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?