Saturday, March 30, 2013

How Should Wealth Should be Distributed (Part Three}

Here's my last post on the inequality of wealth distribution (previous posts here and here).  Maybe it should have been my first post, since it provides a rationale why you should care about inequality of wealth distribution.  Some would say you should care on moral grounds.  Others argue that inequality is also detrimental on economic grounds.  In other words, no matter which side of the political divide you inhabit, this is something you should care about.

Nobel Prize winner Joseph Stiglitz's recent book The Price of Inequality examines these reasons.  He argues that the current economic malaise and poor prospects of the middle and lower classes in the US are not a result of economic forces beyond America's control, but of the exercise of political power by moneyed interests over legislative and regulatory processes**:

"While there may be underlying economic forces at play, politics have shaped the market, and shaped it in ways that advantage the top at the expense of the rest".  

In his New York Times opinion piece entitled Inequality is Holding Back the Recovery, Stiglitz argues persuasively that economic inequality is squelching recovery because it means that tax receipts are down, economic volatility is up, and the middle class is too weak to support consumer spending and cannot invest in the future (education or businesses).

Although the US sits 91st of 153 countries on its wealth distribution (as described in this post), it feels as if Stiglitz is pushing a rock uphill in raising the issue of inequality, when you look at the general political debate in the US.

Ironically, Germany which sits 13th on the list (with wealth inequality declining) has seen inequality emerge as an election issue, as described in this Economist article***.  Germany had a huge increase in inequality with the integration of East Germany, but the gap between East and West Germany is shrinking.

Often, wealth inequality in the US is justified on the basis that the people at the top earned their money through hard work in a land of equal opportunity.  Indeed, t|he US cherishes its image as a utopia of meritocracy: anybody who works hard can make it.  The facts show otherwise: not only is there greater inequality in the US than in most developed nations, but this inequality is persistent.  Children in other rich countries like Canada, Germany, France and Sweden have a better chance of doing better than their parents than American children*.  A New York Times article reported that at least five large studies showed the US to have less mobility than comparable nations: Canada, Norway, Finland and Denmark all showed greater mobility.  A Globe and Mail headline boasted "In Canada, unlike the US, the American dream lives on".

*  I've taken that fact from Stiglitz' column
** phrasing directly taken from NYT book review of this book
*** According to The Economist, Germany sits at 7th, rather than 13th position as my data claimed.  That data showed German data from 2000, so it makes considerable sense that Germany has risen since then.  I chose to characterize Germany at 13th to be consistent with previous post.

1 comment:

Rohan Jayasekera said...

"Economic interests shape the political views of groups and classes.  Neither reason nor moral considerations override these interests.  Individuals may be converted, they may surrender their special privileges, although this is rare enough, but classes and groups do not do so.  The attempt to convert a governing and privileged class into forsaking power and giving up its unjust privileges has therefore always so far failed, and there seems to be no reason whatever to hold that it will succeed in the future."
-Jawaharlal Nehru, 1935

The American Dream may have lower chances of coming true now, but the "dream" part of it continues on. Witness the support for Joe the Plumber who didn't want extra income tax imposed on those making over $250,000 since he hoped to become one of those people in future. In a democracy, only a force like this can generate the popular support required to maintain the "rule of the rich".