Do we need greater income equality in the United States or faster growth? In a post at RealClearMarkets J. T. Young comes down solidly on the side of faster growth:
Liberals have contorted an effect of America’s slow economy into its cause. However misperceiving reality does not change it, but simply delays our ability to successfully confront it. Such is the case if we focus on income inequality instead of the slow overall growth that is exacerbating it.
There are ample reasons for America’s economic concerns. For almost nine years, real GDP growth has not matched 2006’s 2.7% increase. During this time annual growth has averaged 1.4%. Unemployment is currently 5%, but only because labor force participation is down too (62.4%). If participation equaled 2006’s level (66.2%), today’s unemployment rate would be twice as high.
Amidst the general concern over this stubbornly slow growth, liberals have a particular one: Income inequality. It is unsurprising that they seize on this as the economy’s prevailing problem. The left sees free market competition as inherently inefficient and unfair. For them, it as a zero-sum system; that it is one with fewer – but bigger – winners, and more – but bigger – losers, simply validates their original verdict.
Liberals are unlikely to be persuaded by the obvious observation: income inequality is rather simply, if also miserably, cured. This is what the late and unlamented communist regimes succeeded so mightily in – an equality of poverty for all but their ruling political class.
You can read the rest if you must.
For a tonic I turn to that bastion of progressive thought, the Wall Street Journal where Janet Adamy has handily provided a graph illustrating the problem:
Unless you think that our economy has been growing too slowly for the last 40 years, something I would dispute
- The rise in income inequality started a lot longer ago than the last 7 years
- Which means that slow growth cannot have caused the disparity.
I think that we need both faster growth and greater income equality and, fortunately, the two are interrelated. For the bulk of the 20th century there was a consensus that income growth in the middle class was the key to a healthy and robust economy. That consensus has broken down and, well, si monumentum requiris, circumspice (“if you seek a monument, look around you”). But what is to be done?
I don’t agree with most progressives that the key to middle class income growth is unions. I think they’re confusing the deindustrialization of the United States that has taken place with the decline of unions, a case of reverse causality. Here are the things that I think need to be done in quick bullet form:
- Reindustrialize the United States.
- Counter the mercantilist policies of our trading partners that produced the situation.
- Control immigration.
- Stop subsidizing (or at least restrict the subsidies) of sectors that tend to concentrate wealth, e.g. finance and healthcare.
- Change the incentives so that creating and making things returns more than owning intellectual property and retail sales.
I’m not foolish. I don’t think that my plan will be adopted but I also think that it’s what will work. In the absence of the reforms I advocate I think we’re likely to see slow growth and a society increasingly divided between the very well-to-do and the working poor.