Economic inequality is a grand challenge for our generation. Regardless of where you fall on the political spectrum, it’s impossible to ignore the writing on the wall. The gap between the haves and have-nots is widening. While our proposed solutions may differ, one thing is certain; we must take action.
Unrest is growing. Bernie Sanders is now a viable presidential candidate. While I do not agree with much of what he says, I commend him for having the guts to question economic orthodoxy. In our current political climate, a candidate asking such questions appears radical, but he’s really not that far out.
Combating inequality is far from radical; it’s necessary. Major societal gaps between rich and poor are associated with greater rates of violence, drug abuse and mental illness. Correlation certainly does not prove causation, but the link is ominous. Moreover, high levels of inequality are harmful to economic growth. As such, the interests of those at the top are aligned with those at the bottom. If we do nothing, the wheels are bound to come off sooner or later.
Many billionaires recognize this. Warren Buffet, Bill Gates, Elon Musk and others have signed the Giving Pledge, guaranteeing their fortunes for philanthropy. Nick Hanauer, a self-described “unrepentant capitalist,” penned an op-ed in 2014 warning his “fellow plutocrats” that pitchforks were coming. “I have a message for my fellow filthy rich, for all of us who live in our gated bubble worlds: Wake up, people. It won’t last,” he wrote.
I concur. Right now, 1 percent of the population controls 35 percent of wealth while the bottom 40 percent controls none. This is unsustainable. The problem isn’t lazy poor people or burdensome economic regulations. It is built into the structure of our economy. We can’t abandon capitalism, but we must recognize reality: the essence of a market economy relies on actors rationally responding to incentives. If the incentives are skewed, the outcome will be too.
We see the negative effects of this everywhere. Let’s examine one instance: the proverbial “big corporations.” They certainly obey market forces. Those forces do not prioritize workers, however; they favor investors, many of whom are playing a short-term, zero-sum game. That means long-term good business often goes out the door in favor of maximizing immediate returns. Shareholders penalized Wal-Mart for raising wages and tried to force Apple out of doing beneficial, but less profitable work.
Washington Post columnist Steven Pearlstein wrote in 2013 that giving shareholders such corporate power is based on ideology, not economic theory. Stanford Professor Jeffery Pfeffer echoed Pearlstein’s sentiment four years earlier in the Harvard Business Review. According to him, the problem arose due to a misguided belief in the efficiency and intelligence of markets. Markets will generally deliver an efficient outcome, but not when companies are treated as financial instruments whose sole purpose is producing profit.
The incentives are distorted. It might be satisfying to point the finger at evil “shareholders,” but they’re just individuals acting (mostly) rationally. They’re not the issue. Neither is the market—it’s working the way it’s supposed to. This is the problem: the goals of the players involved are divorced from the broader needs of society.
Our economic system is full of perverse incentives and rent-seeking. Our laissez-faire approach has given birth to a monster that no one can tackle alone. No single policy is sufficient. Increasing the minimum wage, tax rates or educational spending would be ineffective if it is not part of a larger-scale effort to reform our basic economic structure. If that’s what we need, then we must work together to come up with a solution. That requires coordination. Coordination requires…
Government, unfortunately.
We’ve had ample opportunity since Reaganomics to get our act together and show that minimal government was the way to go. We failed. Of course, so did socialism and communism. Even social-democratic Sweden is shifting more to the center. We need another option.
I’m not sold on Sanders’ economic vision. Robert Reich has yet to convince me Despite what anyone says, there are legitimate doubts about the math behind Sanders’ political revolution. Paper calculations do not necessarily equal good policy.
I’ve looked at his tax proposal. Those numbers don’t seem scary now, but if I’m ever making enough money to be in a high tax bracket, I might think differently. So might you. If he wins (and by some miracle passes everything he intends), be ready to break out your check book.
I do applaud Sanders for forcing us to ask tough questions. Economics is not a hard science. If our current theories and models are breaking down, then we need to ask why. We need to start seriously considering ideas like basic income and single payer healthcare, lest our economy continues to be broadsided by ever-increasing automation. Some of these solutions will necessarily entail an efficiency loss. Sometimes, we don’t want an efficient outcome. We want an equitable one. At the least, we need a sustainable one.
Maybe it IS time we elected someone who will continue in the FDR’s footsteps. I don’t know. One thing is certain, though: inaction has a price. We can no longer afford it.
Ted Yavuzkurt is a Trinity senior. His column runs on alternate Tuesdays. If you have a comment for him, he can be reached at tdy@duke.edu.
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