Income Inequality Continued: The Fight Against Income Inequality

Continuing the Discussion on Income Inequality

Income Inequality is a very real and a very damaging social problem. Please read my article from Monday to explain the reasoning for why we need to stop the progression of increasing income inequality. Knowing the damage that income inequality does to the economy and everyone involved, what steps can we take toward reducing that damaging part of our current society. In many ways reducing income inequality is not reducing the incomes of the very wealthy but instead increasing the incomes of the very poor (Greenwood & Jovanovic 1990). Much of the efforts to reduce income inequality are many of the ways to reduce poverty. This article coincides with Johnson’s 1964 declaration of the War on Poverty. This another war on a noun obviously has more rhetoric than actual success, and this war quickly faded into the background as more prominent wars took center stage. Vietnam, the Cold War, Desert Shield/Storm, War on Drugs, War on Terror, these wars supported by the military and paramilitary police organizations have all taken much bigger roles in America than the War on Poverty. This begs the question is this the best that we can do?

Education as a Way Out of Poverty

One of the largest ways supported by Americans to get out of poverty is through education, increasing the number of high school graduates, getting more kids through college (Munroe-Blum 2014). This seems like a noble and excellent goal. Matriculation rates have obviously increased since the 1960’s. Education has still shown to be the best indicator of increased incomes. The question is has it been the best possible effort by Americans? Today especially education has been the talk of reform, because success in increasing incomes for Americans through education has slowed. The most important question for someone with a B.A. in philosophy has been would you like fries with that? Not exactly the career choice of many people who spent 4+ years creating treatise on Nietzsche, Plato, and Ayn Rand. Student debt currently is creating a lot of problems for recent graduates. With a sluggish job market like the one now is met with graduates starting with $20,000+ in debt before taking on their first job it creates a system where people have little options. Now today it is not just B.A.’s in Philosophy, but B.S. in hard sciences, MBA’s, PhD’s are asking the hard questions of paper or plastic, how you want your eggs, and change to spare? Credit and credit scores have become such a large part of the hiring process that with such a weak economy its not if its when will these students default on their student loans? It’s hard to look toward Europe and see free college education for those with the aptitude, and student loan bills here in America and wonder if we can’t be doing something better for American students (Munroe-Blum 2014).

Living Wage Jobs

The education problem can obviously be solved by employment. While the loans are a drain regardless of how much money you make, ask any doctor, they are less painful and less destructive when people are employed. The official unemployment rate is around 7% which is based on how many people are receiving unemployment benefits. The numbers measured that way obviously does not reflect the true number of unemployed people because of the requirements to receive unemployment benefits are stringent and they expire. Some estimates have unemployment around 25% of the population of working aged and able individuals. Currently in Congress the push is to extend unemployment insurance benefits out for those long term unemployed people. This obviously has little effect on correcting the structural problems of unemployment such as the 3 applicants per job opening, before long term unemployment insurance expired (Waldron January 05, 2014). The problems of losing that insurance is a possible economic slowdown from that spending leaving the economy. The question is extending unemployment benefits for those Americans the best use of federal power. FDR and LBJ shown in the past the ability for the federal government despite what trickle down theorist say to be job creators. When the government is spending money to prop up the economy and infrastructure is deteriorating nationally it seems ill advised to allow people to sit and wait for the private sector to start hiring. Rebuilding current infrastructure and building in new technology would not only improve the plight of the unemployed by employing them, but would also invest into necessary American infrastructure. Roads, bridges, railroads, energy solutions from Keystone to a giant solar panel array in Nevada would all put Americans to work with good wages and benefits. These also have fringe benefits of improving security in the travel infrastructure in America and decreasing the reliance on foreign oil. Also this will benefit not just the grunt workers pouring concrete, but puts to work engineers, accountants, supervisors, and many private sector jobs to supply all of these projects with raw materials. This plan also reduces the need to leverage additional social programs like food stamps, federal housing, school lunch programs, and medicaid by providing livable wages.

Making Wages Livable

That brings me to my next point: living wages or the amount of money it actually takes to survive. My current state of Texas has been proud to announce the job growth here. The problem has been most of these jobs are low paying retail and other service industry jobs. The minimum wages does not begin to reach the necessary levels of income to survive. A full time minimum wage worker annually would receive $15,080 (UC Davis July 13, 2013). Federal poverty levels are set at $11,500 for an individual 15,500 for a family of two and $23,500 for a family of four (Vo January 8, 2013). So a minimum wage full time single parent is below the poverty level. The option for stay at home parenting is not possible for a family of four on minimum wage. A slow economy like this means that it is not just young single people trying to live on the minimum wage, primary family income earners are applying for these jobs as well. There are some problems with this model above. First is this is based on full time employment which has been dissuaded against by the Affordable Care Act(ACA), because companies are required to provide benefits to full time employees. Then the federal poverty level is set by estimates from the Department of Agriculture on the minimum amount of money it cost to feed those individuals times three. This formula has not survived the test of time. Food prices have not increased at the same levels that other cost like transportation, housing, and child care have. Estimates have a family of four in Los Angeles needing 64,480 annually to survive or three times the federal poverty level (Vo January 8, 2013). When social benefits are set to this federally estimated poverty level it means a lot of people are not actually meeting the living standards as designed. Final point to make when comparing living standards we as Americans should not compare ourselves to severely impoverished nations of the world in South-East Asia and Sub-Saharan Africa. Striving for the “greatest nation on Earth” Means we should be aiming our minimum living standards to exceed not just the third world, but the living standards of our economic competitors.

The American Social Safety Net

Final point of discussion comes from our current social safety net programs in America. These programs are right now preventing the poverty rate in America from doubling. The social safety net was designed to prevent people in America from completely falling to homelessness. FDR started the first layer with Social Security, disability insurance, and the FDIC. The promise was to protect Americans as they age or become too disabled to work, and to protect their investments while they work. These programs were expanded during LBJ’s administration with Medicaid, Federal Housing, SNAP, and the Head Start program. These programs protect health, housing, nutrition, and education for Americans. These programs are designed to protect Americans from unforeseen tragedy. After the 1994 Welfare reform and however these programs were redesigned to prevent as many people from receiving them as possible (Waldron January 05, 2014). This has been successful, despite the severity of the recession the number of people using these programs is still lower than pre-94 levels (Waldron January 05, 2014). Austerity measures always target these social safety nets, and the latest efforts have not been any different. It will be increasingly difficult to maintain the levels of poverty within this country without these safety nets staying in place. We will finish this discussion Saturday and discuss where to go from here to strengthen America and become closer to the “greatest nation on Earth.”

References

Greenwood, Jeremy & Jovanovic, Boyan. “Financial Development, Growth, and the Distribution of Income.” The Journal of Political Economy. no. 5 (1990): pp. 1076-1107. http://piketty.pse.ens.fr/files/GreenwoodJovanovicJPE1990.pdf (accessed January 8, 2014).

Munroe-Blum, Heather. Global Economic Symposium, “Overcoming Inequality through Education.” Last modified 2014. Accessed January 8, 2014. http://www.global-economic-symposium.org/knowledgebase/the-global-society/overcoming-inequality-through-education/proposals/overcoming-inequality-through-education.

UC Davis, . Center for Poverty Research, “What are the annual earnings for a full-time minimum wage worker?.” Last modified July 13, 2013. Accessed January 8, 2014. http://poverty.ucdavis.edu/faq/what-are-annual-earnings-full-time-minimum-wage-worker.

Vo, Lam Thuy. Al Jazeera America, “America’s Have-Nots: What it means to be poor.” Last modified January 8, 2013. Accessed January 8, 2014. http://projects.aljazeera.com/2014/poverty-50years/.

Waldron, Travis. Think Progress, “Poverty Rate Would Be Nearly Twice As Hig Without Government Programs.” Last modified January 05, 2014. Accessed January 8, 2014. http://thinkprogress.org/economy/2014/01/05/3120481/poverty-rate-high-government-programs/.

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Income Inequality it Hurts All of Us

Income Inequality and Why You Should Care

This is an issue that has been gaining a lot of traction lately. The first question that needs to be answered is what is income inequality? That is the most simple question to answer income inequality is the difference between incomes within a population. Asking yourself if you should care is what I am looking to convince you of. Many people have preconceived ideas about income inequality and the roles of corporations, government and the individual on how to address it.

Does income inequality exist? Is it growing? Does it matter?

Obviously income inequality exists there is never a question of if there are people that earn more than others. This isn’t in question and is in general a good thing. The possibility of getting paid more is a great motivator for many people. No one is looking to limit the ability to earn more for more productivity. So now that we are still avoiding the communist threat. There is still a lot to discuss when it comes to income inequality. Most alarming is that income inequality is growing. This means that the rich are getting richer and the poor is becoming a larger part of the country. Note the poor is not getting poorer. The poor already have no money and no wealth. The middle class is getting poorer. Those people in the second quintile of the economy and the third and now the fourth quintiles. Those people are getting poorer, this most likely means that you are now poorer than before.

The best way to see this is to see real wages. Or wages adjusted for inflation based on the Consumer Price Index. This allows this to fairly compare trends in wages through the years. Inflation adds complexity because of how it is measured. The different measures of inflation create different real wage differences. The primary source of the CPI comes from the Bureau of Labor Statistics. This has been the standard and is good to use for our purposes. The chart below shows productivity from the end of WWII until 2007. So this does not included the effects of the current recession. The the chart shows real wages during that same time period where every point on the chart adjusted to 2008 dollars.

(Lubin November 11, 2011)

So looking at the chart we see that productivity has grown steadily since WWII. Real wages on the other hand peaked in 1972-73. So you could buy more in the 70’s than you could today. This is an important fact. This means that inflation is outpacing wages since 1973. Even after Volker beat inflation out of the system wages have not caught up. The problem is that has not held true for everyone. The chart below shows that income changes are different for depending on income levels. The chart is also a different time frame than the wage chart above. This points the differences of data based on inputs. If you extend the time frame out to 1970 there would not be gains for the bottom two quintiles.

(Quinn June 14, 2010)

Despite the better looking dataset than possible the data shows the extreme differences between the top quintile and the rest of the 80%. So while real wages are not the highest they have been that is not true for everyone. The top 20% especially the top 1% has been nothing but growing income. We can now compare the two charts and see where all the increased productivity has been going. While Americans are more productive than ever before it is the top that is benefitting. My friends the fiscal conservatives will bring up on drains of productivity namely the government and taxes. Ignoring the fact the government spends more than it receives which would contribute to the GDP. Here is another chart showing what has happened to income taxes since 1960.

By BoogaLouie (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

So we can see that the “greatest productivity drain” is not a factor. So all the productivity that has been increased is going directly to the people at the top. This is what has happened in regards to income, productivity, taxation and growing inequality.

Damages of Rising Income Inequality

So we can see that income inequality is real and that it is growing. Now is the question of so what? This is the defining question of this discussion. People are getting rich and over time they are getting richer. What does that matter? Or who are we to judge these more successful, obviously better people? Or when I make it I don’t want to have to pay more. The rich are protected by the nature of society. If you are not one of those top 1-20% people you are not benefitting from any of these policies designed to benefit those top 20%. This is an important part of society we want the ability to get into that top 20%. That is the first problem with increasing income inequality.

Social mobility is the economic process where an individual achieves more success than their parents. That is the American dream in it’s truest form. The ability to improve oneself through hard work and their labors. The American dream is growing further out of reach. We are able to create a logical argument to explain. If you are poor you are purchasing maybe your bare necessities (Bernstein December 2013). So there is not money for social moving options, college, investing, or entrepreneurship. So their children will not have a leg up on their ability to move up socially. Now as we move up the social classes we see more and more excess money. This excess money is what allows for individuals to achieve upward mobility (Bernstein December 2013). As income inequality grows the more and more people will fall short of being able to provide that leg up. This is a compounding issues the more income inequality grows the more it will grow. Availability for upward mobility is more achievable with assistance. Student loan programs, reduced taxation on investment, loans for entrepreneurship and tax reductions for small businesses. These programs exist from the government with tax dollars. Without these programs it is almost impossible to move up in society. Now even the most basic of manual labor jobs technical school is expected.

Secondly there are severe problems for not just the poor and underprivileged. The growth of the whole economy is inhibited by increasing income inequality. The logic for this involves how economies expand. Economics is measured by the activity of a particular group. Each purchase adds to the economy. Economies are measured by GDP or Gross Domestic Product which is the total economic activity, every purchase, every investment, every donation. Here is the biggest problem with a lot of economic theories, especially trickle-down economics, the rich will reach a point where they will not spend further (Krugman December 14, 2013). This is dead money for the GDP. When money stops moving from hand to hand it is no longer part of the GDP. There is a group who always spends and that is the poorer people (Krugman December 14, 2013). Those that have extra money but not everything they want will spend until they reach that point. This is the problem with trickle down. Just as a failed product will not sell, demand has to exist. So when the rich have everything they want and the poor are unable to spend the economy will slow. As the economy slows more and more people will fall down the economic ladder. Demand creates jobs without demand more jobs will be lost and less demand will be created. This is the problem only the richest of the rich would survive this sort of economic collapse. The human condition; however does not sit ideally though such a economic collapse, it will lead to violence. This is the problem for everyone. The violence of the French Revolution made it clear how dangerous it is.

Finally we have to understand what makes society a society. Jean-Jacque Rousseau and John Locke developed the idea of society as the social contract an agreement to not harm one another and trade with one another. At this point we have agreed to work together than against one another. The decision to not kill one another for our resources means we are no longer basing society on competition. Keeping this in mind we can establish the idea of the collective good, the good of the many. Increasing inequality is in direct opposition to the collective good. It is the good of everyone in maximizing purchasing power throughout society. Competition does not improve society, selfishness is not a virtue for society. Improving the rest of society is to the benefit of everyone. I will continue this discussion this week about how we can improve society for the best.

References

Bernstein, Jared. Center for American Progress, “The Impact of Inequality on Growth.” Last modified December 2013. Accessed January 6, 2014. http://www.americanprogress.org/wp-content/uploads/2013/12/BerensteinInequality.pdf.

Krugman, Paul. The New York Times Opinion, “Inequality As A Defining Challenge.” Last modified December 14, 2013. Accessed January 6, 2014. http://krugman.blogs.nytimes.com/2013/12/14/inequality-as-a-defining-challenge/.

Lubin, Gus. Business Insider, “23 Mind-Blowing Facts About Income Inequality In America.” Last modified November 11, 2011. Accessed January 6, 2014. http://www.businessinsider.com/new-charts-about-inequality-2011-11?op=1.

Quinn, Jim. Zero Hedge, “http://www.zerohedge.com/article/guest-post-two-decades-greed-unraveling.” Last modified June 14, 2010. Accessed January 6, 2014. http://www.zerohedge.com/article/guest-post-two-decades-greed-unraveling.

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