The rising wealth gap between the “1 percent” and middle and lower income Americans has been studied in depth by academics and covered in detail by major news outlets, but for Jared Bernstein, senior fellow at the Center on Budget and Policy Priorities, the unprecedented disparity boils down to one question: Are high levels of income inequality affecting equal opportunity and upward mobility?
In a conversation led by University Professor and Director of the Institute for Communitarian Policy Studies Amitai Etzioni, Mr. Bernstein argued that yes, since the 1970s growing income inequality has negatively affected the economy and lowered standards of living for middle and lower income Americans.
“The picture that comes to mind to explain this issue is the disconnect between productivity growth and compensation growth for the typical worker,” Mr. Bernstein said. “If you’re contributing to the growth of the economic pie, there’s no reason your slice should be getting smaller, in fact, it should be getting larger as it did for years.”
The discussion, “Social Inequality: The Scope and Sources of the Problem and Alternative Treatments,” was co-hosted by the George Washington University’s Trachtenberg School of Public Policy and Public Administration and the Institute for Communitarian Policy Studies and held at the Jack Morton Auditorium on Monday night.
It was the first event in a series that will explore the drivers of social inequality in the U.S., including, as Mr. Bernstein proposed, a decline in labor standards, globalization, technology, an unrestrained fiscal policy and a “scary connection” between wealth and political representation.
“The country that can neither diagnose what’s wrong, nor prescribe a solution, strikes me as one in a lot of trouble,” Mr. Bernstein said.
George Washington Today summarized Mr. Bernstein’s four suggestions to address the widening wealth gap:
1. Hold the government accountable.
Corporate profitability has more than recovered since the effects of the recession hit in 2009, with profits up 50 percent in real terms, according to Mr. Bernstein. This recovery is due in large part to the nature of the corporate world, which functions in pursuit of profit. Mr. Bernstein proposed that the function of government is to provide a working infrastructure and fiscal policy that benefits everyone, not just those in the top income brackets.
“You can’t send people to Washington who are going there to stop the place,” he said, referencing the political gridlock that led to the government shutdown in 2013. “We have to do a better job of educating people about the role of government in their lives.”
“Wealth is strangling politics,” he added. “Campaign finance is a root cause of the horrific politics that have been gripping the city and the nation for a long time.”’
2. Subsidize jobs for those experiencing long-term unemployment and consider “work-sharing” as an alternative to layoffs.
Though joblessness rates lowered to 6.7 percent in 2014, long-term unemployment, defined as joblessness sustained for more than 27 weeks, remains an unconquered problem, Mr. Bernstein said. He proposed that a government program that would provide subsidies to those who are employed part time could be a possible solution. The policy would need enforceable rules that would stop employers from “displacing” workers in order to hire a new worker under the subsidy program.
Mr. Bernstein also suggested “work-sharing” to reduce workers’ hours instead of laying them off. While the underused practice “spreads the pain around,” he said that it can help make up lost wages and reduce the amount of unemployment benefits paid to those who are laid off.
3. Tackle the trade deficit through more free trade and better fiscal policy.
In response to the trade deficit, Mr. Bernstein proposed using free trade to strip competitive nations with currency valued at a higher rate than the dollar, such as China, of the power to manage the currency exchange to their advantage. He said that it is more beneficial to use the market to set exchange rates, rather than a nation’s currency managers.
He also argued for less austere fiscal policy, citing the 7 percent drop in the budget deficit as a share of GDP between 2009 and 2013, the largest decline since 1950. “We went austere too quickly, which has made it harder to recover,” Mr. Bernstein said. “Fiscal policy needs to be more responsive to economic need.”
4. Pay more attention to the “erosion of labor standards” and respond.
According to Mr. Bernstein, “social justice” is too broad a term for the reforms necessary to re-establish labor standards that were once integral to an economy fueled by working America. He said that enabling legislation to increase the minimum wage, offering support for unions and providing employment benefits for workers is critical to improving the low quality of life that results from social and economic inequality.
He noted that though the American middle class is more well off than the middle class in emerging economies, such as Bangladesh, the growth rates in emerging economies are growing somewhat faster than in the U.S., where middle income growth has remained stagnate.
“Most Americans don’t realize that there are people in China and Bangladesh that are doing better than they are right now,” he added, speaking of growth rates not real income levels.
The second forum, a discussion of the coming digital disruption and its impact on middle class jobs with Dr. Andrew McAfee of MIT, will take place on April 10th at 5:30 p.m. in Room 305 at the School of Media and Public Affairs (805 21 St. NW).