Income Inequality and Its Demographic Discontents

Despite the toxicity of the current US presidential campaign, both Donald Trump and Bernie Sanders have increased the discussion about income inequality. Trump blames it on bad trade deals, whereas Sanders blames the fact that the rich are subsidized more than the poor. 

Let's look first at trade deals. As Joseph Chamie, former director of the UN Population Division, pointed out in a recent article, big companies have for several decades been "outsourcing" (sending jobs overseas where there are lots of workers who will work for less) and big and small companies alike have been "insourcing" (hiring cheap immigrant--often undocumented--labor to lower costs). None of this would have been thinkable were it not for the massive increase in population in developing countries since the end of WWII. Any person who was opposed to the US government spending money on providing birth control to developing nations has to own some responsibility for the fact that birth rates did not decline in sync with the drop in death rates. So, it is not so much about trade deals, as it is about global population growth and labor migration.

And who benefits from the outsourcing and insourcing? Well, of course the workers in developing countries benefit (this is the principal cause of China's economic rise) and immigrants benefit (which is why so many people risk incredibly dangerous journeys to get to the rich countries). In the rich countries, the workers lose out (except for the fact that a lot of things they buy are now cheaper than they were when they were made in the rich countries...), while the rich benefit. This is the major explanation for the incredible time series chart of income inequality in the US put together by Conrad Hackett at Pew Research a few days ago.

Would some new trade deals and a really great wall at the US-Mexico border solve the problem? Almost certainly not. Would taxing the really wealthy solve the problem? This is more complicated because the tax on corporations is probably a bigger issue with respect to job creation than the tax on individuals. And if you do raise taxes even a bit on the wealthy, how will the money be spent to create jobs? There is a growing consensus that the government needs to do more, rather than less, to get the economy back on track. In an Op-Ed in today's NYTimes, Miriam Shapiro hits some of the key points:

Rather than blaming international trade for economic woes, we need to have an honest conversation about what the United States must do to strengthen its economy. More than 20 percent of American children today live in poverty. Our educational system, once the envy of the world, now ranks in the bottom half of much of the developed world. The tax system rewards companies that exploit loopholes, infrastructure is crumbling and training programs lack the kind of apprenticeship and credentialing opportunities that Germany and other major economies offer.

These are not difficult things to do. The US and other countries have done them before. They do, however, require us to return to the mentality that the government is not a business. Rather, it is an instrument of the people and its resources should be used for the benefit of everyone.