Last night's première of the 14th season of the reality television show Survivor had a ripped-from-the-headlines feel about it.
As usual, the 19 castaways"marooned" in the Fiji Islands this time aroundwere divided into two tribes. But instead of each group getting an empty beach where they had to somehow build a shelter from palm fronds and whatnot, one tribeafter winning an immunity challengegot to settle at a campsite with a "fancy" shelter, kitchen, and bathroom that the combined group had constructed earlier from Home Depot-quality building supplies.
So there you have it, a quasi-Marxist battle on prime-time CBS between the "haves" and "have-nots" right at the same moment that growing income inequality has become a hot topic of political debate. In his recent economic speech in Manhattan, President Bush said the following:
I know some of our citizens worry about the fact that our dynamic economy is leaving working people behind. We have an obligation to help ensure that every citizen shares in this country's future. The fact is that income inequality is real; it's been rising for more than 25 years.
And earlier this week, Federal Reserve Chairman Ben Bernanke hit on the same topic in a speech entitled "The Level and Distribution of Economic Well-Being" given before the Omaha Chamber of Commerce:
Although average economic well-being has increased considerably over time, the degree of inequality in economic outcomes has increased as well. Importantly, rising inequality is not a recent development but has been evident for at least three decades, if not longer.
Bernanke went on to highlight some key statistics on wage income inequality:
- Wages for the top 10 percent rose 34 percent between 1979 and 2006 vs. 11.5 percent for the average worker and 4 percent for those in the bottom 10 percent.
- In 1979, a full-time worker at the 90th percentile earned about 3.7 times as much as a full-time worker at the 10th percentile. That ratio is 4.7 today with the gap rising most rapidly in the 1980s.
- The share of income received by the top fifth of householdsafter taxes have been paid and government transfers have been receivedrose from 42 percent in 1979 to 50 percent in 2004, while the share of income received by those in the bottom fifth fell from 7 percent to 5 percent.
- For the top 1 percent, income distribution increased from 8 percent in 1979 to 14 percent in 2004. "Even within the top 1 percent, the distribution of income has widened during recent decades," Bernanke concluded.
Bernanke's summary of the current situation pretty much represents the consensus economic view. (One notable contrarian is Alan Reynolds, a senior fellow at the libertarian Cato Institute and author of the 2006 book Income and Wealth. A summary of his interesting and provocative views can be found here and here.) Likewise, Bernanke identified the usual suspects as the main drivers of inequality:
- Technological advances have boosted the productivity of high-skilled workers- and thus the wagesmuch more than that of low-skilled workers.
- Globalization has boosted the earnings potential of superstar entertainers, investment bankers, and lawyers by enabling them to leverage their talents over a wider area of the planet.
- Given his diagnosis, Bernanke's prescription isn't too surprising: more national investment in education and skills, "including not only K-12 education, college, and graduate work but also on-the-job training, coursework at community colleges and vocational schools, extension courses, online education, and training in financial literacy."
One thing Bernanke did not recommend is slowing down globalization or stifling technology. In fact, he clearly stated just the opposite:
Hindering the adoption of new technologies or inhibiting trade flows would do far more harm than good, as technology and trade are critical sources of overall economic growth and of increases in the standard of living. ... A better approach for policy is to allow growth-enhancing forces to work but to try to cushion the effects of any resulting dislocations. For example, policies to facilitate retraining and job search by displaced workers, if well designed, could assist the adjustment process. Policies that reduce the costs to workers of changing jobsfor example, by improving the portability of health and pension benefits between employerswould also help to maintain economic flexibility and reduce the costs that individuals and families bear as a result of economic change.
Unfortunately, Bernanke failed to mention the possibility that globalization could be made to reduce inequality in America. Economist Dean Baker of the liberal Center for Economic and Policy Research has made the pointboth in his eye-opening book, The Conservative Nanny State, and his excellent blogthat by reducing restrictions on highly educated foreign workers in the United States and subjecting "doctors, lawyers, and other highly paid professionals to the same international competition as autoworkers and textile workers face," you would not only temper their wage growth but also help the rest of us by making their professional services less expensive, just like goods at Wal-Mart:
If we applied the same rules to these professions as "free traders" did to manufacturing, we would set a single national standard in each profession that would be based exclusively on legitimate health and safety considerations, just as the WTO and other trade pacts require in the case of safety standards for manufactured goods. These standards would be fully transparent and the tests would be administered throughout the world (by U.S. certified officials) so that smart kids in India, China, or Mexico could as easily become certified to practice medicine or law in the U.S. as kids raised in New York. People who do not support this standardization of licensing requirements are protectionists, not free traders.
Another policy option Bernanke did not mention was cutting corporate income taxes: A recent Congressional Budget Office report concludes that domestic labor bears slightly more than 70 percent of the burden of the corporate income tax. And a 22-country study from the conservative American Enterprise Institute found that higher corporate tax rates lead to lower wages, with a 1 percent increase in corporate tax rates associated with a 0.7 to 0.9 percent drop in wage rates. (For more on the wisdom of cutting corporate taxes, see this posting from Lawrence Kudlow's Money Politics blog.)
Enlarging America's investor class is another way to combat inequality. As I noted in a recent story on income inequality and globalization:
The stock market has boomed far in excess of overall economic growth for the past quarter century. So, anyone who derives income from wages alone probably can't keep up with those who have big stock portfolios. Since 1981, U.S. gross domestic product has doubled to $11.4 trillion, while total stock market capitalization has increased 14-fold. The real economythe one that pays wagesjust isn't growing as fast as the financial economy.
Now how all this applies to Survivor: Fiji, I'm not so sure. Perhaps the have-not tribe could be educated on how to build shelters from scratch. Or instead of a visit from relatives as a prize for winning a challenge, Bernanke could show up instead and serve as a special guest host. The Fed chief does have a reputation for hating suits, so that would be a perfect opportunity for him to break out his beachwear.