Income Inequality

The growing problem of income inequality is one of the political issues du jour for all of the current candidates for president, to some degree or another. The problem of rising income inequality is real and serious – and it is a direct function of our politics. However, with the exception of Bernie Sanders, none of the candidates appear to have any grasp of the problem, or at least any sincerity of interest in addressing the problem. Virtually all of the GOP candidates advocate an even greater open market as the solution, while Sanders (and, depending on the day, Hillary) advocate imposing greater regulations on markets. To economists, the differences in the political parties is the equivalent of the Republicans saying “the house is on fire, we need more wood” vs. the Dems saying “the house is on fire, blow it up.”

Most economists have already reached a consensus that income inequality in the U.S. (greater than any industrialized country in the world) is not the result of globalization or of market forces. Rather, income inequality is the result of political forces creating an economic system which virtually guarantees that wealth will be increasingly concentrated. The problem extends beyond just the fact that wages have been stagnant so long that many American families no longer can earn a living wage. When wealth becomes that concentrated, it has an affect of reducing productivity in general.

For those of you who would like a good, common sense and understandable explanation about the causes and potential solutions of income inequality, read Joseph Stiglitz’s book “The Great Divide.” It is a non-ideological analysis by the Nobel Prize-winning economist (who happened to grow up in Gary, Ind.). Stiglitz is a believer in the free market, but argues that the avalanche of market deregulation and the lifting of restrictions on campaign contributions by corporations since the Reagan years has had a predictable effect that is not only economically destructive, it’s immoral. Imposing common sense regulations on markets (such as investment banking), reversing tax laws that favor corporations and the rich, and restricting corporate contributions to political campaigns might re-impose some fairness and mobility in the economy, but it might already be too late for that.

Stiglitz is a great read, but be forewarned – it will probably make you feel even less hopeful that the system will change anytime soon … or any time before a real economic catastrophe arrives.