RebelCapitalist: Financial Information for the Rest of Us

It’s a Matter of Priorities

Sep 07, 2010 | By: Mr_Blue | Tags: income inequality, job guarantee, great divergence

Timothy Noah from Slate magazine is writing a series on income inequality in U.S. called “The Great Divergence: The United States of Inequality”. The series is going to examine the theories that try to explain the reason for the Great Divergence. We would be remiss if we didn’t offer our own theories and offer a few solutions.

This new series has a cool slide show that visualization the extent of the problem of income inequality. Please check it out.

There is NOT one factor or theory that can explain the magnitude of the income inequality in the U.S. It is a combination of factors and it has happened over several decades (obviously). This “Great Divergence”, as the first article says, began in the 1970’s.

Globalization, financialization and weakening of unions all contributed to this “Great Divergence”. Globalization and weakening of unions have contributed to the stagnation of wage growth. Financialization, not only in the form of a casino capitalism but also the compensation levels on Wall Street, has also contributed.

Income inequality has become worse over several decades. The solutions will take time to start reverse the “Great Divergence”. One solution is a Job Guarantee Program (JG). JG will serve two functions. First, instead of using unemployment as a means to fight inflation and suppress wage growth, federal government can use a “buffer stock” of employed workers as a means to fight inflation and limit the social costs of unemployment. Second, included with JG is a re-training program that could provide workers new skills to increase job opportunities in private sector.

Another proposal would address making college (or equivalent) more affordable. A two-year (or depending on program) grant to a state school in return for a commitment to work in an under-served community after college. The aim is, obviously, to lower overall cost of college. Educational attainment is a factor in upward economic mobility at least it was before the Great Recession.

Third, make Wall Street smaller and servant to the real economy. Financial regulatory tweak failed to address the size or power of the financial sector - big mistake. Clamping down it’s size or at very least compensation packages will definitely help to address income inequality in U.S.

Now, there are those who are stressing about the federal budget deficit. Relax, the issue is not the size of deficit but who benefits from it. We obviously never had a problem bailing out Wall Street to the tune of several trillion dollars or the trillions of dollars that have been spent in Iraq and Afghanistan (and related costs). It’s a matter of priorities - do we want to address the issue income inequality in the U.S. or do we want income inequality to jeopardize our democracy.

Good luck.