The world is grappling with various forms of inequalities. Economic inequality is a persistent global issue of which America is a microcosm. It is the unequal distribution of economic resources among citizens of a given nation, region, or community. Economic resources refer to money as income or acquired wealth and access to credit. Over the past 35 years, the impact of socioeconomic disparity in the U.S is increasing to the disadvantage of the middle class and those at the lower rung of wealth and income (Reich, 2013). Several factors emerged as causes of economic inequality. In America, the debate about economic inequality pulls into different directions such as academic, sociological, and political domains. The country has a long history regarding inequality, but economic inequality has featured in recent political and academic discourses in the last few years. This paper looks at the causes of economic inequality in America, the consequences, and potential solutions. The wealthy, middle class, and the poor dichotomy is affecting negatively, America’s political, economic, social, and cultural positions internationally and nationally. Many know about economic inequality but are unaware of it implications to the nation. The documentary, Inequality for All by Robert Reich is a depiction, demonstration, and explanation of the stark fundamental issues that are dominant in America's wealth and income generation and distribution. People from the wealth and revenue spectrum are displayed to offer insight into the subtleties, causal elements, and dynamics of inequalities. Robert Reich is an astute economist and public policy advocate and lecturer who served as labor secretary under President Clinton administration. Precise and adequate policy formulation and implementation with a focus on the middle class and lower poor has the potential of reducing economic inequality in America.
The body of research that focuses on inequality in America, the causal elements, and the consequences is a mix. The reason for this is the inability to have a consistent methodology and income, wealth measurement parameters. Thus, sufficient attention has not been given to the political, educational, economic, social, and cultural dynamics that have contributed to molding America' welfare and life chances. Historical factors play a significant part in creating an economic system called capitalism. The increasing inequality is threatening capitalism with a resultant effect on democracy (Reich, 2013). According to Reich, 400 wealthy individuals hold and control the wealth of 150 million Americans at the lower rung of wealth and income. This inequality is not an accurate reflection of America's democratic principles and ideals. Inequality will undermine the nation's democracy and strengthen loss of equal opportunity for every American. The U.S democracy empowers its citizens not impoverish them and it is the middle class who are the driving force of its economy. The middle class and the lower poor are the agencies that cause small and medium-sized enterprises to thrive, hence, together are the primary drivers of economic growth.
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The middle class in America is the primary driver of the economy. America is a consumer-driven economy. The purchasing ability of the middle class contributes more to the growth of the economy. However, today because of the income and wealth disparity this group of people in America cannot buy goods and services because of the absence of purchasing power. They are also not able to create jobs, as they should because of the economic inequality. Since the 1970s, the middle-income earner has experienced a stagnated income (Reich, 2013). If adjusted for inflation, many jobs pay less, and the same workers' rents, childcare, health care, and education costs continue to rise. The costs and standard of living have changed without a corresponding increase in income and wealth among this group. They have greater opportunities for women in the workplace, increased worker hours for families, dual jobs, and home loans as coping mechanisms. The dearth of coping mechanisms is part of the reason why there is a call for policies that ameliorate the stagnation of the middle class. The critical role of policies is in the domain of government. The government contributes to the evisceration of the middle class.
Causes
The role of government in economic inequality is vast. Politics is at the center of the inequality debate. Politics has a strong bearing on economic inequality the same way it influences other inequalities. One of the roles of government is to redistribute national resources including income responsibly. Each jurisdiction introduces policies on issues that it seeks to address or strengthen. Economic policies lead to economic inequality and the result of which is political inequality. Socioeconomic inequality seems to be the aspect that develops and reinforces other forms of inequality. The relationship between policies, economic and political inequality creates a vicious circle if nothing is done to address the trend. The expectation from citizens concerning the government is that it formulates policies that affect them positively. However, income, wealth, and social inequalities have created societal gaps in the nation, resulting in the separation of people in economic terms.
A wealthy country such as America should promote policies and values that improve the living standards of the middle class and the poor. The economically advanced countries are expected to grow and strengthen their economies by distributing the fruits of economic growth to every citizen. Redistribution of national income, from a macro economic to microeconomic standpoint is a function of the government; it transfers wealth and the effects of growth from the wealthy to citizens, especially the working population. Individual aspirations should merge with those of others to achieve equity and efficiency in the consumption and distribution of goods and services within the socioeconomic context. Such efforts will cause economic growth and income mobility. However, Alesina, Glaeser, and Sacerdote (2001) notes that “the [U.S.] political system is geared towards preventing redistribution.”(p.39). Therefore, the economy is the result of the politics and economic policies that regulate and control the market forces within a capitalist system. If capitalism is not contained, it has the capability of undermining a country’s democracy and enhancing polarization of the country (Reich, 2013). Thus, the middle class and the lower poor face a task in migrating above the poverty line and stagnant economic status because of political and sociocultural constructs of the society
There is a moral angle to economic inequality; it is where politics and government connect with the national income distribution as well as income mobility. The government has the potential to redistribute income by applying financial management principles in interventions that grow the economy without causing stagnation among the workforce. The middle class generates about 70% to the economic growth of America. They can do so when they can spend, invest, save, create employment, and generate more taxes. Thus, policy directions in a healthy and functional economy that encourages the middle and lower group to move upward regarding wealth and income will reduce economic inequality significantly.
Deregulation and anti-union legislations have also increased economic inequality. The anti-union laws led to an economic boom, but the money did not get to the middle class and the poor at the bottom. The government makes rules and legislation; it does make these laws with an understanding of who is to benefit. For example, the deregulation of the financial sector has led to the economic uncertainties with the Federal Reserve lending to banks and servicing national debts. As Roberts (2013) wrote, “Free unregulated markets disconnect economic activity from human well-being” (n.p). Free markets usually favor the wealthier in the society. The absence of rules that favor the middle and low-income earner in America reinforces the perception that political will is what America needs to spur wealth and income mobility.
A progressive taxation system strengthens the economic inequality dynamics of a country. The U.S tax codes for the middle and poor is a disincentive (Winship, 2012). The taxation structure hinders income mobility for people in the middle and lower rung of income or earning. There is a level of dis-incentivizing related to work, saving and marriage because a change in status also affects a tax code. The phase out system from government social programs creates another disincentive because of a high tax rate for workers that are no longer in a government program. Therefore, a policy that encourages work should relate to the taxation structure for this group of citizens. In such a framework, the rich and working class in the society are not the worst off but have equal access to essential goods and services. Thus, equal opportunity is made available for everyone leading to a more vibrant democracy and economy. It will mean that there will be equality in production, consumption, and distribution of goods and service is affordable by the citizenry.
Technology, underinvestment in education and globalization are other causes of economic inequality. Technological innovations have led to automation and labor migration, a situation that has affected the rate and quality of work. Thus, there has been a change in demand and wage for different categories of jobs. Economists refer to this technology-based phenomenon as skill ‐ biased technological change (SBTC). It has significantly transformed the educational requirement for workers. Also, it has increased the best rate in income that workers receive based on their level of education. Education attainment is now a critical factor in determining the degree of income mobility. This SBTC has increased economic inequality in the America in the same way that it has done in other countries because of globalization. The concept of globalization and trade operates by technology, thereby affecting wages for the middle class and lower poor.
Consequences
The consequences of economic inequality include a divided society, undermined democracy, reinforcement of other inequalities, slow economic growth, retirement insecurities, and stagnation of income and wealth for the middle class and poor. A society that is divided will experience frustrations among the workforce, scapegoat rhetoric, which further polarizes the country on political and ideological lines. With the division, important economic decisions will be difficult to arrive at in legislative settings and policy levels. The economic development and growth are usually affected under such circumstance.
Potential Solutions
Unionization in some sectors will increase the chance of workers in those industries to move upward regarding income. Areas such as hotels, restaurants and other retail firms are right for unionization because there is less competition due to globalization (Reich, 2013). Policies that encourage unionization will reduce the economic inequality levels and increase upward income mobility. Obstacles against new entrepreneurs such as rigid and burdensome rules should be eliminated to promote employment creation. More importantly, education opportunities need to improve through the right policy framework and implementation.
Thus, enough research indicates the existence of economic inequality in America. Through the nation’s history, many inequalities have been tackled with significant and positive results. Economic inequality persists, with a small minority owning and controlling America’s wealth and income distribution. The causes of this inequality include policy failures, politics, taxation, deregulation, globalization and technology, and anti-union legislations. The middle class and the poor workers are the real job creators in America. They have experienced income stagnation for over the last 30 years. Proper policies formulation and implementation will reduce the economic inequality in America.
References
Alesina, A., Glaeser, E., & Sacerdote, B. (2001). “Why Doesn’t The US Have A European-Style Welfare State?” Harvard Institute of Economic Research . Retrieved from https://scholar.harvard.edu/files/glaeser/files/why_doesnt_the_u.s._have_a_european-style_welfare_state.pdf .Reich, R. (2013). Inequality for all . Documentary
Roberts, P.C. (2013). How Deregulation Resurrected American Economic Insecurity . Retrieved from http://www.paulcraigroberts.org/2013/03/06/how-deregulation-resurrected-american-economic-insecurity-paul-craig-roberts .
Winship, C. (2012). “Assessing Income Inequality, Mobility and Opportunity,” Testimony before the Senate Budget Committee. http://www.brookings.edu/testimony/2012/0209_inequality_mobility_winship.aspx
