If you want to read an article that shows the disconnect between rhetoric and reality and completely misses the point on “Income Gap” by literally pretending things are true that aren’t true…read this.
Here are a couple of highlights:
One intuitive measure of inequality is to compare “high-income” and “low-income” families. Suppose we define a high income level as income at the 90th percentile: that is, the income level higher than that of 90 percent of all families but lower than that of the top 10 percent. Similarly, we can define a low income level as the income at the 10th percentile.
A sign of no economic foundation is words like “intuitive”, “suppose”, “can”. This method of defining inequality is not only arbitrary, but also useless.
This part is the part I agree with:
Why has inequality increased?
It is always tempting to look for a single cause that can explain a major social or economic event, but in all likelihood the growing gap between rich and poor has many causes. A list of the “usual suspects” is easy to compile; evaluating their relative importance is far more difficult.
Much evidence points toward declining demand for low-skilled workers as a crucial factor. In the view of many economists, the principal source of this shift has been technological change that has allowed firms to economize on low-skilled labor while increasing the demand for highly educated workers. Ironically, these changes are broadly a consequence of the growing importance of computers and automation in the economy, the very technological advances that have helped drive the current economic boom.
Globalization of the economy may also have played a role. In the past 25 years, low-skilled American workers have experienced increasing competition from both low-paid immigrants and low-paid workers living in other parts of the world who produce goods that compete with American products. Although the effects of globalization are not negligible, most economists think they are less significant than the effects of technological change on wage inequality.
Finally, institutional changes in the labor market have had an impact. These include the declining membership in labor unions in the private sector and the declining real value of the legal minimum wage, which until recently had been severely eroded by inflation.
International comparisons support this analysis. The pressures on low-skilled wages from technological change and globalization have affected all developed economies, but the growth of inequality has been far greater in the United States. International differences in wage-setting institutions and income-transfer programs may explain the different outcomes. They may also help account for the higher unemployment rates in many other developed economies, a perspective that casts the U.S. experience in a more favorable light.
This is all precisely true…Did you like that last part, though? The U.S. in a more favorable light for lower unemployment…THE HORROR!!
But then they get to the “solution” and something really cool happens. They dismiss ALL of the above as completely irrelevant:
Individual and communal acts of charity will always play a role in reducing the adverse effects of income inequality, but significant reductions of inequality will depend upon the government’s power to tax, transfer, and regulate. Inevitably, however, redistributive policies involve real costs, in terms of both their economic impact and the infringements of property rights that accompany them. Thus there is a trade-off between equity and other values. To minimize the damage to these other values, two principles of policy design-efficiency and efficacy-should guide us as we evaluate proposals for reducing inequality.
If a policy is efficient, it will achieve its redistributive goals at minimal cost to the economy as a whole. Perhaps surprisingly, the criterion of efficiency is usually better served by policies that treat the symptoms, rather than the causes, of inequality.
For instance, to the extent that import competition is a source of downward pressure on low-skilled wages, protectionist trade policy could counteract the trend. Yet protectionism comes at a high cost to consumers and trade-dependent sectors of the economy. More efficient would be a policy that directly enhanced low-skilled workers’ incomes, whether through training, subsidies, or minimum wages.
So, technological changes, globalization, a lack of education in the workforce is best solved by simply “taxing, transferring, and regulating.” The source of the problem is simply not important. Well there you go. At least they acknowledge the “trade off” between property rights and equity.
The rest of the article continues to argue against itself in the most extraordinary ways, and it’s really fun to read. Within a couple of paragraphs, training and minimum wages are supported and then not supported. A good idea would have been for the Applied Ethics Department of Santa Clara University to go have a little conversation with the Economics department of Santa Clara University. It might’ve resulted in a slightly less ridiculous article. So OK, this isn’t really the best article to illustrate the argument on the “Income Inequality Crisis.” But it illustrates pretty well how rhetoric can so quickly and easily win out over science, logic and reason.
The Income Gap
