Foreign Policy Blogs

US Income Inequality – Too Big To Ignore

Income inequality at whose expense..??  Yours.

Income inequality at whose expense..?? Yours.

I came across this peice in the New York Times and thought it raised some rather interesting points I wanted to share with you, my readers: ‘During the three decades after World War II, for example, incomes in the United States rose rapidly and at about the same rate — almost 3 percent a year — for people at all income levels. America had an economically vibrant middle class. Roads and bridges were well maintained, and impressive new infrastructure was being built. People were optimistic.

 

By contrast, during the last three decades the US economy has grown much more slowly, and our infrastructure has fallen into grave disrepair. Most troubling, all significant income growth has been concentrated at the very top of the income scale. The share of total income going to the top 1 percent of earners, which stood at 8.9 percent in 1976, rose to 23.5 percent by 2007, but during the same period, the average inflation-adjusted hourly wage declined by more than 7 percent.

 

Interactive Media:  How Un-Equal Are We..??

 

Yet many economists are reluctant to confront rising income inequality directly, saying that whether this trend is good or bad requires a value judgment that is best left to philosophers. But that disclaimer rings hollow.  [As purported social scientists, economists hold a moral obligation to postulate the social impacts that their prognostications will have on the  economy. In point of fact,] economists who say we should relegate questions about inequality to philosophers often advocate policies – like tax cuts for the wealthy, and corporate tax loopholes – that increase inequality substantially. That greater inequality causes real harm is beyond doubt.

 

There is no persuasive evidence that greater inequality bolsters economic growth or enhances anyone’s well-being. Yes, the rich can now buy bigger mansions and host more expensive parties. But this appears to have made them no happier. And in our winner-take-all economy, one effect of the growing inequality has been to lure our most talented graduates to the largely unproductive chase for financial bonanzas on Wall Street.

 

In short, the economist’s cost-benefit approach — itself long an important arrow in the moral philosopher’s quiver — has much to say about the effects of rising inequality. We need not reach agreement on all philosophical principles of fairness to recognize that it has imposed considerable harm across the income scale without generating significant offsetting benefits.’  Read more from the NYTs, here

 

Source:  New York Times                   Image:   expresso.pt

 
  • Reg

    To “promote” this income inequality was there a concerted effort or conspiracy on the part of those who are recipients of high income to cheat or game the system? Or is this the unintended consequence of freedom, democratic capitalism and the free market that have provided jobs and relatively comfortable lives for millions in the lower income brackets? At first blush, the solutions should be easy and have been tried at one time or another in various parts of the world. Income redistribution and wage and price controls have been tried in the U.S. Socialism and its more radical form- Communism have also been tried and have not been satisfactory. Current Socialist systems have seen rioting and the prospect of bankruptcy in many countries today (and in the past). And we know that Communism have given rise to lack of freedom, inequality and poverty.

    Perhaps the answer lies in patience and a better informed citizenry who will value goods and services more appropriately. Why should the CEO get 400 times more in compensation than the average employee? Theoretically because the shareholders approved it through the Compensation Committe of the Board. Why should a Hollywood star or athlete get 100 times more than a brain surgeon who have invested 15 years of his life (post high school) in training for his life-saving service? Because Americans seem to value their entertainment much more than their health care.

    In the end, Mr. Elliott, a free people chose their own destiny and I would not have it otherwise.

  • http://www.linkedin.com/in/elisonelliott Elison Elliott

    To my unnamed poster,

    Thank you for your thoughtful reply to my Income inequality post, and for reading the Global Markets blog in general. Allow me, please, a rebuttal to a number of what I consider your sincere, but nevertheless misguided assertions. For instance, you seem to assume that the liberties and freedoms to which you refer occur magically, or perhaps by the benign good intent of private interests. Let me correct that assumption by reminding you that the foremost, and most able defenders of our freedoms and rights – which conservatives & libertarians prefer you overlook – is our governments. National defense, police, courts, parks, registries of deeds, schools, hospitals, public defenders, the Constitution and the Bill Of Rights, etc. all are government efforts that work towards promoting our cherished liberties, and defending those freedoms and rights from the sometimes egregious and harmful behavior of corporations and private interest who place profits & greed above basic humanity. That is also a form of income redistribution – but in this case to the wealthy and the few.

    Secondly, you like many conservatives, are adept at contriving the evils of “Big Government,” but you seem altogether blind – whether unwittingly or by intent – to the evils and excesses of the equally harmful effects of “Big Business.” Just why is a US corporate CEO should make 400 times more in income to their average employee for returning a 16x PE, while a Japanese company CEO makes 80% LESS while returning much higher 33x PE of shareholder value for companies making the same product..?? And without shipping their jobs overseas in the name of profits..??

    Third, a reminder that the Preamble to the US Constitution says “We, the PEOPLE,” not “We, the corporate entity…” in order to form a more perfect union…” enter into a social contract for the common good of ALL Americans. You guys always seem to want to highlight the individual freedoms but conveniently forget the common good; and that a strong central government is necessary to provide the common defense and the to ensure the common good. The difference is, even when it comes to capital formation and the private interests, is that I read the document in its entirety, not just the part that proves my point.

    Lastly, conservative economic principle popular to the Chicago School and the Austrian School are at the center of your argument. And the problem with that for the untutored is that Conservatism is the domination of society by its aristocracy and business oligarchs. What is wrong with that..?? Conservatism is incompatible with REPRESENTATIVE democracy and the republican (small ‘r’) form of government, prosperity, the “general welfare” and the “Common good.” It is a destructive system of reverse inequality where the wealth flows to the few, at the expense of the many; and the prejudice & economic deception (income inequality) that it is founded on has no place in OUR (we the people) democracy.

    I encourage you to visit this link (http://extremeinequality.org/?page_id=8), and explain to me, with a clear conscience if you’re able to make that stretch, how you justify the expanding level of income inequality without the eventual social upheavals and conflicts that result from it..?? Social Darwinism can’t answer that one.

    E. Elliott

  • Reg

    Mr. Elliott,

    Thank you for your reply and for your efforts to educate me about Economics, Sociology, the role of governments and the U.S. Constitution. I am somewhat distressed, however, with the heat and emotion of your response to opinions that are mine alone and not formed in a “conspiracy” with those evil Republicans, Conservatives and Libertarians. In the heat of your criticisms you misinterpreted the second paragraph of my comments. Having been trained in science and having been born into another language, a debate with you is the least of my priorities.

    I am not a Republican, Democrat or Libertarian. I am registered as belonging to “other” political party because there is no Independent Party in AZ. Being too steeped in ideology oftentimes hinder objectivity and dispassionate analysis that is so necessary in discussing this important issue of income inequality.

    I will welcome big government with you if you can assure me that it will always be efficient, wise in money management and honest. I bet that you will have to “stretch your imagination” to make this guarantee.

    I agree with you that government, at all levels, is charged with the preservation of citizens’ rights and freedom, but it should be given authority and instructions on how to proceed only by the people.
    I am 73 and have seen enough to know that a swift solution to income inequality by a government run amuck can be accomplished by “lining up wealthy people against a wall” and then confiscating their wealth.

    I continue to believe that some in the business community can be bad (and should be regulated and prosecuted) but generally they, together with farmers and professionals provide the jobs that support our GDP. Government can only tax, borrow or print money and requires constant supervision by the people to be honest and efficient in providing services.

    My Economics was learned through life experiences but I did read Hayek and Friedman (Chicago school) and also Keynes, Schumpeter and more recently Krugman. I remain convinced that I should trust a free people and their democracy and free market.

    In spite of my earlier comment I continue to enjoy reading your essays. Yes, I am untutored and continue to approach issues with very plain common sense. Thank you for the opportunity to comment.

    Reg

  • http://www.hrc2001.org.nz Anthony Ravlich

    Re American inequality
    My hypothesis (as I am from New Zealand) is that America is following similar policies to that in NZ – a major difference though is that while NZ discriminates on the grounds of social status at birth (see UK social class discrimination) the US discriminates re socio-economic status (wealth) but the latter has its origins not in the Corporations but rather the bureaucracy. NZ, the US and many other States are ‘going nowhere’ – ‘freedom and democracy’ is now going in reverse as more countries are becoming authoritarian. Who is going to take risks when countries are going nowhere and in fact there seems to be increasing internal conflict. There are a number in the establishment who know what the problem is but are too afraid to ‘speak out’ about it. While I can only be specific re NZ I think many States have a similar problem. Essentially, NZ’s problem is that there are many human rights omissions in our human rights law (the source is the global elites at the UN who design these instruments) – so it is not just our fault – but it highly favors the countries ‘sacred cows’ and for obvious reasons people do not want to discuss it. Much can be found in my book, ‘Freedom from our social prisons: the rise of economic, social and cultural rights’, Lexington Books, which is on the UN portal website despite my harsh criticism of the UN. I think the US should look at what is happening to small/med business (see the American Small Business League website and how federal contracts are been diverted to big business on a massive scale). In NZ I am promoting a radical, ideas-driven bottom-up development (an entrepreneurial/ethical human rights culture) which is part of the ethical approach I take to human rights, development and globalization but because it really shakes the status quo and people will only face the truth as a last possible resort they simply do not want to know – its far too unsafe. But this is very short, sighted better to go through the suffering of facing the truth and making changes than having it forced on us very likely after enormous people damage. I am Anthony Ravlich, Chairperson of the Human Rights Council Inc (New Zealand) ph: (0064) (09) 940 9658. And remember, the truth will set you free as long as you are not too afraid to be free and so too afraid of the truth.

Author

Elison Elliott
Elison Elliott

Elison Elliott , a native of Belize, is a professional investment advisor for the Global Wealth and Invesment Management division of a major worldwide financial services firm. His experience in the global financial markets span over 18 years in both the public and private sectors. Elison is a graduate, cum laude, of the City College of New York (CUNY), and completed his Masters-level course requirements in the International Finance & Banking (IFB) program at Columbia University (SIPA). Elison lives in the northern suburbs of New York City. He is an avid student of sovereign risk, global economics and market trends, and enjoys writing, aviation, outdoor adventure, International travel, cultural exploration and world affairs.

Areas of Focus:
Market Trends; International Finance; Global Trade; Economics

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