Inequality of Wealth and Income in a Technologically Advanced Society

The author notes that inequality of wealth and income is increasing in the United States of America despite the fact that nationwide the level of education, which has traditionally been associated with higher income, has risen. He discusses attempts to reduce economic inequality, but concludes that in an economy which is energized by high levels of technology a reduction in disparities of income is not easy to obtain. Key Words: Education, technology, wealth, income, inequality, unemployment, redistributive taxation, welfare. Many are aware that inequality of income and wealth in the U.S.A. has increased considerably especially since around 1980; this trend has continued even during a period of low unemployment and high growth. The top quintile of households increased their share of income from 43.7 to 49.6% between 1980 and 2000, whereas the bottom quintile experienced a drop in their share from 4.3 to 3.6%. The gains in relative share of the top five percent (from 15.8 to 21.9%) and one percent are more newsworthy but perhaps less important and less lasting. Some regard this degree of inequality as a problem, although there is no consensus on what would be a better distribution of income, nor on whether or what measures could be taken to reduce inequality of income. Some see the issue in terms of poverty and its alleviation; others in terms of the overall distribution of income and its implications for levels of living and opportunity. Reduced inequality is possible, and is potentially compatible with a thriving economy, but an economy perhaps condemned to high unemployment, as in most West European countries with social safety nets finer-meshed and more extensive than that of the U.S.A. The United States has a more unequal income distribution than nearly all other advanced nations. Sweden and Norway achieve a much more egalitarian outcome by government intervention: spending more than half their GDP and redistributing a large share of it; France and Italy are not far behind (Muth 1997). Nevertheless, the increase in inequality has not been peculiar to the United States; many other industrial countries have also been experiencing it. Nine of 13 members of the OECD studied also experienced increased inequality; only France, Finland and Denmark experienced a decrease, while Canada remained unchanged (Burniaux et al. 1998, Table 2.2). By contrast, the U.S. federal government spends less than 20 percent of GDP, applying a much smaller share of resources for redistribution. State and local governments spend an additional 13 percent, of GDP, but most of this is not available for redistribution. Since states vary widely in per capita income and poverty, any desired reduction in inequality of income must be accomplished on a national basis if it is to address large interstate inequalities. Both parties in the recent election called for tax cuts, not increases, to be implemented over the next ten years. Of thirteen OECD members studied, only Japan has not found it desirable to reduce poverty. The United States reduced poverty (defined as half the median household disposable income) through taxes and transfers of 20 percent. of GDP The other twelve OECD countries, except Japan, reduced poverty much more, with Sweden lowering it by 80 percent (Burniaux et al 1998, Tables 5.4, 5.7). The unintended consequences of high taxes and a large share of income unearned could be greater in the U.S. than in Scandinavia. But greater or not, there is no political prospect of taxing away more than half of income and reallocating much of it to the poorer half of the U.S. population even temporarily, much less on an indefinitely continuing basis. Such a policy conflicts with the core beliefs of the nation. The U.S. accepts more inequality than many nations because of a prevalent belief in the benefits of economic growth and progress for the society and upward mobility for individuals. Were this a zero-sum society, one person's gain would be viewed as another's loss and distribution would become a dominant concern. …

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