EDITORIALS

Mind the inequality gap: Start by raising education levels

New York City police in riot gear swept into Zuccotti Park in Lower Manhattan park in November 2011 to remove hundreds of Occupy Wall Street demonstrators who had been camping there for more than eight weeks to protest income inequality.
PETER FOLEY | BLOOMBERG NEWS
New York City police in riot gear swept into Zuccotti Park in Lower Manhattan park in November 2011 to remove hundreds of Occupy Wall Street demonstrators who had been camping there for more than eight weeks to protest income inequality.
Posted Aug. 06, 2014, at 12:23 p.m.

There is growing income inequality, and it is harming the U.S. economy, wrote Standard & Poor’s Rating Service in a widely publicized report released Tuesday. As Neil Irwin of The New York Times pointed out, the report was not necessarily newsworthy because of what it said or how it said it but because of who said it. Does that mean more people may pay attention to this economic problem?

Many academics have pointed to the research many times, over many years, showing income inequality increasing over the last several decades. It’s now to a level not seen since 1928. But it’s slightly unusual for one of the world’s three major ratings agencies, which evaluates the risk of debt issued by businesses and governments, to warn of the harm caused by income inequality since, as Irwin pointed out, it’s more often an issue the public sees politicians exploiting.

Is debate about income inequality becoming more mainstream? he asked. Possibly. Perhaps the larger question is: Even if it does, will it matter?

As the report, called “How increasing income inequality is dampening U.S. economic growth, and possible ways to change the tide,” stated, there are many reasons for and repercussions of income inequality — and solutions for reducing it. It’s worth knowing what they are. After all, everyone deserves a fair shot.

Some level of inequality is necessary for spurring investment and expansion, S&P wrote, but too much leads to economic trouble. Vast differences in income “increase political pressures, discouraging trade, investment and hiring,” according to the report. It leads to affluent households holding on to their money and not spending it, while those with lower incomes increase their borrowing.

“When these imbalances can no longer be sustained, we see a boom/bust cycle such as the one that culminated in the Great Recession,” S&P wrote. Political decisions often compound the problem.

Income imbalances can also reduce social mobility and lead to workers who are less educated and, therefore, less ready to succeed in a global economy. If American workers gained another year of education between 2014 and 2019, aligning with education achievement levels seen between 1960 and 1965, U.S. GDP would likely increase 2.4 percent in five years. According to S&P, that’s an important start to reversing the nation’s dangerous levels of income inequality.

“Our review of the data, as well as a wealth of research on this matter, leads us to conclude that the current level of income inequality in the U.S. is dampening GDP growth, at a time when the world’s biggest economy is struggling to recover from the Great Recession and the government is in need of funds to support an aging population,” S&P concluded.

It also offered smart ideas for improvement — ones based on research, not political motivation. Heavy taxation solely for the purposes of reducing wage disparities could have a harmful effect, such as by reducing incentives for people to work or companies to hire, it said. But certain modest efforts to redistribute wealth — such as to close loopholes that specifically benefit the rich, and increase spending on educational or health programs that disproportionately benefit the poor — could reduce the gap, to the benefit of everyone.

Income disparity trends in Maine are not as pronounced as in other states, but they still exist, and it’s important they don’t get worse. That doesn’t mean Maine shouldn’t be trying to attract or grow the number of wealthy residents, just that the middle class should grow, too. Policymakers and Maine residents can start by reading the S&P report — available at http://bit.ly/spinequality — and having their own conversations about where to go from here.

 

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