Saturday, October 18, 2014

The Inequality Trifecta


                                              Comments due by Oct. 25 , 2014
– There were quite a few disconnects at the recently concluded Annual Meetings of the International Monetary Fund and World Bank. Among the most striking was the disparity between participants’ interest in discussions of inequality and the ongoing lack of a formal action plan for governments to address it. This represents a profound failure of policy imagination – one that must urgently be addressed.
There is good reason for the spike in interest. While inequality has decreased across countries, it has increased within them, in the advanced and developing worlds alike. The process has been driven by a combination of secular and structural issues – including the changing nature of technological advancement, the rise of “winner-take-all” investment characteristics, and political systems favoring the wealthy – and has been turbocharged by cyclical forces.
In the developed world, the problem is rooted in unprecedented political polarization, which has impeded comprehensive responses and placed an excessive policy burden on central banks. Though monetary authorities enjoy more political autonomy than other policymaking bodies, they lack the needed tools to address effectively the challenges that their countries face.
In normal times, fiscal policy would support monetary policy, including by playing a redistributive role. But these are not normal times. With political gridlock blocking an appropriate fiscal response – after 2008, the United States Congress did not pass an annual budget, a basic component of responsible economic governance, for five years – central banks have been forced to bolster economies artificially. To do so, they have relied on near-zero interest rates and unconventional measures like quantitative easing to stimulate growth and job creation.
Beyond being incomplete, this approach implicitly favors the wealthy, who hold a disproportionately large share of financial assets. Meanwhile, companies have become increasingly aggressive in their efforts to reduce their tax bills, including through so-called inversions, by which they move their headquarters to lower-tax jurisdictions.
As a result, most countries face a trio of inequalities – of income, wealth, and opportunity – which, left unchecked, reinforce one another, with far-reaching consequences. Indeed, beyond this trio’s moral, social, and political implications lies a serious economic concern: instead of creating incentives for hard work and innovation, inequality begins to undermine economic dynamism, investment, employment, and prosperity.
Given that affluent households spend a smaller share of their incomes and wealth, greater inequality translates into lower overall consumption, thereby hindering the recovery of economies already burdened by inadequate aggregate demand. Today’s high levels of inequality also impede the structural reforms needed to boost productivity, while undermining efforts to address residual pockets of excessive indebtedness.
This is a dangerous combination that erodes social cohesion, political effectiveness, current GDP growth, and future economic potential. That is why it is so disappointing that, despite heightened awareness of inequality, the IMF/World Bank meetings – a gathering of thousands of policymakers, private-sector participants, and journalists, which included seminars on inequality in advanced countries and developing regions alike – failed to make a consequential impact on the policy agenda.
Policymakers seem convinced that the time is not right for a meaningful initiative to address inequality of income, wealth, and opportunity. But waiting will only make the problem more difficult to resolve.
In fact, a number of steps can and should be taken to stem the rise in inequality. In the US, for example, sustained political determination would help to close massive loopholes in estate planning and inheritance, as well as in household and corporate taxation, that disproportionately benefit the wealthy.
Likewise, there is scope for removing the antiquated practice of taxing hedge and private-equity funds’ “carried interest” at a preferential rate. The way home ownership is taxed and subsidized could be reformed more significantly, especially at the top price levels. And a strong case has been made for raising the minimum wage.
To be sure, such measures will make only a dent in inequality, albeit an important and visible one. In order to deepen their impact, a more comprehensive macroeconomic policy stance is needed, with the explicit goal of reinvigorating and redesigning structural-reform efforts, boosting aggregate demand, and eliminating debt overhangs. Such an approach would reduce the enormous policy burden currently borne by central banks.
It is time for heightened global attention to inequality to translate into concerted action. Some initiatives would tackle inequality directly; others would defuse some of the forces that drive it. Together, they would go a long way toward mitigating a serious impediment to the economic and social wellbeing of current and future generations.

(Mohamad ElArian)

14 comments:

Anonymous said...

This article shows just how much work there needs to be put into the re-construction of the way that wealth is distributed among people who reside in America. There need to be people who want to not only want a better re-distribution, but are willing to put in the time to achieve the end result. It will take time, but if we give the people who truly want to make a change the time and resources, then the end result will be much appreciated by a majority of the people. But we cannot have these empty promises and no one to continue the work to give an end product.

Beverly Levine

Vinona Rugova said...

In America, we tend to struggle with wealth distribution. We have a rather small group of people who are in the top 1% and the rest are clustered in either the middle class or the lower class. The government needs to work on distributing the wealth more equally. There is no easy solution to this problem, it will take a lot of time to level the playing field, but small steps should be made and soon so that circumstances can become more equal.

Anonymous said...

The article is pointing out an enormous issue that has been talked about for a while with congress and economist. Wealth that is held by the top percentage of people is not comparable to the middle and lower class. It is a failure in our government that business, banks and the top percent get advantages others do not. Banks having a near zero interest rates doesn’t give a return on the people’s investment into the banks. Business that are allowed to go into different countries so that they can ovoid corporate taxes hurts people because Americans are the ones losing jobs. This is an issue that only the government can solve. Polices need to be mad that income inequality isn't as vast as it is right now.

Bryan Rivers

Anonymous said...

There is a huge problem today with the distribution of wealth and the gap between the rich and the poor class. Yes, America has the one of the highest GDP, but that money is not separated equally. Most of the money that America holds is in the hands of only 5% of Americans. The government needs to put more emphasis on the distribution of the income, and make it more even. It will be hard to pass any laws that help this case due to the undecisiveness and fact that no politicians agree on how to help fix this problem, but if this problem is fixed our economy would flourish.

Marissa Cotroneo

Brittany King said...

This article discusses the major issue of three different inequality situations presented globally. These issues include inequality between income, wealth, and opportunity. Additionally, this article discusses the government’s lack of implementing effective policies to even out the inequality.
I agree with the article in that the government’s policies that have been implemented require a bit of reforming. I also agree that changing the tax rate to a more preferential rate would be beneficial, but that increasing the tax on the wealthy would not help the problem of uneven income or wealth distribution. The government’s solution to every economic problem is to tax the rich, as they do not have any logical solutions to correct all of the problems with the economy. As for businesses moving to other states or countries, leaving us with less opportunity and employment options in the US, I believe that if the tax rates weren’t so high the companies would have stayed in the US. This would provide additional opportunities to many along with decreasing unemployment. In conclusion, there will continue to be a division of equality in income, wealth, and opportunity unless the government can come up with political and economic policies that would not hurt the wealthy but improve economic conditions for the lower and middle class families.

Aedjet Simoy said...

The article illustrates the inequality in the U.S. This issue is the one of the most important issues in the U.S because there are a lot of people who wants to gain equality, especially to those people who are struggling to support their families. The factors that contributes to inequality are wealth and opportunity. The distribution of wealth and opportunity is unfair because people who have money (wealthy people) tend to keep their money and increase their wealth everyday while people who are below the poverty line stays where there are and struggles to help their families. Government should step forward and help those who are in need and stop the inequality in the U.S.

Anonymous said...

This article talks about the inequality when it comes to wealth, income, and opportunity. The article deals with these issues on a global scale. One major problem is that governments acknowledge that inequality is a problem, but they do nothing to address the problem they have just diagnosed. In today's world, political systems favor the wealthy. The wealthy have all of the power in government and only their agendas are taken care of. Because of this, most countries face a trio of inequality due to income, wealth, and opportunity. In all of these countries, the top of the food chain has all of the income, wealth, and opportunity, while those at the bottom have none of it.
-Nick Bellantese

Brenden Wisnewski said...

This article discusses the reoccurring problem with inequality when it comes to wealth, opportunity, and income. The US government is well aware of the problem but the governments policies are not working to close the wealth gap. The government always tries to address the problem with taxes; everyone wants to tax the 1%. Taxes are a big reason behind the problem because the high US tax rates are pushing business out of the country and relocating their headquarters in different countries. Burger King, for example, relocated their headquarters in Canada. All of these businesses outsourcing is creating the problem of low opportunity. With less opportunity for jobs, it causes problems for the lower-class families looking for those jobs. Inequality has been a problem for a while now and it is looking like this will end up being a very prolonged problem.

Aly Rafeh said...

The article talks about the problem of the distribution of wealth. The article mentions that the wealthy people have a very high distribution the countries wealth while the poor don't have a high percentage of the countries wealth. The bigger the gap of wealth distribution, then overall consumption will be low. I believe the wealth distribution not only in the US but other countries as well has to change.

Nick Leader said...

This article shows us how much of a wealth gap there is and why we need to fix it. The majority of the U.S. money is in the hands of the wealthy which only take up about 5% of our population. The government needs to come up with something to fix this problem because today "the rich is getting richer while the poor is getting poorer." There is already a huge gap and that is only growing. Wealth needs to be distributed easily so the poor don't always have to struggle to support themselves and their family.

Anonymous said...

Brian DelVecchio


This article does a good job depicting many of the issues that go along with wealth distribution and why things are not being done about it. Unfortunately, many of the policy makers are within the population of wealthier individuals, so there is not as much incentive to work towards fighting wealth distribution. One step towards reforming wealth distribution might be to reform the political parties to an extent so that it can include some of the lower class members of society as there is a great disparity and lack of such members directly involved in policy making. Battling major issues such as student debt could be an effective way improve life for that of the lower class and reduce inequality. Doing this will mean that the banks do not need to artificially stimulate the economy and then the economy can return to its natural flow.

Anonymous said...

This article tells us about the inequality when distributing wealth. Again this results in the wealthy getting wealthier and the poor getting poorer. It is ridiculous that government favors the wealthy instead trying to somehow distributing the income evenly. Government is aware of this problem and how it affects those with lower income, why not fix it?

Doris Da Silva

Matthew Kurdewan said...

This article talks about the inequality that is spread across countries throughout the world, and how nothing is being done to reduce it. Even at the Annual Meetings of the International Monetary Fund and World Bank nothing was raised that could help the problem be reduced. The article states that although the equality of wealth has evened out country to country, the inequality has risen inside those countries. No one has found a concrete answer to this problem, but as the article states the solution is going to involve a comprehensive macroeconomic policy stance against the problem. Until the governments fully dedicate themselves to stopping the problem of inequality it will not stop, it will only continue to increase.

Christiana Camaj said...

This article describes just how corrupt our government is, explaining inequality. Inequality leads into speaking about wealth distribution, income and opportunity. As always, distribution of wealth is an issue in our society. The government will never be able to make equality occur within our country. They try and penalize the rich, as always, by increasing their taxes, which is not equality, hoping it will work, but it does not. A change in the tax rate is mandatory for our country, and would help tremendously. America has so many expenses in order to just survive and get by. The government needs to learn how to distribute money within all three classes; the rich, the middle-class, and the lower-class. Though an increase in National Income is only increasing by the year, it is not distributed equally, which is what our country wants. The rich only get richer, yet the middle-class and lower barley even see a difference in an increase in income, but only see an increase in expenses. It seems as if the wealthy always have an advantage in every aspect. The government is controlled by the money from the rich, therefore whatever law is wanted to help only the wealthy, is passed. The government favors the rich, only making the rich, even more rich, and the poor, even more poor.