Thursday, November 7, 2013

Reducing income inequality


John Sutter, an economist who writes for CNN, recently proposed seven ways to reduce the income inequality gap in the United States ("7 ways to narrow the rich-poor gap," CNN Opinion, October 29, 2013):

  1. Break down social barriers: Sutter advocates creating conversations that transcend the socio-economic divide. This puts a face on the poor, the affluent, and can advantageously create sympathetic bonds between them.
  2. Improve public schools; unify them: Voluntarily shutter private schools, reunifying children in the classroom, and promoting the conversations that Sutter advocated in point #1 above.
  3. Raise the minimum wage to 1960s levels, at least: This chart shows how the minimum wage, adjusted for inflation, is about 25% lower than it was in 1960:

  1. Tax the rich at a reasonable rate: The marginal tax rate, which is the highest rate paid on any part of one's income, on the rich in the early 1920s was 25%; the marginal rate rose to 91% in the 1960s and now sits at 35%. A marginal rate of 50%, at a minimum, seems reasonable.
  2. Give workers a voice in their companies: In other words, bring back unions or give employees an ownership stake in the company. Either option is likely to result in higher wages for the working poor whom we presently subsidize with welfare programs.
  3. Reign in crazy-huge donations to political campaigns: This chart on campaign finance graphically depicts the disproportionate influence of the wealthy on the political process, a problem about which I have previously blogged: 

  1. Give money to the poor – maybe at random: Sutter cites research that supports this proposition, showing that random gifts of money to the poor can permanently improve their lives in unexpected ways.

I find Sutter's seven propositions intriguing for three reasons. First, several of his ideas echo positions that I have previously advocated in Ethical Musings. Second, empirical data supports most of his ideas, i.e., these propositions are more than mere opinion or personal likes. Third, I think his ideas offer a comprehensive option that, if implemented, would reduce income equality. Reducing income inequality will improve the quality of life for both the affluent and the poor. Nations ranging from Sweden to Iran now enjoy substantially greater income equality than does the United States.

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