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Wednesday, June 13, 2007

Inequality, Politics, and Policy

Greg Ip of the WSJ on the impact of growing inequality on politics and policy:

Remarks by Greg Ip, WSJ: ...[I]ncome inequality has become an important and growing force in U.S. politics. I use that as a catch-all term; it could also be called middle-class angst or wage stagnation.

There are quite a few ways to measure real wages and inequality, but they all broadly tell the same story. The U.S. has been getting steadily more unequal since the early 1970s. ...

Economists agree there are several causes, though they disagree on their relative importance. They include the rising premium on skills and education, institutional changes such as the decreased strength of unions, and policy decisions. ...

There would probably be less angst about this if the average American was doing well. But until recently he hasn't. ...

How has this manifested itself politically? Scholars may dispute the contribution of trade or immigration to inequality, but in the public's mind the link is firmly established. Every time we write an article about stagnant wages or inequality we are flooded with comments from readers blaming outsourcing and immigration. ...

In congressional races last fall, especially in Midwest states hit hard by the manufacturing downturn, Democratic challengers made good use of the public's link between inequality and trade. A race-by-race analysis found that six pro-trade senators were voted out of the Senate and five trade skeptics joined; and in the House, 22 pro-trade congressmen left and 16 trade skeptics joined.

These skeptical Democrats have made their presence felt. Congress forced Bush to accept inclusion of labor and environmental standards in trade agreements. It also may have made the administration itself more disposed to protectionist actions to avoid appearing soft on unfair trading practices and ceding its leadership to Congress. ...

This sentiment also is spilling into areas of foreign investment: the administration has been forced to implement closer scrutiny of foreign takeovers. Hillary Clinton in March proposed that there be some sort of trigger when foreign ownership of our debt would trigger a White House action to reduce it.

It is also affecting the immigration debate. Many Americans, especially Republicans, think high levels of illegal immigration undermine the integrity of our borders and our laws. Others, though, principally fret that immigrants represent new competition for jobs that will hold down wages. And thus the failure, at least for now, of Bush's immigration plan is yet another victim of the growing concern over inequality and middle class angst.

Finally, inequality is finding its way into many areas of tax and regulatory policy: the subprime meltdown, portrayed by some as evidence of Wall Street profiting at the expense of unsophisticated borrowers; the move to subject executive pay to shareholder votes; and interest in the Senate in taxing carried interest at ordinary income rates. ...

[T]he issue seems likely to be a force in domestic policy for the medium term. It will make it harder to alter Social Security, and it has increased interest in universal health care. Democratic candidates have been quicker to incorporate it into their campaign rhetoric, led by John Edwards who ran on the Two Americas theme in 2004. ...

    Posted by on Wednesday, June 13, 2007 at 12:06 AM in Economics, Income Distribution, Policy, Politics | Permalink  TrackBack (0)  Comments (11)

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