Income inequality

You would have to be fairly politically tone deaf to have avoided the gathering storm around an issue nearing a boiling point - income inequality.

We may not see rioting in the streets sparked by the growing wealth gap between those who have done well in recent years, and those who find their earning power stagnant. Then again, the same bifurcation prompted the 99 percenters to occupy part of Wall Street for awhile a few years ago, so you never know.

Governor Shumlin alluded to the issue during his budget address to the State Legislature last week, and national political figures have long been weighing in or wringing hands over the question - how do we get the income of the bottom 90 percent of the population back on a sustained upward trajectory again?

Up until relatively recently, as in, say 10 or 20 years ago, the basic rules of the game seemed to be set. Annual pay raises, at least enough to offset inflation, were fairly standard. Work hard, play by the rules, and the ordinary working person could have a reasonable expectation that they would at least keep up, and maybe even get rewarded, for years of dedicated service to an employer.

But that implicit social contract has come unglued in recent times. Real wage growth for those outside of certain industries like finance and technology are stuck in neutral. Factor in inflation - admittedly minimal compared to the rates often seen in the 1970s and 80s - and many middle class folks have actually lost ground since 2007 and the arrival of the Great Recession.

Those who have been thrown out of work, and have little likelihood of ever regaining their former income, or have given up looking for work altogether, are another story. The main reason the unemployment rate has inched lower despite the modest increase in the number of jobs being created month to month is because so many have become too discouraged to seek employment and have dropped out of the labor force. The workforce participation rate is now at a 35 year low, clocking in at numbers not seen since 1978.

In recent weeks we've seen much discussion around extending unemployment benefits for the long term unemployed, raising the national minimum wage, and the election of a new mayor of New York City who crafted his successful campaign around redistributing wealth from the more affluent to the poorest. If it were only a matter of doing that to solve the problem, what a wonderful world it would be. That's assuming you believe it's morally right and fair to tax the rich at levels sufficient to narrow that gap - and that governments will spend, invest and redistribute that wealth fairly and wisely. On the last point, the record is decidedly mixed, and that's before we start the conversation about sheltering wealth from the grim gaze of the IRS.

Alas, the answers are not so simple. Redistribution of wealth through the tax system may be fair to a point, but there's a fine line between that and discouraging private investment that spurs economic growth. Today's income inequality has its roots in global and technological changes that are on a par with those experienced by working folks two centuries ago during the first Industrial Revolution. As machines began replacing human labor as a way to make and move things, many people were thrown out of work amid much social upheaval. Eventually, such innovation spawned many more jobs, and a much higher standard of living for most, but it took awhile.

The same process may be unfolding again, although the sheer range of possible outcomes, as one ponders the applications that new computer-driven technology might force, is breathtaking. We may not, for example, in the not-too-distant future, need to drive our own cars. Industrial robots may replace 99 percent of factory workers. A recent survey published in The Economist magazine foresaw the likelihood of computerization replacing humans at many service and white collar jobs as well - on the endangered list were telemarketers (yay!) accountants and auditors, and retail salespersons (hmmmm....). Less surprisingly, jobs like recreational therapists, dentists, athletic trainers, clergy and chemical engineers were among the least likely to be eclipsed by machines.

Talk about a brave new world.

On the flip side, whole new jobs and industries that can't even be imagined now (who would have foreseen the rise of computer game technology?) will presumably take their place. But whether this great sorting out will result in a rebalancing and growth of wealth across the board remains to be seen.

The problem is, it has to, otherwise we are possibly headed for a period of prolonged social unrest. People get tired after awhile of trudging along on the treadmill, never getting ahead. And it's galling when a sliver of the population does. That wealth may well be earned fair and square. Financial engineers were fortunate to be in an industry that despite the recession, has stabilized and grown. Before the rest of us get angry about that, let's remember that such work is not for everyone. It all comes down to supply and demand. Other types of engineers have also seen their prospects brighten. But at some point, those who aspire to and maintain a middle-class lifestyle won't remain quiescent forever.

Two answers immediately suggest themselves - education and personal responsibility.

One of the drivers of working class economic malaise frequently identified by those who study such things is out-of-wedlock births and single parent families. That's not meant as a back-handed slap, but economic statistics suggest a strong connection, despite the best intentions of those single parents. As Joe Klein put it in a thoughtful essay in last week's Time Magazine, these twin phenomena "have caused the bottom to drop out of working-class family incomes."

Education and innovation have long been a U.S. trump card, but the sad fact is that nationally, we are losing ground to other nations when it comes to educational rigor and achievement. One area that clearly would seem a good way to go is to expand pre-kindergarten instruction, which would alleviate child caring responsibilities from many families who can't afford it regularly. Pre-K instruction would offer those youngsters more intellectual stimulation at a time in their young lives when they would most benefit from it.

That's assuming the too-often hidebound, union mentality-driven education establishment (we're talking nationally here) is willing to embrace the changes to how they operate to meet the needs of the 21st century workforce. And that parents will allow teachers to teach - and hand out failing grades to those students who don't meet the more rigorous standards we need to have.


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