Income and Wealth Inequality

Causes of Inequality

In my view, the root cause of income/wealth inequality boils down to power.  At times when workers have power (unions are strong, employment is high) workers can claim more for themselves, for example better wages, which leads to the ability for them to start accumulating wealth.

Increasing inequality in the US coincided with the rise of the neoliberal regime, which consisted of crushing labor, deregulation, liberalization, and privatization. 

• Average wages no longer growing with worker productivity

        Source: EPI

• Unions attacked (think Reagan crushing air traffic controllers strike)

• The Glass-Steagall Act, which separated commercial banking from investment banking, was repealed and the finance sector began to grow. 

•  CEO compensation became increasingly tied to stocks, giving them huge compensation packages.

• Citizens United ruling allows money to influence politics

Of course income inequality is tied to wealth inequality; the more income you have, the more likely you are to be able to save some of it. 

 Source: Saez and Zucman

Once power has been accumulated in the form of income/wealth it becomes increasingly difficult to change policies to stop the wealthy from accumulating more.

Reponses to Inequality

Increase Workers’ Power 

• Increase the minimum wage
• Support policies that promote full employment
• Increase support for unions

Source: Bernstein 

Redistribute

• Increase estate taxes (taxes on inheritances)
• Increase capital gains tax (taxes on income from owning assets)

Financial Reform

• Dodd-Frank Act (tried to restrict speculation and increase                            transparency – not working well)
• Financial Transaction Tax (a small percentage tax on financial trades)
• Rein in CEO pay (there’s really no proposed policy here, except discussion of a maximum wage bill: http://www.vox.com/2014/8/6/5964369/maximum-wage)

I think most people and economists would agree income inequality is inherent to capitalism and the “free” market.  I think the disagreement stems from whether the inequality is an issue or not.  Whether the people at the top are entitled to their income/wealth and if the amount they hold is harmful to the rest of us.

More Radical Alternative Solutions

American Beyond Capitalism by Gar Alperovitz discusses policies that address and attempt to correct the wealth disparities in the US.

•            Basic Income Grants: there are different proposals for implementation, but the idea is to give each new child either a lump amount or an amount that is invested and matures until the child is 18.
•             Worker Cooperatives: Worker owned and operated businesses would reduce income and wealth inequality since workers income would be more equitable and they would have ownership of a portion of their company.
•       Community Development Corporations: communities loan money to new businesses in exchange for a stake in the new business, yielding a stream of income to loan to future business start ups in the community.

Participatory Economics by Michael Albert, Robin Hanel Economic Justice and Democracy both discuss brand new economic systems that would greatly reduce inequality.

In terms of the most helpful policies to combat inequality, there is evidence the non-radical policies help (see below the Bernstein link to PowerPoint slides), but in my opinion, changing the economy towards something less capitalistic is the more meaningful change.  However, it is hard to empirically measure how much a hypothetical income grant would change inequality or how the existence of worker co-ops help.  

Other helpful resources on the topic:

Robert Reich’s Inequality for All DVD: http://inequalityforall.com/

Jared Bernstein’s Slides:http://jaredbernsteinblog.com/a-comprehensive-look-at-the-inequality-story-to-go/

Interesting YouTube video based on peer-reviewed studies https://www.youtube.com/watch?v=QPKKQnijnsM