If you read this and look at the facts, you will see the actual causes of inequality and you'll learn the illogic (or intentional misleading?) of saying that other people are getting poorer because of people who are getting richer. The latter is absurd and I would recommend not electing anybody who advocates the absurd.
What are the actual causes? What are the cures?
Know these and you can push for the right solutions and stop politicians from going down the wrong road!
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BOTTOMLINE:
The causes of low end job wage stagnation: what holds down the compensation for non-high-knowledge jobs:
Increased global competition
Technology reduces number of workers needed
The causes driving more into poverty:
More divorces
Out of wedlock babies (single mothers are a big component of those on welfare)
Uneducated people entering US (mostly illegally)
The "rich" are not taking away from the poor. (Such a characterization encourages dissension and blame/victim thinking.) To the contrary, they are helping us all.
They are "compounding" their wealth through investing, which creates jobs (and, of course, greater
compounded growth) and their investments create greater economic growth and jobs.
Higher end jobs pay much more because of value provided, including managing larger companies.
Talented people can garner more resources, dramatically leveraging their talents to earn much more.
SUMMARY POINTS
Global competition drives down American wages in the relevant areas and takes away jobs. Wages in manufacturing and such were kept high when we had a monopoly, which began disappearing in the late '70's. (However, global competion provides benefit to Americans in terms of lower prices - Americans are the ones choosing to buy goods from foreigners - and this is the biggest cause of outsourcing jobs.)
Technology increases productivity and takes away lower-skill jobs, driving down wages for those jobs.
Americans who develop the knowledge skills in the right areas do fine. There are too few doing that.
(Retraining and education to "upskill" are needed - and more Americans need to be proactive about it.)
Lower education level is significant, increased by non-educated illegal immigrants, and causes
income to be lower (and thus inequality to be higher).
Between 1970-2008 real (after inflation) wages grew 15% and median household income 16% (while the size of households was decreasing. So we are actually better off (but we want more luxuries and/or nicer things and houses), but people, instead compare to others who do better, not because of stealing from others but because they invest, produce more, and/or have higher skill levels. (Investing causes one's wealth to grow faster than inflation, so those people go ahead even more.)
Culture changes, to lower work ethic in certain groups plus the increased level of single mothers (30% of
which are in poverty)
Of course we take care of those who are unable to do it for themselves, but it is a drag on society if we let those who could be more productive drag down the rest of us by not contributing.
Redistribution by taxing lowers growth and diminishes the size of the whole pie, which would hurt everybody. Money and investments would also leave the US, with even a further negative effect on jobs. (See Economic Effect, below.)
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Are the rich not paying their fair share?
In politics, the accusation is that the tax cuts favor the rich, but the facts say otherwise.
The highest 20% of earners' share of the total taxes of the U.S. increased from 81.2% to 86.3% from 2000 to 2006. Their share of income rose more slowly from 54.8% to 55.7%. Source.
1980, top 1% paid 19% of the total taxes for filers; 8% of income. 1990, it rose to 25%. Now it is 38% (earn 22% of the income).
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Bill Cosby lays it out heavy on having African Americans take responsibility and to stop blaming and get to work and keep good family values. He's criticized for it, mostly in the context of 'how can he criticize us, after all we're victims of society.' Yes, the latter is true to some degree, but all we get from that is a complaint and some blaming. A victim is one who choses to blame rather than take responsibility. You can spot a non-victim because he/she is creating results in their lives through taking responsibility for doing what works.
Instead, it is taking full self-responsibility and working together toward solutions that is what works. And the President must be the leader toward that value and behavior.
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CONTENTS
The causes
The cures
Income distribution causes and effects
Economic growth and redistribution trade off
An example of what doesn't work and exacerbates the problem
A higher Perspective
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THE CAUSES
GLOBAL COMPETITION: Americans used to have a monopoly and/or advantage
We had an advantage in that we were organized for efficient industrial production. But then the rest of the world starting catching up, mostly over the last thirty years. And they could produce more cheaply, so we were non-competitive in the lower skill areas, which drove our wages down because of basic supply and demand and the pressure to keep our costs down in order to keep the jobs here. Of course, demand and supply caused the wages to not go up as fast, since the supply had increased dramatically. (See the example of what had to be done at General Motors to make it competitive. It went through a process similar to bankruptcy but run by the Federal Government. The union power was stripped down a bit, creditors took a hair cut, wages and benefits were lowered, many jobs and dealers were eliminated, stock was taken away from investors - all this made it competitive enough, but note what happened to wages.)
AMERICANS BUY CHEAPER FOREIGN GOODS: The trade advantages
Of couse, the advantage of trade is that we can get things more cheaply, leaving us with more money for other things and also lowering how much we need to spend on living. Americans complain about job outsourcing and they blame businesses for being unpatriotic for going overseas to save money, but then they go out and don't "buy American", as consumer buy the cheaper foreign goods. They even buy foreign cars!
PRACTICAL REALITY: It is not the manipulation by the rich
Of course, many politicians and left leaning commentators, and people who are not knowledgeable in the area blame it on the rich. But those who run businesses must make a profit and can only afford to hire someone who produces more value than the wage costs. And competion (i.e. refusing to work for too low a wage and going elsewhere to make more) drives what the amount of the wages are, with the wage earner choosing to work for that wage - there is no appropriate blaming here - if we operate from personal responsibility, we see that it is us who make the choice. (Here is an example of an uninformed approach to this problem: Video. See if you can find the assumptions and errors. What do you think education in economics would do for that fellow. Note that it is blame based, besides being "wrong-cause" and circular reasoning.)
LACK OF SUFFICIENT EDUCATION, and the entry of lots of less educated (driving down the average)
As illegal immigrants come in and increase the supply of low wage workers, they also lower the average education level, so that the disparity in incomes is even larger. Note that this is not the fault of anyone. It is just natural economics and cause-effect. It is not appropriate to evilize those who do better or businesses that do better, as they are not the cause at all, though in their doing better we can learn lessons as to how others can do bettter.
Those who are naive enough to look at it all as a zero-sum game (the size of the pie doesn't increase, so to gain we must take away from another) will be inclined to blame and not to go into action to better their situation (as the truth is the size of the pie needs to be increased, so all are better off - which is why we need Romney in there, not as a moral issue, but as a producer of a bigger pie for all to share in).
This concept and principles underlying it are essential for our society to make gains and for each individual to start contributing more if they are now contributing little and expecting someone else to make up for. Personal responsibility and non-entitlement are essential here. If we have a President who doesn't adequately make the point of this, we will have social unrest and class warfare, which all gets us nowhere. (Obama needs to change or he will create, or at least allow, damage.)
And then we have a huge population who have chosen not to get sufficient education and/or to not set up a stable enough life (and family unit), so that an underclass is created. (Many blame "they" for not providing enough educational opportunities. But, though more difficult now, one can still get adequate education if one persists and holds to a high enough work ethic standard.)
Those who complete high school and keep a stable family unit (e.g. not one where the male parent is not present anymore) have a relatively low unemployment rate (about 2%).
Also, failing to see the detail of what is actually happening causes one to generalize, whereas the causes are actually limited to only certain parts of the country. See Income And Education And Race.
NOT MATCHING SKILLS TO WHAT IS NEEDED
And the other key factor in keeping wages low is being unskilled relative to what is actually needed. We are no longer competitive in most manufacturing areas, so wages will drift down there. Lots of service areas where a low level of skill is needed pay low wages (of course, law of supply and demand). Yet we have many jobs going unfilled because there are not enough sufficiently trained people to do the job effectively. It's no one's fault, and blame is certainly inappropriate. We need to act. We need to learn what is needed to be a higher paid knowledge worker. To see what is needed and is actually happening we need to look deeper, as I've done a bit in the Income Distribution discussion at the end of this piece.
THE CURES
Althoug this is made into a moral issue, there is no contract or agreement to not outsource, or to pay people more than the competitive wage in the area. Some people do, however, assume that their belief is what is right, but there is no actually, concretely determinable "right".
But I think we should choose to set up rules and agreements that are appropriate so that we have the structure and obligation in place so that we can make progress more quickly and effectively.
One key way to make Americans better off is to educate those who don't tend to do it on their own. The education to create greater skills and the directing of people toward the higher knowledge areas where there are demands are key. And this is where, I believe, government can make a difference, without even spending a large amount. (It has to evaluate the "return on investment", which is actually quite high for education.)
A key here is to set up an ethic and a philosophy of self-responsibility, because much of what is happening is not due to the rich or unfairness in society. It is due to the failure of individuals to take advantage of all that is available. And part of the failure of individuals to do that is that we are not "jawboning" self-responsibility; we are focusing on inequalities and blame. Obama is not contributing to the self-responsibility conversation, though he refers to it in rhetorical terms, but spends time in the complaining mode, which is not a good thing to teach people.
So, the cures are:
1. Greater self-responsibility, teaching it, strongly, in school and in society.
2. Directing and matching our educational efforts to areas where there is demand and higher value
3. Much more education in the areas where there are the greatest payoffs.
4. Restrict immigration (legal) to those who have the skills that will contribute the most and/or
something that will contribute to the greater welfare of all. We do not need to be the country that takes in
all people indiscriminately, to our detriment. (The exceptions are for family considerations.)
5. Educate our legislative representatives with a required certification in basic economics, as their lack
of knowledge and incorrect assessments lead to bad decisions and ineffective or harmful actions.
6. A huge increase in oil and gas development to what is required to meet our needs: takes up slack on
lower skilled workers, increases the value of the dollar, provides more revenue to help balance the budget
and to pay for needed education, etc..
Short-term cures:
1. Bring back money from overseas by whatever incentives work, so that more will be invested here
2. Cut off illegal immigration as it is lowering the average education and income of the lower percentiles
and hurting economic growth.
3. Keep foreign people who educate themselves here, as the higher educated people will cause greater
growth that will benefit us all (and not take away our jobs, but create more)
4. Lower our corporate tax rates to be competitive internationally to bring more business here and more
job demand. (This is what President Obama should get passed immediately, dropping his focus on less
important, less impactful issues that have become political footballs.
And, there is some justification, for doing what will encourage businesses to invest in the US, not by penalizing them or blaming them for doing what is most economic, but by giving them the incentives to do so.
Investment tax credits. Tax credits for bringing jobs back here that are presently overseas (though much of this can be a quagmire where it is difficult to properly administer.
Encouraging unions to work better with businesses.
Setting up a more business-friendly environment.
Having a better executive branch that understands all this, run by a great chief executive officer (Romney is the best by far).
We can't wait for government to do it all for us. We need to do the most effective thing, which is to teach and thus increase personal responsibility and to cut off the incentives for not taking personal responsibility (i.e. reduce any entitlement mentality and behaviors). We can only do this with a leader who will drive this strongly, which would be, in my opinion, again, Romney.
THE REPUBLICANS ARE MISCHARACTERIZED - THEY DO CARE, AND THEY ACT ON IT
It is bullbleep that Republicans don't care about the poor, though they do appear unsympathetic to those who game the system and slack off. But they are excellent in their actual actions - and even far more charitable than Democrats. And they are committed to providing a safety net for those who are unable to take care of themselves, while insisting that those who are able get out there and take self-responsibility.
Interestingly, Romney is at 16% of income to charities; Obama at 1%; Biden at 0.2%.
INCOME DISTRIBUTION CAUSES AND EFFECTS
If you look in Wikipedia at the graph showing income distribution over the years by percentile, you'll note that the three top percentiles (with the higher skilled workers) have rising curves, but that the lower ones have relatively more flat curves.
Those with college or advanced degrees saw their income rise faster than those without. No blame there, right? It is just a fact of life.
Expertise, productiveness and work experience were identified as highly significant factors - and race is not a significant factor per se if you adjust for education, although certain ethnic minorities tend to have less education, expertise, and productiveness - the point is it is not primarily due to discrimination anymore.
"Expertise and skill certified through an academic degree translates into increased scarcity of an individual's occupational qualification which in turn leads to greater economic rewards." And, as above, those who do not have scarcity, and also must compete with jobs that can be done overseas, will not have incomes that grow very fast, if at all.
"Federal Reserve chairman Ben Bernanke, have talked about the importance of incentives: "... without the possibility of unequal outcomes tied to differences in effort and skill, the economic incentive for productive behavior would be eliminated, and our market-based economy ... would function far less effectively."[
Among the American lower class, the most common source of income was not occupation, but government welfare.[
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We shouldn't blame the rich. We should emulate them.
You can blame society or you can blame Wall Street or business in the hopes that you'll be given more - or you can use that energy to go into action to create what will make you better off.
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ECONOMIC GROWTH AND REDISTRIBUTION TRADE-OFF
Although there are a number of people who argue for redistribution of wealth and artificial floors on wages as a moral issue, they do not see the whole picture - where the size of the pie, by people being less productive and having less to invest (which produces fewer jobs) causes the whole society to be worse off, on average. (Or as Margaret Thatcher once said: "The problem with socialism is that eventually you run out of other people's money.")
Of course, we want to support those who legitimately need a social net because they are unable to produce income. But it is a drag on society if we let those who could be more productive to drag down the rest of us by not contributing. If they are given things, coddled too much, and get entitlements, their productivity decreases substantially, along with their self-respect and confidence, which are huge, huge costs in that they dramatically reduce happiness. (Note that income, above subsistence, does not add hardly anything to happiness, although Americans believe otherwise!)
"The disincentives exerted by a generous and lax welfare state, and the social security system in particular, on the level of labour participation" have a significant impact on productivity and on the benefits of all.
"Hardly anyone – not even most economists – would deny that it is possible to reduce income disparities and rise the income of the poor in the short run by increasing income transfers through higher taxes and social benefits. However, as almost any economist can tell you, this will reduce incentives for both the poor to find a (better) job and for the better-off to exert sufficient work effort. Hence, in the long run this will hamper economic activity and in the end everyone might very well be worse-off. But this negative effect may take quite some time to materialize."
So, when Obama seeks redistribution (or for the rich to do their "fair share) he is risking reducing how well off we are.
All boats rise in a rising tide
When the Republicans are untruthfully labelled as advocating "trickle down economics" they look like uncaring hard-asses. They don't actually advocate that. They advocate policies that increase growth.
But what they are doing, but not selling the idea well, is saying "let's increase the overall size of the pie by having greater productivity so that we are all better off." They're not just trying to benefit the rich - and the other side is evilizing them and accusing them of that, thus encouraging us to focus on blame and not on being more productive. They are trying to keep the capital flowing so that we will have growth and opportunity for all of us. (Right now alot of the capital is sitting on the sidelines because the incentive is to do so since the perception is that the government is now "business unfriendly" and biased - which is a poor environment for investing. In fact, it tends to drive money to other countries, so that the US loses. This is why we are at a crossroads and need a smart way to manage all of this - as is the very skill Romney is superb at.)
The correct term has never been the judgmental "trickle down economics" but is "all boats rise in a rising tide." (The term has been attributed to humorist Will Rogers, who said during the Great Depression that "money was all appropriated for the top in hopes that it would trickle down to the needy." The term is considered pejorative - and was never really the correct concept.)
The key, if we had the ideal leader, is to have a supportive environment for business and investing and for people taking personal responsibility. This will be huge, although we tend to think it is because of the lack of the opportunity to be educated. Personal responsibility increases when the leaders talk about it and encourage it - and then more people get more education and then they are more productive, not waiting for the government to do it for them.
Objectively, I think, Obama does not see that or at least does not do that, so I would project that he will be harmful to the economic prosperity of the US - and the bottom percentiles will continue to suffer.
AN EXAMPLE OF WHAT DOESN'T WORK AND EXACERBATES THE PROBLEM
Speaking to an audience in Racine, Wisconsin, on June 30, 2010, President Obama repeated a winning theme from his 2008 campaign—the theme that the economic policies of the previous administration had failed those of us who consider ourselves middle class:
Nearly a decade of tax breaks for millionaires and billionaires led to little more than sluggish growth [and] a shrinking middle class. Your paychecks flatlined. Wages and incomes did not go up. Even when the economy was growing, it wasn't growing for you.
A HIGHER PERSPECTIVE
One could say how terrible this is:
Between 1970-2008 real wages grew 15%, median household income 16%, and, according to Pickety & Saez, taxable income of "The Bottom 99 Percent" by 12%.
Or one could simply note that it is in terms of after-inflation increases, aka 'real' increases, which are, by definition, after inflation. So we are better off, but not appreciating it nor are we recognizing that our appetites have just increased, setting us up for disappointment, needlessly.
"The United States has been underproducing college-going workers since 1980. Supply has failed to keep pace with growing demand, as as a result, income inequality has grown precipitously." (Remember if demand is outpacing supply, incomes rise more. This is part of produces a growing gap between high school educated earning and college educated.) The Undereducated American.
Notes for later integration
set a standard of income per area dependent on caost of living and meet that with good monitoring and requirements to do things that improve their value....
is not a single congressional district in the entire country where a full-time minimum wage worker with kids can afford fair market rent for a two bedroom apartment. Only one in four people across the country gets any kind of housing assistance, and the waiting list for a Section 8 voucher is often so long that they're closed.
That's one place where there's a hole, but there are other places where Boteach said there actually was a responsive safety net that Governor Romney has proposed to slash.
Because of the increase in the food stamp program from the Recovery Act, hunger didn't really rise during the recession, despite increased poverty and unemployment. We need to be talking about things when they're working; unfortunately, Governor Romney has endorsed cutting $127 billion from the program, which would kick about 8 million people off of food stamps.
The (offensive) 'hammock' analogy
Callers offered their experience with other holes in the net: dentists not taking Medicaid; food stamps not providing enough of a daily allowance to afford fruits and vegetables; subsidized child care not available to a parent for the duration of their undergraduate education.
As to that "very ample safety net," as Romney phrased it, not exactly. According to the Organization for Economic Cooperation and Development, the United States has one of the least generous safety nets in the wealthy developed world.
"We have food stamps, we have Medicaid, we have housing vouchers, we have programs to help the poor," Romney said.
Food stamps provide about $1.44 daily per person per meal.
Medicaid covers poor children but only the very poorest parents, up to 37 percent of the poverty line if they are not working and 63 percent if they are employed. This hole in the safety net would be filled by the new health care law, with Medicaid coverage for adults up to 133 percent of poverty — but Romney would repeal the law.
Housing vouchers? One in four poor renters receives housing assistance.
Supplemental Security Income for the impoverished elderly and disabled lifts them to 75 percent of the poverty level. In 1996, 68 of every 100 families in poverty received welfare assistance; by 2009, that number had fallen to 27 out of 100.
illegal immigration increases job competition among low wage earners, both native and foreign born. Additionally many first generation immigrants, namely those without a high school diploma, are also living in poverty themselves
The Earned Income Tax Credit is viewed as the largest poverty reduction program in the United States.
What drives growing earnings and income disparities?
The rise of earnings and income inequality occurred in most countries during periods of sustained
economic growth, which raises the question why not everybody benefited from growth in the same way.
While it is difficult to assess fully the role of many potential driving forces, the following factors have
often been identified as having the most important impacts on widening inequality in OECD countries:
Globalisation, skill-biased technological progress and institutional and regulatory reforms have
all had an impact on the distribution of earnings;
Changes in family formation and household structures have had an impact on household earnings
and income inequality;
Tax and benefit systems have changed in the ways they redistribute household incomes.
A forthcoming OECD study assesses the relative roles of these different factors. The study first
examines how trends in globalisation, technological change and regulatory and institutional reforms have
affected inequalities in wages and earnings.
Over the past decades, OECD countries have undergone significant structural changes resulting from their closer integration into a global economy and rapid technological progress. These changes have brought higher rewards for high-skilled workers and thus affected the way earnings from work are distributed. The skills gap in earnings reflects several factors. First, a rapid rise in trade and financial markets integration has generated a relative shift in labour demand in favour of high-skilled workers at the expense of low-skilled labour. Second, technical progress has shifted production technologies in both industries and services in favour of skilled labour. All three structural changes have been well underway since the early 1980s and accelerating since the late 1990s
need more invested here.
market income inequality, capital income
However, redistribution strategies based on government transfers and taxes alone would be neither effective nor financially sustainable. A key challenge for policy is to facilitate and encourage access to employment for under-represented groups. This requires not only new jobs, but jobs that enable people to avoid and escape poverty. Recent trends towards higher rates of in-work poverty indicate that job quality has become a concern for a growing number of workers. Policy reforms that tackle inequalities in the labour market, such as those between standard and non-standard forms of employment, are needed to reduce income inequality.
Policies that invest in human capital of the workforce are needed. This requires better training and education for the low-skilled. The latter would serve to boost their productivity potential and future earnings. Over the past two decades, the trend to increased education attainment has been one of the most important elements in counteracting the underlying increase in wage inequality in the longer run. Policies that promote the up-skilling of the workforce
programs promote self-sufficiency rather than dependence and encourage people to look for work."
In terms of wage growth, the bottom 20 percent saw faster growth than the middle, the entire middle from the 30th to the 70th percentiles saw comparable wage growth of about 10 percent, and the best wage growth starts at the 90th percentile and is even better at the 95th percentile (growing 26.7 percent).
Roughly 7 percent of the white kids in the upper tribe are born out of wedlock, compared with roughly 45 percent of the kids in the lower tribe. In the upper tribe, nearly every man aged 30 to 49 is in the labor force. In the lower tribe, men in their prime working ages have been steadily dropping out of the labor force, in good times and bad.
People in the lower tribe are much less likely to get married, less likely to go to church, less likely to be active in their communities, more likely to watch TV excessively, more likely to be obese.
David Brooks; It’s wrong to describe an America in which the salt of the earth common people are preyed upon by this or that nefarious elite. It’s wrong to tell the familiar underdog morality tale in which the problems of the masses are caused by the elites.
The truth is, members of the upper tribe have made themselves phenomenally productive. They may mimic bohemian manners, but they have returned to 1950s traditionalist values and practices. They have low divorce rates, arduous work ethics and strict codes to regulate their kids.
Members of the lower tribe work hard and dream big, but are more removed from traditional bourgeois norms. They live in disorganized, postmodern neighborhoods in which it is much harder to be self-disciplined and productive.
This growth in income inequality is largely the result of three dynamics:
1) Changes in the way Americans pay taxes and manage their investments, which were a direct result of reductions in marginal tax rates.
2) A dynamic shift in the labor-capital ratio, resulting from the adoption of market-based economies around the world.
3) The flourishing of economic freedom and technological advances in the Reagan era, which were the product of lower tax rates, a reduced regulatory burden, and an improved business climate. These changes have not only raised the measured income of the top 1%, they benefited the nation and the world.
the U.S. has the most progressive income tax system in the world. An inconvenient truth
In 1986, before the top marginal tax rate was reduced to 28% from 50%, half of all businesses in America were organized as C-Corps and taxed as corporations. By 2007, only 21% of businesses in America were taxed as corporations and 79% were organized as pass-through entities, with four million S-Corps and three million partnerships filing taxes as individuals. By reducing personal tax rates below the level of the corporate rate, the Tax Reform Act of 1986 dramatically influenced how entrepreneurs structure businesses.
By reducing the penalty for transferring capital from one investment to another, these lower tax rates increased the mobility of capital. High-income taxpayers sold more assets, declared more income, and paid more taxes.
In relative terms, the return to unskilled labor has fallen. Short of a crippling reversal in world trade, which would reduce the value of both labor and capital, this effect will dominate world markets for the foreseeable future. Since high-income Americans own more capital and have higher levels of education and training, their incomes have grown faster than everyone else's.
To vilify success and the rewards it garners is an assault not just on capitalism but on liberty itself. As Will and Ariel Durant observed in "The Lessons of History" (1968), "freedom and equality are sworn and everlasting enemies, and when one prevails the other dies . . . to check the growth of inequality, liberty must be sacrificed."
Articles:
Gains by upper-income Americans have not come at the expense of middle- or lower-income Americans
favors boosting social programs that benefit the middle-income Americans in sharp contrast with Republicans' proposals to spur growth through upper-income tax cuts alone.
"Investments in things like education and research and health care, they haven't been made as some grand scheme to redistribute wealth from one group to another," Obama told a crowd inside a packed gymnasium. "This is not some socialist dream."
"They have been made by Democrats and Republicans for generations because they benefit all of us," he said, "and they lead to strong and durable economic growth."
Obama said his proposed Buffett Rule - to ensure that millionaires and billionaires pay a minimum effective tax rate of 30 percent on their income - could underwrite continued "investments" he wants to make, netting an average $150,000 in new revenue per millionaire or billionaire. He called the Rule is a matter of fairness.
"So let me ask you: What's the better way to make our economy stronger? Do we give another $50,000 in tax breaks to every millionaire and billionaire in the country? Or should we make investments in education and research and health care and our veterans?" Obama said, framing the debate.
