Tuesday, December 3, 2013

The Devastating Cost of Inequality

A general complaint that I have about the discussion of inequality and poverty is that the subject is often treated as a zero-sum game. Solutions to inequality involve taking from the rich and giving to the poor, which is a money transfer that only has distributional impacts. The treatment of the topic as zero-sum is what results in the "class warfare" we see in American politics. It is an easy trap to fall into and a difficult one to escape because of its passionate story line with defined characters. Depending on your disposition, it is easy to define one group as virtuous and the other as corrupt. The story line is politically convenient because it is a tried and true formula to energize both conservative and liberal bases during election season, but it ignores the devastating cost of excessive inequality to the macroeconomy.

The effects of income on a child's development and family environment is no secret. Families with greater income security tend to have more stable family environments, better parent-child relationships, and better educational opportunities. The environment and attention a child receives is a major factor in his/her development later in life, which is the motivation for President Obama's push for universal pre-k. Early childhood development is the first and, perhaps, most important step in unlocking the potential human capital of an individual. However, greater degrees of inequality creates a situation where fewer children receive the minimum amount of parental attention and education needed to proceed along a good development path.

Greater inequality disproportionately impacts young children compared to other groups in society due to poor schooling and unstable households. Welfare programs designed to reduce inequality should not be considered as a redistribution based on some idealistic notion of equality. They should be viewed as way to raise the floor of society instead of lowering the ceiling. The lost productivity due to unrealized human capital among low income populations is unknowable, and, in all likelihood, enormous. Policies designed to reduce inequality also reduce the number of children who grow up neglected and under stimulated.

The millennial generation (of which I am a part) grew up on the message of unlimited human potential signified by the slogan "you can be/do anything if you work hard." For the most part, this was a selfish motto used to try to convince ourselves that we will end up rich and respected. However, the magnetism of that often scorned philosophy gains new power when it is applied to the subject of growing inequality. There are millions of children growing up right now who could, but likely won't, be computer scientists, engineers, technicians, analysts, or a thousand other professions. In a time a social and political disunity, the universal human instinct to protect and invest in our children likely provides the greatest return on investment for our tax dollars. The reduction of inequality in this country is an investment designed to avoid the squandered productivity of millions of workers. The story of reducing inequality will be one of productivity and growth once we move past the trap of class warfare.