5 Things To Ponder: Income Inequality

April 18, 2014

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Since Easter is a time of family, compassion, forgiveness and resurrection I thought this would be a good weekend to think about the income inequality/wealth gap which will be part of the mid-term election debate. There are many questions that must be answered from not only “how” to solve the issue, but also “should” it be?

There is no historical evidence that wealth redistribution leads to stronger economic outcomes as it discourages “hard work.” However, there is also little argument that the current state of crony capitalism and corporate greed has gotten more than just a bit out of hand.

To start our thought process in this week?s things to ponder here is a study on the wealth inequality gap in America by Politizane:

1) Thomas Piketty, Whither The Bottom 90% by Scott Winship via Forbes

“Piketty?s book lays his cards on the table from the start. He titles it to evoke Marx and begins with an epigraph quoting the Declaration of the Rights of Man and the Citizen to the effect that all inequality should be viewed as suspect. He poses the question in which he is interested as whether capitalism is fundamentally self-correcting in a way that prevents inequality from getting out of control or whether it will produce ever-rising inequality. While he allows that his answer is “imperfect and incomplete,” his modesty goes out the door before that paragraph ends. Piketty?s thesis, in his own words:

‘When the rate of return on capital exceeds the rate of growth of output and income, as it did in the nineteenth century and seems quite likely to do again in the twenty-first, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.'”

2) The War On Poverty Is Grounded In Paternalism by Scott Beaulier via Real Clear Markets

“The plight of the poor is about a lot more than getting a better education or finding a job. It’s about repairing the damage that has been done to their lives on a multitude of margins–broken families, stress and depression, fear of crime, drug use, etc. And, the plight varies from person to person and community to community. Like the broader effort to alleviate world poverty that I mentioned earlier, our War on Poverty has layered one bad idea on top of another in the hope something will stick. Yet, the problem persists, and there are few promising signs we are even headed in the right direction.”

3) Baseball And Income Inequality by Nick Colas via ZeroHedge

“The United States already has the highest level of income inequality of any advanced country (according to the CIA?s World Factbook), but particular cities within the country display a considerably higher level than the national average. And among cities with Major League Baseball teams, the inequality that exists regarding ticket prices directly correlates with the level of inequality in those urban areas.”

4) The Mismeasure Of Inequality by Kip Hagopian and Lee Ohanian via The Hoover Institution

“Perhaps the most important question left out of almost every discussion about income inequality is, “Why should we care about it?”

Many of those who worry about high income inequality argue that it is an indicator of social injustice that must be remedied through redistribution of income (or wealth). Unfortunately, those who make this claim have not provided any generally accepted criteria for determining when an economic system is unjust. Nor have they provided a convincing argument that such injustice is widespread in the U.S. (In considering this issue, it is worth noting that Greece, Spain, and Italy all have substantially lower income inequality than the U.S. The same is true for Afghanistan, Pakistan, and Bangladesh.)

Measuring inequality using the Gini coefficient. There are at least five methodologies used to measure income inequality. The most commonly used is the Gini coefficient (also called the Gini index) developed by Italian statistician Corrado Gini. The Gini coefficient is a method of measuring the statistical dispersion of (among other things) income, consumption, and wealth. The figure of merit for the Gini coefficient for income inequality ranges from zero to 1.0, where zero represents total equality (all persons have identical incomes) and 1.0 represents total inequality (one person has all of the income). By this measure, the U.S. has substantially higher income inequality than almost all other industrialized nations. In 2010, the Census Bureau reported that the U.S. Gini coefficient was .469, while the average Gini coefficient for the 27 European Union nations was .31.^“

5) A Guide To Statistics On Historical Trends In Inequality via Center On Budget And Policy Priorities

“Data from a variety of sources contribute to this broad picture of strong growth and shared prosperity for the early postwar period, followed by slower growth and growing inequality since the 1970s. Within these broad trends, however, different data tell slightly different parts of the story (and no single source of data is better for all purposes than the others).

This guide consists of four sections. The first describes the commonly used sources and statistics on income and discusses their relative strengths and limitations in understanding trends in income and inequality. The second provides an overview of the trends revealed in those key data sources. The third and fourth sections supply additional information on wealth, which complements the income data as a measure of how the most well-off Americans are doing, and poverty, which measures how the least well-off Americans are doing.”

Whatever your position is on income inequality or the “great wealth divide,” there is little argument that it currently exists. As I stated at the beginning, the question is whether something should be done about it. Raising taxes on “the rich,” forced redistribution, increases in social welfare, etc. all have potentially negative economic consequences which affects everyone.

There is clearly no easy solution. However, for the upcoming mid-term elections, this debate will waged to swing votes in favor of those who want to remain in political office on both sides of the aisle. This is ironic considering that the majority of those individuals are currently in the top wealth brackets in the U.S. Maybe we should just start there?