Economic Inequality: The defining challenge of our times

Crossposted from SkyIslandScriber.com.

That’s what President Obama labeled economic inequality. Some writers went beyond and identified economic inequality as the central issue for the 2016 presidential election. To be sure, the death of Justice Scalia and the political battle it created seems to have usurped inequality as a central issue. But one way or another, the Supreme Court nomination and confirmation will be settled. Extreme economic inequality will remain. The gap between rich and poor continues to increase. It is the dividing issue between the two political parties. How inequality is approached distinguishes, if not divides, the two Democratic candidates.

Scriber thinks the issues reduce to three questions. (1) What does the electorate know about inequality? (2) What are its consequences? (3) What do we do about it?

What does the electorate believe about inequality?

This graphic is the best place to start. Take 5 minutes and watch the YouTube visual representation of inequality in America.

That graphic was based on the original report on the discrepancies between our ideal distribution of wealth, our guess about that distribution, and the reality. An article in Scientific American covers this and two additional research reports.

Here’s the abstract of a followup piece of research: “How Much (More) Should CEOs Make? A Universal Desire for More Equal Pay“.

Do people from different countries and different backgrounds have similar preferences for how much more the rich should earn than the poor? Using survey data from 40 countries (N = 55,238), we compare respondents’ estimates of the wages of people in different occupations—chief executive officers, cabinet ministers, and unskilled workers—to their ideals for what those wages should be. We show that ideal pay gaps between skilled and unskilled workers are significantly smaller than estimated pay gaps and that there is consensus across countries, socioeconomic status, and political beliefs. Moreover, data from 16 countries reveals that people dramatically underestimate actual pay inequality. In the United States—where underestimation was particularly pronounced—the actual pay ratio of CEOs to unskilled workers (354:1) far exceeded the estimated ratio (30:1), which in turn far exceeded the ideal ratio (7:1). In sum, respondents underestimate actual pay gaps, and their ideal pay gaps are even further from reality than those underestimates.

The disconnects between what we believe about inequality and the reality extend to our beliefs about the American dream, that is, mobility. Here’s the abstract of “Building a More Mobile America – One Income Quintile at a Time

A core tenet of the American ethos is that there is considerable economic mobility. Americans seem willing to accept vast financial inequalities as long as they believe that everyone has the opportunity to succeed. We examined whether people’s beliefs about the amount of economic mobility in the contemporary United States conform to reality. We found that: (1) people believe there is more upward mobility than downward mobility, (2) people overestimate the amount of upward mobility and underestimate the amount of downward mobility, (3) poorer individuals believe there is more mobility than richer individuals, and (4) political affiliation influences perceptions of economic mobility, with conservatives believing that the economic system is more dynamic—with more people moving both up and down the income distribution—than liberals do. We discuss how these findings can shed light on the intensity and nature of political debate in the United States on economic inequality and opportunity.

We may be free and brave but we sure are not equal. Scientific American continues.

We may not want to believe it, but the United States is now the most unequal of all Western nations. To make matters worse, America has considerably less social mobility than Canada and Europe.

By overemphasizing individual mobility, we ignore important social determinants of success like family inheritance, social connections, and structural discrimination. The three papers in Perspectives on Psychological Science indicate not only that economic inequality is much worse than we think, but also that social mobility is less than you’d imagine. Our unique brand of optimism prevents us from making any real changes.

George Carlin joked that, “the reason they call it the American Dream is because you have to be asleep to believe it.” How do we wake up?

The article in Scientific American was introduced this way.

In a candid conversation with Frank Rich last fall, Chris Rock said, “Oh, people don’t even know. If poor people knew how rich rich people are, there would be riots in the streets.” …

So societal upheaval is a possible outcome of the obscenely extreme gaps between rich and poor. That possibility is explored below.

What are the consequences of extreme inequality?

I posted two lengthy reports in the recent past so I will just provide the links and brief comments.

Societal upheaval is a possibility. Or maybe a certainty? The “pitchforks” article was written by a billionaire and addressed to his fellow 0.1%ers.

If we don’t do something to fix the glaring inequities in this economy, the pitchforks are going to come for us. No society can sustain this kind of rising inequality. In fact, there is no example in human history where wealth accumulated like this and the pitchforks didn’t eventually come out. You show me a highly unequal society, and I will show you a police state. Or an uprising. There are no counterexamples. None. It’s not if, it’s when.

I ended my post this way.

… if candidates do not take on the issue of economic inequality, the pitchforks will come. My fear is that the pitchforks will be assault weapons and their wielders, led by some demagogue, will be wrapped in the Stars and Stripes, carrying their bibles, and chanting Liberte’ and Christianite’.

Another certainty is that inequality has a variety of side effects, one being shorter life expectancies: “only the poor die young” was my title.

The NY Times has the report on a correlate of increasing wealth inequality: life expectancy. If you are at the bottom of the wealth ladder, you are likely to die sooner. And that trend in life expectancies of rich and poor, like wealth inequality, is on the increase. The numbers are stunning. …

Experts have long known that rich people generally live longer than poor people. But a growing body of data shows a more disturbing pattern: Despite big advances in medicine, technology and education, the longevity gap between high-income and low-income Americans has been widening sharply.

Below is a table based on research reported by the Times showing the differences between the top and bottom 10% brackets. The wealthiest are outliving the poorest and that difference is increasing.

Gender Born in 1920 Born in 1950
Men 6.0 years 14 years
Women 4.7 years 13 years

And because the wealthiest live longer they are disproportionately the beneficiaries of social network programs like Medicare and Social Security.

What can we do about it?

Nick Hannauer in the “pitchforks are coming” article calls for FDR-like policy changes, one of which could be a return to higher top tax rates. Paul Buchheit (commondreams.org) concurs and lists 5 Reasons the Top Tax Rate Should Be 80%.

Here is a sixth: “over two-thirds of Americans favor increased taxes on people making over a million dollars. The desire to reduce inequality is not extreme at all.” The evidence? Most Americans do not know how severe the inequality is but have reasonable views on the proper distribution of wealth..

Informed Americans understand that an economic war has been waged against the middle and lower classes. As a result, there are at least five good reasons why the tax rate on the upper classes should be MUCH higher.

(1) Massive Redistribution Has Occurred. Upward.

Total U.S. wealth increased by a stunning 60 percent since 2009, from $54 trillion to $86 trillion, but 3/4 of that massive increase went to the richest 10% of Americans.

(2) Subsidies to the Rich are SIX Times Greater Than Subsidies to the Poor

The cost of the entire Safety Net is only about ONE-SIXTH of the $2.2 trillion in tax expenditures, tax underpayments, tax havens, and corporate nonpayment, the great majority of which went to the richest Americans.

(3) The Super-Rich are the Main Beneficiaries of Our Nation’s Prosperity

… The wealthiest individuals and corporations are the main beneficiaries of tax laws, tax breaks, property rights, zoning rules, patent and copyright provisions, trade pacts, antitrust legislation, and contract regulations. …

… Businesses rely on roads and seaports and airports to ship their products, the FAA and TSA and Coast Guard and Department of Transportation to safeguard them, a nationwide energy grid to power their factories, communications towers and satellites to conduct online business, the Department of Commerce to promote and safeguard global markets, the U.S. Navy to monitor shipping lanes, and FEMA to clean up after them.

But instead of paying for all the taxpayer-funded benefits, S&P corporations have spent 95 percent of its profits on stock buybacks and dividend payouts to enrich their investors.

(4) Progressive Taxes Actually Work

The prominent economic team of Piketty and Saez and Stantcheva determined that “the top tax rate could potentially be set as high as 83%” before the highest earners are discouraged from attempting to earn more. The National Bureau of Economic Research goes further, proposing a top marginal rate of 90%, and even some conservative analysts concede that the optimal maximum may be at least 50%.

Since the 1970s libertarians and business leaders have rallied behind trickle-down theory. Thus a series of tax cuts for the rich. But evidence from numerous sources leads to the conclusion that there is no correlation between tax cuts and GDP growth, and that in fact the cuts cause governments (as common sense would dictate) to lose revenue.

(5) Higher Taxes Won’t Make Rich People Leave

During the Republican debates Chris Christie claimed that higher taxes caused wealthy New Jersey residents to leave the state. It’s not true. A Stanford study found that lower-income residents left New Jersey at approximately the same rate. “Overall,” said the authors, “higher income earners show greater residential stability and geographic embeddedness than do low income earners.”

Conclusion

When you pick and choose your candidates, try holding them to this, Scriber’s, standard: if our policy makers really want to “make America great again” they should be addressing wealth inequality and its consequences for public health. We need to fix this and fix it fast. Tweaking the edges is not likely to get it done.

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