U.S. Economic Inequality

This is a preliminary abstract from the study as of November 2016. It will be updated as the study progresses and the full study will be published on-line when it is complete. Comments are solicited.

1.1     Objective
The objective of this study is to establish an understanding of the term “Economic 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.

1.2     Scope
This study is limited to economic 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.

1.3     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 recent State of the Union addresses and highlighted in a presidential address on 12/4/2013.

Economic inequality became a significant issue in the 2016 Democratic Primary elections.  Sen. Bernie Sanders made it a key issue in his campaign for the nomination and the nominee Hillary Clinton has included some related comments in her post convention positions. The Republican nominee does not refer to economic inequality in a broad sense although he does refer to unemployment or job loss when it suits his purpose.

1.4     Current Summary
I believe that within the US, there is sufficient economic opportunity in regard to the accumulation (or loss) of wealth and/or income.

In regard to economic 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. However, I believe that the current distribution of wealth and income within the U.S. requires some adjustment to those public policies which have contributed to the current level of inequity of both income and wealth. In addition, we must implement policy changes necessary to counteract the negative impact of technology and other cultural evolutionary changes on these distributions.

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, in the past 30 to 40 years the distribution has again become more uneven. This recent change is due to two primary factors. In regard to policy – tax cuts that disproportionately advantaged the top decile. In regard to technological evolution, automation has 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 primary concern in that regard is the relatively rapid concentration of wealth to the top 1% and that is only a concern if that wealth is used to corrupt the political process. The solution to the misuse of wealth in politics probably lies in legislation to restrict campaign contributions and lobbying activity. 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 all of their constituents and away from fund raising and its associated obligation to donors.

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. An increase in the inheritance tax would have a positive impact on the current unbalanced distribution of wealth. The establishment of a national fund similar to the Alaska Permanent Fund http://www.apfc.org/home/Content/home/index.cfm  would also be a good step in the direction of equality. Beyond that we should encourage corporate profit sharing among the employees as well as the stockholders in a way that encourages their participation in the ownership of capital.

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 for those with limited resources in the form of grants and loans. 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 free college tuition.

Also in regard to income, Hillary Clinton would raise the SS cap. 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). 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. 🙂

 

 

 

 

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