Economic Inequality

Wage stagnation and inequality is dismantling the nation’s middle class. Both parties should agree that this is undesirable. Both parties should also agree to not make inequality worse. (Flatter, less progressive taxes make it worse.)

There is no single thing that causes inequality. It flows from globalization, from educational opportunity, from the digital economy, public policies, even from family structures. But nothing is more predictive of upward mobility than someone’s zip code.

This isn’t rocket science since better schools and health care, better educated parents correlate to wealthier areas. Public resources should be targeted to assist those with poorer opportunities (e.g. targeted public preschool as opposed to universal preschool) ; likewise, targeted childcare subsidies and targeted higher education assistance.

There is another real and perhaps more pervasive dynamic. In the contemporary economy, an increasing share of the benefits of growth go to capital and a decreasing share to labor. Since 1980, U.S. labor productivity has increased 94%, total economic output per person has increased 82%, while real median household income has increased by only 16%. This has been demonstrably seen in the lopsided recovery from the 2008 recession. There are millions of people who have considerable job skills who make barely enough to get by.

Minimum wage has a place here, but it is a very blunt instrument. There are loses (entry level jobs and automation) as well as gains for those trying to move up. I support carve outs for some situations. A few of the biggest low wage employers have increased wage scales. I suspect this is partly due to the campaign to raise the minimum wage as well as an effort to maintain a workforce. 18 states raised their minimum wage on January 1. Wages are regional things. I believe it is best for the federal government to fade the pace of most state minimum wages and not lead them.

Relatedly, while median incomes are rising, disposable income after housing costs is falling. Since the 2008 recession, Real Estate Investment Trusts have entered the single family residential housing market. They buy up properties in an area, raise rents, and even bundle these properties to create investment instruments. REITs received additional preferential tax treatments in the recent tax bill. REITs likely have no effect on nationwide rental figures but their effects in some regions are very real. I would remove all tax preferences for REITs. If rental real estate is going to go in this direction, at least the taxpayer should not subsidize it.