Monday, January 28, 2008

Income Inequality

So, income inequality is on the rise. No huge surprise - taxes were cut a few years back and we have a progressive tax system. Still, it is what it is, and it's going to matter during this election cycle. I've made a point of avoiding the humdrum of primary debates, yet I've still managed to catch clips of Giuliani talking up supply-side and Laffer Curve, and both Obama and Edwards bemoaning the workers who were "left behind." So, is this a bad thing?

  • It's not a healthy society that allows some to be billionaires while others are unable to afford a doctor's visit.
  • The productivity of the worker has increased too: it would appear that workers have been unable to fully reap the benefits of their own improved skillsets.
  • The prices of healthcare, housing and college educations have been rising faster than inflation. These costs were formed a higher percentage of middle class budgets to begin with and are therefore disproportionally eating away at the the already disproportionately small wage gains.
  • As a practical matter, humans value relative wealth over absolute wealth. I'd rather that we both earned $10 than for you to earn $20 while I earned $15. Conspicuously large differences in relative wealth are bad for social stability.
  • Even if incomes have been rather stagnant, average overall compensation has been rising with productivity. How can wages stagnate when compensation increases? Well, employers pay a pretty big share of the rapidly rising healthcare costs, right? Is there a better claim to "fair" distribution of income than that income match productivity?
  • As discussed earlier, the whole "real wage" thing is still comparing apples and oranges. The rich earned their windfalls in part by driving the technological gains that improve the goods available for purchase. Even if low earners can't buy many more things than before, it's worth noting that a lot of the things they buy are better. Cell phones instead of regular phones, broadband instead of dial-up. Many of these improvements might be luxuries, but some are probably driving significant increases in quality of life.
  • India and China have much wider income gaps than we do, they're growing faster than we are and they're kicking our ass at manufacturing and low-skilled services. If we have any hope of keeping our place in the world economy, we're going to need to adapt quickly, probably turning into a service-based knowledge economy. Someone has to replace the Big Three at the top of the list, and the stratospheric compensation packages are going to draw those people. Basically, we need to make sure that the next Google is founded in Silicon Valley instead of Bangalore or Hong Kong (n.b., SarbOx isn't helping there).
  • We can't just take the money from the rich and spend it on healthcare anyway. Healthcare is already a scary-large portion of our economy and we'd be burning the candle at both ends if we sacrificed economic growth (what the rich would otherwise be doing with their money) in order to increase healthcare spending. Healthcare might be a problem that we just need to grow our way out of?
What am I missing here?

1 comment:

Jim Apple said...

I don't believe that "a lot" of the money poor people spend is spent on higher-quality goods.

I don't believe that taxing the rich takes money from the rich spending it on "economic growth" and wastes it. For one, I don't know that money spent by the wealthy leads to greater growth potential than money spent by the poor or by health care providers. Second, I suspect healthier poor people provide economic growth through higher productivity and longer lives. Finally, and most importantly, more healthy people is real wealth, and therefore is an economic benefit all by itself.