This summer and fall, Democratic candidates across the country are going to talk about economic inequality.
They will bemoan the fact that the rich are getting richer, leaving everyone else behind and refusing to pay their fair share. They will say that more needs to be done to expand economic opportunity to all.
Then, they will say that the two silver bullets – the two must-dos in order to rectify the problem they have just outlined – are a minimum wage increase and pay equity legislation.
Seems like a bit of a letdown, no?
Democratic candidates can win on economic inequality right now because they are the only folks talking about it. Republicans’ thoughts on the issue currently range from wishing you didn’t ask to actively cheering on high levels of inequality as a sign of economic success. But the inequality planks on the Democratic Party’s platform are glorified toothpicks.
I’m all for raising the minimum wage to $10.10 and I’m all for pay equity, but those are really small tweaks when it comes to addressing systemic inequality. When Republicans decide that something is worth talking about, they throw out some big – if misdirected and disastrous – ideas (the Fair Tax and other major overhauls of the tax code, voter ID requirements, Constitutional amendments banning pretty much anything, etc.).
It’s time we do the same. If the Democrats want to step their game up when it comes to inequality this year, here are a few places they could start:
We need to update our definition of poverty
Before you continue reading, take a second and ask yourself what your socioeconomic status is.
If you’re like most Americans, you answered with something ending in “middle class,” and you probably didn’t look up your annual household income to see if you’re actually in one of the middle three quintiles. That doesn’t make you lazy (if you’re wondering, incomes in the middle three quintiles fall between $20,593 and $104,087 per year), it makes you normal. As the Obama campaign found out when it did its opinion research in 2012, Americans don’t reference their income to define their class. To paraphrase David Simas, who was the campaign’s Director of Opinion Research:
Americans define middle class as the ability to find a decent job, support their family, have the financial security necessary to provide for some leisure time – a vacation once in a while – and send their kids to college (if kids want to) with the hope that the next generation will wind up slightly better off.
Under this definition, practically everyone is some kind of “middle class.” The term is describing a lifestyle, the normalcy of which is more open to interpretation and obfuscation than a matter-of-fact income level. No one wants to call themselves “upper” or “lower” class in America, even if they officially are, because it implies an abnormal form of social participation. If you’ve ever wondered why rich people – sorry, “upper-middle class” people – can say with a completely straight face that $500,000 per year – nearly five times the upper bound of the mathematical “middle class” – isn’t all that rich (Fortune Magazine even came up with an acronym for it: HENRY – high earner, not yet rich), there’s your answer.
The big takeaway here is that wellbeing is relative. Your income may define your economic standing, but it doesn’t define your socioeconomic standing; your ability to participate in society does. While this is no doubt related to income, policy solutions will have to do more than just address basic living standards.
But that’s precisely what our welfare state is designed to do.
Credit for developing our current standards of poverty is usually given to Mollie Orshansky, who worked as an economist in the Social Security Administration in the early sixties. In 1963, she published a paper in the Social Security Bulletin that introduced a measure of poverty that simply tripled the cost of the Department of Agriculture’s economy food plan – the most recent data available showed that American households spent a third of their income on food. Ironically, as she would later say, she didn’t mean to establish a new poverty metric, but instead wanted to evaluate the risks associated with low economic status. When President Johnson announced the war on poverty, Orshansky’s paper and its poverty line – $3,165 (1962 dollars) for a nonfarm family of four – were cited in a Council of Economic Advisers report, which set the poverty line at an even $3,000. While this points to Orshansky as the initial arbiter of poverty in the United States, others have noted that Robert Lampman, a member of the CEA staff during the run-up to the War on Poverty, had been using the $3,000 figure before Orshansky’s paper was published.
In any case, what’s important here is that our understanding of poverty has not changed much since, and it should have. Orshansky published an updated version of her poverty metrics in 1965 to account for household size, and our country continues to calculate absolute poverty based on her standards, indexed for inflation. We assume that American households allocate the same proportion of their income to food as they did fifty years ago – in reality, we spend less on food and more on housing – and we assume that the income distribution and standards of social participation are effectively unchanged.
Additionally, while the poverty line equaled roughly 50 percent of median household income in 1964, it is now closer to 30 percent. By our own outdated metric, the poor really have gotten poorer in relative terms. With this in mind, it would seem that the way we define and attempt to mitigate poverty is woefully inadequate. While prominent voices on the Right highlight the growth of the economic pie as a reason to think that poverty doesn’t exist in America – If poor people have TV’s and refrigerators, why are they complaining? – the way the pie is divided up matters immensely when it comes to providing a floor of social wellbeing along with economic wellbeing. Countries in Europe recognize this, and measure poverty accordingly.
To this end, our public policies should not be merely oriented towards making sure that everyone has enough to eat (which we already have a difficult time achieving); they should seek to improve what has become stagnating upward mobility. Doing so will not only provide for a more equitable social arrangement, it will also improve our nation’s efficiency and productivity.
Doing something as simple as changing the way poverty is defined, which costs us absolutely nothing, will change the way policymakers think about and address poverty down the road. One of the biggest obstacles to a serious conversation about poverty and inequality is our outdated and inaccurate way of defining the problems themselves; updating our definition of poverty will ground every other conversation about economic inequality in present-day reality.
Treat welfare like a leg up, not a handout
In 2010, Arizona made significant cuts to a program that provides childcare for single mothers under the auspices of reducing wasteful welfare spending.
The result? Those mothers had to stay home and look after their kids instead of going to work, which wound up costing the government more in welfare expenditures since those households were no longer receiving paychecks.
Similar effects have been observed in public housing: providing low-cost housing for people who would otherwise be on the street saves the taxpayers money in the long run, as rent subsidies are a lot cheaper than the unpaid emergency room fees associated with homelessness. New Jersey Senator Cory Booker has said some pretty smart things on this issue; his colleagues should take note.
Obviously, public assistance payments should go to people who deserve them; that being said, waste within the system is far and away the exception and not the rule. According to a recent report from the Center for Budget and Policy Priorities, over 90 percent of welfare expenditures currently go to seniors, the disabled and households that also receive a paycheck. What’s more, anyone who’s taken the Food Stamp Challenge knows that the payments are far from generous.
We’ve gotten pretty good at squeezing waste and fraud out of our welfare system; now it’s time to translate that system to one that promotes opportunity and mobility instead of mere subsistence. Lifting citizens out of poverty will increase their educational attainment and ability to participate in society, effectively expanding our nation’s talent pool. Over the long-term, this expansion in social equality will mitigate economic inequality on its own.
All this is to say that assistance to low or no-income citizens must have more in mind than simply making sure they don’t die. If subsistence is the only goal of welfare programs, the people they “benefit” are effectively bracketed out of society, treading water and lacking the opportunity to do anything more than survive. Treating public assistance as an investment instead of a stopgap will lead to more people making productive contributions to society and more opportunity for citizens most in need of it. Furthermore, it has the potential to save taxpayers money in the long-term, turning welfare checks into paychecks.
When economic inequality comes up, Republicans often try to pivot and replace income with “opportunity.” Let’s have that conversation, and we’ll see who’s serious about investing in the American people.
Redistribute wealth (yeah, we can say it)
The current federal minimum wage of $7.25/hour will earn a full-time employee $15,080 per year, barely higher than the $11,945 poverty threshold for a single-person household and a little over half of the $22,283 poverty threshold for a family of four – both of which, as mentioned above, have been calculated using outdated standards.
To rephrase: a full-time minimum wage worker can barely support themselves, and can’t come close to supporting their family, at what is currently considered subsistence level, let alone a level that allows for social participation.
In an oft-derided example from last year, McDonald’s couldn’t make ends meet in a sample budget given to its employees without factoring in a second job and welfare payments. Even then, expenditures for needs such as heating and health insurance were comically low. While this example made the need for a minimum wage increase apparent to many liberals, it should make the same need apparent for conservatives: When the minimum wage can’t lift a family out of even absolute poverty, the government is forced to pick up the slack through safety net expenditures. If we agree that working full-time should lift a family out of poverty, we have to ask ourselves: would we rather have the market or the government do the lifting?
During the 2012 campaign, Mitt Romney complained that 47 percent of Americans didn’t pay any federal income taxes; setting aside for the moment that a significant slice of that 47 percent is comprised of seniors and the disabled, most of the rest are people who are working (hard) but don’t make enough money to qualify for the lowest federal tax bracket. They would love to make enough money to pay some back in taxes, they’re busy making sure they can keep the lights on in their house first.
What’s more, empirical evidence is showing raising the minimum wage from where it currently stands would have positive, not negative effects on overall economic productivity. As former Chairman of the Council of Economic Advisers Austan Goolsbee has noted, raising the minimum wage increases consumer demand, as workers strapped for cash have the money to buy the things that consumers are selling. It’s a simple enough concept: a consumer’s 50 thousandth dollar is likely spent on food or other basic consumption goods, while the same consumer’s 250 thousandth dollar is likely saved; increasing the minimum wage increases the amount of money put directly put back into the economy via consumption, creating a multiplier that increases overall demand.
As with tax rates, the relationship between wages and output is parabolic, not linear: tax rates of 0 and 100 percent both produce zero revenue, with the maximum revenue produced at a rate that falls somewhere in between. Much in the same way, while raising the minimum wage to $75/hr would be a bit much, we are currently well below a minimum wage that would produce negative economic effects – a $10.10 wage indexed to inflation would be a nice start, but there’s more to be done. At their current levels, our country’s low wages create completely avoidable inefficiencies in our market that perpetuate the very inequality they are supposed to mitigate.
We’re already winning on the minimum wage even as we accept the conservative premises surrounding the economics. We have the opportunity to flip the narrative on its head when it comes to who’s serious about wages and jobs; let’s take it.
Change the incentives for wealth creation
That our country’s current wages leave us with a workforce that can’t afford to buy what producers are selling highlights a larger point: If consumers don’t have enough money to consume things, producers, to an increasing extent, won’t have an incentive to produce things.
This hollowing out of the middle class has exacerbated our nation’s economic shift towards income becoming concentrated in stocks and information. As argued by Kenyon College economics professor Jay Corrigan, it takes a lot of people to build a bridge; it only takes a handful of people to build a Snapchat. And if you don’t trade stocks and haven’t gone to code school, two of the chief means of getting ahead in today’s economy simply aren’t in the cards for you. Additionally, the finance and information sectors of our economy require fundamentally smaller workforces and draw from inherently privileged talent pools.
But there’s no reason why those talent pools should be privileged; our students should absolutely be learning how to code in public school. We’ve heard vague talk of “high-tech economy” and “STEM fields,” but putting Intro to C++ in our public middle or high-school curricula is something tangible (and cheap and easy) that we can do right now that would be a major step towards reducing inequality down the road.
Perhaps as distressing is the fact that, as our nation’s educational achievement slips relative to other countries, our best and brightest are being funneled into a market that values the leveraged creation of wealth for wealth’s sake above all other endeavors. In an economy that places a lower demand on making things and solving problems than it used to, our financial sector has become increasingly isolated from the rest of the country, becoming a self-perpetuating machine that creates wealth for itself by moving other people’s money around. Regulating the financial sector, coupled with raising wages and setting a more progressive capital gains tax, would alter the incentives within our economy so that our market placed value on different, more tangible products.
As it stands, we have an economic system designed to protect and perpetuate the concentration of wealth at the highest income brackets. While this has produced absolute gains throughout the economy, it has produced relative losses. Therefore, as standards of social participation have increased, many have been left behind despite nominal gains in income. Rectifying this increase in socioeconomic inequality is not only in the interests of those who seek to mitigate the effects of privilege in pursuit of a more egalitarian society, it is also in the interests of those who seek to ensure that the United States maximizes its potential and remains competitive in a global economy.
And when it’s framed that way, it doesn’t make sense to call it class warfare. Expanding opportunity to raise the floor of social participation is in everyone’s interest. Democratic candidates across the country have the chance to make that case, but first they have to decide whether they just want to win or if they want to govern.
The 2014 and 2016 electorates will be ones that know perfectly well that our political and economic systems aren’t working. There’s simple political advantage to be had by pointing this out and waving around a few tried-and-true band-aids, that won’t give our candidates any kind of mandate to be the kinds of leaders everyone says they want. Winning elections is easy; moving the electorate is hard work.
I hope we start this year.
An earlier version of this post appeared in the Kenyon Observer.