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Not everyone thinks that income inequality is a problem. For example, Edward Conard, formerly of Bain Capital, argues in his new book, “Unintended Consequences: Why Everything You’ve Been Told About the Economy Is Wrong,” that income inequality is the best incentive to get everyone working harder and taking more risks to create new products, start new businesses, and so on. For many others, though, income inequality is an issue. The rich are getting richer, but the vast middle of American society has not, for the past 30-plus years, participated fully in economic growth through higher incomes. The result is a discouraged, sometimes embittered work force and a shrinking middle class. These conditions will curtail, rather than enhance, efforts to accelerate the U.S. economy. The objective isn’t to eliminate inequality — there is more than a grain of truth to Conard’s incentive argument — but rather to reduce it so that no segment of the population is left out. Timothy Noah, in his book “The Great Divergence: America’s Growing Inequality Crisis and What We Can Do About It,” makes several suggestion that, he argues, should “enter the political conversation.” Three seem reasonable to me:
- Establish higher income-tax brackets for those earning more than $1 million, $10 million, and $20 million a year. I agree, because the purpose isn’t to raise revenue so much as to extend the rate structure to income levels now seen more frequently. Either that, or completely revise and simplify the entire tax code.
- Establish a federal jobs program that would provide time-limited work for middle- and lower-income people struggling to find employment. I agree, because job dislocations now occur routinely during flush times as well as in downturns.
- Eliminate the restrictions on skilled immigrants — including professionals — getting permanent work visas. I agree, because our outmoded immigration laws are creating or perpetuating artificial shortages of certain kinds of workers that our economy could benefit from having.
Noah’s other recommendations are problematic in my view. For example, instituting universal preschool education is a good idea, but in our system it needs to be implemented at the state level. Income inequality needs to be reined in so that all parts of our society have skin in the economic-growth game. The timing is urgent. A small item in The Wall Street Journal this week noted that from 2007 through 2010 the richest 10% of American families saw median income fall 1.4%; the poorest 25% by 3.7%; and for those in between, income dropped by a range of 7.7% to 13.6%. Let’s fix this before it gets worse.
2012 Economic Growth Fellow
John Prestbo is retired as editor and executive director of Dow Jones Indexes. Previously he was markets editor at The Wall Street Journal. He has co-authored or edited several books over the past 30 years. The most recent is “The Market’s Measure: An Illustrated History of America Told Through the Dow Jones Industrial Average,” published in 1999 by Dow Jones Indexes. His column, Indexed Investor, appears on the highly regarded “MarketWatch” business and finance website. He received his bachelor's and master's degrees from Northwestern University.Full Bio
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