Tag Archives: economic inequality

Economic Despair

More and more, I am reminded of that old adage that “it ain’t what you don’t know that hurts you, it’s what you know that just ain’t so.”

A recent research paper from the Brookings Institution investigated one of those “things we know,” and came to some disquieting conclusions.

When it comes to staying in school, many economists talk about the “aspirational effects” of income inequality. When students look around them and see a better life, they are incentivized to invest in their own human capital—such as investing in their own education.

But what if that conventional thinking is wrong? What if inequality doesn’t incentivize students at the bottom of the income ladder to work harder, but rather disincentivizes them? This is one of the questions Melissa S. Kearney and Phillip B. Levine sought to answer in a new paper published as part of the Spring 2016 Brookings Papers on Economic Activity.

Among other things, Kearney and Levine found that low-income children growing up in states that have greater income inequality are dropping out of high school at higher rates than are children living in states with less income inequality.

The authors point to a concept they call “economic despair,” or a feeling that economic success is unlikely because the distance from the bottom to the middle of the ladder is too far to climb. If a student perceives a lower benefit to remaining in school, then he or she will choose to drop out—even if they aren’t struggling academically.

What is particularly interesting about this study is that it focused upon the perceived distance between the bottom and the middle of the income distribution—not the distance between the bottom and the top. The idea is that what they call “lower tail” inequality is a more relevant measure, because—although the top may realistically seem to be out of reach—making it to the middle would seem to be a more manageable goal.

The authors suggest interventions: mentoring programs that connect youth with successful adults, programs focused on establishing high expectations and pathways to graduation, or early-childhood parenting programs to build self-esteem and engender positive behaviors. Although such interventions might help ameliorate the problem, it’s hard to escape the conclusion that the effects would be modest, at best.

In fact, this study is one more “data point” in a picture that increasingly points to an inescapable conclusion: the level of inequality in America today is unsustainable and extremely detrimental, not just to the prospects of poor children, but to the nation as a whole.

We are in the midst of an election season that has unleashed a furious and troubling display of social dysfunction, in-your-face bigotry and populist anger. It’s hard not to attribute a significant part of that to economic realities that pit low-wage workers against each other and against a perceived plutocracy that has “rigged the system.”

Social scientists tell us that stable democracies are characterized by distributional equity, and the existence of a large and relatively secure middle class. Economists tell us that economic growth requires robust demand, generated by consumers with discretionary dollars to spend in the market, and a well-educated workforce.

When large numbers of people working 40 hours a week cannot earn enough to cover basic living expenses, when children don’t believe education offers them a path out of subsistence, democracy and the economy both suffer.

It’s past time to revisit some of the economic “facts” we think we know.

 

 

 

 

 

 

 

What Kind of Equality?

Yesterday, I participated in a panel discussion on equality. The panel was part of the 10th Annual O’Bannon Institute for Community Service, held at Ivy Tech Community College in Bloomington.

Our panel’s charge was very broad: we were supposed to discuss “equality” and consider America’s progress toward achieving it. In addition to me, the panel included a retired Pastor who heads the Bloomington Human Rights Commission, a social worker who founded and runs an organization called “Fair Talk” focused on equal rights for GLBT folks, and an 86-year old former football star who was the first African-American recruited by the NFL.

Beyond sharing stories from our different perspectives, we confronted a question: what do we mean by equality? No two people, after all, are equally smart, equally good-looking, equally talented or hardworking. What sorts of equality can we reasonably expect to achieve?

At the very least, we agreed that all Americans are entitled to equality before the law. Laws that disadvantage people based upon race, religion, ethnicity, gender or sexual orientation—laws that treat people differently simply based upon their identity—cannot be justified. America’s greatest promise has been that our laws treat individuals as individuals, and not as members of a group. As a country, we are making progress toward that goal. The progress is halting, and the culture sometimes lags, but we’re getting there.

That’s the good news. The bad news, as the pastor reminded us, is that inequalities of wealth and power in this country are enormous and growing. The wealthiest Americans not only control a huge percentage of the country’s resources, their wealth also allows them to exercise disproportionate political power. America is in real danger of becoming a plutocracy.

I hasten to assure my readers that there weren’t any socialists on that panel; no one was advocating class warfare or massive redistribution of wealth. We all understand the benefits of market economies, and recognize that inequalities are inevitable in such systems. The problems arise when the inequities become too large, and when they are seen as the product of privilege and status rather than entrepreneurship and/or diligence. It is then that they breed social resentment and create political instability.

America is doing a reasonable job of leveling the legal playing field. But you can’t eat legal equality, you can’t pay the rent with it, and it won’t cure cancer.