Economic inequality in the USA
Simon Barrow Inequality in the distribution of income from wages and capital is present in any capitalist society; it is how incentives are structured. The CEO of a company making multiples of what the junior employees make serves to incentivize those people to aspire to his or her position. The fact that there is financial reward for employee’s achievements increases their productivity because it gives them a reason to work hard because they know they will be rewarded for it and turn they contribute to the growth and development of the economy of their respective country. Everybody wins, so the traditional argument goes. The question is this: is there a point where inequality is at such a level that it hinders the economy and society more than it helps it, and has America reached this point? Although there is no way to definitively prove that economic inequality is doing more harm than good because anything written about a less unequal America is all speculation. However, I endeavour to convince you, the reader, that inequality is a problem in America and that it is sufficiently serious to warrant action from the government. I will then propose various policies that the government could undertake and evaluate their respective plausibility and practicality. Firstly I will look at the evolution of inequality in the United State in the post-war years. The two world wars had large effects on the distribution of income and wealth in the USA; they changed the structure of the economy. There was a far greater focus on labour in the post-war years than there is currently and capital did not feature in the economy to the same extent that it does. This may explain why the growth experienced after the wars was more equally distributed. I will look at the period leading up to the wars, immediately after the wars and then the post war-recovery levels. The bottom line of America’s inequality story is that it enjoyed equal growth post-war. All wages rose together and the phrase ‘a rising tide lifts all ships’ seemed to have some truth to it. However, since 1970 wage growth for manufacturing labour has flat-lined while the share of income to the top 1% of earners in the US has increased dramatically. From 1947 to 1972 the share of income going to the top 1% of earners decreased by 29.2%. However, from 1972 to 2012 the share of income going to the top 1% of earners increased by a staggering 119.6% to 17.6% of national income. 1 The equal growth experienced from the 40s to the 70s was no accident. It was the result of policy responses to the great depression of the 1920s. There was federal support for collective bargaining, which led to a large increase in trade union density from 1935 up to a peak in 1945. There was a slight decline from 1945 to 1972 but after 1972 trade union density showed an unwavering downward trend as the share of income going to the top 1% increased dramatically. There were other political innovations in the New Deal such as social security and a minimum wage. Civil rights movements and second-wave feminism provided much greater security for working families while simultaneously reducing discrimination in the work place. The tax system at this time also kept high earners’ incomes from reaching levels previously seen in the 1920s. There was regulation on speculative finance accompanied by many public investments in providing access to higher education, mortgage subsidies for veterans, housing projects and an interstate highway system. These policies still rewarded the creation of capital, but they supported the rest of the population too, giving them the security they needed to be productive members of society. In 1972 the New Deal began to be dismantled. The excuse for this at the time was that it was done out of economic necessity and that the world had become far more competitive so the New Deal and the costs it imposed on businesses were no longer sustainable. There was a rise in conservative
1 http://scalar.usc.edu/works/growing-apart-a-political-history-of-american-inequality/index
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