Income Inequality Revisited

[kylinrouge.livejournal.com]

When so much income goes to the top, the middle class doesn’t have enough purchasing power to keep the economy going without sinking ever more deeply into debt — which, as we’ve seen, ends badly. An economy so dependent on the spending of a few is also prone to great booms and busts. The rich splurge and speculate when their savings are doing well. But when the values of their assets tumble, they pull back. That can lead to wild gyrations. Sound familiar?

Third world nations tend to have a lot of wealth concentrated at the top. Why do some people think that this is what we need for America? To emulate as closely as possible conditions in third world nations?

We might have enlarged safety nets — by having unemployment insurance cover part-time work, by giving transition assistance to move to new jobs in new locations, by creating insurance for communities that lost a major employer. And we could have made Medicare available to anyone.

Agreed on all counts.

How has Germany done it? Mainly by focusing like a laser on education (German math scores continue to extend their lead over American), and by maintaining strong labor unions.

Labor unions are socialist!!!!

The main point:

The economy cannot possibly get out of its current doldrums without a strategy to revive the purchasing power of America’s vast middle class.

What do people think? Do we need to focus on strengthening the middle class, even at the cost of the upper class? Do we need more government involvement to make this happen? Is income inequality even a problem in the first place?!

Source: http://www.nytimes.com/2011/09/04/opinion/sunday/jobs-will-follow-a-strengthening-of-the-middle-class.html?_r=2

Comments

[badlydrawnjeff.livejournal.com]

Is income inequality even a problem in the first place?!

That's the key question for me, and the answer, so far, appears to be no. It doesn't matter how much the top has when the lower group is doing fine.

[oslo.livejournal.com]

That's the key question for me, and the answer, so far, appears to be no. It doesn't matter how much the top has when the lower group is doing fine.

Never took you as a Rawlsian.

[allisnow.livejournal.com]

But if someone has more than me, they're to blame for my circumstances! C'mon, this is basic stuff!

[oslo.livejournal.com]

I don't think anyone's saying that. The OP is quite clearly, I think, asking whether substantial income inequality is a problem for economies.

And I would think that we would all want our economy to be healthy, whatever our feelings on wealth distribution might be, but particularly if we are of the individual-responsibility bent - since we would then hold that a "rising tide lifts all boats" and would want to make sure our economy hasn't developed a structural problem that portends economic collapse.

"when the lower group is doing fine."

[squidb0i.livejournal.com]

And how long ago do you have to dig to find that condition?

Re: "when the lower group is doing fine."

[badlydrawnjeff.livejournal.com]

Well, consider these two points:

1) The so-called "war on poverty" occurred when inequality was at a much lower point.

2) Even the most equitable groups still have a rich/poor divide.

The reality is that, even with income inequality at the level it is now, the number of people at a very bad poverty level is low. Assuming we take these numbers at face value, less than 15% of the nation is at poverty level (http://www.npc.umich.edu/poverty/) as of 2009, and that's at the peak of one of the roughest economic times in our history and is still better than it was 25-30 years ago. So.

[harry-beast.livejournal.com]

More government involvement would have the effect of increasing income inequality and further damaging the middle class by increasing the number of high-cost, low output government employees and their unions, and by passing the costs on to the middle class and working poor through higher taxes and higher costs for government services. And that's not even considering the extra burden imposed by new programs dreamed up by underemployed government bureaucrats.

[allisnow.livejournal.com]

increasing the number of high-cost, low output government employees and their unions, and by passing the costs on to the middle class and working poor through higher taxes and higher costs for government services

That is what the government seems good at ;)

[squidb0i.livejournal.com]

[citation needed]

[oslo.livejournal.com]

More government involvement would have the effect of increasing income inequality and further damaging the middle class by increasing the number of high-cost, low output government employees and their unions,

... who are obviously not members of the middle class themselves ...

and by passing the costs on to the middle class and working poor through higher taxes and higher costs for government services.

Well, we shouldn't pass the costs on to the middle class, then, silly!

And that's not even considering the extra burden imposed by new programs dreamed up by underemployed government bureaucrats.

I am not really sure who these "underemployed government bureaucrats" are. Last time I checked, most government agencies are severely lacking in the resources and personnel required to satisfy their legislatively-imposed mandates, to say nothing of these "new programs" you think they dream up in their idle office hours. Even an agency as economically-devastating as the Environmental Protection Agency is just managing to throw band-aids over the brushfires it can manage to get to.

[harry-beast.livejournal.com]

most government agencies are severely lacking in the resources
Sure, just ask any government bureaucrat. They need more cash, more people, more buildings, more everything.

silly!
Oh! Not nice.

[not-hothead-yet.livejournal.com]

you're assuming "more government involvement" absolutely equals hiring more government employees it seems. I don't understand why this is a given unless you believe they are in need of more employees.

I was under the impression that there is a wide variety of ways government "involvement" can affect the current situation.

[fizzyland.livejournal.com]

I'd say that wage stagnation in the face of consistently increasing costs is the root problem for we middle class bums. Other than looking for other streams of income, I have no ideas how to improve the situation.

[kylinrouge.livejournal.com]

There are many bottom-up solutions to this problem that we can easily see already applied to many other countries in the developed world such as workers' rights, as well as some top-down solutions that shift various burdens from the employer to the government in exchange for a small tax.

The problem is, the center-right government of the US will never, ever consider these options. Gutting essential services and destroying laws and regulations that protect both workers and consumers seems like their solution to the problem.

[abomvubuso.livejournal.com]

Third world nations tend to have a lot of wealth concentrated at the top.

There's a well noticeable pattern, yes. But aren't you perhaps putting the cart before the horse? I mean, which is first: a country becoming a third world nation because of wealth concentration at the top, or wealth getting concentrated at the top because it's a third world country? (For the record: i'm not sure of the answer, but i'd be glad to hear some opinions).

The US...

[sophia-sadek.livejournal.com]

... is the mother of all third world nations. They are chips off of the ole American block.

Re: The US...

[htpcl.livejournal.com]

DQ!

[eracerhead.livejournal.com]

A decade or so ago I looked at the, let's call it Waldomart business plan. That is, use buying power to put pressure on producers to lower and lower prices every year. This makes products more affordable for the average or less well-off American. Generally a good thing.

The consequence of that practice however was increased wage pressure because it accounts for a large percentage of the cost of products and raw materials aren't under as much producer control. This forces more and more producers to go overseas where labor is cheaper. This in turn puts stress on Waldomart's customers who were the principal recipients of those jobs, reducing demand. This places more pressure on Waldomart to hit producers even harder, which creates a death spiral. To stay in business Waldomart has to attract customers of higher and higher economic status, giving discounts to people who actually could pay a few dollars more, and leaving the original target demographic in the dust.

This is a microcosm of the American economy. Producers don't need less regulation, what they need is more orders. Retailers don't need tax breaks, what they need is more customers. By focusing on the top, and neglecting the bottom we have reduced demand to the point where it is now being felt across the board. With the lack of demand corporations will take the assets they gained in the US and move to greener pastures elsewhere. In short: Trickle-down economics was and is a total failure. It has taken about 25 years to see the result. You can see it in charts of reducing consumer demand since the eighties.

So what to do before it is too late (if it isn't too late already). There is a lot we can do: Drop NAFTA, institute tariffs on overseas production. Start a temporary direct hire program such as the WPA if necessary to keep people working and increase consumer demand, and give employers incentive to hire them away. Fund infrastructure projects to upgrade ailing segments. Crack down on employers to assure that jobs are going to American citizens. End the Bush tax cuts. Scale military activities (that we really can no longer afford) way back to put them in line with what other countries are spending. Increase investment in our future by funding better schools and job training programs. Institute medicare for all to relieve employers the burden of providing health insurance.

We can do other things too, but what we cannot do is expand the failed economics of the last 20 years and pretend it isn't part of the problem.

[not-hothead-yet.livejournal.com]

the thing that average joe failed to remember is that Supply-side economics still produces what it was called: a trickle. Back in the days of Reagan I was astounded how many otherwise intelligent people thought "trickle-down" economics was a great idea. I asked many a friend "you really want just a trickle? how do you know YOU will be the one to get that trickle?"

[harry-beast.livejournal.com]

Is killing NAFTA really the solution? Canada and Mexico may compete in some industries, but compared to Japan, China, India, Europe and others, neither country is a significant economic threat. They do, however, provide markets that are geographically close to American production facilities and that are accessible through reliable, cheap transportation links. In some industries, they are major customers and suppliers, e.g. energy from Canada. Closing down trade with these countries would devastate their economies, which would have security repercussions for the entire continent. And ripping up NAFTA would do nothing to address competition from China and others, who would doubtless move in to snap up the markets and resources the United States so spitefully abandoned.

Reich makes a simple argument...

[sophia-sadek.livejournal.com]

Robert Reich is basically arguing for the reversal of Voodoo Economics of the Reagan camp. Thanks to the dumbing down of America, that may not be politically possible until the rich wake up and smell the bonfires.

[meus-ovatio.livejournal.com]

Natural income inequality, which I define as the natural condition of differing costs for specialized labor, is simply The Way It Is. Artificial income equality, which arises directly due to mishandled or misunderstood legislation, is a drain on the economy as it captures increasing amounts of capital within a shrinking sector, thus stymieing the general purchasing power and productivity of 90 percent of the nation. Basically, you're starving society for the benefit of some random-ass group of investors who can only reflect economic opportunities and not create them. So, to put it bluntly, massive artificial income inequality creates inefficient markets.

[gunslnger.livejournal.com]

And who do you think is creating the artificial income inequality?

[stacey1981.livejournal.com]

"Third world nations tend to have a lot of wealth concentrated at the top. Why do some people think that this is what we need for America? To emulate as closely as possible conditions in third world nations?"

I have not read all comments but this just stood out to me because basically this massive inequality in the third world or global south can be partially attributed to neoliberal capitalism pushed under the washington consensus heavily by the United States. So basically they are emulating you guys.
Basically what you guys need for less income inequality is more of a focus on public goods and with that higher taxation to create it. Germany has quite high taxes to create their good education system. You of course need bigger government for this to happen. I don't see this happening in the United States though because your foundation seems to me on individual liberty which just breeds more inequality because you ignore that not everyone is on the same social footing. By pretending that everyone has equal footing just ensures that power and wealth remains in the hands of the few. Because your (not you particularly your country in general as compared to some other western democracies) intense feeling about individual liberty socialism won't happen it goes against your very foundation.
Sorry if I'm saying something obvious I'm new to this forum. I'm also Canadian by the way which is why I say you guys and of course these are just my views.

[abomvubuso.livejournal.com]

Well first of all, welcome to TP! :)

And then, well, there are plenty of non-US guys around here, so...