Let me express the point I’ve been making about income inequality a little more forthrightly. There are two basically different strategies for addressing the problem. One strategy would be giving the poor money. Not healthcare insurance, not healthcare, not food, not utility assistance, not education assistance, not any of the 1,001 services we provide now. Money. And count the money as income.
The other strategy is jobs. Create more jobs and, especially, more jobs that pay more than minimum wage. IMO that’s a more durable strategy and one more conducive to social welfare.
If you’re afraid that the poor will just take the money and buy wine or dope or fancy clothes or other consumer goods or you don’t want to change the policies that are leading to slow job growth and the increasing trend towards low wage jobs, stop yammering about income inequality.
After five years of income inequality being one of the most discussed social/economic topics (it’s been all over editorial pages, which I don’t think it was in the mid-2000s), the implications are starting to sink in more and more to me.
Given the cycle of poverty, reinforced by the way our schools are funded, etc., and the lack of jobs across generations for some groups, we have people who literally have no reason to be invested in what in the 50s was called ‘the American way of life.’
To a large segment of our society, the benefits of a market-based capitalist system are elusive. Yes, we do not have toilet paper shortages the way the USSR might have, but is it really good for a democratic society when you have a lot of people who don’t feel that the system works to their benefit?
As I’ve mentioned before, when I was in college, now about fifty years ago, by far the largest proportion of income and wealth was in the hands of the middle and the United States I expected to be living in now would be the same.
IMO there are only three views one can reasonably hold:
1. The present situation happened despite the policies we’ve adopted.
2. The present situation couldn’t have been avoided by any set of policies.
3. The present situation was caused by the policies we’ve adopted.
I go for Door #3.
Creating jobs at a faster clip would help. So would slowing the rate of growth in the labor supply. But that runs afoul of the Democratic Party’s desire for a permanent majority, and the Republican Party’s desire for crushing wages.
The tragic irony of it is that not that it doesn’t take too much faster a clip to help enormously. If we’d been creating 20,000 more jobs a month over the period of the last twenty years (when job growth started slowing), the problem now would be much, much smaller.
Not to put too fine a point on it, I don’t believe rising income inequality is a problem. In particular, I think we are seeing is healthcare costs eating up the disposable income of the middle class, and insolvency problems in Medicaid are making the lower class situation increasingly poor.
I think wealth inequality can be a problem, particularly to the extent education is funded by property taxes. I think residential sorting and skills-based technological changes are creating a social equality problems.
BTW/ most unequal “states” according to Gini:
1 District of Columbia 0.532
2 New York 0.499
3 Connecticut 0.486
4 Massachusetts 0.475
4 Louisiana 0.475
6 Florida 0.474
7 Alabama 0.472
8 California 0.471
[U.S. as whole: 0.469]
Would it be indelicate of me to point out that list approximates a list of the states with the largest racial and ethnic minority populations?
The jobs/money doesn’t have to be mutually exclusive. Expanding the EITC in conjunction with lower minimum wage and lower implicit marginal rates (due to loss of benefits) would probably create jobs and encourage people to work them.
I’m a little surprised to see Massachusetts up there, given its educational ratings. (Utah tends to have good education ratings, and it has the lowest coefficient)
Generally, it looks to me like inequality in the U.S. is primarily a problem of major metropolitan areas, plus the rural South (AL & LA). Property values play a role (Texas has a lower coefficient than the country as a whole). D.C. points out that this measurement doesn’t require millionaires, but simply a large class of six-figure government workers (who may find it hard to imagine they are the problem, with their large mortgages and student loans).
Here is a paperpaper seeking to explain the differences in inequality in U.S. metro areas:
“. . . we find that history and immigration seem to be the most important determinants of inequality today.”
“Sixty percent of the heterogeneity in skills across larger metropolitan areas can be explained by the share of high school dropouts in the area in 1940 and the share of the population that is Hispanic. Long-standing historical tendencies are highly correlated
with the location of high school dropouts and the location of Hispanic immigrants today.”
Data from 1850, where available, is also predictive: “[T]he share of the population enrolled in college in 1850 is a quite solid predictor of income inequality today;” and “Both illiteracy and slavery in 1850 help predict inequality today.”
I would chose Dave’s door #3 too.
I also would select creating more jobs as a more viable, long-range solution to rectify any income inequality morass. However, new jobs, of any worth, just don’t appear out of thin air. There has to be incentives involved for companies to open up a business, expand or hire on more people. Steve Jobs made it quite clear that he went over to China because it was easier and cheaper to manufacture products there. Ironically, Apple is now flying trial balloons in coming back to this country — specifically Arizona and Texas — to remodel and open up smaller plants here (red states, I might add). They are saying the reason is they want more products to be made in America. However, the back story is that they’ve had problems in China, suicides etc., and so are finding incentives to come back here — starting such ventures in more business-friendly states.
Rand Paul, is another one, who is introducing a business model to Detroit, all based on business incentives to attract manufacturing and business back into a struggling city — encouraging an entrepreneurial kind of spirit in becoming ground-up reformers.
However, the current policies, under this administration, have done nothing but place tack strips in front of business operations — especially the myriad of rules and regulations spilling out from the EPA. You basically can’t create encouraging job environments by layering on more and more burdens, making it harder to do business in this country. That’s why I see government policies having only aided and abetted slow economic growth leading to income disparities and income equality.
Expanding the EITC in conjunction with lower minimum wage and lower implicit marginal rates (due to loss of benefits) would probably create jobs and encourage people to work them.
Possibly, but it would do nothing to generate sustained real wage increases. The system as it has been structured since the end of WWII has not been able to move itself toward tight full employment without significant government intervention (which all too often has been wastefully structured and environmentally destructive). A permanent shift in income distribution will likely not be possible without establishing a wage floor via competitive structure indexed to productivity gains in the greater economy. Experimentation is needed as it is relatively clear we will not achieve the goal of reducing/eliminating poverty with methods we have utilized over the past seventy years.