Taking Responsibility for Extreme Inequality

“Growing inequality is one of the biggest social, economic and political challenges of our time.” Says The Economist in a special report this month. 

This map, also taken from the same article, show America among countries leading in wealth disparity with 10.5% of our GDP being made up by the world’s largest concentration of billionaires.  The deep orange color illustrate our >20% increase in inequality since 1980. 

With this great gap between the rich and the poor, does the title, “land of opportunity” still describe America?  What has contributed to this great discrepancy between the “haves” and the “have-nots” in America?  How does vast inequality affect our economy?  Is there an optimal rate of inequality that will maximize economic growth?  Who is responsible for establishing and restoring equality in our nation? 

These and many other questions caused me to dig deeper and learn more about the economic situation we find ourselves in, and where things could go from here.

Does the title, “land of opportunity” still describe America? 

Norms article today addresses the cost of inequality and points us to an article by New York Time’s Nobel prize winner, Joseph E. Stigliz who indicates it’s important we pay far closer attention to the financial world as America’s inequality rate is at undisputed historic highs. “. . . the top 1 percent takes in about a fifth of the income, and controls more than a third of the wealth” says Joseph.  And that is coupled with the resulting effect of less access for the vast majority to opportunities that would help individuals obtain positive economic mobility and overall future economic prosperity.  Weather or not this question can be answered conclusively, it may be too soon to tell.  It is clear in many of the articles that I read however, that there is growing concern that there is much less opportunity than there used to be.  The age old saying, it takes money to make money comes to mind, and seems to ring true now more than ever in our US history.  Take a look at these disparities:

What has contributed in America to this great discrepancy between the “haves” and the “have-nots”?

According to Zanny Minton Beddoes, who wrote The Economist article mentioned above, and  Learn Liberty, which seems to come from more of a conservative perspective – they both agree cronyism is one of the main factors.  This short video shows how cronyism, is hurting our economy and how governmental regulation does not always work in favor of small businesses.  With this in mind, it’s important as we go to the poles with a balanced perspective on the benefits and drawbacks that come with more regulation.  Ultimately what we need are government officials that have the integrity to not be bought-out by lobbyist that represent the “haves.”  Rather we need leaders and legislators who will stand up for the 99% of people (the vast population they are supposed to represent that don’t have the means by which to fill their pockets).

A second factor is the need to invest more in our youth - giving them access to opportunity. Traditionally this has been through education.  America used to lead in education however in more modern history we have fallen behind while our cost of education is skyrocketing.  Various forms of education need to be explored as the education system itself has become far too clunky, entrenched in it’s own bureaucracy of maintaining control.  According to research my team has been doing on college graduates, there is only a 6.4% wage difference between high school graduates and college graduates . . . and just 3% above the Median worker (see table below).  Either our thinking that a college education is the ticket to a better life is in serious question . . . and possibly just another way for the wealthy to line their pockets — or students are simply not receiving the value in the quality of the education they are paying for.

How does vast inequality affect our economy? 

There is great debate on this topic however in the end it seems all too apparent that the place in which we find ourselves now has not provide the healthy setting for a growing economy. Here are eleven charts that illustrate how out of whack inequality really is.  According to Stigliz, “Were the rich paying their fair share, our deficit would be smaller, and we would be able to invest more in infrastructure, technology and education — investments that would create jobs now and enhance growth in the future. While education is central to restoring America as a land of opportunity, all three of these are crucial for future growth and increases in living standards.”

Is there an optimal rate of inequality that will maximize economic growth?

According to research done by Jorge A. Charles-Coll there is a direct link between income inequality and economic growth.  Jorge reviews empirical data on international trends using the Gini Coefficient discovering that .39 is the optimal rate of inequality for efficient economic growth.  The questions is then begged – what is the current rate today in America.  According to this article published in The Atlantic, America is close to the bottom at .45.  Interestingly even Warren Buffet, a billionaire investor agrees that the rich need to be taxed more for the sake of our economy and the common good.

Who is responsible for establishing and restoring equality in our nation? 

The president generally is thought to hold a large amount of this responsibility by providing leadership that will protect the interests of the people.  As voters, likewise we also hold that responsibility to educate ourselves on the issues and elect the best person for the job.  But I think it’s important that we take it a step further and find creative ways from a grassroots level to leverage change – and that would be why I’m at BGI J