How can income stratification in the US be changed?

October 17, 2006 6:03 PM

How can income stratification in the US be changed?

Over the past several decades income for the middle and lower classes in the US has remained stagnant or declined when adjusted for inflation while the income of the top one percent has soared. All of this has taken place during an era of increased productivity, economic growth and record profits for many companies. At the same time, benefits like retirement plans and health care have been cut and many salaried jobs have been transitioned to hourly jobs or contract jobs with fewer (or no) benefits. Many full-time workers are struggling to get ahead...or even get by.

I am not asking a debate about the truth of the above statement or whether this is a natural economic consequence of capitalism. What I'm asking is, how is it possible to change these trends so that wealth is more fairly distributed? I think history has shown that whenever one group gains power over another, they hold onto that power and influence. Other than voting, how can average people fight this trend? What are historical or recent examples from this or other countries where the working class has succesfully fought against extreme income stratification?

posted by mintchip to society & culture (33 comments total)

The French Revolution.
posted by Jess the Mess at 6:21 PM on October 17, 2006

My guess is that the biggest thing that would help would be to increase access to capital of some kind among those that are in the lower economic strata and therefore least likely to have access to the social networks where it flows.

To some extent, student loans and scholarships and education grants provide this, but it's still something of a crapshoot, not to mention a lot of that rides on an individual's ability to think clearly and strategically during adolescence about long-term goals.
posted by weston at 6:22 PM on October 17, 2006

In line with what Jess said, large grassroots popular movements are absolutely the only way to affect the kind of change you're talking about. And I'm assuming you mean a large, meaningful change. The U.S. is an organizer's dream right now.
posted by Idiot Mittens at 6:35 PM on October 17, 2006

The only way to change it is to destroy it. You can make everyone have equal wealth by making everyone impoverished.

What are historical or recent examples from this or other countries where the working class has successfully fought against extreme income stratification?

In every such cases the result has either been no change, or impoverishment for everyone. There are no cases in history where it has resulted in the same prosperity but more equal distribution.
posted by Steven C. Den Beste at 6:37 PM on October 17, 2006

A couple ideas ...
* Provide incentives for Corporations to reward employees comensurate with shareholders. Perhaps the incentive would kick in if Corporations had greater than 10% employee (executives excluded) ownership.

* Provide incentives (tax breaks?) for Business that publish top executive pay, and keep that pay at some reasonable multiple of the lowest and average employee. Say 10x lowest full time employee salary and 5x average (note: I'm not sure if the math works out, but you get the idea).

Personally, my politics prefer soft persuasion such as tax breaks or other incentives, since those tend to result in a system that's easier to police (organizations will try to convince the government that they met the criteria for the program instead of vice versa). Mandatory taxes require some government enforcement division to be created which, in my personal view, creates as many problems as it solves.
posted by forforf at 6:41 PM on October 17, 2006

how is it possible to change these trends so that wealth is more fairly distributed?

How do you define "fairly"? I think what you are looking for a more even distribution of wealth, not a more fair one. If you are looking to create a method for distributing wealth more evenly, the only way I know how without addressing capitalism is to re-distribute it after it has been earned. Tax the rich and distribute it to the not as rich in the forms of tax breaks, handouts, more government jobs and the like. Raise taxes so that there is a disincentive to make a lot and then give tax rebates to the working poor. Do not hand out funds to the non-working or it will give them a disincentive to ever support themselves (Not including the mentally and physically disabled)

Or, company's could give shares in the company as an additional form of compensation so that as shareholders the workers mihgt participate in the productivity gains and the cost cutting that accrues to the bottom line.

Or, cut taxes on everyone, limit the size of government and give the money back to the people so they can invest it, save it or spend it creating more wealth through a vibrant economy. I vote for this method.
posted by JohnnyGunn at 6:43 PM on October 17, 2006 [1 favorite]

I think Steven C. Den Beste is in disagreement with a lot of economists. They've looked at inequality close enough to come up with a measurement index called the Gini Coefficient.

And check out the current literature on the topic. There is a lot of economists arguing that economic growth can be hampered by inequality.
posted by Idiot Mittens at 6:44 PM on October 17, 2006

Well, I favor a multi-prong approach.

First, repeal the Bush tax cuts on unearned income (dividends, capital gains over [insert your favorite round number here], estate tax). These taxes are by and large only paid by the wealthy.

Second, replace the AMT with a hard cap on deductions equal to, say, four times the poverty line for a family of 4. That's something crazy like $60k these days. Do you have those kinds of deductions? I thought not.

Third, incentives to start and run small businesses. This would include easier ways to get financing, cheaper ways to get insurance, and the like. Small businesses account for about 50% of American jobs. Making it easier to run a small business can only help the employees of such businesses.

Fourth, RADICALLY CHANGE how college, graduate school, and professional schools are funded. A lot of graduates are buried under debt such that they can't consider the good they can do in the community, only how much money they can make. Did you know that the average new med school graduate has $100k in debt and can't even get a license to practice medicine for another year?

My $0.02. No refunds.
posted by ilsa at 6:55 PM on October 17, 2006

Good question! The typical European answer has been socialism: a tempering of capitalism by intervention concerned with care of the citizenry.

The fairer redistribution of wealth has been a major concern of western European socialism for the past 80-90 years. Traditionally, this is done by taxing the rich proportionately more; by taking into public ownership major utilities (power generation, mail, transport etc) where profit would be at the expense of everyone; by income support for the poor and so on.

A side effect of the notion that a country is concerned with care of its citizens (as opposed to the facilitation of wealth creation) is that such thinking is pervasive, and leads to free healthcare, free care for the elderly, free student tuition, subsidised transport, minimum wages, employment protections, mandatory paid vacations and so on. (And it doesn't leave poor folk to drown when hurricanes hit.)

The drive that created this came from the trade union movement of the turn of the century. Capitalists, concerned with the sweep of communism, found a mutually acceptable common ground with the workers in the form of collective bargaining, and so socialism was born.
posted by bonaldi at 7:07 PM on October 17, 2006 [3 favorites]

Whittle away at executive compensation.
posted by onepapertiger at 7:17 PM on October 17, 2006

I would figure out how much revenue the US Government would like to generate in a given year. Then I would make income tax-free up to a certain point, and then 49 percent above that. That certain point would fluxuate each year depending on what is needed for the government.

The poor would not be taxed. I have no idea what the starting point for tax would be, but I am betting that it would be high enough that nearly half of all people would not have to pay an income tax at all. Another forty or so percent would probably pay less than they do now. It would also encourage people to get more upset about wasteful spending as it would be easier for them to see how their takehome pay is related directly to what their government does.

I am fairly certain that well over ninety percent of people would wind up paying less in taxes. This would help to even things out, while still providing for the structure to allow the rich to make money.
posted by flarbuse at 7:20 PM on October 17, 2006

The typical European answer has been socialism: a tempering of capitalism by intervention concerned with care of the citizenry.

And the typical European result has been economic stagnation and stubbornly high unemployment.

I think Steven C. Den Beste is in disagreement with a lot of economists.

Ask 20 economists for their opinions and you'll get 21 answers, all mutually exclusive. I prefer real-world tests over academic speculation, and in the real world every attempt to eliminate the kind of income disparity the OP is concerned with has resulted in decreased economic activity.

In other words, it reduces disparity by pulling the top people down, not by pulling the bottom people up. (And in many cases it pulls the bottom people down too.)
posted by Steven C. Den Beste at 7:23 PM on October 17, 2006

Bring back a healthy inheritance tax - favored by such destitute schmucks as Bill Gates and Warren Buffet.
posted by caddis at 7:28 PM on October 17, 2006

I doubt even open class warfare would have any effect on the top 1% nowadays. They're rich — they can leave and take their money.

Altough I suppose it would decrease the wealth of the top 1% in the US, but only in that the top 1% would be different, poorer people.
posted by smackfu at 7:43 PM on October 17, 2006

The French Revolution is not a good practical model: that got rid of the old hereditary nobility, raised the top part of the middle class to power and great wealth, and brought on Napoleon. I don't favor the Leninist or Maoist revolutions either. There are other models for revolutions: the Sandinistas in Nicaragua did some good and might have done a lot more even better had the U.S. not screwed Nicaragua with the Contras, and the Russian Revolution might have resulted in something far less disgusting had the Leninists not staged their October coup and then squashed the Constituent Assembly.

(But no FBI, I'm publicly suggesting that the Metafiltristas overthrow the U.S. Government and throw y'all out of work.)

In the meantime lisa's suggestions might help a lot.
posted by davy at 7:46 PM on October 17, 2006

See ParEcon for an interesting alternate economic system.

A long way off, but this kind of structural change is ultimately what's needed. The rest will be tinkering round the edges.

Currently the only rule that seems to count is the golden rule: those with the gold make the rules.
posted by lalochezia at 7:52 PM on October 17, 2006

And the typical European result has been economic stagnation and stubbornly high unemployment.
... yet with a markedly higher quality of life than the US. What exactly does this economic miracle get you, apart from a wider inequality gap, and an increasingly wealthy 1%?

There are of course economic disadvantages in not going all-out for money all the time; surprisingly many countries choose the benefits of not hammering on the gas 24/7 and attempt a fairer division of what money they do make.
posted by bonaldi at 7:59 PM on October 17, 2006

Didn't the US have increasing per capita wealth AND increasing equality from the end of the Second World War until the mid 1970s?

That would be a real world example.

Also, Europe post WWII also had the same.

The US, UK since the 1970s are the exception, not the rule to inequality and rising incomes in the developing world.

Inheritance tax and taxation schemes with higher top levels and something like the US Alternative Minimum Tax will reduce inequality and probably not kill the goose that lays the golden egg.

Socialism and Capitalism - i.e. State intervention and capital markets are at odds theoretically. However in practice since WII pretty much everyone has their own blend of the two. The best balance is the question.
posted by sien at 8:12 PM on October 17, 2006

Inheritance tax. Really.

This is where inheritance taxes are supposed to do their thing: redistributing wealth when the scion dies, and preventing the establishment of a wealthy ruling class.

However, it has failed. To run for office these days you essentially have to be a member of that wealthy ruling class. Those people are going to pass laws ensuring that they stay wealthy, of course.

Gates and Buffet are smart enough to realize that the rich have an obligation to society to redistribute some of their wealth where it will do good, thereby benefiting society and in turn themselves.

As an aside, the dumb schlub in the street LOVES royalty (read, the ruling class). Just look at how many times in this country various members of the same family (Adams, Kennedy, Bush, etc.) are elected to office solely on name recognition and a general feeling of "they're our royal family!"
posted by maxwelton at 8:21 PM on October 17, 2006

What I'm asking is, how is it possible to change these trends so that wealth is more fairly distributed?

You're begging the question here. Without a solid, non-handwavy definition of "fair," this question in meaningless, and "fair" is not as easy to define as it might appear. A constant universal wage, invariant across labor markets, professions, skill levels, etc., is not fair, I think, and I think you probably agree. You also feel that the current ratio — something like 1:400+ for worker to CEO wages, if I remember correctly — is unfair, so I'll guess you're looking for a point which falls between those extremes, but that's a wide range. What do you think "fair" means? Are you looking for the point where the most people are satisfied with their wages? Maybe you're not worried about where the upper limit falls, but only with ensuring that the poorest citizens are able to maintain some particular standard of living. Maybe "fair" means that wages are more strictly meritocratic than provided for by market forces. Maybe you just have a specific ratio in mind, where no one makes more than 150% or 200% of what anyone makes. Neither you nor anyone here can answer your question until you know exactly what you're asking.

On preview: the inheritance tax is a red herring. More and more of the wealthy are making their money rather than inheriting it, and there's no reason to expect that trend to reverse. Of course this doesn't mean that class privilege is disappearing; it just means that these days good old dad's going to make sure you're set for life by hooking you up with a cushy spot at his friend's oil company rather than by cutting you a check. I can't imagine how you could regulate this kind of thing away.
posted by IshmaelGraves at 8:27 PM on October 17, 2006

by having a great depression, of course ... or another event of equal significance, such as a major war or a revolution

these tend to mix things up and even things out a bit

unfortunately, there are many unintended consequences that come along with that

someday, perhaps, we'll learn not to worship mammon the way that capitalists and communists have done, but create a civilization where other things matter, too

however, that day is a long, long way off
posted by pyramid termite at 8:29 PM on October 17, 2006

Ask 20 economists for their opinions and you'll get 21 answers, all mutually exclusive. I prefer real-world tests over academic speculation, and in the real world every attempt to eliminate the kind of income disparity the OP is concerned with has resulted in decreased economic activity.

That's a pretty absolute statement. Economists, depending on their agenda, come up with a lot of models and answers. But most of them approach it with the overriding goal of taking observable real world data and finding a model that perhaps explains it better. You are suggesting that there is absolutely no data that shows that decreased inequality can lead to overall economic growth. Since I assume you are not a walking database of economic data, you can admit that you might be wrong.

I'm merely encouraging the question asker to look into the research that is provided in my link, and they may find some alternative data to consider. Maybe they won't. But then again maybe they will. In any case, I don't think they should immediately dismiss the idea by taking an oversimplified, absolute statement like:

In other words, it reduces disparity by pulling the top people down, not by pulling the bottom people up. (And in many cases it pulls the bottom people down too.)

as an indisputable fact.
posted by Idiot Mittens at 8:35 PM on October 17, 2006 [1 favorite]

I agree with a lot of the lefty arguments, like truly progressive taxation taken to whatever extreme is necessary, increased minimum wage, better laws to protect unions, stricter inheritance tax, and whatever else you can think of, but..

In the end, I think there are measures which will have an even more substancial effect.. From a Metafilter thread, Working poverty in Canada:

Much more importantly, and not on anybody's radar, I think we need to lower the barriers to entry for small businesses. Governments do a lot to make small business very hard - in Ontario there has been some suggestion that everybody selling jam at the local farmers market will have to have a separate kitchen for their business - these types of regulations exist across all economic sectors and they are stifling.

Make it easy for people to get housing, healthcare, education, and operate a business - starting one is easy, earning a living for 10-50 years isn't, but I'm sure tkchrist understands this far better than I do - that will take care of a lot!

redacted username: I really disagree with that type of thinking. Executives get raises because profits are up, typically meaning they're doing a good job. An executive's skillset is more rare than the average laborer.

The only reason that might be true is training. Penalise big business and encourage small business and you will get a lot more skilled executives. Then the demand will go down, and pay will be a lot more equal across the population :)

Re SCDB's argumentation about economic stagnation.. At this point, our society needs to increase equality more than it needs to increase wealth. Some inequality is probably good, but we are way past that level!
posted by Chuckles at 8:57 PM on October 17, 2006

I don't even see socialism, i.e. things like public education and health insurance, as "tempering" capitalism. Capitalism is more a descriptive term for a natural phenomenon than a prescriptive system or ideology. The analogy I think of is that capitalism is like fire, which with the help of human intervention such as fanning, keeping it from being smothered by its own ashes or burning out of control, can be far more useful than dropping a match onto a pile of brush and hoping for the best. Plus, isn't property rights enforcement a form of regulation? What about intellectual property rights?
posted by Astragalus at 9:05 PM on October 17, 2006

American, living in Europe, I get asked lots of questions about why I came here but my reasons aren't relevant to this discussion - what is relevant is the answer I get when I ask folks moving to the USA why ?

Invariably, the answer is to get rich. The precise details may change slightly, but it's in there if you ask and prod enough.

They aren't moving there for the freedom (I personally believe you're more free in Europe these days), the health care system, the quality of life (although a large number cite cheaper shopping), or the culture, their reaons are solely economic.

In other words, most immigrants to America - at least in my admitedly small and probably biased sample - are moving to America just because it maintains the economic inequalities central to this question.

So you can't isolate the immigation numbers and maintian they are proof that somehow the American system is superior. Change the system of taxation, redistribute the wealth European style, but retain the lack of personal freedom, excessive health costs, relatively low quality of life and the culture and I bet those numbers would plumment.

The economic incentive driving immigration to America would then be gone.
posted by Mutant at 10:44 PM on October 17, 2006

Interesting question.

Firstly of all, its worth pointing out that running a free market economy doesn't mean that inequality will rise. During the 50s and 60s, US income inequality fell.

Secondly, median household earnings in th US are lower, in real terms than they were in 1998 (US Census stats). US GDP is, also in real terms, 23% higher than it was then.

In other words, as the OP says, substantially all the benefit has accrued to the top of the income distribution, in the form of higher corporate profits, executive pay, asset values (e.g. housing), and earnings in the financial sector (i.e. Wall Street).

Why has this happened? And what to do about it, if anything.

There is no consensus on the why, but the reasons usually proffered are: technology, globalisation, and politics.

Of these, I think globalisation is the biggy. The fall of communism in late 80s/early 90s added 1.5bn people to the global workforce, over the course of a few years. This has held down wages around the world, as these people have been absorbed into the global workforce. This is good news for the owners of capital, as profits have risen. Its bad news for workers in developed coutries. But its good news for workers in developing countries. Average earnings in China have been rising rapidly.

So what to do? Obviously you can tax more, and redistribute. I'm not an american, so thats up to you guys. For what its worth, there is no link between tax levels and economic growth, although there is between economic freedom and growth. Simplisitcally, Sweden taxes high, but its easy to fire someone, and economic growth is as good as the US. Equally simplisically, its nearly impossible to fire anyone in France, and it has low economic growth.

Or you can erect barriers around your economy to lessen the effects of globalisation. Not a good idea in the long term. Firstly you can easily spark a trade war that leaves everyone worse off. Secondly, trade is good for economic growth, and by cutting yourself off you lessen your long term growth rate.

Or you can try and offset the impact in other ways. America is a country where most people believe that hard work will make one rich. Oddly, this is less true than in most European countries. Americans are much more likely to stay in their parents income bracket than in France, Canada, or Scandinavia. I'm not sure why that is, but I'm guessing it has something to do with your education system.

Bottom line, if the cause of poor median income growth is globalisation, there is very little that can be done about it directly.
posted by Touchstone at 3:00 AM on October 18, 2006

If you can't get money and keep it, then you probably shouldn't be given money.

The only way to safely improve the economic position of THOSE THAT WANT TO MAKE THE SACRIFICES NECESSARY TO AMASS CAPTIAL is education.

Until poor Americans understand money better they will not be able to earn more, keep more, nor will they deserve more.
posted by ewkpates at 3:31 AM on October 18, 2006

If you look at the historical precedents in the U.S., it's not too hard. (You are wrong to say that history has shown that increasing income stratification can never be undone.) The U.S. went from massive income inequality in the 1920's (The Gilded Age) to much greater equality by the 1950's. The era from 1929 to 1947 is called "The Great Compression", as income inequality compressed.

Largely, the compression was due to the policies of Roosevelt. He enacted tons of policies to help the working man, and said about the rich who hated him, "I welcome their hatred".

Simplistic answer: elect politicians like Roosevelt, don't elect politicians like Cheney.
posted by jellicle at 4:26 AM on October 18, 2006

The OP asks what can be done "other than voting." There is something implicit here -- perhaps unintended -- of what can be done by individuals and groups, not by the government. It seems to me that answers which advocate changes in government policies (some of which I may support, btw) are not really answering the question.

Maybe one approach within the existing US construct would be for less wealthy persons and groups to pool their resources, start businesses, and accumulate wealth. That is exactly what many immigrants have done. In some cases, there is a sort of "savings pool" for a group, under which wealth is slowly accumulated, then lent to members in turn to start an enterprise, buy a small store or what-have-you, and then repaid and reinvested in other members' enterprises. For example, think of the Korean-owned grocery stores and liquor stores that began appearing in inner cities in the 80s and 90s -- they didn't come out of nowhere.

What I'm saying here is that although I would like to see some political changes, a practical answer which does not rely on that is some variation of self-help.
posted by Robert Angelo at 6:00 AM on October 18, 2006

[a few comments removed, please take US vs European socialism discussion/arguments to email or metatalk]
posted by jessamyn at 6:07 AM on October 18, 2006

Change the nature of land ownership. Our current system allows landowners to restrict access to the productive power of nature. This is not to say that we should abolish private property in land; rather, we should allow every person to profit from their own work and ingenuity, and no person to profit by holding a monopoly over natural resources.

Neoclassical economics offers a "production function" where economic output is created by multiplying labor by capital. This is like saying that we can make as much cake as we want so long as we have large enough mixing bowls and an army of cooks. What about the ingredients? Labor and capital can make things, but what will they make things with?

Henry George was the first American economist, and he addressed the issue of unequal distribution of wealth in his book Progress and Poverty. His populist ideas were suppressed by the Chicago School of Economics.

From the Wikipedia page of Henry George:

"George made the argument that a sizeable portion of the wealth created by social and technological advances in a free market economy is captured by land owners and monopolists via economic rents, and that this concentration of unearned wealth is the root cause of poverty.

George considered it a great injustice that private profit was being earned from restricting access to natural resources while productive activity was burdened with heavy taxes, and held that such a system was equivalent to slavery - a concept somewhat similar to wage slavery."

I took a class devoted to the Geoclassical (land-based) economics of Henry George, and it profoundly influenced my way of thinking. I highly recommend reading Progress and Poverty; it's an argument for fairness and it doesn't require much knowledge of economics.
posted by reeddavid at 6:08 AM on October 18, 2006

Unions.

To run for office these days you essentially have to be a member of that wealthy ruling class. Those people are going to pass laws ensuring that they stay wealthy, of course.

Yup, this is the basic problem of American politics, and I don't see it changing in the near future.
posted by languagehat at 6:24 AM on October 18, 2006

Unions, as Languaghat points out, are one factor. Union membership rates are less than half of what they were during the 60's and 70's. A high union participation rate tends to pull up wages even for non-union members.

One major reason for the decline in unions is political. Labor laws and their inforcement have been very hostile to unions in recent years, for example, banning closed shops and allowing the firing of union organizers. Some states have passed laws prohibiting unions from spending union dues on political advertising without permission from each individual member while allowing corporations to spend unlimited amounts without shareholder approval.
posted by JackFlash at 8:24 AM on October 18, 2006