Economists Take Aim at Wealth Inequality

In a New York Times article, Nelson D. Schwartz attempts to tackle the global phenomenon of growing income inequality and understand new perspectives as to why it's growing and shaping both the national and global economy. It first comes with economists acknowledging the indisputable truth that the percentage of income being earned by the top one percent is going up while wages for the rest of the country are relatively stagnant. Nicholas Bloom points to inequality being magnified by technological change and what's known as skill bias, where workers with a particular expertise reap the biggest reward. Moreover, Enrico Moretti points to the fact that state tax increases prompt the highest earners to move to lower-tax locations. In addition, Bloom found a sharp divergence between pay at the most successful companies and also-rans in the same field. The highest-paid workers cluster at the winners, heightening income disparities in the overall work force. Bloom and Moretti acknowledge that the free market itself won't be able to solve this income inequality conundrum, and most academics are leery of any solution and academics' traditional tools are inadequate for the task.

I wanted to write about this article for this week's blog because it presents a couple of problems that have origins in the setup of traditional capitalism, are explicitly acknowledged in Marxism, but neither have clear solutions. Marxism argues that, in essence, the economy is negative-sum and a game of exploitation of the poor by the rich. As the rich get richer and the poor don't get any richer, this argument becomes increasingly more numerically evident. Who's to say growth is a tide that rises all ships? Although this argument exists, there's also the argument for skill bias; those who are more skilled will earn more wages. One can argue that that's simple competition. If you're better at what you do, you'll be be compensated more than the person who's less competent. Who's to say that's unfair? Same goes with more successful companies having people who make more wages. If the company is better than another company in the same industry, there's going to be a larger flow of capital and therefore more wages distributed. Although this may hold true, Moretti also points that those with more money have more opportunities to work around the tax system, creating even more of a divergence. So this leads to the broad and difficult question: If the free market itself won't fix income inequality, what can the government do? Marxist beliefs have been proven to be too extreme and detrimental to the economy, but there needs to be some form of regulation to ensure fair competition and ensure that workers will be compensated fairly for the amount of work they're doing. How much, exactly, is still to be determined.