Economic Inequality: What Can Be Done?

The question of what can be done about the enormous economic inequalities in this country will conclude my discussion of this topic.

No sooner had I posted my first blog on the subject than Nicholas Kristof wrote a short note, “An Idiot’s Guide to Inequality,” in the Times. He reminds us that economic inequality has become increasingly worse in this country, impeding economic growth and creating large “fissures” in our society between the very rich and very poor. Moreover, the very wealthy have gained increasing control of the electoral process and reduced job opportunities for countless individuals.

Kristof concludes: “Inequality and lack of opportunity today constitute a national infirmity and vulnerability—and there are policy tools that can make a difference.”

This leaves wide open just what these policy tools are and, even more uncertain, just how they are ever going to be implemented.

The very next day, echoing the theme of my blog, Eduardo Porto wrote a note, “Why Voters Aren’t Angrier About Economic Inequality,” also in Times. He believes there are several reasons for the public’s passivity.

1. The poor vote less than the rich and they don’t necessarily vote on the basis of their economic interests.

2. Like Kristof, he says the rich have far more political power.

3. And he reviews another study (this one in Germany), reporting that individuals don’t grasp the magnitude of inequality. “Evidently, nobody has a clue.” He claims people in the United States not only seem to accept one of the largest gaps in the developed world but our government ranks among the “stingiest” in doing anything about it.

Two days latter the Russell Sage Foundation reported that the average U.S. household experienced a significant decline in net worth in the ten years ending in 2013. Then it was reported that 35% of U.S. individuals have credit card debts and unpaid bills large enough to be reported to collection agencies. As Caroline Radcliffe of the Urban Institute said, "Roughly, every third person you pass on the street is going to have debt in collections.”

But what can be done, what can realistically be done given the equally large political polarization in this country? Why is this question so rarely asked?

Perhaps it’s because all too many people believe the poor deserve to be poor and those who are rich have earned it. Or they believe we are focusing on the wrong problem, with the real problem slow growth, or education, or that “thwarting the people at the top” will have no effect on the people at the bottom, other than worsening their condition with as the economy comes tumbling down.

Meanwhile, in a bold post on the New Yorker Web site (1/28/14) John Cassidy did make ten proposals that Obama should mention in his State of the Union address delivered earlier this year, if he is genuinely serious about reducing economic inequality. Among the ten, five deal with taxes.

1. Abolish the payroll tax
2. Raise the top rate of income tax
3. Introduce a consumption tax
4. Tax wealth properly
5. Introduce a financial-transaction tax

In my view, each of these changes is desirable. Obama didn’t mention any of them and, even if he had, this Congress will never approve a single one, nor can the President issue an executive order to implement them.

Would they narrow the gap between the 1% and the 99%, if he could? Not everyone is convinced they will. The Nobel laureate Robert Solow commented at a seminar on inequality,

“I am very pessimistic about the capacity of the American political system to redistribute income within a reasonable period of time…I simply don’t think that legislation either to support the safety net or to tax high incomes stands a chance in Congress.”

In a word, income disparity between the rich and the poor in this country will continue, perhaps even deepen, until the Democrats or progressives of one ilk or another gain control of both houses of the Congress. But even then, it’s not a sure thing.

The other five of Cassidy’s proposals include:

1. Establish a guaranteed minimum wage
2. Give “ordinary Americans” grants to spend as desired
3. Nationalize the public education system
4. Expand technical education
5. Abolish private schools and legacy admissions to private universities

Like the Cassidy’s tax proposals, these additional five seem rather fanciful given the current political realities in this country. But what I find most remarkable about his post is how rarely we hear about any concrete proposals for narrowing the Great Divide(s) in this country.

Eduardo Porter asks (Times 11/4/2014) “Are we condemned then to largely futile efforts to reduce the widening gap?” He wonders if there are better tools that government redistribution to reduce inequality—education, increasing the minimum wage, reducing tax benefits for corporations and the wealthy. At present we have no data to determine their effectiveness. My hunch is that if we ever do, it will be a long time in coming.

Instead, we hear only one description after another about the growing economic gap between the rich and poor. Some accounts try to explain this, drawing on historical and political trends, as well as social policy comparisons with other nations. But more than anything, we hear the rhetoric.

Tom Perkins is one of the 1%, probably the.01%, one of the founders of a large venture capital firm. When asked recently what should be done to improve the lives of the 99%, he replied:

“I think the solution is less interference, lower taxes, let the rich do what the rich do—which is get richer, and along the way they bring everybody else along with them, when the system is working.”

There you have it, in a single, breathtaking sentence.