The Challenges of Poverty and Wealth
Economist Dambisa Moyo looks at why inequality in the United States is roughly the same as China (both have a Gini coefficient of 0.47) despite having a "liberal democracy with a market-based economy":
Most democratic societies have attempted to address the problem through left-leaning redistributive policies or right-leaning supply-side approaches. But neither seems to be particularly effective. In the US, income inequality has steadily widened under both Democratic and Republican administrations. China’s success in this arena points to the possible advantages of its heavy-handed system – a conclusion that makes many Western policymakers uncomfortable...
Check out her most recent TED talk discussing the diminishing global economic growth that "risks human progress" and potential for upward economic mobility:
Economic growth needs capitalism, but it needs it to work properly. And as I mentioned a moment ago, the core of the capitalist system has been defined by private actors. And even this, however, is a very simplistic dichotomy. Capitalism: good; non-capitalism: bad. When in practical experience, capitalism is much more of a spectrum. And we have countries such as China, which have practiced more state capitalism, and we have countries like the Unites States which are more market capitalist...
In order to think about that framing, we have to ask ourselves, how does capitalism work today? Very simplistically, capitalism is set on the basis of an individual utility maximizer—a selfish individual who goes after what he or she wants. And only after they've maximized their utility do they then decide it's important to provide support to other social contracts.
You may also be interested in this New Yorker story about China's next generation of the wealthy and why they may be planning to move to the West:
In the past decade, they have swept into cities like New York, London, and Los Angeles, snapping up real estate and provoking anxieties about inequality and globalized wealth. Rich Chinese have become a fixture in the public imagination, the way rich Russians were in the nineteen-nineties and rich people from the Gulf states were in the decades before that. The Chinese presence in Vancouver is particularly pronounced, thanks to the city’s position on the Pacific Rim, its pleasant climate, and its easy pace of life. China’s newly minted millionaires see the city as a haven in which to place not only their money but, increasingly, their offspring, who come there to get an education, to start businesses, and to socialize.
Do we need a constitutional amendment to get the economy we want? In Yes Magazine, Keith Harrington argues that is the only way to fix the money-in-politics issue we have:
In the aftermath of [the Citizens United] ruling, which equated money with free speech, big corporations and the super-rich have consolidated their already-substantial influence over our political process. The legalized system of bribery that Citizens United condoned allows those with the most money to buy elections, ensuring policies that align with their elite interests at the expense of the average citizen. And this isn’t just populist rhetoric. In 2014, professors from Princeton and Northwestern looked at thousands of federal policy decisions over a 20-year period. They found that a law had about a 50 percent chance of passing if it was favored by 80 percent of rich households, whereas the average voter’s views had virtually no impact...
As I’ve argued in a prior post in this series, checkerboard revolutionaries cannot expect their patchwork of economic innovations to amount to widespread change until they develop a strategy for winning transformative policies. The axis of the financial world won’t shift from Wall Street to Main Street without a big push from government.
In depressing news, "despite big advances in medicine, technology and education," widening income inequality in America is proving deadly for the poor, according to the New York Times:
Looking at the extreme ends of the income spectrum, economists at the Brookings Institution found that for men born in 1920, there was a six-year difference in life expectancy between the top 10 percent of earners and the bottom 10 percent. For men born in 1950, that difference had more than doubled, to 14 years.
For women, the gap grew to 13 years, from 4.7 years.
Meanwhile, this article in the Washington Post looks at research on obesity and finds that poverty in early childhood can create eating issues that manifest later in life:
For those who never had to worry about a meal, foregoing a snack is no big deal—it's an afterthought. But for those who did, it could mean the difference between a good night's sleep and hours awake in bed.
"When you grow up in these types of environments, you’re effectively being trained to eat when you can instead of when you’re hungry," she said. "Something about that experience could be leftover."
A recent Brookings report discusses whether race-conscious policies should be used to tackle the wealth gap:
Professors William Darity at Duke and Darrick Hamilton of The New School propose to tackle race gaps in wealth by providing “baby bonds” to children born to families with limited wealth. In 2013, median net worth was $11,000 for black households compared to $141,900 for whites. Darity and Hamilton are supporters of reparations in principle, but are alert to policy and political feasibility. Their specific proposal is that every baby born into a family with below-median wealth receives a “baby bond” or trust fund. These would be worth $50,000 to $60,000 on average, but scaled according to the level of the family’s wealth. The money would be available at the age of 18 for certain expenditures such as paying for college or buying a home. This is a good example of a race-conscious policy. It is not explicitly targeted on race but it would have its greatest impact on African American families.
Let's have a cartoon from the South Beach Bulletin:
As the Democratic primary heats up, race is playing a role. You might want to read this scathing report by Michelle Alexander in the Nation on the Clinton-backed 1994 crime bill and how it harmed poor minority communities. Also on the table is examining the outcome of welfare-reform, its focus on work and what we should do now, as Annie Lowrey discusses in the New York Magazine:
The extremely strong economy of the late 1990s along with other policy changes made during the Clinton administration — among them a boost to the minimum wage and an expansion of the earned-income tax credit — helped move families into work and off of welfare, too. And in time it became clear that the program’s rolls shrank not because fewer families needed welfare, but because fewer families could access it. In 1996 68 percent of poor families received welfare. As of 2013 it was just 26 percent...
[O]ne way or another, Bernie and Hillary, bring welfare back. Bring it back because you love poor children more than you judge their parents for their inability to keep a job. Bring it back because you love poor children more than you hate their fathers for abandoning them, or their mothers for having an addiction. Do it because you recognize that some parents will have mental-health conditions that our public system will never adequately treat. Do it because you recognize that some adults will have disabilities that Social Security will never recognize. Do it because some children will have parents that will make terrible decisions over and over and over again, and we still — especially — need to support those kids. Do it because you realize that welfare reform was a punitive policy whose consequences were papered over by an economic expansion, during which time everybody in Washington declared victory and walked away.
Should the minimum wage be indexed so it keeps up with inflation? This TalkPoverty blog post looks at the pros and cons:
Year by year over the next generation, if a $15 wage is adjusted to the conventional inflation measure it will fall further and further behind our economy: based on historical trends, it will fall 40 percent behind productivity gains by 2040, and then 96 percent behind by 2060. A $15 wage indexed to inflation will therefore worsen extreme inequality and workers will once again not have enough money in their pockets to drive our economy forward.
On the other hand, if wages are indexed to economy-wide productivity it is possible they will advance too quickly for some businesses to keep up. As legend has it, the $15 per hour level was chosen as a target because it represents the halfway mark between a wage that had kept pace with inflation and one that had kept pace with productivity.
In sad news, Justice Antonin Scalia—love him or hate him—passed away last week adding to the already super messy election cycle, and leaving open the question on the fate of unions, with two current cases on how fees are levied before the court:
So what next for unions? It largely depends on what happens between now and November in the take-no-prisoners battle over Scalia’s replacement. With well-funded, conservative groups filing dozens of constitutional challenges to labor-friendly public-policy regimes, unions have a proverbial Sword of Damocles hanging over them. Replacing Scalia with another conservative justice would almost certainly bring it crashing down. A replacement by Obama, Clinton, or Sanders would likely remove the threat for now, and, depending on who the replacement is, could leave unions with the most labor-friendly Supreme Court since the 1960s.
So it appears that some Uber drivers are not happy with the company's rate cuts and may join others in the growing gig economy who are frustrated by their treatment, reports the New York Times:
In the rapid growth of the online gig economy, many workers have felt squeezed and at times dehumanized by a business structure that promises independence but often leaves them at the mercy of increasingly powerful companies. Some are beginning to band together in search of leverage and to secure what they see as fairer treatment from the platforms that make the work possible.
Should helping the world be profitable? This Christian Science Monitor article looks at the work of Zuckerberg and others on so-called philanthrocapitalism:
The Gilded Age legacy of public institution-building is out. Helping people through financially sustainable projects that make business sense is in.
On one hand, the appeal is obvious. To some of the world’s most successful businessmen, why would you not want to leverage the corporate world to help solve society’s biggest problems? If agricultural giant Monsanto makes money along the way to helping engineer better crops, so be it. Under the ideals of “philanthrocapitalism,” a win-win for business and the needy is a sign that the process is working.
But concerns are growing that, at worst, billionaires’ pet projects can end up doing more for the capitalism side than the philanthropy side. And even when intentions are good, some vital philanthropy involves long, messy, inefficient processes that simply don’t look good by the measure of corporate balance sheets. That means critical philanthropic projects don’t get done or are done badly, critics say.
Advisors Sara Kay and Cynthia Muller in the Stanford Social Innovation Review look at a different spin on market-based approaches:
Foundations are increasingly exploring a new way of risk-taking by using impact investing—making loans and investments that have double-bottom-line goals of financial and social return on investment. For example, by providing low-cost financing via low-interest loans, some funders help organizations attract new sources of private sector and other funding. But even foundations that don’t have an impact investment program can have similar—or even greater—effects by getting creative with how they structure their grants.
Here’s how: A foundation can help a grantee attract debt financing from new or more risk-averse investors by making a grant that acts as a financial guarantee against losses, effectively limiting risk for subsequent investors. By structuring the grant with matching incentives and “triggers” to unlock higher levels of funding, foundations can draw in private capital even more quickly than through an impact investment, because they don’t require a financial return.
Also in SSIR, Sonal Shah and Marta Urquilla discuss the need for government to embrace an outcome-oriented approach that uses data and technology to improve systemic impact:
Business as usual is not working or producing results. Government largely focuses on compliance and oversight, and the majority of public dollars pay for prescribed activities that may or may not be producing desired outcomes. Adopting an outcomes mindset—meaning government defines the problem it wants to solve, identifies the desired results, and creates the appropriate incentives to pay for those outcomes—is a way for government to target resources toward identifying and growing systemic solutions. Government can procure outcomes by providing the right incentives and investment—all with an eye to improving lives while improving efficiency. It cannot afford to maintain its current funding system, which spends less than one percent on outcomes-focused initiatives. We agree, as Lester says, that this status quo is “unacceptable.” We can and should do better.