Income Inequality: The Campaign Issue Nobody Talks About

November 1st, 2010 | Sources: Washington Post


Last month, House Republicans released a “Pledge to America” which outlined the agenda they’d push if they won back control of the chamber in tomorrow’s mid-term elections. The agenda covered a wide range of social issues, but its primary focus was the nation’s economy.

The Pledge called for a permanent extension of Bush-era tax cuts and renewed efforts to balance the budget and reduce the national debt. It promised to prevent any further allocations that had been set-aside by the economic stimulus bill of 2009, and so forth. One thing it didn’t address however, was our nation’s appalling rise in income inequality over the last 40 years.

This is a glaring oversight, since income inequality poses an enormous threat to our economy and indeed our nation’s ability to remain competitive on a global scale.

According to studies by Thomas Piketty and Emmanuel Saens, nearly 50% of our nation’s pretax income is accumulated by the top 10% of earners. Between the end of World War II and 1976, a period many consider to have been the “golden era” for the US economy, the top 10% of earners made less than one third of the nation’s income.

And income growth among the nation’s top 1% of earners was responsible for nearly all of this shift. In 2007, the top 1% of earners copped 23% of the national income. This kind of skew is reminiscent of what we see in third-world economies.

Why does income inequality reduce our global competitiveness and impede our prospects for long-term economic growth? The Washington Post’s Steven Pearlstein suggests there are 2 reasons.

First, concentrating wealth into the hands of so few people leads to spectacularly unproductive spending patterns. The super-rich buy art and fancy cars, overpay to get their kids into private schools and prestigious universities, employ the services of high-end hairdressers and landscape architects, and bid up prices for real estate in trendy spots like the Upper East Side of Manhattan and so forth. These things do not create sustainable economic growth on a national scale. The super-rich also invest in hedge funds and other arcane financial vehicles which drive speculative financial bubbles including the ones for junk bonds in the ’80s, Web and technology stocks in the late ’90s and yes, the calamitous credit bubble from which we have yet to recover.

That’s not the biggest problem, however. The biggest problem is that marked income inequality subverts the unity of purpose that is necessary for any nation, indeed any company to thrive over the long haul. It’s just common sense that people won’t work hard, make sacrifices or take risks when they see rewards flowing to others.

Ironically, Republicans who authored the Pledge to America use a similar argument to defend tax cuts for the super-rich, yet they look the other way when the subject turns to the incomes of everybody else.

The causes of accelerating income inequality in the US are many. Technological advancements have radically altered the labor market to favor people fortunate enough to have received advanced degrees, but our educational systems don’t produce enough such employees. Globalization and multi-national corporate structures assure that goods are produced where labor is the cheapest, and that will never again be in the US. Unions have lost much of their power. The deregulation of the private sector assures an unfair playing field for less skilled workers. And then of course, there’s been a pernicious change in social norms towards a culture that accepts widening income inequality in the first place.

Republicans—and all politicians actually—should not forget that rising income inequality is a central problem facing our economy right now. They need to refocus policy-making toward the creation of shared prosperity because without it, we can have no prosperity at all.


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