THE WONK ON “INEQUALITY”

1.     Objective

The objective of this study is to establish an understanding of the term “Inequality” as it is being used in the 2016 elections, and based upon this understanding determine how and to what extent the condition exists in the US and might affect US national interests. Then, if there is legitimate concern, determine a reasonable course of action.

2.     Scope

This study is limited to inequality within the US but may refer to external conditions when they are relevant. The current national discussions include concerns about Economic, Social, Political and Civil inequality and Personal Satisfaction. This study will concentrate primarily on Economic Inequality. The other areas of inequality may be considered but on a peripheral basis or as separate issues.

3.     Background

The subject of economic inequality has been part of the public discussion in the US for some time. However, it has been peripheral since the 1940s. Recently it has come to the fore as an issue framed by the Center for American Progress. It has also been the subject of several talk shows on PBS such as Moyers and Company and on NPR such as the Diane Rehm show. It has been referenced in the past two State of the Union addresses and highlighted in a presidential address on 12/4/2013.

Economic inequality has become a significant issue in the 2016 Democratic Primary elections.  Sen. Bernie Sanders has made it a key issue in his campaign for the Democratic nomination and his primary opponent Hillary Clinton has responded in a limited way. The leading contender for the Republican nomination does not refer to economic inequality in a broad sense although he does refer to unemployment or job loss when it suits his purpose.

4.     Current Summary

Currently, the Sanders campaign is persistently pushing the inequality issue. I would like to point out that they are not talking about “Equal Opportunity”. They are talking about “Equal Outcomes”.

I don’t believe that we should be overly concerned about equal outcomes. There has never been equality of outcomes in the US and the subject has not even been discussed that much. We expect that some will succeed and others will not. We believe in rewarding effort, intelligence and creativity. Inequality of outcomes is the expected result. 

In regard to Wealth:

I believe that within the US, there is sufficient opportunity for mobility both up and down in regard to the accumulation or loss of wealth.

It can be clearly demonstrated that there is an uneven distribution of wealth in the US. However it has always been uneven and the current distribution is about what it was in the first quarter of the 20th century. Granted that the distribution was a little more even during the period 1940 thru 1980 when the US was the dominant economic force in the world and many countries were recovering from the ravages of war. In the past 30 to 40 years the distribution has again become more uneven. I see this recent change due primarily to automation which shifted the profits of production from labor to capital. That process will continue.

Wealth in and of itself is neither good nor bad. It can be and often is used for the public good. Of course it can also be used to the public detriment. My only concern in that regard is the relatively rapid concentration of wealth to the top 1% and then only if that wealth is used to corrupt the political process.

In the 2016 Democratic Presidential Primary, both Sen. Sanders and Secretary Clinton emphasize the possible influence of wealth on politics. Both direct their concern toward the top 1%. Neither one has indicated how and to what extent they propose to alter the current distribution of wealth.

The solution to the misuse of wealth in politics probably lies in legislation to restrict campaign contributions and lobbying activity. Any efforts to change the distribution of wealth would have to include programs that not only make it possible for the working class to accumulate wealth but actually encourage it. I see no proposals from any candidate in regard to either campaign contributions or lobbying. The most likely solution will probably lie in publicly funded campaigns. I don’t particularly like the idea but it seems to be the only way we can get our representatives back to the job of representing and away from fund raising and its associated obligation to donors.

In regard to Income:

In regard to income, it makes a difference whether we are discussing Labor Income, Capital Income or both. The distribution of labor income is only moderately unequal whereas the distribution of Capital Income is extremely unequal. When the two are combined, the result in the US is significantly unequal.

As an aside, it is worth noting that even within the top income decile, all but the top centile still derive most of their income from labor rather than capital.

I believe that there is sufficient opportunity for income mobility both up and down and that includes both labor income and capital income. However, moving up is not easy. It takes a lot of effort and self-discipline.

I also believe that in order to take advantage of the opportunities for upward income mobility one must be prepared in regard to education and/or training. This preparation in turn requires access to the education/training process. Currently there is some discussion of the concept of “Equal Access”. Obviously, people with limited resources to begin with have a steeper hill to climb than those with significant resources. Public assistance is currently available in the form of grants and loans to those with limited financial resources. But that is not going to result in increased income unless the effort and self-discipline is provided by the individual. The same is true for the free college tuition being proposed by Senator Sanders.

Also in regard to income, Senator Sanders would move the SS cap to $250,000. This would not change the income statistics very much. Gross income would remain the same. It would help insure the solvency of the social security system and reduce the wealth accumulation of the top decile and thereby slow down the increase in their capital income (and capital investment). Clinton would also raise the SS cap but did not say how high. She would also increase taxes on unearned (capital) income but did not say how or by how much. IMHO raising the social security cap or even eliminating it all together on earned income would be doubly effective. Increasing taxes on unearned income requires further analysis in regard to its possible negative effect on savings, investment and retirement incomes among the middle income deciles.

To aid the lower income deciles, other remedies being proposed include raising the minimum wage, raising the income levels associated with the definition of poverty, earned income tax credits. etc. These tools for maintaining some minimum standard of living already exist, probably need some fine tuning but should be left to the respective administrative departments and congress to work out.

The average non-farm wage is currently just over $25.59/hr. or about $53,000 for a full work year. Unemployment is currently at 4.7%.  IMHO what we need is a work force that is qualified to fill the jobs that are available. It is an education problem rather than an economic problem. See the Wonk on Education. J

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