As inequality rises, opportunity declines

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Some Americans like to say that while we are less equal in income and wealth than some of the western European countries, we have greater opportunity to rise on the economic scale.   If everybody has a reasonably fair chance to acquire wealth, based on talent and hard work, then we should not complain about inequality of wealth, or so the argument goes.

The chart above shows the problem with that argument.   Among 10 industrial nations, the United States had the greatest concentration of income at the top, measured by the Gini coefficient, and the second least equality of opportunity, based on correlation of your income with your parents’ income.

This stands to reason.   The steeper and higher the slope, the hardest it would be to climb up.

The chart is based on figures for 1985, which was nearly 30 years ago.   Income inequality has grown since then, and there is a dot on the chart extrapolating the decline in economic mobility for 2010 based on the Gini coefficient of wealth concentration for that year.

Click on The Great Gatsby Curve for an animated GIF of the chart, which makes it easier to understand.

The charts were based on a 2012 talk by Alan R. Kreuger, chairman of the President’s Council of Economic Advisers.  Click on The Rise and Consequences of Economic Inequality in the United States for additional charts from that presentation.

The Great Gatsby Curve chart was released by the White House yesterday, along with a statement of what President Obama proposes to do to lessen inequality.   His proposals are universal pro-school education, an increase in minimum wage from $7.25 to $9 an hour, indexing the minimum wage to inflation, implementing the Affordable Care Act, and investing in infrastructure and manufacturing.

But none of these things reflect the President’s priorities.  The goals to which he is most strongly committed would produce an even greater concentration of wealth at the top.  These include:

  • The Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership, two international treaties now being negotiated in secret, which would lock in corporate privileges and override national laws.
  • A grand bargain with the Republican leadership in Congress to reduce the federal budget deficit, involving reductions in Social Security, Medicare and other parts of the social safety net.
  • Protection of the “too big to fail” Wall Street banks and investment firms from prosecution, regulation and failure.

Concentration of wealth leads to concentration of political power, which leads to public policies that increase the concentration of wealth.   I think it is a mistake to expect a President—any President—to correct the imbalance of political and economic power.  This is a cycle that will continue until we the people organize to stop it, as was done in the New Deal era and earlier periods of American history.

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One Response to “As inequality rises, opportunity declines”

  1. History of Capitalism Says:

    The New Deal only came about because of the threat of socialism, a threat that, in hindsight, we should have made good on.

    Like

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