Fixing Inequality Equals Promoting Growth

by Stuart Shapiro

As soon as you mention fixing inequality, you get branded as a socialist.  But many of us who want to fix inequality, while influenced by sentiments of promoting fairness, also want to do so to save capitalism.  Robert Reich (a hero because he is one of the few public figures shorter than I am) is one of them.  He points out the relationship between equality and growth.

Look back over the last hundred years and you’ll see the pattern. During periods when the very rich took home a much smaller proportion of total income — as in the Great Prosperity between 1947 and 1977 — the nation as a whole grew faster and median wages surged. We created a virtuous cycle in which an ever growing middle class had the ability to consume more goods and services, which created more and better jobs, thereby stoking demand. The rising tide did in fact lift all boats.

During periods when the very rich took home a larger proportion — as between 1918 and 1933, and in the Great Regression from 1981 to the present day — growth slowed, median wages stagnated and we suffered giant downturns. It’s no mere coincidence that over the last century the top earners’ share of the nation’s total income peaked in 1928 and 2007 — the two years just preceding the biggest downturns.

Keep this in mind as you listen to the Republican debate tonight and the president’s speech tomorrow.  The policies of one side will lead to a new Depression (hint: the ones on stage tonight).  The policies of the other give us our best chance at recovery.

By: Stuart Shapiro

Stuart is a professor and the Director of the Public Policy
program at the Bloustein School of Planning and Public Policy at Rutgers
University. He teaches economics and cost-benefit analysis and studies
regulation in the United States at both the federal and state levels.
Prior to coming to Rutgers, Stuart worked for five years at the Office
of Management and Budget in Washington under Presidents Clinton and
George W. Bush.