December 30, 2018

Inequality may be the biggest problem for the US and for the world. Why?

Among the many reasons:

• Inequality has risen almost to Robber Baron levels,
• The wealthy and ultra wealthy have seen steady gains, while the working class has seen stagnant wages for 30 years.
• Inequality breeds discontent with government, and opens the door to populist demagogues offering false solutions.
• Inequality is at the root of the problems of poverty, immigration, and terrorism, breeds crime.
• The underprivileged suffer the most from pollution and climate change, which are other facets of inequality.
• It is morally wrong for some to have everything they want and many to lack basic food, shelter and health.
• It isn’t even good for the economy for a vast wealth and income gap to exist. An impressive body of economic study finds economic growth is slowed when inequality is very high. Thus, even the rich suffer if they allow inequality to rise to this level and higher.

Yet inequality gets little attention in the press. And, neither of our American political parties seem comfortable to directly address it. Why?

One reason is that the word “inequality” creates an inference that the “objective” is to achieve 100% equality–everyone with the same income and wealth. That’s socialism, and that’s not what anyone wants.

Another reason is that there is a suggestion of obligation which goes along with the word “inequality.” That if I am among the better off, I am obligated to share some of mine with the less well off.  Inequality is a condition involving both the wealthy and the poor. “Poverty,” on the other hand, is seen as only a condition of the poor, for which I can choose (of my voluntary generosity) to help, or not to help. I have no obligation.

Associated with this connotation, “inequality” is an inference of a need to take from the wealthy and give to the poor. Many Americans object to that.

None of these implications, inferences, or connotations need be the reality of inequality or the solution to fixing it.

For the ideal solution to inequality, it is not necessary to take from the rich to provide for the poor. Harvard’s Dr. Roberto Unger proposes a flat tax, same for everyone, sufficiently high in percentage terms to provide for a great free education for all who want it.  Then, a collaboration between local businesses, educational institutions and local governments could generate an environment of experimentation and innovation such as to provide a satisfactory work opportunity for all who want to work, at a living wage. Utopian? Maybe, but just imagine what could happen if we set out a goal such as that? 

As to total equality, very few think the goal is total equality–in income or wealth. But Americans have a uniquely high individualist ethic,  prizing motivation to risk and work hard. That comes from knowing individual successes, if achieved, will result in significant personal rewards. If income is taxed too highly, motivation to risk and work is dampened or destroyed. Americans don’t want that:

Americans don’t like inequality, but the argument over the dividing line between sufficient motivation and dampening or destroying it is fierce and complex.

What is it about Americans that has a hard time with “balance?” There may be a few of the wealthy who want it all and a few of the impoverished who want total equality. But the vast majority of us want something in between.

Here’s a graph displaying the pattern of wealth and income inequality from 1930 to 2010. Inequality on both measures has risen significantly since 1970-85.

Each of us might stick a pin in this chart at a different point, to indicate the ideal level of inequality of we’d prefer. I’d choose around a point around 1975. In that year.  Most of us would choose a point well below the .47 of current times.

In summary, even giving recognition to the American individualist ethic, it seems all could agree that inequality is too high. For these reasons, we have been putting our heads in the sand, but it’s time to take on this subject, wrestle with our respective positions, and do something about it. Far beyond the value of border control or trade deficits, an improvement in inequality could really make America great again.