On Sept. 16, the Census Bureau came out with its annal report on income and poverty. One of my favorite columnists, John Cassidy, penned a nice post outlining some takeaways. The report showed some very minor positive changes (a slight downtick in the poverty rate, and a slight downtick in the Gini Coefficient, probably the most common measurement of inequality - a higher Gini Coefficient means more disparity in income, though the metric has sometimes been criticized as inaccurate in some respects).
Furthermore, Cassidy talked about a modest rise in the medium income, which signifies a "steady, if unspectacular, recovery from the Great Recession." However, he noted that these gains were not fast enough (many measures of economic health were still worse than they were in 2007, before the Great Recession), and the United States continues to be an extremely unequal place.
What I thought was most interesting was Cassidy's characterization of what poor economic conditions mean for political systems. In general, when spending power is on the rise (people have more real money in their pockets), compromise is easier. However, in an unequal economic system, when spending power is too little (people don't have enough real money in their pockets), the working and middle classes try to enact progressive/redistributive economic policies (tax the rich, give to the poor) that will bring money from the folks at the top down to them. This gives those people at the top an extra incentive to oppose these redistributive policies, setting up a political conflict and increasing polarization.
To sum it up in John Cassidy's words, "To oversimplify a bit, income stagnation paired with rising inequality is a recipe for political polarization and, under the American system of divided powers, political gridlock, which is what we have."
I think Cassidy makes an excellent point about country's political economy. I would add that I think this process is cyclical; the increased political polarization and gridlock that is a byproduct of poor economic conditions reduces the government's ability to govern and create sensible economic policy, which in turn worsens our economic conditions and leads to more gridlock and polarization all over again (which in turn leads to poor economic conditions, which again leads to... you get the point). Though, to be fair, some libertarian economists like Dan Mitchell wouldn't agree with me that gridlock leads to poor economic conditions, as they have the mindset of "That government is best which governs least" mindset, and think that when we have gridlock, the government isn't able to do much, which is good for the economy.
I have some questions:
- What governments actions (or inactions, I guess) do you all think should be taken to reduce the poverty and inequality that Cassidy says is so harmful to our political system?
- Do you agree with Cassidy's thesis ("income stagnation paired with rising inequality is a recipe for political polarization and, under the American system of divided powers, political gridlock")? Why?
- Do you agree with me that this process is cyclical, as political gridlock -- and thus less sensible government action -- creates poor economic circumstances? Or would you agree with the certain economists like Dan Mitchell who think gridlock -- and thus less government action at all -- creates good economic conditions? Why?
- Maybe you can come up with a concrete example of poor economic conditions and inequality creating political polarization and gridlock to elucidate Cassidy's thesis to everyone on the blog?
5 comments:
I don't think the government should take action against poverty. If they want a higher standard of living, the burden is on them. I don't see a compelling reason to try to eliminate or reduce poverty in our society.
This gridlock thesis makes sense, as the rich and poor have always been trying to further their own group via politics, so a wider income gap would logically create a larger political divide as well.
I think less government action is best. People will generally try to better themselves and their families economically, so additional government economic action isn't necessarily needed for economies to grow and for people to prosper. Also, taxes suck. Down with taxes!
I definitely agree with Cassidy's thesis that income inequality leads to political gridlock. In a society where the rich get richer and the poor get poorer, distinct opposing factions--as Madison iterated in his federalist papers--develop. In order to control the effects of this polarization, I believe government action ought to be taken to mitigate income inequality.
An illustrative example of how government programs such as SNAP, Medicare, Medicaid, and Social Security work to assist an economy lies in J.K. Rowling's success. Several years ago on a Jon Stewart interview she talked about the fact that the British government's welfare program enabled her to sustain herself despite being at that time "poor as you could be without being homeless." In truth, her financial benefits acted as an extremely lucrative investment for the British government as she ended up paying millions in taxes after she made it big.
Real circumstances often make it extremely difficult for the disadvantaged to lift their economic burden on their own. This is why I believe governments ought to create temporary assistance programs for the poor in addition to levying relatively high taxes on the rich. Ultimately, the resulting income distribution will level, thus reducing polarization and and political stagnation.
As we talked about in HMC, I believe that the earned income tax credit or EIC is an effective way to combat poverty. The EIC basically gives a bonus to low wage workers. The bonus initially grows as the worker earns more money thus incentivising earning more money (It eventually declines).
This, however, is not a complete solution to poverty as it doesn't help the unemployed and some people attempt to game the system. I do believe there is a need for a safety net within society, especially in economic downturns. Additionally, the EIC is an example of redistributive policy that Cassidy said was unlikely during economic instability.
Nick, I disagree with your stance that government intervention is unnecessary for people to escape poverty.
Children born into poverty face many more challenges than those who aren't. Even if you don't think that it is unfair for people to start off on unequal footing (because granted, starting everyone off equally is impossible), the impacts of poverty on society as a whole are too great to ignore.
Poverty doesn't just effect those who do not have enough. Poverty leads to higher crime rates, higher rates of teen pregnancy and lower levels of education. For the sake of everyone in the country, it is important that the government combat poverty.
I agree with Cleo. I think we have to also look at this from a moral perspective -- is it in someone's control that they are in poverty? Well, I guess you can argue yes, but the reality is that economic mobility is extremely low in this country (as opposed to other developed countries), and people didn't necessarily choose to be poor. Due to this, I think the government has a responsibility to combat poverty. Nick, I am glad that we agree on the gridlock thesis. I think that a good example of this was in 2012 when the Democrats tried to pass the American jobs act. The bill, which was responding to a stagnant economy, had many provisions that would have helped the underprivileged (ex. extension of unemployment benefits). It was going to be funded by a surtax that would have been paid for by wealthier people. The Democrats -- who wanted to have the unemployment benefits extended -- and the Republicans -- who didn't want their wealthy supporters to have to foot the bill -- became at odds, and no jobs bill was passed. This is an example of how a bad economy and inequality can increase gridlock, Cassidy's thesis. -Jordan Kranzler (for some reason, it isn't putting my last name in)
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