Work, Wealth and Inequality (Part 2)

David Cappella continues our examination of economic inequality with a discussion of its complex causes:

A true revolution of values will soon cause us to question the fairness and justice of many of our past and present policies…True compassion is more than flinging a coin to a beggar. It comes to see than an edifice which produces beggars needs restructuring.”

-Martin Luther King, Jr.

Why do we often hear so much about economic inequality, and what is the real problem? Rhetoric about inequality can be confusing because it is unclear what is unequal and why such inequities are a problem. In America today the problem of inequality is really fourfold: wealth, income, and pay inequities coincident with a general stagnation of wages for the low and middle classes. The argument presented here is not saying we should eliminate economic inequality. Economists usually argue that inequality does play a role in rewarding risk and innovation, feeding aspirations, and propelling economic growth.

The argument here is claiming that the degree or level of inequality in America is unconscionable (92% of Americans agree) and has far-reaching negative consequences on the health of society as a whole. It is the sheer amount of inequality that is objectionable, especially compared to the more moderate levels of inequality mid-century (a period of large economic expansion).

The trends in inequality and the causes of inequality have been investigated by scholars. The beginning of the problem is usually traced back to the late 1970’s and early 1980’s, where inequality begins to manifest itself in the data. Identifying historical causes is extremely difficult, there is no counterfactual—that is, there is no way of knowing how history would have played out in a given country without a certain policy, with everything else the same. But we can use what philosophers of science call “abduction,” or “inferences to the best explanation.”This method examines the available evidence and facts and then draws the most reasonable explanation.

The question is the extent to which the pervasive inequality—which contrasts so sharply with the America of the 1940’s, 50’s, and 60’s—is the result of outside shocks on the economy from globalization, deindustrialization, and the technological and information revolution or the result of —deregulation, tax cuts, and anti-labor policies. These policies are associated with President Reagan, but have largely remained in place to the present. I argue here that it is both, that the forces acting on the economy did affect inequality, but in ways that were critically reinforced by policy choices.

Two examples here support this argument: First, rapid shifts in technology combined with a growing propensity for outsourcing affected the distribution of American jobs from higher paying manufacturing to lower paying services. However, policy prevented these new working class occupational groups from effectively organizing into a politically relevant force able to secure a basic living wage, that is, enough to feed and raise a family without experiencing continuous economic stress.

Second, the technology innovations spurred by West Coast firms and financed by New York investors in the 90’s, and the housing and public sector spending in the 00’s, clearly benefited the economy in the short run. Yet policies of deregulation and tax cuts meant that the money made largely remained with the very wealthy and produced enormous investment bubbles that popped both in 2000 and in 2008, with devastating economic consequences.

Therefore, while it is unfair to wholly blame either globalization/technology or “trickle-down” economic policies for our current inequality, the policy decisions made the last thirty-five years have clearly reinforced the inequality trends. If this is true, then we must critically assess our current policies’ effect on both the structure of the economy and the kind of economic growth we have. New policies can then be aimed to a cultivate a stable 21stcentury economy which works for everybody, not just those at the top.

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