{"id":415,"date":"2015-08-17T16:43:17","date_gmt":"2015-08-17T16:43:17","guid":{"rendered":"http:\/\/blogs.stthom.edu\/cameron\/?p=415"},"modified":"2017-04-13T20:54:15","modified_gmt":"2017-04-13T20:54:15","slug":"economic-inequality-in-america","status":"publish","type":"post","link":"https:\/\/blogs.stthom.edu\/cameron\/economic-inequality-in-america\/","title":{"rendered":"Economic Inequality in America"},"content":{"rendered":"
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By Dr. Hassan Shirvani–The impressive body of empirical evidence recently furnished by the French economist Thomas Piketty and his associates clearly demonstrates that there is a worsening trend of income and wealth inequality in America. \u00a0This\u00a0trend, in effect since the \u00a0beginning of the 19th\u00a0century, managed to take a breather in the first half of the 20th century, thanks\u00a0to the destructive effects of the two World Wars\u00a0and their intervening the Great Depression. \u00a0Following the Second World War, however, the trend towards greater inequality in America resumed anew,\u00a0with a tendency to accelerate\u00a0after\u00a0the early 1980s.\u00a0\u00a0As a result,\u00a0the richest\u00a0one\u00a0percent of Americans\u00a0now\u00a0earn\u00a0roughly a quarter of all incomes and own close\u00a0to\u00a0one\u00a0half of all wealth. \u00a0(For the top 10 percent, these ratios\u00a0are approximately\u00a0one half and\u00a0three quarters, respectively.)\u00a0\u00a0In contrast, the poorest fifty percent of Americans now earn only ten percent of national income and have an almost zero net worth. \u00a0(The Walton family, for example, has more wealth than the bottom 50 percent of Americans.) \u00a0In addition, the\u00a0same\u00a0data indicate that the richest groups in America\u00a0have managed to double\u00a0their shares of income and wealth over the past thirty years. \u00a0Consequently, America has now become the most unequal nation in the Western world.<\/div>\n
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CAUSES OF INEQUALITY
\n<\/strong><\/p>\n

Given the\u00a0worsening\u00a0trend\u00a0of\u00a0economic inequality in\u00a0America, the questions\u00a0naturally\u00a0arise as to both\u00a0its causes and the possibility of\u00a0its\u00a0reversal.\u00a0\u00a0As to the causes,\u00a0there is a long list of potential\u00a0contributing\u00a0factors: \u00a0First,\u00a0there has been the\u00a0triumph of the free-market ideology\u00a0in the early 1980s, where massive tax cuts, sharp increases in defense spending, significant cuts in social programs, and financial deregulation reversed the New Deal policies of the Great Depression. \u00a0\u00a0As part of this package of new policies, the powers of the labor unions were also drastically curbed, resulting in a long period of wage stagnation and improved corporate profits. \u00a0The combination of all these forces resulted in an economic and financial boom that\u00a0served to boost asset prices and, hence, to\u00a0further\u00a0widen the gap between the rich and the poor. \u00a0Second, there have been the rapid paces of both\u00a0globalization and\u00a0technological progress\u00a0in recent decades, which have significantly reduced the labor costs through greater reliance on\u00a0cheap foreign labor,\u00a0robotization, and the increased use of the internet in\u00a0corporate\u00a0sales. \u00a0The outcome has once again been\u00a0a redistribution of income away from the workers and towards the owners of capital\u00a0assets.\u00a0\u00a0Third, there\u00a0has been increased deficiencies\u00a0in corporate governance, where new CEO compensation policies in the form of stock options have resulted in excessive leverage and short term risk taking by myopic managers, with disastrous consequences for long term economic stability and growth. \u00a0In addition, the close relations between CEOs and board members have\u00a0often\u00a0resulted in\u00a0highly lucrative\u00a0pay packages for managers\u00a0which are hardly justified by their performances. \u00a0\u00a0Fourth,\u00a0the inequality has been boosted by the increased importance of the financial sector in the American economy. \u00a0Trading largely on asymmetric information, many hedge fund managers have succeeded in commanding multibillion-dollar pay packages, often a far cry from their actual contributions to the economy. \u00a0\u00a0Finally, mention should also be made of the substantial returns on the human capital of such entrepreneurs as Bill Gates and Steve Jobs, whose real contributions notwithstanding, still seem to command overly excessive compensations.<\/p>\n

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REVERSING INEQUALITY
\n<\/strong><\/p>\n

In the light of the above, it is\u00a0important to\u00a0devise policies\u00a0aimed at\u00a0reversing\u00a0the existing trend towards greater inequality in America. \u00a0If unchecked, this trend can lead to\u00a0undesirable\u00a0political and\u00a0social instabilities\u00a0which can prove detrimental\u00a0to all.\u00a0\u00a0Briefly,\u00a0we can start by serious\u00a0corporate governance reform,\u00a0in which managerial holds\u00a0over their boards are loosened and their misplaced\u00a0pay incentives are corrected. \u00a0Next, we need to restore bargaining power to labor unions\u00a0and\u00a0protect\u00a0domestic workers\u00a0against cheap foreign\u00a0labor, who\u00a0are often paid exploitative wages and many of whom are forced to work under inhumane conditions. \u00a0At the same time,\u00a0policies must be designed to help workers earn livable wages and enjoy greater participation in corporate profits and share ownership. \u00a0(In those industries where the imposition of the minimum wage laws could result in job losses through automation, income tax credits should be used instead). \u00a0In addition, the proceeds from a\u00a0more equitable taxation\u00a0should be used to finance higher education,\u00a0instruction of new skills, and investment in research and development. \u00a0Finally,\u00a0at a\u00a0time of historically low interest rates and a highly depreciated infrastructure, the US government has an ample opportunity to borrow and invest in a host of capital projects. \u00a0Such investments, which will largely pay for themselves, will not only help create jobs for millions of Americans, but also will address the growing inequality problem in America.<\/p>\n

 <\/p>\n

CONCLUSION<\/strong><\/p>\n

For any economy to continue on the path to prosperity, it is vital that all economic stakeholders share fairly in the fruits of progress. \u00a0Otherwise, the door is opened to greater political and social instability. \u00a0After all, as it is often asserted, the poor do not always starve quietly. \u00a0It is thus not only a moral imperative but also a prudent economic policy to ensure an equitable distribution of income and wealth in the society. \u00a0In addition, as the lessons of the past three decades indicate, government intervention is also needed to ensure a level playing field for all economic agents. \u00a0This is achieved largely through strengthening of government actions in the areas of labor laws, environmental and financial regulation, and information transparency. \u00a0Indeed, as we have also learned from the recent financial crisis, any thoughtless weakening of such actions in the name of greater economic and financial liberties can only result in disastrous consequences for all.<\/p>\n

\"\"<\/p>\n<\/div>\n<\/div>\n<\/div>\n

Hassan Shirvani, Ph.D.<\/a>
\nProfessor Cullen Foundation Chair in Economics<\/p>\n

See more posts by this author<\/a><\/p>\n

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By Dr. Hassan Shirvani–The impressive body of empirical evidence recently furnished by the French economist Thomas Piketty and his associates clearly demonstrates that there is a worsening trend of income and wealth inequality in America. \u00a0This\u00a0trend, in effect since the \u00a0beginning of the 19th\u00a0century, managed to take a breather in the first half of the…<\/p>\n","protected":false},"author":5,"featured_media":416,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[44,33,37,6,46,47],"tags":[213,18,22],"class_list":["post-415","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-critical-thinking","category-commentary","category-csb-faculty","category-economics-economics","category-ethics","category-global-awareness","tag-economic-inequality","tag-economics-2","tag-hassan-shirvani"],"yoast_head":"\nEconomic Inequality in America - 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