Is Income inequality something we should worry about?
The Facts
Income Inequality in the United States has undeniably risen in the past half century. The Gini Coefficient is a marker of income inequality, where a country’s inequality is measured between 0 and 1, where 0 is perfect equality (net assets of the country are distributed evenly across every single person), and 1 is perfect inequality (one single person holds 100% of the country’s assets.)
Income inequality in the US is among the highest in the world, at 0.480/1.000
The Question
Is growing income inequality something we should be worried about?
I’m not worried about income inequality
Rising fears over growing income inequality are mostly overrated. Income inequality is not a concerning problem, because overall prosperity is growing. When interviewed by Vox about his concerns, Tyler Cowen, professor of economics at George Mason University, said that “there’s zero evidence that happiness inequality is up, and there’s a fair amount of evidence that it’s down, and happiness and well-being is ultimately what we care about. So, I’m not worried about income inequality.” He goes on to elaborate that he worries about how intellectuals react to income inequality, but intellectuals aren’t actually influential. Real people care more about their wealth relative to their surroundings, and not to Bill Gates. As long as overall happiness is not skewed to a social class, or is at least moving to a more equal state, income inequality is not an important issue. Though a growing income gap will produce a concurrent gap in social outcomes, resulting in even more corrosive politics, Cowen argues that he doesn’t “see income inequality as the main culprit.” He explains that gaps in social outcomes are the result of “culture wars and the struggle for a sense of control and demographics and ethnicity and immigration.” These are problems because people think that they are problems. These issues, along with income inequality, aren’t actually issues in his eyes, but as long as people think that these are problems, they become problems.
According to Bryan Caplan, an economist at George Mason University, income inequality is “definitely the kind of problem we should worry less about.” According to Caplan, the main predictor of living standards, specifically that of the poorest people in a country, is productivity in said country. “Countries that produce a lot of stuff aren’t just good places to be rich or middle class; they’re good places to be poor.” For example, China, with its population of 1.3 billion people, has a higher (less equal) Gini Coefficient than the US, with about 400 million people living in poverty. However, the standard of living for this bottom 30% has increased dramatically from the 1980’s, where many were starving to death.
It is crucial to look at the bigger picture. Despite the rise of income inequality, the global prosperity curve is rising. Standards of living are constantly rising across the board, especially in comparison to decades and centuries before. According to a report published by Max Roser and Esteban Ortiz-Ospina, global extreme poverty is in decline. And these improvements in prosperity and standards of living are tangible measurements that have a true effect on our lives. As such, it is important to focus on the tangible rather than income inequality.
Income inequality is harmful
Income inequality may seem like an issue that’s better suited in New York and Wall Street, or Park Avenue, but the reality is that it affects everyone. According to the Economic Policy Institute, the top 1% of earners in Austin makes an average of $1.4 million annually, while the bottom 99% makes an average of $50,854 in the same time. That’s about 28 times more income going to a very small number of people. According to an MIT study of livable wages, a family of 2 adults (1 working) and 2 children living in Travis County require a pre-tax income of $53,925. This results in 18.8% of all Austin residents, or 178,200 people, living under the poverty line, which is considered an annual income of $23,021 for the same family. What this means is that in this great city of art and culture, 1 in 5 of us are struggling to make ends meet. It is important to note that the poverty line is far below what is considered a livable income, so the number of people actually struggling to make ends meet is much higher. With the current rate of the economy, this number will rise. The federal minimum wage has not changed, much less grown, in the past ten years, despite the value of the USD dropping due to inflation. Housing prices have skyrocketed across the nation’s urban centers, as demand for jobs has driven a subsequent demand for housing in cities as potential workers flood the market. The bottom 99% of Americans have seen their wages drop, while the prices of everything else skyrocket.
Yet those who benefit from income inequality are quick to denounce their opponents for focusing on the “wrong” thing. The effects of income inequality are clear, and harmful. As we saw, over 1 in 5 of us live day by day, attempting to make ends meet. The links between poverty and crime, mental health, and education are often studied, but never addressed in policy. And while I won’t delve too deep into corporate ownership of the US government (at least not today), the effects of poverty and income inequality are very real. According to a study by Shonkoff and Garner, “Family poverty is associated with a number of adverse conditions — high mobility and homelessness; hunger and food insecurity; parents who are in jail or absent; domestic violence; drug abuse and other problems — known as “toxic stressors” because they are severe, sustained and not buffered by supportive relationships.” Which means that many families who already have so little lose familial bonds as well. And these toxic stressors have adverse effects on teenagers. According to Russell Rumberger, Professor of Education at UC Santa Barbara, writing for the American Psychological Association, high school students at the bottom quintile of income are 5 times more likely to drop out of high school than those at the upper quintile. And this lost education ensures the cycle renews. According to the National Center for Educational Statistics, 31% of young adults without a high school diploma live under the poverty line.
Poverty is an undeniable problem in the world, and plagues the US far more than in other developed countries. Spurred on by rising income inequality, a growing part of America is falling victim to poverty and the various issues associated with it, while the top 1% continue to become even more prosperous and wealthy, and defend their position.