Income Inequality and What to Do About It


In yesterday’s New York Times Timothy Noah has a column in The Great Divide series “The 1 Percent Are Only Half the Problem” in which he makes the case that there are two different types of inequality which society needs to address.  First, the income gap between the top 1% and the bottom 99% is getting wider and wider.  But there is also a skills gap between the (college) educated class and those whose education ended in high school.
What can and should be done about these two different aspects of inequality in America?  Controlling the excesses on Wall Street in order to avoid future bailouts will help control the wages of the top 1%.  This is already being done with the Dodd-Frank financial reforms and current efforts to require the biggest banks to hold more capital reserves.
But much more could be done.  Unfortunately, the main effect of the Federal Reserve’s low interest rate policy is to drive up the stock market which favors the more affluent.  Broad based tax reform which would lower tax rates by eliminating unjustified tax breaks for the rich would do much more to stimulate faster economic growth and give a big boost to middle class incomes.
The huge and rapidly growing cost of employer provided health care (now averaging about $5000 annually for individual coverage and about $14,000 for family coverage) is having a huge negative impact on middle class wage growth.  The U.S. spends twice as much of GDP, about 18%, on healthcare as any other developed nation.  Reforming employer provided health insurance by removing the tax exemption (and replacing it with lower tax rates) would get each of us personally involved with controlling healthcare costs.
The skills gap is driven by globalization and the advance of technology and is not going to disappear.  The only way to address it is by improving educational outcomes.  Putting more emphasis on early childhood education (ages 0-5) will help as well as making college more accessible and affordable.  Online education and especially Massive, Open, Online Courses (MOOCs) will help in both respects.  Hopefully more and more students and families will come to realize that there are many attractive alternatives to very expensive and elite residential colleges and universities.  It is not necessary to be wealthy or to borrow lots of money to attend college!
Conclusion:  inequality in American society is a large and growing problem.  But there are effective ways for both policy makers and individuals to respond.

2 thoughts on “Income Inequality and What to Do About It

  1. Pingback: ‘Liberalism’s Most Challenging Task’ Is Clearer Writing | sambhalkezabaan

  2. I would prefer a more equal society but we need to achieve this with policies which promote overall growth and progress. If we encourage private initiative and self responsible behavior, then some people will inevitably do better than others.

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