"Princes or lords may flourish, or may fade;
A breath can make them, as a breath has made;
But a bold peasantry, their country's pride,
When once destroy'd, can never be supplied."
Oliver Goldsmith 1728-1774 The Deserted Village
There has been great concern among
lots of Americans that the government’s present course of redistribution of
wealth, intended to reduce inequality in the country, will harm our nation’s
financial status and growth direction. The fear is that taking money away from
the rich will impair their ability to invest money and will impede real job
creation. To a considerable extent, this fear has some truth to it.
On the one hand, it is common
knowledge that inequality in world wealth is at an all-time high. There is also
a fear that inequality is bad for our society.
Nicholas Kristof writing in the New
York Times on 7/23/14 (An Idiot’s Guide to Inequality) http://nyti.ms/1rMPSuh (control+click)
reports that the top 1% of people in the income
distribution of our country now own more wealth than the bottom 90 percent. As
a result of this maldistribution of wealth, it was found that in 2010, 93% of
the increased wealth created in the United States went to the top 1% of our
population who live in the upper economic levels of society.
Oxfam estimates that 85 world
citizens own as much as the bottom half of the world’s population! (Oxfam is an
international confederation of 17 organizations working in approximately 94
countries worldwide to find solutions to poverty.)
There
is a tentative agreement in the literature written by economists about growth that
inequality can undermine progress in health and education, causing
investment-reducing political and economic instability, and undercut the social
consensus required to adjust in the face of major shocks, and thus that it
tends to reduce the pace and durability of growth. Markedly unequal distribution
of wealth also causes the wealthy class to seek rents instead of actually
contributing to real growth (“Rent-seeking” is the practice of using wealth to
create more wealth, without actually contributing to the stock of goods and
services in the country.) This practice diminishes economic growth in the
country.
It
has long been known that lower levels of economic inequality are correlated
with faster and more durable growth. So…governmental gurus who run the Treasury
Department and the Federal Reserve always seek ways to redistribute wealth
through fiscal and monetary means.
Modern-day
politicians with a “progressive” viewpoint think that redistributing wealth by
increasing taxes and government spending on roads, dams, and other
infrastructure will help the underclass by giving them more money and, thus,
stimulate growth. The problem with this idea is that the jobs created by
government spending on such things do not last; and, in the end, they do not
help with national economic growth. Only jobs created in the private sector
will give long-term economic growth.
Writers
at the International Monetary Fund point out that inequality may impede growth
at least in part because it calls forth efforts to redistribute through the
fiscal system, efforts that themselves may undermine growth. In such a
situation, even if inequality is bad for growth, taxes and transfers may be
precisely the wrong remedy. http://bit.ly/1dzoFjl
(control+click)
So
much for the bad news. What is the answer to the inequality/slow-growth
problem? The answer to this is very hard to say; and economists have wrestled
with this question for a long time. It is the considered opinion of several
that the answer does not lie in more governmental redistribution through the
monetary and fiscal system. The answer probably lies in efforts to equalize opportunity rather than income.
Rather
than dumping money into more roads and dams, I believe that the United States
would do better to put more money into equalizing educational opportunities for
our people. It is a fact that in America, the sharper edge of public funding
for education still goes to the rich rather than to the poor. If our people would
have less inequality in financial affairs, they must have less inequality in opportunity to advance themselves. http://nyti.ms/1nDoyvC (control+click) That means they must be able
to compete better as a result of better education.