
- These complexities can be sorted out with a variety of specific solutions, but we must first agree we have a major problem that must be addressed. In the meantime, since we do not have Republican agreement that there is even a problem, all the more reason to at least deal with the obvious and indisputable, such as infrastructure and education. That benefits everyone. We should do that even if inequality is not seen as a major issue in our nation.
- I will close with this today–it’s always good to offer up a few “prescriptions,” in addition to pointing out the problems and the fault with present policies. I will borrow today from Timothy Smeeding of the University of Wisconsin. Here are his suggestions, which I endorse:
- “Tax appreciated assets when inherited or transferred inter-vivos.
- Raise income tax rates on capital income — capital gains and dividends — to levels just below labor, e.g. maximum rate at true current marginal tax rate or 30%. And curtail practices of defining earnings as capital income, e.g. “carried interest” provisions.
- Reduce political rents: close tax loopholes that benefit mainly the wealthy (e.g. cap on deductions for employer-provided health insurance); turn deductions that benefit the richest into credits, many refundable, to benefit lower and middle-income families; allow drug purchases at “best price” rates, not market rates, for Medicare; get rid of oil and gas exploration tax subsidies; limit and phase out agricultural subsidies.
- Use tax revenue to improve public infrastructure (including internet).
- Improve college prep classes and college counseling for students.
- More and better apprenticeships (get employers involved).
- Raise the minimum wage to $10 per hour, index it, and enforce labor laws (e.g. on scheduling).
- Universal child allowance at $2,500 per child, refundable if this is more than income taxes owed, and separate from the EITC.
- Profit sharing among all long-term (full year or more) employees.”
- A set of policies such as these would be a good start–then we can talk about how to spend the money raised by these changes. Note that Smeeding doesn’t recommend raising corporate income taxes or raising the statutory rate on earned income for the 1%. This is a reminder that rhetoric around tax changes for redistribution often becomes vehement. Changes such as these are decidedly modest, will not negatively impact motivation or capacity to invest, but they will make a significant difference in inequality!
3 thoughts on “Inequality in 20 Points”
Great stuff – We vacation in Mexico from 25 Dec. thru 25 Feb. each year. I find that the Mexican trickle down economy is corrupt. Most complex transactions require bribe money. This economy leads to dissatisfaction. The poor are unable to feed their families and fathers and mothers track to the US for food. Our immigration policies don’t understand the underlying cause of why people risk everything to come to the US. Building a wall to keep starving people out is just plain stupid. Some of the best tunnels in the world are between the US an Mexico. Education is the key to prosperity. Just think of the number of jobs we could create by educating the world!
I couldn’t agree more. Many conservatives refuse to believe that there are many things the US is doing that have negative affects around the world. Albeit unintentional, our intrusion in foreign governments’ affairs is often resented by many locals. We may fight to try to restore rights, but usually (as in Vietnam, Iraq, and Afghanistan), we are not able to accomplish those goals, and we unintentionally kill civilians. Our confusing and limited immigration results in more illegals. If we could help Mexico to reduce its poverty, we would reduce immigration to the US. Thanks for your thoughts. Dale
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