Should we Reduce Economic Inequality or the Absolute Poverty Level?

American society should reduce inequality if it had the choice. There are several reasons why American society should reduce inequality rather than reducing the absolute level of poverty. Firstly, the number of people in poverty has been correlated with the level of inequality in the U.S. for the last 50 years, which suggests that reducing inequality may in itself reduce the level of poverty. Secondly, it it is politically unsustainable for the trend of inequality, occurring in the U.S., to continue on its current path. Thirdly, a high level of inequality decreases the stability and prosperity of the American economy, and lowers income mobility.  Overall, reducing inequality would make American politics more effective, and make society more mobile and prosperous.

The gap between rich and poor has been rapidly and dramatically widening since about the 1970s. The increase in inequality has produced more polarized politics and as inequality grows, polarization of policy preferences is likely to increase as well. This is because the policy preferences of the very rich (top 1%) and the policy preferences of median income holders are much different and as the rich grow richer and the rest of Americans poorer, the political needs and desires of each group will likely become increasingly different. Such polarization is obvious when looking at the recent attempt at healthcare reform. Rising inequality is also likely to reduce equality of voice. As the rich gain more capital and use it to influence politicians they strengthen their hold over political power and reduce the political voice of the poor.

Aside from the political issues of rising inequality, there are many market oriented problems. The first and perhaps most profound issue is that inequality decreases market stability. As Jared Bernstein notes in his article, the growing trend in inequality that began in the 1970s has led to the, “…second highest level of income concentration on record,” with the richest 1% holding 23% of income in 2006. He then explains, “The only year of greater income concentration was 1928,” when the top 1% held 24% of income. These two record years of income concentration are similarly and not coincidentally before the two worst recessions that American society has perhaps ever seen. In the words of Robert Reich, rising inequality can lead to a “snap-back” or “snap-break.” For example, like a rubber band, if the wealth of the economy is stretched too far, there must be steps to reduce inequality or it will break.

This leads to my next point which is that we live in a consumer economy and so the consumers must have money to support it. For example, higher wages might mean slightly higher prices on some goods, but if people have more money, more goods will be bought across the table which will in turn benefit the economy on the whole. So while reducing inequality may mean lowering the wages of top-level executives who are in the richest 5% in order to increase the wages of the lower 95%, the lower 95% are the bulk of American consumers. Therefore, if 95% of Americans have higher wages and so therefore spend more money, the businesses owned by the top 5% will enjoy higher sales and more profit while simultaneously reducing inequality and increasing the general welfare of the public.

Finally, in what was once called, “the land of opportunity,” income mobility is being hampered by inequality. One defense of inequality is that all have the same opportunity and so if some people are more successful that is fine. This is a false argument however, because the level of inequality in American society is a direct impediment to circulation and mobility in the system. Vast amounts of wealth are passed down from generation to generation and the rich have the money to put their children in the best schools or hire the best tutors they require. The poor often have to work to simply maintain a standard of living and are unable to go to school or put their kids into school. Overall, it has been shown that reducing inequality would make policy making easier, increase the stability and prosperity of the economy, and allow for more income mobility.

Jeffrey Brittain is the Admin of KeepTheMiddleClassAlive.com and War4oil.org. He strives to educate people about the importance of reducing inequality, supporting the middle class, and preventing War for Oil.

 

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