Why Inequality Is Harmful and What to Do About It


I describe this blog as addressing our fiscal and economic problems, meaning deficits and debt on the one hand and slow economic growth on the other.  But these topics, while being of critical importance to our national welfare, are also somewhat on the dry side.  The subject of economic inequality stirs up lots more interest and response. In the Fall of 2012 The Economist declared that “a new form of radical centrist politics is needed to tackle inequality without hurting economic growth.”
CaptureSays The Economist:

  • There’s too much cronyism in the rich world. Banks which are “too big to fail” have an implicit subsidy. From doctors to lawyers, many high paying professions are full of unnecessarily restrictive practices. Social spending often helps the rich more than the poor. For example housing subsidies for the top 20% (mortgage-interest deductions) are four times the amount spent on public housing for the poorest 20%.
  • If income gaps become too wide, they can lead to less equality of opportunity, especially in education. The gap in test scores between rich and poor American children is 30 – 40% wider than it was 25 years ago.
  • If those on the top of the heap resist equalizing changes, it could lead to political pressure which serves nobody’s best interests.

Here are The Economist’s proposals for a True Progressive Agenda to attack inequality:

  • Compete.   A Rooseveltian attack on monopolies and vested interests is needed. School reform is crucial: no Wall Street financier has done as much damage to social mobility as the teacher’s unions have.
  • Target. Government spending need to be focused on the poor and the young. Governments can’t hope to spend less on the elderly but they can reduce the pace of increase.
  • Reform. Eliminate tax deductions which primarily benefit the wealthy such as for mortgage-interest; narrow the gap between tax rates on wages and capital income.

“The right is still not convinced that inequality matters.  The left’s default position is to raise income tax rates for the wealthy and to increase spending still further – unwise when sluggish economies need to attract entrepreneurs and when governments are overburdened with promises of future spending.”
Surely there is a better way!

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