The Weiner Component #98 – Income Inequality

Income inequality and mortality in 282 metropo...

Income inequality and mortality in 282 metropolitan areas of the United States. Mortality is correlated with both income and inequality. (Photo credit: Wikipedia)

The United States and, for that matter, most industrial nations are today facing numerous major problems, economic and otherwise, that can and will definitely affect their futures negatively if they are not, more or less, solved in the near future.

According to the World Economic Forum: the gap between the rich and the poor is one of the major global risks we face today. The upper ten percent of most of these countries are expeditiously getting richer while the rest of the populations are either maintaining their level of income or finding it continually decreasing. How long can these conditions continue until the consumer base can no longer purchase the goods and services needed to reasonably survive and violence erupts from the level of subsistence more and more people find themselves living. The 21st Century could be bloodier than the 20th Century. The coming depressions could be deeper and far bitterer than that of 1929, the Great Depression of the 20th Century.

Over the last year or so in the United States many food prices have risen significantly, particularly the cost of many protein products have gone up 20 to 45 percent. Meanwhile the minimum wage remains at $7.25 an hour and has been at that level for the last five years. Someone with a family earning that much and working a full forty hour week needs government aid to survive. This is true even if his wife is also earning that much.

In order for this family to survive it has to be subsidized by federal and state entitlement programs which the taxpayers subsidize. One can say that a percentage of companies like Walmart’s profits, are indirectly supplied by the taxpayers.

Rand Paul, a hopeful presidential candidate for 2016, who like his father, is essentially a libertarian, in a recent interview, stated that to raise the minimum wage would be to increase the level of unemployment in the United States. Here someone who is opposed to government interference in the marketplace is supporting a system that is ultimately socialistic, with the government paying the difference between the family earnings and what is needed for survival.

Of course the overall Republican attitude toward all entitlement programs, like payments to the unemployed and aid to dependent children, is to reduce these government programs. They seem to want to bring about more privation than already exists.

I fail to understand the thinking here. These people are loudly and dramatically supporting a system that they adamantly oppose, indirect government support of the marketplace. It would seem that the Republicans are totally ignorant of some of the basic principles of economics; they cannot think far enough ahead to realize that they are espousing socialism, having the government provide for people, by their definition of a free marketplace. Wouldn’t it be easier to raise the minimum wage to a level where people can earn enough to pay for their family’s basic needs without needing to apply for government help?

Another interesting area pertains to student college loans. It is estimated that student loan debt has surpassed one trillion dollars.   Approximately three of every five college students have taken out student loans in order to pay for their tuition and books. These loans are strung out over their university career and have to be paid back after they graduate. The average college graduate has over $26,000 in student loan debt at graduation.

Many students can end up owing many more thousands of dollars at a good rate of interest which they generally have to begin paying back six months after graduation. It can, in many cases, take a decade or more to repay these loans and the interest charged on them, in some cases it can be even longer. Even if the ex-student declares bankruptcy it is practically impossible to have the college loan removed from his/her record.

People like Senator Elizabeth Warren have tried to reduce the interest rates but Republicans have refused to go along and support such legislation. I remember one such legislator commenting publically that the interest rate can’t be reduced because the government needs the money. This, of course, is pure idiocy because it means that whole generations of former college graduates have to wait years before they can afford to marry or otherwise start their lives. They have to spend their early work years for a decade or more paying back their college loans. But even more than that it also means that these young people will not really contribute to the economic growth of the nation unit they have freed themselves from debt.

There is in economics a principle called the multiplier effect. This means that money spent in the society tends to be spent numerous times. The amount, for example, that I spend at the supermarket is spent again as salaries or for the purchase of more goods, which, in turn, is spent as rent or a mortgage payment by the employee who receives it. It can then pay for the bank’s utilities or be used as salaries, and so on. The money is spent over and over again until it becomes part of the natural flow of currency creating for the GDP up to six or eight times the original amount. This principle also works in the reverse, negatively, on monies not spent. Dormant or non-spent funds can subtract six to eight times their initial amount from the GDP. All the ex-student payments to their college loans have this effect on the GDP, not allowing it to grow as it would if these people did not have this debt. The overall effect of the payment of these loans actually shrinks the GDP.

From comments made by a House of Representatives Republican and by the minority leader in the Senate, Mitch McConnell, the young college graduates rather than the upper 10 or 20% of the population are needed to help fund the government. Their paying the interest on their college loan debts will importantly help the government financially. The concept is inane. Interest on the debt should be mostly reduced or completely done away with. Having the ex-students spend their earnings on goods and services that will allow them to live in a positive and normal fashion will most aid the nation by adding to the GDP. Their welfare adds to everyone’s welfare and the monies they pay in taxes will exceed what they have to pay on their college loans.

By succeeding in completing college they put themselves on an earning level far greater than they would earn as high school graduates. The government has actually invested in them and the return over their lifetimes will be far greater than the cost of their education. This is a good argument for actually forgiving the loans. People invest their money to make a profit; so does government in its population with the use of taxes.

To get back where we started, the ever increasing gap between rich and poor is one of the biggest problems currently existing within the United States. The Congress is largely at a state of gridlock with the Republicans actually continuously trying to pass legislation to expand the economic space between the two groups. And, of course, many of the conditions causing this problem already exist in law. The conservative right in Congress will allow no reform of archaic legislation, some of which was passed during World War II to encourage oil production. Unless there is change this country will eventually find itself a second rate nation with a largely growing unemployed poor not able to afford the basic needs of survival.

The oncoming Midterm Election can help or worsen already negative conditions. The people of the United States will decide our immediate future. If they don’t vote or do vote for the conservative Republicans they will be asking for continued gridlock in Washington and continued misery for many of themselves and the rest of the population. It will be interesting to see what happens!