Income Inequality in the United States

People have been complaining a lot lately that the middle class is shrinking. This is the classic argument from those people:

“The economists who highlight this phenomenon tend to be liberals; many of them blame the Reagan Administration for failing to help Middle Americans adapt to the postindustrial age. Millions of citizens, they contend, have lost their middle-class jobs in aging industries like autos and steel and have plunged into the minimum-wage realm of floor mopping and hamburger flipping. By failing to halt the middle-class shrinkage, the argument goes, the U.S. could allow itself to become a two-tiered society of rich and poor.” ~ Time Magazine

I feel like a better analysis is done by George Mason’s Tyler Cowen in a May 17, 2007, New York Times Article. He believes the problem is largely because of a lack of education. When it comes to the outsourcing argument he says:

“The extent of outsourcing, for instance, is not yet high enough to have much effect on American wages. Even if a call center is set up in India, this helps American business expand at home. Most generally, the net flow of investment is into the United States, not away from it.”

He believes the rich have gotten richer by:

“…taking companies private, buying the right securities at the right rime or running successful hedge funds. Arguably, these activities improve the allocation of capital thus enhancing productivity.”

But he believes that this does not hold much weight because other people can reap profits from that. He also doesn’t believe Bush’s tax cuts haven’t done anything because pre-tax incomes are down. Immigration also is a small but trivial culprit being that they have affected the wages by about 10 percent.

He says:

“The problem isn’t so much capitalism as it is that American lower education does not prepare enough people to receive gains from American higher education.”

I thought that was a great quote because I cannot stand people who major in Economics and do not know anything about it.

His final conclusion is that we cannot educate people as fast as technology comes. He believes that there will be no long lasting solution yet. I think what he is trying to get at is that you have to be high skilled to work with the new technology and the middle class are not adapting as fast as they should.

I believe another problem is that people are being paid in healthcare benefits instead of raises. With the idea of healthcare costs increasing, employers have to spend more money on healthcare too.

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Published in: on February 23, 2008 at 5:42 pm  Leave a Comment  

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