Getting Rid of Economic Inequality: How Do We Do It?

July 18, 2007

An in-depth New York Times article on super-rich tycoons such as Sanford Weill and Bill Gates drew scorn from a number of NYT readers, who say the moguls don’t give enough credit to their employees and should pay higher taxes. The article says we’re in a new "Gilded Age":

Only twice before over the last century has 5 percent of the national income gone to families in the upper one-one-hundredth of a percent of the income distribution — currently, the almost 15,000 families with incomes of $9.5 million or more a year, according to an analysis of tax returns by the economists Emmanuel Saez at the University of California, Berkeley and Thomas Piketty at the Paris School of Economics.

Extreme wealth in America isn’t necessarily a bad thing — in fact, it’s an important part of the American Dream. What’s troubling is America’s economic inequality: while the top tiers are doing better all the time, the middle- and low-income sectors can hardly say the same.

Do You Know What You're Worth?

What can be done to snuff out America’s economic inequality?

Education Is Key

A June 10 NYT story by Roger Lowenstein offers potential solutions to economic inequality. Punishing the wealthy won’t help, the story says; low- and middle-income workers need to be able to climb the ladder of economic gain. Their best bet for a successful climb starts with education, according to the story.

I agree. There’s plenty of evidence to suggest that the more you learn, the more you earn.

In March the U.S. Census Bureau released figures showing adults 18 and older with a master’s, professional or doctorate degree earned an average of $79,946, while those with less than a high school diploma earned around $19,915.

Meanwhile, the National Center for Public Policy and Higher Education in November 2005 said, “If current trends continue, the proportion of workers with high school diplomas and college degrees will decrease and the personal income of Americans will decline over the next 15 years.”

Those with only a high school diploma and no specific job skills can’t get very far in our economy. They’re likely to be among the lowest wage earners–and stay there, unless they get additional training or degrees. And economic inequality will rage on.

Understanding Economic Inequality

The NYT story by Lowenstein does an excellent job of framing the issue of economic inequality:

You can boil down most economic policy debates — starting with Hamilton versus Jefferson and moving to Bush versus the Democrats — to this tension: how can you promote equality without killing off the genie of American prosperity? The trade-off is clear at the extremes but fuzzier in the middle. A little redistribution, cleverly designed, doesn’t hurt.

Lowenstein points to changes since the 1970s, a time of economic distress, as contributing to the mushrooming inequality–such as deregulation of various industries, the relaxing of trade barriers, and mammoth mergers permitted by shrinking antitrust regulation. “The purpose was to unshackle the economy, but it also created a society of multimillionaires,” according to the article.

He makes several other points critical to understanding economic inequality and how to solve it.

When it comes to raising [those stuck at] the bottom in the short term, Washington basically has two choices: it can try to change market outcomes or it can redistribute after the market results are in. …

Only about a third of the population graduates from college. Among the poor, there has been only a very slight increase in college-graduation rates.

To get more Americans to enroll in and complete college, the theory goes, you can either fix the schools (more teachers, longer school years, more student loans) or fix the students (more nurturing of kids from disadvantaged homes). Both approaches would cost a lot. But if you’re worried about inequality, it’s hard to see any alternative. Hamburger flippers simply don’t command a high wage. We can pass laws to change that — a minimum price for cheeseburgers, maybe — or we can, finally, invest in teaching the flippers to do something else.