The Federal Reserve Chair, Janet Yellen, spoke on Friday in Boston about the concerning growth in the gap between the rich and poor in the United States. Some methods of measurement for both income and wealth distribution have reported the inequalities in these two crucial economic factors to be near the highest levels in 100 years.
In her comments Ms. Yellen cited stagnant wage growth, slow job market recovery especially in higher paying positions, and the downturn in the real estate market as the main reasons for this increased level of wealth inequality. The wide disparity creates conditions that make it difficult for the poor to move up the income ladder, and the tepid rebound for real estate prices has wiped out family wealth customarily found in home values in the past.
Furthermore the head of the Federal Reserve commented on the contributing role of student loan debt to the widening gap in income disparity. In fact, according to various sources, student loan debt has quadrupled in the past ten years. This could lead to a scenario, as Ms. Yellen explained, that threatens the economic equality envisioned by our nation’s founders.
The argument could be made, according to Ms. Yellen and other experts that the substantial increase in the cost of a college degree will make that goal unattainable for many average earning and lower income earning American families seeking to provide their children with a better life.
Slippery Ladder
This growing trend of economic inequality cultivates conditions that hamper upward mobility and can lead to societal unrest on a widespread scale. This subject is of great personal interest to me and I have written about the wealth gap for several news outlets and websites in the past. It is one of the most troubling and frustrating aspects of American society, in my opinion, that some people own multiple houses and others have no place to sleep.
The flat wage curve and the stubborn job market are two of the main contributors to what I feel is hampering the income inequality issue the most in our country. Those two factors combine to create a scenario I liken to a slippery ladder where people cannot climb out of the situation they are in.
My research for another article led me to reports of Americans with Master’s degree level educations who are working for $13.00 an hour because the economy has not added nearly enough jobs that require that level of education. Those applicants with higher level degrees are now finding it hard to even get an interview for lower tier management level jobs because most companies feel they will lose the Master’s level person once the economy fully rebounds.
The lower wage earning and middle class wage earning demographics have their own set of challenges with rising costs on food, clothing, education, and healthcare. The lack of affordable housing in many areas of the country translates into roughly 70% of the family budget for lower wage earning jobs being spent on rent payments. This huge monthly expenditure for housing further debilitates any progress towards financial security for many average families.
Conversely, wealthy people tend to save more of their income and have reaped the benefits of most of the income increases in the past several years which has stunted overall spending.
Self-Fulfilling Prophecy
The Fed chief neglected to mention in her speech that the role of certain monetary policies such as QE have contributed majorly to the same economic inequalities she was addressing. The weak overall economic growth domestically indicates that any further manipulation through monetary policy by the Fed could trigger inflationary responses throughout the system.
The use of QE and some other methods to generate quick liquidity throughout the domestic economy resulted in bond buying which directly impacted the stock market. The increased stock market activity directly benefited the upper class more than those in the other earnings demographics because the wealthy own more stock and greater amounts of stock than anyone else in the system.
However, in fair balance, I know of people in the upper class who have used their resources to help numerous charitable causes in a variety of societal areas where their funds were desperately needed. I tend to not make blanket generalizations because they are not accurate or fair. I know people with great generosity and others who could do more to aid those less fortunate.
The Fed chief spoke about the need for some level of inequity in the system so it creates an incentive for people to desire to work hard to improve their given situation. Though Ms. Yellen readily admits that the current system has gaps too wide for the average wage earner to bridge in the course of a lifetime.
Therefore the Fed involvement in the inherent economic disparity is the definition of a self-fulfilling prophecy. The central bank was so concerned about warding off any introduction of inflation into the system (which they figured would impact the average consumer more profoundly than the higher income consumer) that their policies directly contributed to the vast income inequality we now face.
Slow Growth
The slow job growth has been a source of Ms. Yellen’s concerns for a while and does not appear to be changing at any point in the near future. The report on Friday via Fox Business News is that the labor participation rate is at roughly 62% which is the lowest figure in over 50 years.
The long term unemployed and the underemployed have also been topics discussed by the Fed chief in recent speeches. Those numbers continue to remain stubbornly high in some states and the national underemployment rate (those working part-time but needing full-time work) stands at roughly 15%. The false stigma attached to those who can be defined as the long term unemployed have severely hampered the consumer driven economy because those people have far less income during their prime earning years to reinvest into the economy.
Ms. Yellen also spoke about the slow growth in the establishment of new small businesses and the role of the family business in the American economic landscape. However she did not venture to explain why that situation is occurring. Many reports and studies from credible sources attribute the slow pattern in the creation of new small businesses or start-ups to the high taxes levied by both the federal and state government which hampers their profitability. The other issue is the impact of the new Affordable Care Act or the provision of “Obama Care” for small business owners to carry an increased burden to provide health care stipends to their employees.
The antiquated American tax code system can be blamed for the high taxation rates levied on small businesses and start-ups which is decapitating the very ingenuity this country was founded upon. The tax policy towards the small business community as well as the healthcare provision requirements are two areas that merit reforms on both the federal and state levels.
The federal and state governments need to put all options on the table at this point to foster a more robust overall business environment to bring about the reforms needed to bolster the labor work force participation rate, which cannot stay at the abysmal level it currently is tracking at according to the Bureau of Labor Statistics.
It is clear that above and beyond QE or any of the other monetary policy mechanisms utilized by the Federal Reserve during the past several years, the rates of a variety of taxes coupled with the sheer size of the social welfare programs have had a more drastic impact on the income disparity between rich and poor than any other factors involved.
Set Up To Fail
If the continued volatility of the stock market and the labor participation rates as well as the underemployment rate and wage levels remain unchanged, the U.S. economy is being set up to fail. We will experience another major recessionary downturn if these other factors are not corrected and the business climate and job growth forecasts do not improve drastically in the short term.
Our economy is unsustainable if it continues along the path of the past 30 years with significant gains for the wealthy and stagnant living conditions for everyone else in our society. Ms. Yellen spoke about this topic and tied economic opportunity to the core foundations of our country.
I agree that it is against our core principles to keep so many people in despair while a select few continue to thrive. It should not be a luxury to attend college, that opportunity should not become an elitist situation and it is moving increasingly further in that direction.
In the same vein, as I wrote earlier, some Americans feel that they are being punished for having advanced degrees, and many are straddled with debt from an attempt they made at furthering their education. Now they are discouraging others from making the same “mistake” which I find is a dangerous precedent for our society from both an economic and intellectual point of view.
We should be encouraging and incentivizing those who have pursued advanced degrees in a chosen field, they should not be working at the local mall for $12.00 per hour. I have worked several different positions in the retail sector and it is hard work, but I think we can all agree that our culture is not well served if Master’s degree educated people are placed in those jobs. In fact, some experts would make the argument that it is a societal disservice all the way around; because the better educated person is taking a job away from a person who is qualified to work in the retail field that may have trouble finding other suitable work.
These are the types of scenarios that end up contributing to the downfall of a given society. It is about so much more than salary increases and 401(K) plans – it is about the opportunities given to those who have talents and skills to make necessary contributions to the improvement and progress of our society.
The root cause of all of this disparity is greed – from the top down on the part of everyone involved. It is all greed driven activity in its purest form.
Ms. Yellen spoke about our founders and the bedrock principles that America was based upon concerning economic mobility and equality of opportunity. The importance of those values within our society is unquestionably significant, the absence of those values in recent years is glaringly evident in the news regarding the income inequality gap.
Our founders believed in the presence and power of God in everything that they did in shaping this great nation. Our currency has “In God We Trust” inscribed on it, yet our society has moved further and further into secularization. The effects of relativism and the legislative movements away from our Judeo-Christian roots have caused a further erosion of our societal morals and value system.
We should care that our fellow citizens are sleeping on the street, have full time jobs but are forced to sleep in their car, or that many children living in America go to bed hungry every night. But many people either do not care or do not have the time to deal with those issues because they are trying to keep their own family fed and their own businesses running. It is a sad state of affairs, and it is getting worse.
In the end, our national discourse needs to shift with the understanding that in order for us to redistribute wealth, rebalance our economy, improve the housing market conditions, increase wages, and add strong paying jobs into the marketplace we have to take a different approach. We cannot rely on the Federal Reserve, the government, the business community, or any other man made institution.
Instead we need to approach this situation the way our Founding Fathers did and put our trust and faith in God. He has a plan for us all and for our nation, we need to return to our roots and rebuild our societal fabric with God at the center, and He will serve as our guiding force.
(Background information and statistics courtesy of CNBC, The Boston Globe, The NY Times, The Wall Street Journal, Gallup, Bureau of Labor Statistics, the Federal Reserve Board, United Press International, and Fox Business News)