At the dawn of a new year, one of the topics for debate that keeps rising to the top is that of income inequality.
President Barack Obama called it the defining challenge of our time.
Pope Francis went as far as accusing modern capitalism of encouraging the idolatry of money.
Here in Oregon we continue to see the debate on whether the state-mandated increase in minimum wage helps or hurts.
Additionally, Gov. John Kitzhaber has stated that tax reform is going to be one of his campaign issues. Hes even been brave enough to trot out the issue of sales tax this in the wake of giving Nike and Intel special tax deals.
Regardless of what people think the solution is to the issue of income inequality, the reality is that it exists here in the United States and in Oregon. The top 10 percent of U.S. wage earners collect nearly 50 percent of the wages in the country. The Oregon Center for Public Policy reported recently that the top 1 percent of Oregon taxpayers collected 70 percent of all capital gains in the state.
In the end, however, when it comes to this issue of income inequality, most people are taking a far too simplistic view of the problem. President Obama related in a recent address that America has become a place where one-tenth of Americans take in half of all its income and while productivity is up 90 percent in the past 30 years, family income is only up 8 percent.
Similarly, the Pope recently wrote, The Pope loves everyone, rich and poor alike, but he is obliged in the name of Christ to remind all that the rich must help, respect and promote the poor. I exhort you to generous solidarity and a return of economics and finance to an ethical approach which favors human beings.
What neither are telling you is that in this global economy, income levels are rising just not for Americas middle class. As global wages equalize throughout the world, income levels grow in poor countries and fall in rich countries.
In Oregon, increasing the minimum wage from $8.95 per hour to $9.10 probably isnt going to have a dramatic negative impact on small businesses, as some claim, but neither is it going to pull people out of poverty (the federal minimum wage is $7.25 an hour). For the minimum-wage employee working 30 hours per week, they will be making about 64 cents more per day.
Is income inequality an issue that needs to be addressed? Absolutely.
However, the real motivation for finding practical ways to combat income inequality should be what many economists are now saying: its a drag on the economy.
As Nobel economics laureate Joseph Stiglitz pointed out in a recent New York Times article, Increasing inequality means a weaker economy, which means increasing inequality, which means a weaker economy. That economic inequality feeds into political economy, so the ability to stabilize the economy gets weaker.
The answer doesnt lie solely in pouring more money into government programs or simply taxing the wealthy. Like most complex issues, the answer will be complex as well.
Todays inequality wasnt something that fell from the sky we created it. It was created by allowing risky loans, international decisions on trade, labor and taxes, and local decisions on those very same issues.
That being said, if we as a country are going to solve the problem of economic inequality, the answer doesnt lie in throwing more money at government programs, but rather finding the means to put an end to the practices that put us here in the first place.
We must demand more from the policy makers and with 2014 being an election year, this is the perfect time.
Will anyone have the courage to close the tax loopholes and regulate the risky loans? Lets hope so. Income inequality isnt the only thing at stake, the economy itself is.