American Inequality, Part 2
Friday, April 01, 2011
Continuing the discussion Joseph Stiglitz began, Glenn Hubbard, dean of the Columbia Business School, offers a different take on the question of inequality and the American system. He was a member of Bush administration economic team and is the co-author with Peter Navarro of Seeds of Destruction: Why the Path to Economic Ruin Runs Through Washington, and How to Reclaim American Prosperity (FT Press, 2010).,
From It's a Free Country:
Welcome to Politics Bites, where every afternoon at It's A Free Country, we bring you the unmissable quotes from the morning's political conversations on WNYC. Today on the Brian Lehrer Show, Glenn Hubbard, dean of the Columbia Business School, continued the discussion Joseph Stiglitz began on Thursday.
It's not about the top one percent...
Yesterday, economist Joseph Stiglitz told Brian Lehrer that the number one option for rectifying income inequality in America was to have the richest one percent of earners pay more taxes—at least, more of what they should be paying. Spending more on education was number two.
Glenn Hubbard may share a campus with Stiglitz, but he doesn't share his colleague's priorities. For Hubbard, better education was one of the building blocks of a more equal society, but he said that all the attention paid to how well the rich are doing is misplaced.
For me, the issue is less whether the top one percent are doing well, but why we can't help the broad middle do better. I think we can. It starts with an improved education system, one with much more support for training for individuals between jobs, and it starts with a system that's less biased against saving and investment that could lead to more capital and higher productivity.
The health care sponge
Productivity actually has been increasing at a favorable rate, according to recent data. But the same reports also show that wages for American workers have failed to increase at a similar pace; they've essentially stagnated, even though people seem to be working harder. Hubbard addressed this point by making a terminology distinction: Wages are what workers take home at the end of the day. Compensation has in fact increased, but so has the amount removed from every paycheck, namely for health care costs.
He also said the health care overhaul passed last year would only make these matters worse.
[A] factor that doesn't often get mentioned is higher health care costs...Compensation has grown a lot, but what has been soaked up there is really just higher expenditures on healthcare, so workers' take-home wages have not kept pace. That's not a statement about the failure of the market to work, it's a statement that health care costs are rising too fast—again, another thing we can do something about.
Better living through...community colleges?
Hubbard agreed with Stiglitz that improving the education system was key to correcting wealth inequality in the United States. One of his suggestions for how to do that was by bolstering institutions that traditionally don't get much attention.
I don't think any economist disagrees with the notion that we need to have very strong support for public education, not just K-12. We need to have more support for community colleges; these institutions are doing a lot of skills training in our country, but they don't get the kind of public support major universities get.
Higher tax revenue, not higher taxes
On yesterday's program, Joseph Stiglitz lamented the fact that the wealthy aren't using or investing their money in manners that are productive for the country, and cited loopholes that the rich enjoy every April. Hubbard was with him on the latter point, but said that doesn't mean we should raise taxes.
Raising marginal tax rates would be a big mistake for the country. It would depress saving and investment and ruin our chances of growth. That doesn't mean we can't raise more taxes. Many economists have suggested that we scale back deductions and tax preferences that affluent taxpayers get. I've also suggested that we slow down the growth of Social Security and Medicare benefits for affluent taxpayers. Absolutely, we need to get affluent taxpayers to pay more.
Public, private share responsibility
Another Stiglitz sentiment was that the financial industry had gotten too much help from the government, despite playing the lead role in the recent financial crisis. Hubbard agreed to a point, but stressed that no single entity is entirely at fault: The collapse resulted from joint efforts.
Part of what happened in the financial crisis was government had advantaged lending in the housing industry, indeed encouraged lenders to reduce standards in the subprime market. So government did play a role, but frankly, so did Wall Street excesses. I absolutely agree with [Joseph Stiglitz] that we should not have spent so much money bailing out the financial sector. This could have been done much more efficiently, and we should be helping millions of Americans underwater in their mortgages.
"This is a policy problem"
According to Hubbard, wealth inequality isn't something that can be solved by looking at who has what and raising or lowering taxes accordingly. It's a "pre-tax problem," he said. The top one percent's wealth is not keeping workers wages from rising, for example. The real solution is smarter government policy—in education, in health care, and in regulation.
When I talk about health care costs and other things standing in the way of wages rising, this is a policy problem. American workers are the most productive in the world, they're not problem. As far as regulation, it's not a question of more or less, but good and bad. Regulation in the Dodd-Frank legislation unfortunately doesn't address many of the problems we actually went through. We need more regulation, but we need it of housing finance, capital requirements, and transparency in financial services. We didn't get any of it.
What do you think? Here are a few questions we'd like It's A Free Country readers to answer:
→ Between the government and the financial industry, is one more responsible for the financial collapse than the other?
→ Are taxes a red herring for the inequality problem?
→ Where and when have you felt the wealth gap?
Let us know in the comments below.