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  • by Barry Bluestone and Katharine Bradbury
  • 4

In this Dec. 29, 2011 photo, Occupy activists test a float made with a copy of the Constitution in Pasadena, Calif. Among other things, the Occupy movement protests perceived growing economic inequality. (AP File Photo/Jae C. Hong)

Introduction

From 1946 to 1973, the U.S. economy doubled — as did family income across all economic classes.

Since then, economic growth has slowed while income and wealth inequality (by class and by race) have increased. Over the same period, social mobility has not increased enough to offset that growing inequality (so the rich tend to stay rich and the poor tend to stay poor longer term).

With a growing body of evidence to support that economic inequality suppresses growth and creates instability, what should the next president do to reverse this long standing trend?

Northeastern University’s Barry Bluestone and Boston Federal Reserve Bank economist Katharine Bradbury offer their thoughts.

Barry Bluestone is a professor of public policy and urban affairs at Northeastern University.

In our quest to understand rising U.S. inequality since the early 1970s, many economists are eager to blame “skilled biased technological change” – the idea that a modern economy rewards those with the best skills and punishes those with the least skills.

But the truth is there are many culprits and all of them contributed to the growing inequality and the subsequent damage to America’s middle class.

These include deindustrialization of our manufacturing base, de-unionization, the failure to boost the minimum wage, free trade, capital flight, a lessening in the progressivity of the tax system, and a “winner-take-all” approach to the economy where a few at the top get most of the productivity gains in the economy.

Since there are many factors, the president must attack inequality on many fronts. He must rebuild our industrial base — making it safe once again to join a union, he must raise the minimum wage, advocate for “fair trade,” and use the tax system to redress inequality if the private market does not.

It is a broad agenda, but if we do not attend to it, inequality will continue to increase and we will all eventually pay an enormous price.

Katharine Bradbury is a senior economist and policy adviser at the Federal Reserve Bank of Boston. The views expressed here are her own, and not those of the Federal Reserve Bank of Boston or the Federal Reserve System.

Much of the increase in income inequality over the past three-plus decades and absence of economic mobility increases to offset it can be attributed to “pre-tax” influences on income, such as changes in U.S. institutions, including the declining unionization Prof. Bluestone discusses.

Nonetheless, we can mitigate some problems associated with inequality, including the concentrations of money and power that currently reinforce advantage, by using direct redistribution to make the post-tax, post-transfer distribution of family incomes more equal—increasing the progressivity of the tax system and strengthening the safety net. In addition, using stimulative fiscal and monetary policy to help bring the economy closer to full employment would help to reduce inequality. Council of Economic Advisers’ Chairman Alan Krueger mentioned both these remedies, among others, in a January speech.

To address the issue of limited intergenerational mobility — the strong correlation in the United States between the incomes of parents and their children — we should aim to loosen the strong link between parental income and children’s educational performance and attainment, unleashing the potential of all children.

The next president can make worthwhile investments to ensure low-income children access to high quality schooling via action on three fronts: (1) channeling additional funding into the pre-school years, (2) working to raise the quality of the lowest performing public schools, (3) making college more affordable via expanded grants and loans. In addition, a fourth front can broaden access to good jobs among young and older adults, namely expanding job training programs, in part via collaboration between community colleges and employers.

Related content:

  • WATCH video of these lectures — plus a Q & A with Bluestone and Bradbury — here.

Tags: #advice2012, Election 2012

The views and opinions expressed in this piece are solely those of the writer and do not in any way reflect the views of WBUR management or its employees.

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  • Michael Glik

    I
    am amazed when people of science
    (especially teachers) and accomplished economy related professionals
    refuse to substantiate their opinions (maybe perfectly valid) by any
    shred of proof. If we were talking about any other science, either
    theoretical or experimental, making a conclusion while leaving
    logic-proof behind would have been unacceptable. But as soon as the
    subject matter is economy people decide to replace proof with their
    prior accomplishments and titles. If a union organizer was saying
    that “unionization”
    is
    to blame for the
    increase in income inequality and decrease in social mobility,
    no one would have paid any attention, because such a belief would
    have served the interest of the speaker. Why then an accomplished
    economist and a
    professor of public policy and urban affairs
    say the same without even an attempt to explain their belief. People
    make mistakes even when there is no benefit to them from their ideas.
    How would they explain that High Tech industry which has virtually
    no unions provides unparalleled social
    mobility
    to manufacturing or education which both are heavily unionized?

    Or
    why would more
    progressive
    tax system (which absolutely lead to
    income equality) lead to prosperity of anyone?

    Finally,
    PLEASE do not equate High Earners with Wealthy people (income taxes
    progressive or not) are levy on productivity, not on assets. In
    other words, taxing people with highest income is nto the same as
    taxing wealthiest – not even close.

    • http://pulse.yahoo.com/_ADZ6TZZKHWRLDNAOP6R2MBBP6A Bob S

      Michael Glick, what the heck do you mean by unparallel social mobility in High Tech industry? Are you talking about the Chinese workers assembling IPhones or about the Amazon’s warehouse clerks?

  • Pingback: Income Inequality And Social Mobility | Welcome to MemePosts.com

  • http://8020vision.com jaykimball

    The US Gini Index is at an all time high, in the ranks of Rwanda and Uganda.

    Veteran investigative reporter and Pulitzer Prize winner Hedrick Smith gave a talk on income inequality and the the destruction of the middle-class – how it happened, and what to do about it, this past weekend. I posted a video of that talk, here: http://8020vision.com/2012/09/24/hedrick-smith-who-stole-the-american-dream/

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