How Should We Tackle The Problem of Income Inequality?

Income inequality is one of the great political conundrums of our time. Depending on who you ask, it is either an expected byproduct of our nation’s strong capitalist economy or a symptom of an unjust socio-economic system. Some argue that we need bold, structural change to address this issue while others do not think this is an issue at all. As always, our Political Pen Pals series provides you with both sides. Enjoy! 

Dear Joe,

The first question in a discussion about income inequality must be done we have a problem? Yes, there is a wide gap between rich and poor in the U.S.  But what harm does it cause (or, what good does it do)? Answer these questions and we can move on to what to do about it.

Let us agree not to debate income inequality on moral grounds. If you say it is a sin to have too much money, you have ended the debate. (I would counter-argue that confiscating property honestly earned and already taxed is immoral, anyways.) The moral argument is not dispositive. When you learn the facts about income inequality, moral qualms evaporate. Income inequality as it exists in America is a tremendous national, indeed, global good.

Questions of rich and poor have been with us since time immemorial. Pierre-Joseph Proudhon said in 1840, “La propriete, c’est le vol!” (property is theft) and Marx proscribed private property in his Manifesto of 1848. But we all know what kinds of countries Marxist ideas produce. There are exactly five left: Venezuela, Cuba, North Korea, Vietnam, and China. The last two have skirted orthodox Marxist ideology to allow limited capitalism to grow their economies and, as it turns out, make many Vietnamese and Chinese rich. The other three can’t feed their own people.

If you argue that Jeff Bezos, Sergey Brin, Larry Ellison, Bill Gates and Tim Cook have too much money, I say they’re underpaid. Consider their fortunes relative to the benefits they bestow on the rest of us. Here is an old example, but a clear one: Cornelius Vanderbilt’s fortune was $215 billion in 2016 dollars, but his railroads made it possible for wheat farmers in Kansas to get their crop to market thousands of miles away. The transportation networks Vanderbilt and others created provide compounding benefits since the mid-19^th Century. Those benefits tower over the modest-by-comparison fortune Vanderbilt made at the time.

Without the wealthy, we would not have many of our most prestigious universities. There would be no Metropolitan Museum of Art or Frick Museum on Fifth Avenue. The American public library system, for which Andrew Carnegie donated 2,800 libraries, would not be educating and training the American workforce. How many hospitals, symphony halls, university buildings, medical laboratories, college endowments, and scholarship programs would have never been possible without the 1% of the 1%. 

The benefits of the rich to mankind as a result of the information revolution are perhaps even more astounding. For example, Sergey Brin and Larry Page, co-founders of Google, have each amassed a sizable fortune. But their search engine technology made the Internet a powerful and productive tool that benefited virtually everyone in the world. Their fortunes are a tiny fraction of the benefit they created. And while Page and Brin’s holdings are essentially static, the commercial, educational, medical, and scientific benefits of unlocking the potential of the Internet are cumulative. When ideas and information are shared among like-minded entrepreneurs and innovators, economic growth accelerates. The same can be said of Jobs’ iPhone, Gates’s software, or Moore and Noyce’s microprocessor.

The U.S. has ready capital and incentives that create innovation like no other nation precisely because we allow those who create disruptive technologies to get rich. But it doesn’t only make America better off. Since the information revolution, we have seen a coincident relief of world poverty. In 1981, 52% of the world’s population lived on less than $1.25 per day (2005 dollars). By 2011 that number had dropped to 17%, a change even more amazing when one remembers that grinding poverty, even starvation, was accepted as normal for most of history.

Life is no longer “solitary, poor, nasty, brutish and short,” to quote Hobbes. The information age has negated every previous theory of human existence. Consider that one in five babies died before the age of one in developed countries until the late 19^th Century and in higher numbers in undeveloped countries. Today the ratio is as low as one in 2,000 or 3,000. Such progress was created by industrial nations, fueled by capitalism, and driven by incentives to innovate … and get rich.

Let’s not forget that rich people are not “lucky” winners. In fact, we can be sure they didn’t do it alone. It takes thousands of people hungry for success who collaborate in communities such as Silicon Valley, Cambridge, Massachusetts, and the Silicon Rainforest in Seattle, to bring new technologies to the market. And the innovator’s job is never done. He must constantly improve his technologies to defend against competition, which leads to further innovation and improvement. That’s not luck, that’s hard work. Failures are many and survivors are few. The ultra-rich are fewer yet. But the possibility of reaching that highest level of wealth incentivizes our finest minds to be creative, to take risks, and to work incredibly hard. 

If we are taken in by political demagoguery that calls for the taxing and redistributing wealth, the damage to our economic well-being would be gradual but unrelenting. The wealthy would find strategies to avoid taxes and capital would be misallocated. Wealth would fly offshore. The economy would stop growing as it has in Europe.

When Elizabeth Warren makes a speech these days, she riffs on “a measly two cents” of every dollar of wealth that she wants to tax from the wealthy. But everyone knows that two cents won’t begin to do what she says it will do. Not even close. Then it will have to be four cents or ten cents, and more … until our economy is hobbled and spirals down.

Want to see what that looks like? Argentina was one of the ten richest countries in the world at one time. Juan Peron promised to share the wealth. When he became president in 1946 the exchange rate of the peso was four pesos to a dollar. In 1983 it reached nearly 100,000 to the dollar, and they created a new peso at near parity to the dollar. Since then, the redistributive, incentive-killing policies of Argentina have driven to nearly 60 to the dollar. Venezuela and Zimbabwe elected redistributive governments and destroyed their economies. Their money is worthless, their people are starving.

Taxing the wealth of our innovators and capital providers would trim the sails of our economy. Those among us with the least financial flexibility would be hurt the most. As improbable as it seems, in America, income inequality is a good thing.

Robert —

Thank you for your thoughtful and provocative opener. Income inequality has become a frequent talking point among pundits, as well as a central theme of many political campaigns and grassroots movements. And rightfully so, as it is an issue that threatens the United States economically, socially, and politically. I am glad to be debating it with you.

You open by stating that you do not wish to have this debate on moral grounds (although, you do then note that you find “confiscating property honestly earned and already taxed is immoral”). Nonetheless, I will take you up on your offer. I do not intend to argue that billionaires like Jeff Bezos, Tim Cook, and Bill Gates are immoral people. I will, though, argue on the firm ground of fairness.

Despite its increasing fashion inside my party as of late, I do not reject the time-tested truths of capitalism, a system that has unleashed economic, technological, and social progress unparalleled in the history of the human race. However, a policy is never black and white, but rather a question of degree. Thus, the questions in front of us are as follows. Is it fair that the top 0.1% of households now hold the same amount of wealth as the bottom 90%? Or that the wealthiest one percent of American households own 40% of the nation’s wealth? I take it, your answer, would be no. But I would then ask to what extent does a “rising tide lift all boats”? Certainly, the quality of life of our poorest countrymen has improved over time. But it is also true that the federal minimum wage of $7.25 (annual salary of $15,000) has not changed since 2009. Beyond not keeping pace with inflation, such a low minimum wage requires many parents to work multiple jobs to meet basic family needs. Our nation has grown richer and richer over the past 50 years, but 10-15% of our fellow citizens (40 million in 2017) have remained in poverty during that time. Doe this sound fair to you? 

You argue that billionaires are underpaid. I applaud your audacity. But I think you are wrong. You don’t have to listen to me … listen to them! Nineteen billionaires including Facebook co-founder Chris Hughes and Disney heiress Abigail Disney penned an open letter to the 2020 candidates of both parties arguing that a “wealth tax is patriotic.” They advocate for an ultra-wealth tax on people like themselves, the richest 1/10th of 1% of Americans and proclaim that it is in the “interest of our republic.” The American public agrees with this sentiment. A 2019 Fox News poll shows that 70% of Americans favor increasing taxes on those making over $10 million annually and 65% favor increasing taxes on those making over $1 million annually. These poll numbers have been replicated by many other sources.

Reducing income inequality is both fair and popular. I would also like to add sensible to that list. This is not necessarily the time or place to have a debate on the national debt and deficit (although, it increasingly seems like nowhere is the time or place for such a pressing discussion). But, ceteris paribus, reducing taxes on the wealthiest individuals necessarily means increasing government debt, as was the case with the Tax Cuts and Jobs Act of 2017. Government spending hit a record of almost $1 trillion deficit in 2019 and it appears that regrettable feat will be repeated in 2020 despite candidate Trump’s pledge to wipe out the national debt and budget chickenhawks like Mick Mulvaney running the Office of Management and Budget (not to mention favorable macroeconomic conditions that would allow us to do so). To their credit, true fiscal conservatives are often willing to ask the tough question of “can we afford it”? I would hope you would do the same and realize that we cannot afford to provide huge tax breaks to the ultra-wealthy while running perennial budget deficits.

You credit the ultra-wealthy for “bestowing” upon us the benefits of the technological revolution that has taken place over the past three hundred years, from the industrial through the information revolution. We can have a debate about how much of that credit should go to those individuals and, as it increasingly becoming my hobby horse, how much belongs to public investments in basic research and development that enabled the creation of their technology products. Nonetheless, I will concede that Bill Gates, Steve Jobs, and Jeff Bezos have created substantial wealth and employment for this country. However, what about the rest of the 1%? What about the high frequency traders on Wall Street? Or high paid lobbyists on K Street? Or the high powered lawyers working corporate mergers and acquisition? What are the repercussions of increasing taxes on these individuals? One less vacation home in the Hamptons? Might the Wall Street investor have one less yacht? And if we were to tax these individuals more, even just slightly more, what might be the benefits? Increasing investment in basic technological research, increasing access to early childhood education, improving infrastructure—all investments that return dividends for the taxpayer. George Will has noted, “Politics involves an endless agenda of arduous choices.” This doesn’t seem like a difficult choice to me. 

I will end with a point that I know we both care deeply about: income inequality deepens political divisions in our country and threatens our Union. In a frequently cited paper titled “Economic Inequality and Democratic Political Engagement,” Professor Frederick Solt outlines how economic inequality results in outsized political influence by the wealthy and how, as a result, poorer citizens are less likely to engage in democratic politics. Other studies have shown that inequality also contributes to political polarization, noting “people on either end of the economic spectrum have been developing even more different political preferences and electing people to represent those preferences.” One author who you might recognize has even argued that “fairness matters … and unfairness will ultimately be paid back in unrest.” And while our definitions of fairness might differ, we agree on the outcome.

At some point, America needs to decide if it wants to be a country or not. Whether we the people believe in both rights as well as responsibilities. If we answer in the affirmative, then we must realize that the current levels of economic inequality threaten our very Union and that we must act. We can be thankful, because the billions who may be adversely affected, have told us “We’ll be fine — taking on this tax is the least we can do to strengthen the country we love.” We should listen. I hope you will listen too.

Read the continued debate here.

If you enjoyed this article, you can read more bipartisan debates, op-eds, and interviews here.

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Joseph Schuman

Editor-in-Chief at Divided We Fall

Joe Schuman is the Founder and Editor-in-Chief of Divided We Fall. He works to set the vision of the organization and to build the team to meet that mission. Joe works as a civilian for the Department of Defense promoting innovation and emerging technology. Joe is also an Officer in the Air National Guard and a graduate of the Massachusetts Institute of Technology. In his spare time he can be found reading non-fiction, playing piano, and running triathlons.

Robert Wilkes

Senior Correspondent at Divided We Fall

Robert Wilkes, Senior Correspondent at Divided We Fall, is the former president/creative director of Wilkes Creative, a national branding and marketing company. Robert flew 100 combat missions in Vietnam as a Navy attack pilot. He spent ten years in engineering and marketing at Boeing, where his writing skills were called upon for technical papers, marketing assignments, and speeches for Boeing executives. As an activist in pro-Israel politics, he lobbied with AIPAC for 15 years where he met many congressmen and senators from both parties. Robert loves history, enjoys the craft of writing, and has a passion for civil debate. He resides in Bellevue, Washington.