This blog is intended to go along with Population: An Introduction to Concepts and Issues, by John R. Weeks, published by Cengage Learning. The latest edition is the 12th (it came out in 2015), but this blog is meant to complement any edition of the book by showing the way in which demographic issues are regularly in the news.

If you are a user of my textbook and would like to suggest a blog post idea, please email me at: john.weeks@sdsu.edu

Sunday, March 29, 2015

The Solution to Inequality in America is Simple--Getting There Not So Much

Inequality in the United States (and in other rich countries) has grown large enough that politicians on both sides of the aisle agree that it is a problem. We have been through this before over the past 150 years, as Thomas Piketty has reminded us in great detail. The answer is simple--redistribution of income from those with a lot to those with not enough. I am not a Marxist who believes that there should be a leveling of income. All of the evidence in the world suggests that such schemes rob society of the kind of innovation and enterprise that we need in order to promote societal welfare. But I am a social scientist who recognizes that we live in a society that depends upon sharing and cooperation for social and economic survival. If the rich share too little then that also shuts off innovation and enterprise. Aristotle's idea of a happy medium, of all things in moderation, still resonates. Indeed, it is a shame that modern Greeks have forgotten the lessons of their predecessors. A new Pew Research poll shows that many American are more interested in the fairness of the tax system than in the actual amount of taxes they are paying. But there is an increasing political divide on the issue and that's where the problem lies:
Today, Republicans are 20 points more likely than Democrats to say they are paying more than their fair share in taxes (50% vs. 30%). In the 2011 survey, nearly identical percentages of Republicans (37%) and Democrats (38%) said they were paying more than their fair share.
A story in today's New York Times lays out the problem in a very straightforward manner: the wealthy resist paying more in taxes and since they are now in a position to fund the election campaigns of members of Congress, they have the advantage (one might call it a corrupt advantage) when it comes to reforming the tax system. The wealthy have a tendency to take all the credit for their success and to blame lack of success on those who don't succeed. Sometimes that it probably correct, but mostly we humans live in social groups where others provide opportunities for us, and where others can also keep us down, no matter who we are. Human capital, rather than just financial capital, is necessary for success. Scandinavians have figured out that modest (not drastic) redistribution is not only fair, but it is economically beneficial. That is the simple answer to inequality, but politically hard to implement in this country. 

2 comments:

  1. I suggest that you read the weekly market commentary by John Hussman at www.hussmanfunds.com. His article is not simply a financial blurb, but a very neat and concise summary about what is WRONG with our economy today.

    Suffice it to say - we are not directing money at truly productive investments in America. By this I mean ... activities, ideas and industries that will truly BENEFIT the average American and the country as a whole. Instead we are artificially pushing up consumer spending by a policy of low interest rates (from the Fed). During the 2008 crisis, a lot of that money went into inflating a bubble in housing. If you check the data today, you will find an explosion of sub-prime loans for automobiles. People are buying cars with 6-year or 8-year deals - because this keeps their monthly payments down. But all this means - is that they pay a huge amount of money on interest. The POLICY of the Federal Reserve, to lower the rates of money to almost zero, has done nothing ... except to feed a financial industry that profits from lending money. There is no roll-over effect on the real economy. In effect, the financial industry has separated itself from the hopes of the average American. They don't care - what happens to the guy on the street. A former president of Brazil summarized the situation neatly ... "Your Wall Street has become a gambling casino."

    Indeed.

    The ONLY realistic solution requires a serious re-structuring of the economy. Such a re-structuring is commonly referred to as a "big recession", or an "economic depression". But our politicians do not want to hear such news, so they avoid the proper corrective actions - at all cost. And the end result ... is a BIGGER CRISIS in the long run.

    2008 was a warm-up for economic downturns. We are definitely headed for something much worse.

    And really this is just history repeating itself. Similar things happened in the 1930's. It's just happening on a magnified scale now, because it is global and we have allowed improper banking and investment practices to happen worldwide.

    regards,
    Pete Pollock, Redondo Beach, CA

    ReplyDelete
    Replies
    1. I agree that this is a problem. I read the same thing in mauldineconomics.com. However, that is a different issue than what I'm talking about. The 'quantitative easing' and problems associated with it have kept us from having a deeper recession for now, and hopefully in the future, but it's less clearly associated with equality overall--and that is the big issue. If we wound up with yet another financial crisis, the rich would probably wind up even richer yet, and the not-so-rich would be even worse off. If we start right now to reform policies, we might actually forestall those outcomes.

      Delete