Category Archives: Washington Center for Equitable Growth

Life in America: Opportunity or Inequality?

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How bad is income inequality in the U.S. and what should be done about it?  This is a question of great current interest with many different points of view.  The chart just below from the Congressional Budget Office shows the extent of income inequality and also shows that it has gotten somewhat worse between 1979 and 2007, just before the onset of the Great Recession.  And we know that our stagnant economy has made it worse yet between 2007 and the present.
CaptureBut now look at the chart (below) from the U.S. Census Bureau of the distribution of household income in the U.S. in 2012.  The chart shows the median income of about $51,000 and then has a very long tail to the right.  This means that there are large numbers of households making large incomes of all different sizes.  It makes no particular sense to distinguish the top 1% (who make $380,000 or more) from the bottom 99%.
Capture1The point is that there is huge opportunity in the U.S. to do very well financially whether or not one makes it into the top 1%.
In an earlier post, “Growth vs Equitable Growth,” I reported on the agenda of the Washington Center for Equitable Growth, a progressive think tank.  In order to achieve “equitable growth” they advocate:

  • Improving educational outcomes at all levels, pre-K – 12+.
  • Running a “high pressure” economy in order to tighten the labor market.
  • Expand the Earned Income Tax Credit especially for workers without children.

I couldn’t agree more.  This is an excellent plan to create more prosperity for more people.  It’s much more plausible in the U.S. to make poor people richer than to make rich people poorer.

Growth vs Equitable Growth

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There is a huge debate going on in political and policy circles between the advocates of increasing economic growth and the advocates of increasing income equality.  I generally argue that the best way to increase income equality is to increase economic growth overall.
CaptureI have just come across a series of articles from the Nov/Dec 2014 issue of the American Monthly, “American Life: an investor’s guide,” which are sponsored by the Washington Center for Equitable Growth, a progressive Think Tank.  The fact that this group is focused on equitable growth, rather than the narrower goal of income equality, is of great interest to me.
Capture1They advocate a number of things that I agree with such as:

  • The incredible importance of early childhood healthcare and education.
  • Improving K-12 education, especially in low-income areas.
  • Providing much more vocational education and apprenticeship programs.
  • Running a “high pressure” economy in order to tighten the labor market. They recognize that lower unemployment leads to higher wages (see above).
  • Expand the Earned Income Tax Credit especially for workers without children.

The authors want to “pressurize” the economy with a more stimulative fiscal policy which means increased deficit spending, a very bad idea in my opinion.  Much better ways to boost the economy are with policies such as tax reform, trade expansion, immigration reform and regulatory relaxation.
Yes, there is a high degree of income inequality and yes, it’s getting worse over time.  But, as Warren Buffett says, the poor are not poor because the rich are rich.  The best way to help the poor is to make them more productive.  That is exactly the purpose of the policies enumerated above.