US Policies Are Relatively Ineffective At Reducing Inequality

Government tax and spending programs can help reduce inequality—unfortunately US policies leave a lot to be desired.

One of the most common measures of income inequality is the gini index.  The index runs from zero to one, with higher values signifying greater inequality.  

The following two charts come from a Christian Science Monitor infographic on myths about inequality. The first shows that while income inequality, as measured by the gini coefficient, is high in the US, it is higher in nine other countries.  

The second shows the degree to which tax and assistance programs do actually lower rates of income inequality.  It also shows that U.S. programs perform relatively poorly; using this adjusted measure, the U.S. trails only Chile for the dubious distinction of having the highest rate of income inequality.

Election Thoughts

President Obama had hoped that recent signs of economic strength would benefit Democrats in the recently completed election.  While it is true that job creation has picked up, the unemployment rate is falling, and growth is stronger, the reality is that most Americans have not enjoyed any real gains during this so-called expansionary period.

The following two charts highlight this on the national level.  The first shows how income gains made during the expansion period have been divided between the top 1% and everyone else.   There is not a lot to say except that there is not a lot of sharing going on.

The second shows trends in real median household net worth.  While declines in median net worth are not surprising in a recession, what is noteworthy is that median net worth has continued to decline during this expansion.  Adjusted for inflation the average household is poorer now than in 1989.

Oregon provides a good example of state trends.  The chart below shows that the poverty rate in Oregon is actually higher now than it was during the recession.

The poverty rate for children is even higher. In 2013, 21.6 percent of all Oregon children lived in families in poverty.

And, not surprisingly, communities of color experience poverty rates far higher than non-hispanic whites.

Electing Republicans will certainly not improve things, but it is hard to blame people for feeling that the Democratic Party has abandoned them.  

More promising is movement building to directly advance community interests.  One example: voters in five states passed measures to boost minimum wages.   Another was the successful effort in Richmond, California to elect progressives to the city council over candidates heavily supported by Chevron, which hoped to dominate the council and overcome popular opposition to its environmental and health and safety policies.

Declining Prospects For Growth

You know things are serious when leading mainstream economists and established international organizations continually revise downward their estimates for future growth.

The chart below shows successive Congressional Budget Committee estimates of the U.S. growth potential beginning in 2007 and the actual growth trend.  Every year the estimates have been reduced and actual growth remains far below the estimated potential.

The following chart comes from the IMF.  It shows a steady downward revision in predicted growth for so-called emerging market countries.

 As the IMF says: ” This feature of repeated downward revisions to future growth is unique to the current downturn. In the past, we expected growth to bounce back (and it did). This time seems different.”

The lack of serious policy discussions by leading political and business leaders about causes and responses is far from reassuring.