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| Economy |
| Don't Blame the Rich for Inequality |
| 2012-01-29 |
| There is no doubt that incomes are unequal in the United States -- far more so than in most European nations. This fact is part of the impulse behind the Occupy Wall Street movement, whose members claim to represent the 99 percent of us against the wealthiest 1 percent. It has also sparked a major debate in the Republican presidential race, where former Massachusetts governor Mitt Romney has come under fire for his tax rates and his career as the head of a private-equity firm. No one complained about how much he gave away, or compared it to the other candidates, including Mr. Golf-and-a-Vacation. And economic disparity was the recurring theme of President Obama's State of the Union address on Tuesday. "We can either settle for a country where a shrinking number of people do really well, while a growing number of Americans barely get by," the president warned, "or we can restore an economy where everyone gets a fair shot and everyone does their fair share." Two choices. I get to select the choices, but there are only two! But the mere existence of income inequality tells us little about what, if anything, should be done about it. First, we must answer some key questions. Who constitutes the prosperous and the poor? Why has inequality increased? Does an unequal income distribution deny poor people the chance to buy what they want? And perhaps most important: How do Americans feel about inequality? To answer these questions, it is not enough to take a snapshot of our incomes; we must instead have a motion picture of them and of how people move in and out of various income groups over time. Some rich get richer, true, but some seem to get poorer. Some of the poor manage to hoist themselves out of the dregs of society. What happened? The real income problem in this country is not a question of who is rich, but rather of who is poor. Among the bottom fifth of income earners, many people, especially men, stay there their whole lives. Low education and unwed motherhood only exacerbate poverty, which is particularly acute among racial minorities. Brookings Institution economist Scott Winship has argued that two-thirds of black children in America experience a level of poverty that only 6 percent of white children will ever see, calling it a "national tragedy." I suppose we only have two choices here, as well - Hell or Obama. Making the poor more economically mobile has nothing to do with taxing the rich and everything to do with finding and implementing ways to encourage parental marriage, teach the poor marketable skills and induce them to join the legitimate workforce. It is easy to suppose that raising taxes on the rich would provide more money to help the poor. But the problem facing the poor is not too little money, but too few skills and opportunities to advance themselves. Seems like we've heard this story before! Poverty in America is certainly a serious problem, but the plight of the poor has been moderated by advances in the economy. Between 1970 and 2010, the net worth of American households more than doubled, as did the number of television sets and air-conditioning units per home. In his book "The Poverty of the Poverty Rate," Nicholas Eberstadt shows that over the past 30 or so years, the percentage of low-income children in the United States who are underweight has gone down, the share of low-income households lacking complete plumbing facilities has declined, and the area of their homes adequately heated has gone up. The fraction of poor households with a telephone, a television set and a clothes dryer has risen sharply. Not to mention microwave ovens and cell phones. And Nikes... In other words, the country has become more prosperous, as measured not by income but by consumption: In constant dollars, consumption by people in the lowest quintile rose by more than 40 percent over the past four decades. Reagan was right? Income as measured by the federal government is not a reliable indicator of well-being, but consumption is. Though poverty is a problem, it has become less of one. Income inequality has increased in this country and in practically every European nation in recent decades. The best measure of that change is the Gini index, named after the Italian statistician Corrado Gini, who designed it in 1912. The index values vary between zero, when everyone has exactly the same income, and 1, when one person has all of the income and everybody else has none. In mid-1970s America, the index was 0.316, but it had reached 0.378 by the late 2000s. One of the few nations to see its Gini value fall was Greece, which went from 0.413 in the 1970s to 0.307 in the late 2000s. So Greece seems to be reducing income inequality -- but with little to buy, riots in the streets and economic opportunity largely limited to those partaking in corruption, the nation is hardly a model for anyone's economy. No one talks about Zimbabwe anymore. How's their economy doing? Historically, Americans have had an unusual attitude toward income inequality. In 1985, political scientists Sidney Verba and Gary Orren published a book that compared how liberals in Sweden and in the United States viewed such inequality. By four or five to one, the Swedish liberals were more likely than the American ones to believe that it was important to give workers equal pay. The Swedes were three times more likely than the Americans to favor putting a top limit on incomes. (The Swedes get a lot of what they want: Their Gini index is 0.259, much lower than America's.) Sweden has maintained a low Gini index in part by having more progressive tax rates. If Americans wanted to follow the Swedish example, they could. But what is the morally fair way to determine tax rates -- other than taxing everyone at the same rate? The case for progressive tax rates is far from settled; just read Kip Hagopian's recent essay in Policy Review, which makes a powerful argument against progressive taxation because it fails to take into account aptitude and work effort. One new strategy for helping the poor improve their condition is known as the "social impact bond," which is being tested in Britain and has been endorsed by the Obama administration. Under this approach, private investors, including foundations, put up money to pay for a program or initiative to help low-income people get jobs, stay out of prison or remain in school, for example. A government agency evaluates the results. If the program is succeeding, the agency reimburses the investors; if not, they get no government money. As Harvard economist Jeffrey Liebman has pointed out, for this system to work there must be careful measures of success and a reasonable chance for investors to make a profit. Massachusetts is ready to try such an effort. It may not be easy for the social impact bond model to work consistently, but it offers one big benefit: Instead of carping about who is rich, we would be trying to help people who are poor. |
| Posted by:Bobby |
| #4 This just goes to show that successful rent-seekers can really pile up the wealth. |
| Posted by: Anguper Hupomosing9418 2012-01-29 18:27 |
| #3 I don't but I do blame socialists and rent-seekers equally for making the west much poorer. |
| Posted by: Bright Pebbles 2012-01-29 17:02 |
| #2 Don't blame the rich. It's the damn poor people dragging down the curve. |
| Posted by: SteveS 2012-01-29 14:29 |
| #1 This whole topic is ludicrous. THERE WILL ALWAYS BE POOR PEOPLE. The question is "How poor is poor?" As mentioned "poor" people today have a living standard that was decidedly middle class not that long ago. The problems of the "poor" are caused not by a lack of money, but by a lack of effort, morals, models and education. In short a lack of a culture of success. |
| Posted by: AlanC 2012-01-29 13:53 |