[Vision2020] Income Inequality: Root of U.S. Problems

[Tom Hansen]

Courtesy of today's (June 22, 2011) Moscow-Pullman Daily News with thanks
to (Dr.) Nick Gier.

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Moscow-Pullman Daily News - DNews.com
TOWN CRIER IV: Income inequality: Root of US problems

By Nick Gier
June 22, 2011

"If you want to know why one country does better or worse than another,
the first thing to look at is the extent of economic inequality," Richard
Wilkinson and Kate Pickett, "The Spirit Level: Why Greater Equality Makes
Societies Stronger"

At least one conservative economist is now joining liberals in identifying
income inequality as the No. 1 problem in America. His name is Raghuram
Rajan, professor of finance at the University of Chicago.

Fortune magazine recently published the following data: "In 2008, the top
1 percent of taxpayers accounted for 20 percent of total pretax income; in
1986, by contrast, they accounted for only 11 percent. Over that same
period, the share of income going to the bottom 50 percent of taxpayers
fell from 17 to 13 percent."

European countries and post-war America bridged the income gap with
progressive taxation. In 1945, U.S. top rates were 66 percent, dropping to
48 percent under Reagan, and then to 32 percent under Bush 43.

A standard measure of income equality is the Gini Scale, where zero is the
most equal and 100 is the least equal. The 27 members of the European
Union have an average score of 31, but the U.S. figure has risen from 40
in 1967 to 47 in 2005.

Writing for The New Republic, Rajan states: "Growing income inequality in
the United States and the policy responses it has spawned have done
tremendous damage to our economy."

Presidents Clinton and Bush 43 pushed home ownership as the means for
average Americans to increase their wealth. After buying their homes at
subprime rates, these new owners joined millions of others in taking out
equity loans (a whopping $5 trillion from 2001-2005) for new cars, boats,
etc.

While consumption equality went up with easy credit, income inequality is
now worse than ever. As a sign of decreasing wealth for most Americans,
home equity has dropped to 38 percent of home value, down from 61 percent
in 2001.

Instead of creating wealth, a free-wheeling financial industry and an
enabling Bush administration were responsible for the loss of 8.5 million
jobs and a loss of $10 trillion to the American economy.

The exhaustive research in "The Spirit Level" demonstrates that
egalitarian countries have less mental illness, longer life expectancy,
lower infant mortality, higher educational achievement, higher social
mobility, fewer teen births and abortions, far fewer homicides, better
child well being, lower rates of preventable deaths, and very low
incarceration rates.

Prof. Rajan believes better education and job training are the keys to
turning the economy around and putting more wealth in the hands of average
Americans. Rajan praises Europeans for their worker training and retention
programs, but he does not appear willing to raise the revenues to fund
them.

U.S. investment in human capital at the state and national level is
falling dramatically, so the job training and better education that we
require to become more equal citizens will simply not happen.

Even before the Great Recession, the number of American high school and
post-secondary graduates was falling, and now 25-30 year-olds in nine
countries hold more college degrees than their American counterparts.

Those Asian and European graduates will have better jobs and earn more
money. American companies will be inclined either to hire them on visas or
outsource these good jobs to their own countries. The result will be even
greater income inequality in the U.S.

In a list of 136 countries compiled by the CIA, we find 38 unequal nations
at the top. The U.S. stands between Jamaica (38th) and Cameroon (40th),
while Portugal is 70th and Sweden is at the bottom.

This is a national disgrace and an international embarrassment.

UI Professor Emeritus Nick Gier writes a biweekly column for three
newspapers. Read all of his columns on the "Third Way" between unfettered
capitalism and communism at www.home.roadrunner.com/nickgier/ThirdWay.htm.

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Seeya round town, Moscow.

Tom Hansen
Moscow, Idaho

"The Pessimist complains about the wind, the Optimist expects it to change
and the Realist adjusts his sails."

- Author Unknown