As we enter the week of Christmas, most of us have much to be thankful for. We have enough to eat, a safe place to live, a job, good health, and opportunities.
Still, there’s a lot of talk about income inequality these days. There’s no shortage of studies on the growing gap between rich and poor, or criticism regarding capitalism.
All economic systems have imperfections. Capitalism isn’t perfect, but it has benefited the U.S., and I also believe it’s the best system for creating prosperity for most Americans. I know not everyone agrees.
I share the concerns of those who believe the federal minimum wage is too low, and that many in the top one percent are paid too much, but I don’t blame this phenomenon on capitalism.
Washington State has an effective minimum wage law. It’s adjusted annually for inflation. At $9.47 an hour (in 2015) it’s the highest of any state. Businesses didn’t like the law when passed in 1998 by two-thirds of voters, but it has provided predictability and fairness without adversely affecting most companies. It’s a model that should be used for federal law.
Those in the one percent who are paid extravagantly, is a corporate governance issue. As ridiculous as some pay packages are, it’s not something that should be regulated by the government.
For capitalism to work, there have to be unequal rewards. If all rewards are similar, there are few incentives for hard work, innovation, or good service. We have always balanced the unequal rewards of capitalism with equality of opportunities. Equal opportunities legitimize inequality of rewards.
Conversely, unequal opportunities create inequality. Too much inequality leads to political unrest and societal instability.
So, how do we organize our systems to assure equal opportunities?
First, we must invest in children. In addition to K-12 education, we need to make room in budgets for early childhood education – it pays big dividends. Affordable college is also critical. Providing quality education to all children is essential to creating equal opportunities. Most studies show that wise investments in children save big tax dollars in future social costs.
Assuring equal opportunity for adults is more of a conundrum. Many taxpayers are reluctant to help people who have been low or non-productive members of society. However, part of equal opportunity is an accident of birth. Some of us were fortunate to be born on second base; while others start life with two strikes and a too heavy bat.
What about people who have had a bad break – Those who lose their jobs to a recession, injury, or illness? How about those who make bad choices and end up in predicaments not easy to resolve? How long do we let the downtrodden struggle to barely keep their heads above water? Do we let some of them drown? The cost to society is not free. Tax dollars spent on social services and incarceration add up quick.
How much good will toward men is fair to provide equal opportunity? An argument can be made from either a societal or economic position.
Can we construct prudent social programs that provide a proper social safety-net without becoming a welfare state? Is it possible to strike the correct balance between personal responsibility and too much governmental assistance?
The goal should be carefully structured programs and incentives to help all citizens earn a way into the middle class. Helping people join the middle class creates taxpayers instead of tax consumers. A strong middle class is the source of prosperity in capitalistic economies, not a result of it.
Of course, it’s not possible if we can’t live within our means. We need to talk about equal opportunities and the social safety-net as part of the larger discussion of budgets, deficit reduction, and how much we can afford. To discuss these issues separately is foolhardy. This is why legislation creating comprehensive bi-partisan fiscal policy like the Simpson-Bowles proposal is important (see last week’s blog).
Simpson-Bowles can accomplish these goals. It will promote economic and income growth – a good step toward resolving economic inequality. As bi-partisan legislation it would include: Sensible and fair policy safeguarding equal opportunity; equitable and reasonable tax policy, which also helps address economic inequality; and deficit reduction.
For those of us who believe in capitalism to ignore the growing cries of income inequality is unwise. Doing nothing allows the virus of cynicism and class warfare to spread – not only among those who believe the gap is too great and growing, but with disillusioned taxpayers as well.