Tag Archives: inequality

The Inequality Problem: Series Introduction

As we are utilizing this blogging format for the course, I wanted to find some interesting and relevant topics to explore through multi-part series that will dig into an issue in greater depth than could be done through one post or paper alone. The first issue I want to address is economic inequality.

First, why do I think inequality is an important issue to discuss? Since the Great Recession, observers have noted a sharp increase in economic inequality. While everyone felt the immediate effects of the recession, the recovery has greatly increased the wealth for the highest income earners while the poor and middle class has stalled. High income earners had a high percentage of their wealth invested in the stock market, which tanked in 2008, but has rebounded to nearly the same level since, with a little help from the Federal Reserve’s expansionary policies. Their wealth has essentially fully recovered and for many, has reached new highs. The middle class and the poor have faced a much more difficult path. They rely primarily on wage income – they are the backbone of our countries labour force. And since the recession, unemployment has remained high – above 7% until the end of 2013 – as shown in the chart below from the St. Louis Fed.

Unemployment Rate - FREDThe unemployment rate does not necessarily tell the full story even as many long-term unemployed have quit looking for work altogether and so no longer are counted in the Bureau of Labor Statistics official statistic.

The issue has also made news as law makers have argued over reforms that would help the poorest Americans. Last month, Congress failed to extend long term unemployment benefits as the WSJ reported. There has also been wide spread discussion about increasing the minimum wage, to improve living condition for the lowest level of income earners. President Obama made a move in this direction by introducing legislation that would boost the federal minimum wage from $7.25 to $10.10 by 2015 according to the New York Times. However, raising the minimum wage is seen as controversial by some because they believe it could raise unemployment as employers are forced to pay low income employees more. I will explore the topic of minimum wage and the different viewpoints in an upcoming blog post.

Finally, the one of the most interesting questions related to the rise of inequality is what is the cause? Some people believe that we are facing a structural change in society as tasks which previous required low skilled workers to perform rote tasks are becoming automated by computers and machines. Economists typically see such arguments as naive “Luddite” theories because technology creates newer, more advanced jobs while making society more productive with the same resources, but the current inequality problem could be a symptom of this shift to automation. I will explore the causes of inequality in an upcoming post.

In the end, why is inequality an important concern? While it is true that there are winners and losers in a capitalist society, a rich country like the United States should find ways to share the wealth its productive population creates amongst as many people as possible. Extreme inequality can lead to unrest and political upheavals. Now is the time to dig into how bad is the inequality, to see what gives rise to it, and what we can do as a nation to slow or reverse its course. I hope to shed greater light on these three issues in future posts.

 

Inequality Is Not the Problem We Should Be Worrying About

Raising income taxes on the rich, increasing the capital gains tax, charging corporations a higher tax rate, and increasing minimum wage are all ideas Obama played with during his State of the Union address earlier this week.  All of these measures are designed to reduce what many consider one of the most pressing economic issues of our time: income inequality.  After hearing Obama’s speech and seeing the popular YouTube video, “Wealth Inequality in America,” I initially considered income inequality to be the world’s worse evil.  But after further thought, I realized that focusing on income inequality alone is a very naive way of viewing the economy.

While I certainly do not believe that such dramatic income inequality is a good thing, I do not see the current level of wealth disparity as the main problem in the United States.  While “Wealth Inequality in America” almost seems to suggest that socialism would be a better alternative to today’s inequality, I disagree.  There will always be rich people and there will always be poor people.  Redistributing wealth via increased taxes and a higher minimum wage does not solve the problem; instead it masks the real issue at hand.  In my opinion, we need to focus less on income inequality and focus a lot more on economic mobility.

Economic mobility refers to one’s ability to leave behind poverty and become rich.  Increasing economic mobility allows us to grow the pie as opposed to redistribute it.  As economic mobility increases, the poor can become rich without penalizing those who are already rich.  In this way, economic mobility does not promote a “richer poor,” as I see minimum wage doing.  Rather it promotes a more robust middle class by making the American Dream more accessible.  And interestingly enough, economic mobility hasn’t changed as drastically as income inequality has in recent history.

A study by the National Bureau of Economic Research has found that while income inequality has increased in recent decades, economic mobility has stayed rather flat.  For example, a child born in the bottom 20% of earners in 1971 has approximately an 8.4% chance of becoming one of the top 20% of earners in adulthood.  For a child born in 1986, this value is not 8.4%, but rather 9.0%.  Certainly, economic mobility is a difficult phenomenon to measure, but this study does a very good job at analyzing data that spans a long enough time period (WSJ: New Data Muddle Debate on Economic Mobility).  I would argue that based on this data, politicians have spent way to much time focusing on income inequality over the last few decades, and as such, we have completely ignored the very important, underlying issue of economic mobility.

So instead of redistributing wealth, Obama and Congress should be focused on boosting economic mobility.  But how?  The study cited above suggests that low levels of segregation and economic mobility are surprising correlated.  Indeed, areas that have the highest levels of economic mobility, such as San Jose and Salt Lake City, generally have high levels of integration, which includes less housing segregation, more diverse communities, better schools, and more children being raised in two-parent households.  Perhaps then, better education and increased integration should be a bigger focus than a higher minimum wage.

(Revised) Rising Inequality Explains the Weak Recovery, Not Vice Versa

In this article, I will not passionately try to convince you of the post title. Instead, I will make points on how John B. Taylor’s argument on the topic fails under more scrutiny. In his article in the Wall Street Journal, titled “The Weak Recovery Explains Rising Inequality, Not Vice Versa”, John B. Taylor makes following use of data to make his point that today’s inequality isn’t a cause of the type of recovery we are witnessing. First, he explains what the people who he is arguing against say: the slow recovery has been a result of growing inequality. He writes down their argument as follows:

“The key causal factor of the middle-out view is that a wider income distribution slows economic growth by lowering consumption demand. Saving rates rise and consumption falls if the share of income shifts toward the top, according to middle-out reasoning, because people with higher incomes tend to save more than those with lower incomes.”

And then he goes on to counteract this view by data he collected and put some make up on. He gives what his data shows:

“The data for the recovery since mid-2009 do not support this view. The 5.4% overall savings rate during this recovery is not high compared with the 8.4% average since 1960. It is relatively low compared to past recoveries, such as the 9.3% savings rate during a comparable period during the recovery in the early 1980s.”

In my curiosity, I was able to look at the data he worked on. It is data on personal saving ratio-the ratio of personal saving to disposable personal income. The following graph shows what the saving rate has been.
PSAVERT_Max_630_378John Taylor is correct on that the saving rate has been averaging 5.4% since the end of the latest recession. However, when he tried to compare this rate to the 8.4% average rate since the 1960, he makes wrong comparison. Due to the general downward trend of this rate over the last decades, he shouldn’t compare this 5.4% average rate of saving during the recovery to the all time average saving rate. But if we compare the 5.4% average rate during the recovery with the average saving rate between the end of 2001 and the start of the recession, which is 3.9%, we can see that the saving rate today is higher than its pre-recession level. Therefore, we have just disproved his claim by using the same argument he tried to use. In other words, with data on how the income inequality has grown, we have further see that the saving rate also increased after the recession.

10economix-sub-wealth-blog480Hence, we are able to claim that the increase in inequality indeed increased the saving rate; therefore, the total consumption demand has declined, which is exactly what the people he argued against said.

One could argue that increased personal saving rate isn’t caused by the increasing inequality . It is possible that because people might be willing to save more than what it was saving before the crisis to use their saving when another crisis comes during the recovery and uncertainty. Therefore, one could say inequality isn’t playing a much role in hindering a recovery today.

However, this surge in the saving rate after any given recession has been witnessed only twice, once after 2001 and again after 2007-2009 recessions.  The prior recoveries experienced the saving rate which was actually lower than its level before the crises. If we look at the average saving rate between November 1970 and November 1973, it was 12.8% which is higher than the saving rate after the recession, between April 1975 to December 1979, which is 10.8%. The same decrease in the saving rate was seen also during the early 1980’s recovery. We can see this trend of decrease in the saving rate following any recession in the above graph except for the last two recoveries. In last two recoveries, the saving rate surged and stayed at the higher level than it was before the recessions.

In my very first blog post, I compared the income inequality during the pre-recession periods for the Great Depression and the Great Recession and argued the recovery the economy is going through now is unhealthy one. One could agree with John Taylor on that the weak recovery is causing the widening inequality and the first problem policymakers should tackle is to boost the recovery by any means. However, the increasing inequality could be the heart of the problem, and the policymakers should prioritize equality to change the speed of the recovery. But how the inequality must be tackled should be devoted to a number of blog posts itself. I believe recent discussions and steps toward solving the inequality is a way to fasten the recovery.

Created unequal (but the verdict’s still out on the consequences)

So the Fed’s decision is out, and… I don’t really know what to make of it yet, so I’ll take the easy way out. I’ll wait until Saturday, see what happens, and give my two cents then.

Instead, I’ll talk a little bit about inequality, on which Brad DeLong has a nice Rawlsian take. I think when we’re discussing this we tend to forget that there’s more to this than simple economics.

However, I’ve got to take a moment to point out, just briefly, how misleading, factually wrong and just plain bad this morning’s WSJ editorial is. Just to give you a flavor of what’s going on here, the editors claim that President Obama declared that “Climate change is a fact”, when, according to the WSJ, “even leading climate scientists are struggling to account for the almost-total absence of global warming over the past 16 years.” Really, that’s what they’re saying? Because it wasn’t, last time I checked. But if you don’t trust those left-wing radicals at the Economist, how about taking a look at the abstract of the paper that the WSJ editors link to? Yes, it says that ” increases in global mean surface temperatures have stalled in the 2000s.” But guess what, a couple sentences further down, it says “Global warming has not stopped; it is merely manifested in different ways [for example rises in ocean temperatures].” That’s the same paper they refer to (and it’s all in the abstract, mind you!), and they claim it opposes climate change? Did they not bother reading all of that pesky science stuff once it stopped fitting their view of the world? That’s awful!

But I digress. I promised you economics, and you shall have it (well, that and a little philosophy). I recommend looking at DeLong’s post, because it really gets to the core of the point that I want to make. The problem with inequality isn’t only that it implies that some people have to make do with a budget that leaves them wanting and marginalized. That’s the most obvious one, but hey, it’s theoretically possible that everybody’s got enough to make do despite some being several orders of magnitude richer than others, right? And the poor in America today got mobile phones, and the internet, and… what are they complaining about anyway? Well, I absolutely agree with Paul Krugman here. Just because the poorest citizens of the US have a higher standard of living now than they had 100 years ago, that doesn’t mean their situation is okay. Yes, they could do worse. But here’s why they should be doing better:

Inequality is often framed as a debate about money. And that’s because income inequality is so easy to put in a graph (or so I suppose). I mean, the data’s right there. But what are we really concerned about? I’d argue (and yes, that’s influenced by certain influential philosophers and economists) that we’re concerned about life prospects, or ‘capabilities’. The question is: does everybody in a society have the same opportunities to utilize their potential?

That doesn’t mean that everybody should have the same income by the way, just in case anybody feels like crying, “socialism!“. But conditional on your skills, you should have the same chance as anybody else to get any job you’re qualified to do. Speaking of qualifications: this means, for example, equal opportunity to get the education you desire, including college. Are we there yet? Probably, not so much. And yes, that’s an income issue. I know that student loan payments are weighing down hard on everybody’s backs. But plenty of people lack the ability to even take out a loan in the first place, although they’d potentially do very well in college.

Inequality isn’t just ‘the 99 percent’ vs. ‘the one percent’. So long as equal capabilities are not a reality, inequality is an undeniable fact. It’s that some kids have rich, loving parents and grow up in an environment that makes them value knowledge. Then they go to Harvard and make buckets of money working for Google. It’s that meanwhile, other kids grow up in poverty and are largely doomed to stay poor. And it’s noticeable everywhere in between.

Nobody ‘deserves’ their parents in the sense that you or I did anything to warrant the way our parents raised and treated us. Nobody deserves the luck of being genetically more apt at sports or academia, or the bad luck of being genetically prone to some deadly disease. And we can’t do anything about those facts. But we can do something about how these facts play out. Whether they affect your live in an unreasonable way, in the long run. And as long as they do, that’s inequality. And that has to change.

Rising Inequality Explains the Weak Recovery, Not Vice Versa

In this article, I will not passionately try to convince you of the post title. Instead, I will make points on how John B. Taylor’s argument on the topic fails under more scrutiny. In his article in the Wall Street Journal, titled “The Weak Recovery Explains Rising Inequality, Not Vice Versa”, John B. Taylor makes following use of data to make his point that today’s inequality isn’t a cause of the type of recovery we are witnessing. First, he explains what the people who he is arguing against say: the slow recovery has been a result of growing inequality. He writes down their argument as follows:

“The key causal factor of the middle-out view is that a wider income distribution slows economic growth by lowering consumption demand. Saving rates rise and consumption falls if the share of income shifts toward the top, according to middle-out reasoning, because people with higher incomes tend to save more than those with lower incomes.”

And then he goes on to counteract this view by data he collected and put some make up on. He gives what his data shows:

“The data for the recovery since mid-2009 do not support this view. The 5.4% overall savings rate during this recovery is not high compared with the 8.4% average since 1960. It is relatively low compared to past recoveries, such as the 9.3% savings rate during a comparable period during the recovery in the early 1980s.”

In my curiosity, I was able to look at the data he worked on. It is data on personal saving ratio-the ratio of personal saving to disposable personal income. The following graph shows what the saving rate has been.
PSAVERT_Max_630_378 John Taylor is correct on that the saving rate has been averaging 5.4% since the end of the latest recession. However, when he tried to compare this rate to the 8.4% average rate since the 1960, he makes wrong comparison. Due to the general downward trend of this rate over the last decades, he shouldn’t compare this 5.4% average rate of saving during the recovery to the all time average saving rate. But if we compare the 5.4% average rate during the recovery with the average saving rate between the end of 2001 and the start of the recession, which is 3.9%, we can see that the saving rate today is higher than its pre-recession level. Therefore, we have just disproved his claim by using the same argument he tried to use. In other words, with data on how the income inequality has grown, we have further see that the saving rate also increased after the recession.

10economix-sub-wealth-blog480Hence, we are able to claim that the increase in inequality indeed increased the saving rate; therefore, the total consumption demand has declined, which is exactly what the people he argued against said.

One could argue that  because people might be willing to save more than what it was saving before the crisis to use their saving when another crisis comes during the recovery and uncertainty, the higher saving rate doesn’t say that inequality is hindering the recovery. But this surge in the saving rate after a recession has been witnessed only twice, after 2001 and 2007-2009 recessions. Prior recoveries experienced the saving rate which was actually lower than its level before the crises. If we look at the average saving rate between November 1970 and November 1973, it was 12.8% which is higher than the saving rate after the recession, between April 1975 to December 1979, which is 10.8%. The same decrease in the saving rate was seen also during the early 1980’s recovery. We can see this trend of decrease in the saving rate following the recession in the above graph except during the latest two recoveries.

In my very first blog post, I compared the income inequality during the pre-recession periods for the Great Depression and the Great Recession and argued the recovery the economy is going through is unhealthy one. One could agree with John Taylor on that the weak recovery is causing the widening inequality and the first problem policymakers should tackle is to boost the recovery by any means. However, the increasing inequality could be the heart of the problem, and the policymakers should prioritize equality to change the speed of the recovery.

Forget Minimum Wage – Let’s Talk about Wage Subsidies

In 1914, Henry Ford did something that many managers would regard as absurd: he unnecessarily raised the salary of his employees.  And he raised his employee’s salaries a lot – from $2.34 a day to $5 a day (given inflation, this would be about $120 per day).  Ford made this decision, motivated by a desire to decrease recruiting costs and increase employee retention…and it worked.

Even more importantly, Ford’s pay raises allowed his employees to escape a “poor” livelihood and experience a “middle class” livelihood.  By helping to create a stronger middle class, Ford helped reinvigorate the economy (at least for awhile; the Depression was only a decade or so off).  Interestingly, the US economy is currently in a situation where Ford’s “altruistic” actions would be very beneficial. (Business Insider: Dear American Companies: Here’s How to Fix the Economy)

In America today,  corporate profitability and income disparity are at all time highs (see charts below – the chart on the left analyzes wages and the chart on the right analyzes corporate profits.  These charts are courtesy of Business Insider)

Wage Inequality   Corporate Profits

As a result of this disparity, the middle class is extraordinarily weak.  William Galston points out in the WSJ that while Wal-Mart and Neiman Marcus are thriving, stores like JC Penny and Sears are not.  Businesses that appeal to the middle class simply cannot succeed if a strong middle class does not exist.  And because most American businesses do not specifically target the rich or the poor (like Wal-Mart and Neiman Marcus arguably do), a weak middle class is leading to poor overall health of the US economy (Notice this implies that the record corporate profits shown in the chart above are distributed similarly to private income – the richest corporations make the majority of the profit). (WSJ: The Eroding American Middle Class)

So how do we strengthen the middle class?  Many have supported a boost in the minimum wage.  Personally, I believe such a solution is foolish, as minimum wages are not precise enough.  According to Noah Smith, minimum wage mostly benefits high school students working at the local drive-through, and as such, minimum wage laws do not foster the type of employment America wants to see (for example, manufacturing).  As an alternative to minimum wage, Noah proposes a “wage subsidy.”

A wage subsidy behaves exactly as it sounds – it subsidizes wages for certain jobs.  The government helps corporations pay higher wages to employees with income below a certain wage threshold.  In doing so, the wage subsidies act like minimum wage in that low-wage employees have higher “wealth.”  That said, wage subsidies are distinct from minimum wage in two important ways.  First, the government, not businesses, pays for wage subsidies.  In this way, deadweight loss is minimized because wage subsidies do not distort the hiring behavior of firms (compare the deadweight loss of a subsidy to a tax – minimum wage is much more similar to the tax, which causes a higher deadweight loss).  Second, the government can be selective with wage subsidies and only subsidize industries that will benefit the American economy most. (Noahpinon: Wage Subsidies)

I am not claiming that wage subsidies are a solution to America’s weak middle class.  But I would argue that they are an out-of-the-box alternative to a rather ineffective policy like minimum wage.  While wage subsidies may or may not be effective, I think they represent the type of thinking economists need to engage in: how can we reinvigorate America’s middle class without making enemies with the private sector?  Ultimately, I believe that cooperation between the government and the private sector (which is not a fan of minimum wage laws), is the only way to replicate the middle class that Henry Ford helped create.

In the United States, the Farm Bill, which is passed every 5 years, determines this country’s agriculture spending on both food subsidies and food stamps.  The WSJ recently analyzed the state of the most current farm bill, identifying who benefits most from the resulting payments.  Focusing on farm subsidies, which account for approximately 20% of the Farm Bill’s spending, the following chart illustrates the tremendous amount of money spent on farm subsidies:

Farm Subsidies

As this chart makes apparent, the ten states that consume the most farm subsidy dollars consumed $9.445 billion in 2012.  While this expenditure doesn’t compare to military spending in the United States, $9.5 billion is not a trivial value (WSJ: Who Benefits from Farm Subsidies).  After adding in farm subsidies paid throughout the rest of the United States, total annual expenditures is close to $17.5 billion (George Mason University: Ending Farm Subsidies – Unplowed Common Ground)

It’s interesting to examine what crops the government is subsidizing.  If you watch the movie King Corn, or you read the Live Science article “Junk Food Subsidies Threaten American Health,” you’ll learn that the most commonly subsidized crops are commodity crops like corn or soybeans (these are called “commodity” crops because, given the way they are grown, these crops are not edible until processed into secondary products like High Fructose Corn Syrup).  Furthermore, without the existing government subsidies, many farmers would not profit from the production of commodity crops.  The selling price for a bushel of corn, for example, is lower than the cost to produce a bushel; nevertheless, farmers continue to make a profit because of government subsidies (King Corn).  As one learns in any Econ 101 class, these subsidies ultimately distort the commodity crop market, leading to deadweight loss at the expense of American taxpayers (who are footing the subsidy bill).

Many support farm subsidies by stating that these subsidies are necessary for farmers to support themselves and that Mom-&-Pop farmers are the backbone of America.  Regardless of how you feel about Mom-&-Pop farmers, the above statement simply is not true.  Per the US census, farm household income has exceeded the average household income in America for over a decade and a half, and today the average farming household earns 53% more than the average non-farming household.  Additionally, the subsidies given out by the US government do not favor the “everyday” farmer living the American Dream, but rather support enormous commercial farms.  Of the $17.5 billion of farm subsidies paid out by the US government each year, 80% goes to the wealthiest 15% of farmers, whose wealth is usually measured in millions of dollars (George Mason University: Ending Farm Subsidies – Unplowed Common Ground).

Thus it seems obvious that farm subsidies are negatively impacting this country in three ways: (1) they distort the market for commodity crops (2) they place an additional tax burden on Americans who indirectly pay for farm subsidies (3) they contribute to economic inequality by favoring already wealthy, commercial farmers.

That said, there is yet another way that farm subsidies adversely impact the economy: health care bills.  The American Heart Association identifies cardiovascular disease as one the most pressing health problems in the United States, with over 40% of Americans expected to suffer from cardiovascular disease by 2030.  With this increase in prevalence comes an increase in the costs associated with treating cardiovascular disease, which are expected to grow from $273 billion in 2010 to $818 billion in 2030.  So how is this relevant to farm subsidies?  One of the leading causes of cardiovascular disease is obesity, and one of the leading causes of obesity is the exorbitant consumption of high fructose corn syrup.  And why are Americans consuming so much high fructose corn syrup?  Because US farm subsidies favor the production of commodity crops that make high fructose corn syrup so cheap to produce.  (Live Science: Junk Food Subsidies Threaten American Health)

Obviously, I believe that farm subsidies are ridiculous.  They necessarily create deadweight loss and place additional burden on the American taxpayer.  Additionally, by indirectly increasing health care costs, farm subsidies cost this economy exponentially more than the $17.5 billion of subsidy payments given out each year.  As such, I propose a gradual tapering of farm subsidies.  While in the short run, doing so will likely cause marginal increases in food prices, in the long run, I think the reduction in government expenditure and health care costs will certainly justify the additional costs.

MLK Remembered: The State of the Dream Today

Today we honor the legacy of Martin Luther King Jr., who protested racial inequality through non-violent means. America in the first half of the last century, was a country that was deeply divided along racial lines. Less than one hundred years before Dr. King marched on Washington D.C., African Americans in the US had been enslaved across the South. After slavery was abolished by Abraham Lincoln, mistreatment of African Americans remained common place. Jim Crow laws were enacted that limited the ability of blacks to vote and segregation was the norm, especially in the American South. African Americans were relegated to live in poverty and fear because of this deep rooted racism.

Martin Luther King Jr. changed this. He preached a form of non-violent protest that ultimately ended severe systemic racism in the US. As Hamden Koss writes in the Daily Kos

“That is what Dr. King did—not march, not give good speeches. He crisscrossed the south organizing people, helping them not be afraid, and encouraging them, like Gandhi did in India, to take the beating that they had been trying to avoid all their lives.

Once the beating was over, we were free.”

Hamden discusses that it was not so much what Dr. King stood for, but how he fought for what he believed in. Dr. King rallied African Americans who faced oppression and helped them fight the system by facing the oppression head on. When the public saw images of the mistreatment of blacks and their peaceful defiance in the face of this opposition, sentiment began to change. From the Montegomery Bus Boycott to the Nashville sit-ins, the civil rights movement gained credibility and public awareness, eventually turning the tide. In 1964, President Lyndon Johnson, signed the Civil Rights Act, which outlawed racial segregation and other discriminatory practices, giving a concrete victory to Dr. King and the civil rights movement.

This August marks the 50th anniversary of King’s famous “I Have a Dream” speech in Washington D.C. While our country has made tremendous strides in the treatment of African Americans – we elected our first black president in 2008 – racism and inequality remain in a subdued yet prevalent form. There are still significant racial disparities in incarceration rates in the US; according to the NAACP’s Criminal Justice Factsheet, African Americans account for over 43% of the total incarcerated population in the country. They also face significant disadvantages economically; the most recent Census report on poverty rates reports that 25.8% of African Americans lived in poverty – the highest of any group with the exception of American Indians.

Clearly there is work still to be done in promoting racial and economic equality in the US. While we have made great strides since MLK marched on Washington, we must always push to move forward and a day like today, where we honor his legacy, serves as the perfect opportunity to push forward as Dr. King would’ve preached.

A subtle source of poverty

In the United States, people enjoy a great deal of freedom.  One of those freedoms is the freedom from discrimination based on pretty much anything.  It is what provides for universal civil rights for everyone in America.  Those same rights have had a positive impact on our society, allowing the U.S. to develop into the world power it is today.  Martin Luther King worked to successfully end racial segregation, but today data indicates that it is happening today, with poverty standing in for race.

The University of Michigan has done research that shows segregation can create and reinforce poverty.  As the research shows, there are many factors effecting poverty, and many of them can be attributed to not being in the right group in society.  While the research is focused on racism, many of the causes, such as isolation from social networks, linguistic isolation, and oppositional culture as developments of segregation that perpetuate poverty, do so no matter what your race.  Such things have nothing to do with school performance, intelligence, or macroeconomics events.  They say a lot about how much money your family had growing up.

Segregation creates impoverished areas as well as individuals.  And these people and places can’t be ignored.  Detroit may be the most recent and famous example.  Currently bankrupt, white flight in the 60’s and 70’s has left the metro area more the most segregated in the country, with respect to black and white.  Property values are at an all time low, and the employment rate for the city is at 16.3%.   But the economic disaster stops at the city limits.  This map shows just how clear cut things are:

DETROITINLINEPicture from here, blue is white, green is black (8 mile is border of Detroit, to the south)

The suburbs have prospered; the metro area is home to some of the most affluent areas in the country and land values have soared.  Detroit has been plagued with social and economics problems for decades, and the surrounding areas have largely considered it to be unrelated to them. We are only left to wonder if the bankruptcy could have been avoided if so many didn’t just walk away and turn their backs.

Martin Luther King courageously fought for civil rights, not just for African Americans but all Americans.  One of the practices that he fought to end was that of segregation.  Segregation has had a real ethical and economic cost for the country.  Segregation causes poverty; it depresses land values, results in the unemployment, and a waste of social resources.  How much of this poverty can be attributed to segregation, both historical and current, is unknowable.  It serves as a reminder that for all that was accomplished by this day’s namesake; and that it is rendered worthless if we do not vigilantly guard against growing apart.

The Inequal State of Healthcare in America

When the Affordable Care Act (ACA) was passed, it’s major objective was to get every American insured. “Obamacare” was aimed at creating health care equality for all by offering a variety of insurance policies – one that could be affordable for each and every American. In her speech this morning on the Martin Luther King Jr. holiday, Secretary of Health and Health Services Kathleen Sebelius stated , “Of all the forms of inequality, injustice in health care is the most shocking and inhumane.” (Neff, 2014) Sebelius again was adamant on her support on the ACA; yet, even ignoring the ACA’s turbulent introductory phase, it still appears as if the policy may bring more harm than good.

A Wall Street Journal article today indicated that early reports show that the people signing up for new policies were the ones already covered before the ACA. A recent survey by McKinsey & Co. estimated that only 11% of new policies were being purchased by someone previously uninsured. (Weaver & Mathews, 2014) It is still very early in the sign-up process, but the low number is a serious red flag when considering the chances at achieving healthcare equality in the U.S. First, are Americans in poverty (Medicaid eligibility is set at 138% of the poverty line) getting information and the opportunity to sign-up for health insurance plans? Most signs point towards no. One comedic example is a recent Jimmy Kimmel segment. He went to the streets to expose many Americans who were in favor of the Affordable Care Act yet were opposed to “Obamacare.” (Obamacare is a common nickname for the ACA). But Americans aren’t all to blame for their confusion over the policy. Much can be pointed at the lack of transparency for the ACA, as the “condensed” version of the law is over 1,000 pages long and incomprehensible for the average American. As the details of law do become uncovered, it is becoming clear that providing health care equality to all Americans is not going to come without serious costs.

America’s middle class, initially expecting to benefit from “Obamacare,” have been hit the hardest. They are having to fund insurance subsidies for the poor through higher premiums and larger deductibles; paying for the “free lunch” of others while often struggling to pay their themselves.

“What is a surprise to some people are the higher insurance premiums that ordinary, middle class Americans suddenly face so that other ordinary Americans can enjoy lower prices.” (Dorfman, 2013)

Today, America is still facing the problem of health care inequality. For now, the uninsured for whom the ACA policy was meant for have yet to sign up, while the average American is seeing his health care premium increase while deductibles go up and coverage gets worse. I certainly hope the best is yet to come.

Featured articles:

Dorfman, Jeffrey, “The High Costs of Obamacare Hit Home for the Middle Class,” Forbes. October 31, 2013. Link

Neff, Blake, “Sebelius makes MLK-themed ACA pitch,” The Hill. January 20, 2014. Link

Weaver, Christopher, and Anna Wilde Mathews, “Exchanges see Little Progress on Uninsured,” The Wall Street Journal. January 20, 2014. Link