Why income inequality is America’s biggest (and most difficult) problem

[freebuddy]

Why income inequality is Americas biggest (and most difficult) problem

Oct 26, 2014 By Sean McElwee

Bold prediction: Rising inequality of income and wealth will be the most important political battleground over the next few decades. Just take a look at the figures. The share of income accruing to the top 1 percent increased from 9 percent in 1976 to 20 percent in 2011. The richest 0.1 percent controlled 7 percent of the wealth in 1979 and 22 percent of the wealth in 2012. Meanwhile, there are a number of studies out there showing that the most effective way to reduce this inequality would be higher taxes on income and wealth, but the rich wont let it happen. Consider also this: The rise of income inequality and wealth inequality are intimately connected, and causes all sorts of problem over the long term. As Emmanuel Saez and Gabriel Zucman write, Income inequality has a snowballing effect on the wealth distribution: top incomes are being saved at high rates, pushing wealth concentration up; in turn, rising wealth inequality leads to rising capital income concentration,which contributes to further increasing top income and wealth shares.

That is, income is a flow, which quickly becomes a stock. The rich make enough money to save; in contrast middle-class and low-income workers dont have enough money to live, so they are increasingly burdened by debt. They cant build up wealth, which means they are deprived of opportunity. This creates a self-perpetuating cycle of wealth on the top and debt on the bottom. In a comedy bit on wealth, Chris Rock claims, You cant get rid of wealth. The empirical research on the question largely supports his assertion. In The Son Also Rises, Gregory Clark finds that wealth remains in a family for 10-to-15 generations and notes, Groups that seem to persist in low or high status, such as the black and the Jewish populations in the United States, are not exceptions to a general rule of higher intergenerational mobility. They are experiencing the same universal rates of slow intergenerational mobility as the rest of the population.

But, of course wealth and income inequality werent always as bad as they are today. What happened? In a word: cheating. Although many people try to explain rising inequality away by arguing we live in a winner-take-all economy or that inequality is the result of skill-biased technological change, these arguments are bunk. Inequality has been driven by public policy choices that favored the rich, the decline of unions and the rise of finance. As the chart below shows, tax rates on both income and inheritance were high during the relatively equal 60s, 70s and 80s and then fell dramatically paving the way for the inequality we see today (Chart Source).

The best way to reduce inequality would be to tax income and wealth. While conservatives often claim that this would reduce economic growth, such claims have very little economic support. For instance, Thomas Piketty, Emmanuel Saez and Stefanie Stantcheva find no correlation between economic growth and tax cuts. Because of this, they find, the top tax rate could potentially be set as high as 83%. (Chart Source)

Nobel Prize-winner Peter Diamond argues that the top marginal tax rate could safely breach 73 percent, and indeed, such a rate might even be optimal. Another recent study finds the top marginal tax rate could be as high as 90 percent. Republicans sometimes claim that inequality is necessary for economic growth; in fact, the evidence suggests rather the opposite is true: High levels of inequality imperil growth. But, heres the problem: The same political forces that allowed the 1 percent to take our political system hostage have only worsened in the past decade. As Nick Hanauer notes in a recent Intelligence Squared debate, At the same time, the percent of of labor the percent of GDP devoted to labor has gone from 52 to 42. So that difference is about a trillion dollars annually. So that heres the thing you have to understand. That trillion dollars isnt profit because it needs to be or should be or has to be. Its profit because powerful people like me and [Edward Conrad] prefer it to be. That trillion dollars could very easily be spent on wages. Or or on discounts for consumers. This isnt a consequence of some magical law of economics. This is a consequence of differentials in power.

Nick hits on a very important point: The rising concentration of economic power has coincided with a concentration of political power. A recent paper by Adam Bonica and others illustrates that as inequality has increased, the rich have spent more money on the political system:

As Benjamin Page, Larry Bartels and Jason Seawright recently found that the wealthy tend to be more economically conservative than the population at large. But a particularly startling finding is that, on economic issues wealthy Democratic respondents tended to be more conservative than Democrats in the general population. The wealthy are using the political system to turn their income into wealth and then that wealth into more wealth. Theyre going to keep doing it, unless we stop them. One solution is to reduce the massive turnout gap between the rich and poor.

Studies show that states with more low-income turnout have higher minimum wages, more generous child health insurance programs and stricter anti-predatory lending policies. They also have more generous welfare benefits. The fight against inequality will be a long one, but the first step is turning out to vote the most radical step one can take in our country is actually believing democracy is more than just an idea.

http://www.salon.com/2014/10/26/why_income_inequality_is_americas_biggest_and_most_difficult_problem/?utm_source=facebook&utm_medium=socialflow

[CanadianLoonie]

Nothing at all about:

-the Federal Reserve and central banking

-fractionally-reserved commerical banking

-legal-tendered fiat currencies

Just more Keynesian macroeconomic policies that got people into this mess in the first place...and more 'legalized' armed robbery.

[freebuddy]

Nothing at all about:

-the Federal Reserve and central banking

-fractionally-reserved commerical banking

-legal-tendered fiat currencies

Just more Keynesian macroeconomic policies that got people into this mess in the first place...and more 'legalized' armed robbery.

You mean its practical and solves a major problem? I would say yes.

[Hugor Hill]

Tax the rich give it to the middle class (meaning you). Especially luxury tax.

Stop manufacturing stuff outside the country. Tax companies for outsourcing manufacturing.

Heavily tax capital gains from short term, meaningless investments.

Increase bank reserves requirements.

Discourage part time employment and encourage full time employment with tax incentives for companies.

Problem solved.

Nothing at all about:

-the Federal Reserve and central banking

-fractionally-reserved commerical banking

-legal-tendered fiat currencies

Just more Keynesian macroeconomic policies that got people into this mess in the first place...and more 'legalized' armed robbery.

^ Noise.

[Heretic]

Tax the rich give it to the middle class (meaning you). Especially luxury tax.

Stop manufacturing stuff outside the country. Tax companies for outsourcing manufacturing.

Heavily tax capital gains from short term, meaningless investments.

Increase bank reserves requirements.

Discourage part time employment and encourage full time employment with tax incentives for companies.

Problem solved.

^ Noise.

What's wrong with part time employment?

My son goes to school and works part time - he can't do both full time.

What about people getting close to retirement? A lot of them like to have a part time job.

What bout say families with young kids - some times one of the parents wants to only work part time so they can spend more time with their children.

I know of others that their spouse is full time and they just want a part time job.

[Violator]

Familys are always rising and falling in america

[Goat James]

The fact that education costs money doesn't have anything to do with it, no?

[bassetgreg]

What's wrong with part time employment?

My son goes to school and works part time - he can't do both full time.

What about people getting close to retirement? A lot of them like to have a part time job.

What bout say families with young kids - some times one of the parents wants to only work part time so they can spend more time with their children.

I know of others that their spouse is full time and they just want a part time job.

We're talking big picture benefits

Full time employment is a good thing

[taxi]

The fact that education costs money doesn't have anything to do with it, no?

How helpful is education these days? Canada and the USA both need to adopt a European model that limits enrollment in each field in proportion to actual needs in the economy. Making it cheaper for an unlimited amount of liberal arts students helps no one.

[aGENT]

What's wrong with part time employment?

My son goes to school and works part time - he can't do both full time.

What about people getting close to retirement? A lot of them like to have a part time job.

What bout say families with young kids - some times one of the parents wants to only work part time so they can spend more time with their children.

I know of others that their spouse is full time and they just want a part time job.

Nobodies saying we should ban part time jobs Heretic. There will always be plenty around for those who need/want them.

Full time jobs offer better wages and benefits and are generally better for a healthy middle class and hence, a healthy economy. For those same reasons (costs), employers prefer to have many part time employees as opposed to a few full time ones. It creates more wealth for themselves/their shareholders (at the cost of the economy).

But frankly until we solve the inherent flaw in capitalism of the constant need for growth (and it's corresponding counter balance) this will just kick the can down the road. It would be step forward but what we really need is a colossal shift in our thinking.

The "not-rich" really need to get their collective @#$% together.

[Hugor Hill]

Nobodies saying we should ban part time jobs Heretic.

That's just him being straw man.

[Mr. Ambien]

Nothing at all about:

-the Federal Reserve and central banking

-fractionally-reserved commerical banking

-legal-tendered fiat currencies

Just more Keynesian macroeconomic policies that got people into this mess in the first place...and more 'legalized' armed robbery.

Pretty much.

Government based redistribution is an awesome idea!

Look at how well the 'murican government is doing it now, let them do it more! Surely this time they'll favour "us" and not "the rich"! Tax tax tax!

What? Even more inequality? More government! More taxes! Surely it'll work this time!

People are so funny.

Liberal ideologues and their utopian government solutions.. that magically never seem to work out the way they want it to, yet only strengthens their resolve to frack more **** up with ideas that have a proven track record of doing the opposite of what was desired/intended.

[aGENT]

Pretty much.

Government based redistribution is an awesome idea!

Look at how well the 'murican government is doing it now, let them do it more! Surely this time they'll favour "us" and not "the rich"! Tax tax tax!

What? Even more inequality? More government! More taxes! Surely it'll work this time!

People are so funny.

Liberal ideologues and their utopian government solutions.. that magically never seem to work out the way they want it to, yet only strengthens their resolve to frack more **** up with ideas that have a proven track record of doing the opposite of what was desired/intended.

The problem has always/will always be the rich having the money to buy the power to control the government and hence the money.

Their is no inherent flaw in high taxation and wealth redistribution. See Scandinavian countries as a prime example of exactly how that can work quite well in fact. The issue is the quality in governance and how that money and power is handled, not with the concept of minimizing income inequality and wealth disparity.

[Mr. Ambien]

The problem has always/will always be the rich having the money to buy the power to control the government and hence the money.

Their is no inherent flaw in high taxation and wealth redistribution. See Scandinavian countries as a prime example of exactly how that can work quite well in fact. The issue is the quality in governance and how that money and power is handled, not with the concept of minimizing income inequality and wealth disparity.

Rich people existed well before these Keynesian and government redistribution policies.

It's only been exacerbated by a populace that prefers not only for the government to think for them, but think that by default giving government more authority will automatically yield results they desire. Liberals are their own worst enemies, but naturally, will blame companies and the rich.

Perhaps Scandinavian countries may be more in control of their government, but Scandinavian countries do not control the US government. We're also talking about Scandinavian countries that have been bettering themselves by moving away from said government based wealth distribution.

[aGENT]

Rich people existed well before these Keynesian and government redistribution policies.

It's only been exacerbated by a populace that prefers not only for the government to think for them, but think that by default giving government more authority will automatically yield results they desire. Liberals are their own worst enemies, but naturally, will blame companies and the rich.

No, I agree, the poor/middle class voters are the problem as they don't either bother to vote or when they do, simply vote for the rich, corporate sponsored main party candidates who are (surprise!) going to give the money/power to the rich/corporations who got them elected.

If they're not going to bother to actually vote or are simply too brainwashed, complacent or whatever excuse to vote informed and for their own best interest, they really have no one to blame but themselves.

But again, the problem is not the concept of socialism or minimizing wealth disparity. The problem is that people keep electing "leaders" who do not have their best interests at heart. It has nothing to do with socialism, left, right, Liberal or Democratic. You belittle your point by falling in to the exact same trap when you make comments like that. It also makes you look like a foolish hypocrite.

[Mr. Ambien]

No, I agree, the poor/middle class voters are the problem as they don't either bother to vote or when they do, simply vote for the rich, corporate sponsored main party candidates who are (surprise!) going to give the money/power to the rich/corporations who got them elected.

If they're not going to bother to actually vote or are simply too brainwashed, complacent or whatever excuse to vote informed and for their own best interest, they really have no one to blame but themselves.

But again, the problem is not the concept of socialism or minimizing wealth disparity. The problem is that people keep electing "leaders" who do not have their best interests at heart. It has nothing to do with socialism, left, right, Liberal or Democratic. You belittle your point by falling in to the exact same trap when you make comments like that. It also makes you look like a foolish hypocrite.

I don't see conservatives blaming the rich and companies for their woes, then turning to government to think and provide for them. If this were the case, I'd criticize them too. However, it's well established liberals are the ones who kowtow to government based policies of social wealth, wealth distribution, and so on. The label fits perfectly.

The worst argument liberals also tend to make is toward "other countries". Looking at other countries and their relationship with their government is nice and all, but just because Swedes or Norwegians or Finns trust their government more, doesn't mean policies of theirs will suddenly work for the US, and make the US government suddenly not corrupt or not use their government power to favour the richest. This is just like the gun argument, where slapping "other countries" gun restrictions will suddenly pull guns out of the hands of gun wielding criminals, or just cancel out the US culture of violence that makes hurting or killing someone else desirable. Topical solutions where thinking and responsibility are shifted to government and away from the individual.

I would beckon liberals to perhaps think a little deeper. Not that encouraging freedom requires a whole lot of thought, just enough thought required for introspective reasoning, however much is necessary for that individual to empower themselves rather than empower government.

[aGENT]

I don't see conservatives blaming the rich and companies for their woes, then turning to government to think and provide for them. If this were the case, I'd criticize them too. However, it's well established liberals are the ones who kowtow to government based policies of social wealth, wealth distribution, and so on. The label fits perfectly.

Yeah, the problem is "less government" doesn't fix wealth disparity either. Funnily, a lot of the poorest states in the US are also "red states" and would benefit immensely from "Liberal" social policies, funding and taxation if actually implemented correctly.

Again, the problem is not socialism, taxes, small/big government etc. It's people electing leaders who are not working for their interests. Plain and simple. Socialism can work quite well when implemented well or fail miserably when it's not.

Your ridiculous left vs right, Libs vs Dems is exactly what keeps fueling the fire of idiocy down there and why average people get nowhere trapped on the middle of that left vs right see-saw. Ideology based governing in either direction is good for no one. Fact based, reasoned governing is what people should aim for but sadly gets missed so often in the constant clatter of "us vs them".

It's a sideshow. Stop acting like the carnival barker.

[Mr. Ambien]

Yeah, the problem is "less government" doesn't fix wealth disparity either. Funnily, a lot of the poorest states in the US are also "red states" and would benefit immensely from "Liberal" social policies, funding and taxation if actually implemented correctly.

Again, the problem is not socialism, taxes, small/big government etc. It's people electing leaders who are not working for their interests. Plain and simple. Socialism can work quite well when implemented well or fail miserably when it's not.

Your ridiculous left vs right, Libs vs Dems is exactly what keeps fueling the fire of idiocy down there and why average people get nowhere trapped on the middle of that left vs right see-saw. Ideology based governing in either direction is good for no one. Fact based, reasoned governing is what people should aim for but sadly gets missed so often in the constant clatter of "us vs them".

It's a sideshow. Stop acting like the carnival barker.

Democrat supporters tend to say "red state" while ignoring the problem is, far more often than not, liberal urban areas within those "red states" on this issue.

Socialism clearly cannot work well in the US, because, as you said, Americans refuse to criticize themselves and the way they elect people. Socialism is already the norm in the US, significantly in the form of corporatism. So any talk of it working in a positive light comes from liberals who seem to prefer looking in fantasy pretending the US can be a Scandinavian country.

[Heretic]

That's just him being straw man.

That's just you making personal attacks.

Sorry, the way you worded it, "discourage part time employment" made me question what you meant.

[Mr. Ambien]

That's just you making personal attacks.

Sorry, the way you worded it, "discourage part time employment" made me question what you meant.

I don't think that's a personal attack, I think it's just him being hilarious and saying you're a straw man, rather than your argument being one. How is a person a straw man? "Ur face is a straw man". Just doesn't work.