Inequality

Inequality is the topic presently being discussed in an OLLI (formerly Encore) course at NCSU.  Various topics are being considered in this course, all falling under the general heading of “What’s Wrong and What’s Right With America”.  The two previous meetings focused on “Education” and “Government” while currently, two class meetings are being devoted to  “Inequality”.  The principal instructor for the course is Dr. Ben O’Neil and he has invited various guest discussion leaders to assist him, each being a recognized authority in the topic of the day

Classes consist of the presentation of one or more short videos, many of which are TED talks, followed by class discussion.  You might imagine that such topics might be highly politically charged and you would be correct.  Video presentations and in-class instructors are almost exclusively representatives of the political left.  While I feel that it would be better to have a more balanced set of presentations,  this format has made me feel even more confident that my own preferred approach to problem solving, i.e., “probabilistic rationalism” has a significant advantage in problem solving vs. the confrontational dichotomy of “Political Right” vs “Political Left”.

Before I address the question of inequality, I want to point out what I see as the major flaw in the “Political Right” vs. “Political Left” approach.  When a person accepts a label identifying them with a certain political philosophy, they are compelled by their innate human nature to follow that course of reasoning to the bitter end.  How often have you heard a staunch Democrat or Republican say that they see the other side’s point of view and realize that such an approach may have a reasonable chance of achieving the desired goal?  It probably has occurred but, if so, only rarely.  Most often, each side will steadfastly hold to their position come hell or high water.  In other words by declaring themselves to be either Republicans or Democrats, they lock themselves in a box intellectually and are not free to start afresh in analyzing best approaches to solving each new problem as it arises.  What you get is the all too familiar government gridlock, public discontent with government, and sub-optimal problem resolution.

So, with that rather long-winded introduction,  what about inequality.  Is it a bad thing and is it a problem in our society?  Everything discussed in yesterday’s class would lead you to believe that wealth inequality in the U.S. is bad and we’re headed for a dreaded oligarchy where our country will be controlled by the ultra-rich.  

I’ve previously written that inequality is a necessary feature in human society to provide the incentive which encourages people to excel.  That’s why schools award grades to students.  B students will work harder and learn more in the effort to join the elite group of A students.  That’s why companies use merit as a basis for awarding raises.  With the possibility of earning a higher wage, employees work harder and the entire organization is more successful.  On the other hand, people who receive welfare from the government can become satisfied with a freebie lifestyle and may resign from the responsibility of work.  However, too  much inequality is obviously bad.  It’s bad when sultans and kings enjoy lives of extreme wealth while their subjects live in shacks and can’t get enough to eat.  So the question is how much inequality is bad for the U.S. and do we presently have too much inequality?  If so, how should it be remedied?

In the U.S. in 2013 there were 45.3 million people living in poverty, 14.5% of the population. In my opinion, that’s far too many for an advanced country like the U.S.  CEO pay in the U.S. averaged 354 times that of the average company worker.  That discrepancy is the highest in the world.  High earners making salaries in excess of a million dollars per year abound in a number of professions including finance, law, real estate, etc.  The top professional basketball players earn in the vicinity of 60 million dollars per year for playing a game and the list goes on if we look at other sports figures and entertainers.  So the question remains, is there too much economic inequality in the U.S.?  In my opinion there is too much inequality in our country.  For starters, with a properly constructed economic system, I would hope that no one would have to live in poverty.  There should be enough adequately paying jobs available so that all able bodied citizens can work and live above the poverty line.  Notice, I said citizens.  I wonder if part of the problem currently is that too many jobs are being taken by illegal aliens and foreign guest workers.  This is a potential issue that deserves careful analysis.

At 354 times, it’s like saying that the average U.S. company CEO provides as much value to the company in one day as the average employee provides in a year.  There may be an occasional situation where it can be argued that this is true but I can’t believe it holds in the majority of cases.  In my opinion that’s too much inequality.  The ratio in Japan is 67 and, by contrast, is the lowest in the world.  The Japanese economist Ms. Chiaki Moriguchi feels that Japan’s differential may be too low to be optimal.  For example, maybe something in the order of 100 times would approach an optimal level for CEO compensation.  For a hypothetical company where the average employee salary is $40,000 per year that would put the CEOs pay at 4 million dollars per year.  While the above is just an arbitrary example for illustrative purposes,  perhaps a panel of economists and industry representatives could study this issue and come up with a guideline.

Assuming we have such a guideline as well as a number of other guidelines relating to the economy and the general goal of achieving an optimum level of inequality, the question becomes how to bring our large and complex economy into line with the guidelines.  One method I would be opposed to is to hand off that responsibility to the government.  In my opinion that would be a disaster and simply produce one more obese bulge in the federal bureaucracy.  I would favor permanent establishment of the panel producing the guidelines , or similar group, as a watchdog to monitor the corporate world with the authority to impose monetary surcharges, i.e. penalties for exceeding guidelines.  Funds collected could go to improving education for the disadvantaged.  What I want to avoid is a typical government solution of taxes, taxes and more taxes.  We don't need suppression of creativity and entrepreneurship, we need to encourage it.  After all, it's a healthy private sector that creates wealth and drives economic growth. 

Finally, I feel that education will be the key to better lives for the disadvantaged and a ticket for many to climb well above the poverty line as they become the best that they can be.  We need better ways of delivering this education and, perhaps, school vouchers or some other means of supplementing public education may play an important role.