Thursday, October 21, 2010

June Cleaver and Home Economics

My brothers and sisters, do you with your acts of favoritism really believe in our glorious Lord Jesus Christ? For if a person with gold rings and in fine clothes comes into your assembly, and if a poor person in dirty clothes also comes in, and if you take notice of the one wearing the fine clothes and say, “Have a seat here, please,” while to the one who is poor you say, “Stand there,” or, “Sit at my feet,” have you not made distinctions among yourselves, and become judges with evil thoughts? Listen, my beloved brothers and sisters. Has not God chosen the poor in the world to be rich in faith and to be heirs of the kingdom that he has promised to those who love him? But you have dishonored the poor. Is it not the rich who oppress you? Is it not they who drag you into court? Is it not they who blaspheme the excellent name that was invoked over you?
James 2:1-7

June Cleaver died last week. Barbara Billingsley, the actress who played June Cleaver in “Leave It to Beaver,” passed away at the age of 94.

The Cleavers were the traditional American family in a time of peace (if we ignore the cold war and various minor insurrections) and prosperity. In our memories we are tempted to think of that time as more settled, peaceful and wholesome than in actually was. It was still a time of segregation in American society (by law in the South, and by socio-economic factors in much of the North). It was far from perfect.

But it was a time of rapid, and relatively equal economic growth. The middle class was healthy and growing. Bridges and roads were well maintained, and the interstate highway system was under construction. And relative to today, the gap between rich and poor was much narrower.

Today those in the top 20% of annual income, those with incomes over $100,000, receive just slightly less than half of all income. And the bottom 20% receives just 3% of the total. The top 20% receives 14.5 times as much as the bottom 20%. Forty years ago, the gap between the top and the bottom was just about half that amount. Over the past several decades almost all of the gains in real income have gone to the richest Americans. Middle class incomes, adjusted for inflation, have not gained.

Robert H. Frank, professor of economics at Cornell University, observes, “The share of total income going to the top 1 percent of earners, which stood at 8.9 percent in 1976, rose to 23.5 percent by 2007, but during the same period, the average inflation-adjusted hourly wage declined by more than 7 percent.” Frank’s argument is that this gap has become too big to ignore.

There are many reasons for this income redistribution from the bottom to the top. Some, like globalization and automation, are (probably) beyond our control. But during the post war economic expansion, tax policy was designed to ratchet down the inequality of incomes by more progressively sharing the costs of schools, roads, and our common life together. In those years, the marginal tax rate (the rate charged on the next dollar earned by those in the highest income levels) was never below 70%. Today, by contrast, the highest marginal tax rate is just 35%. And during those years, wages were taxed at a lower rate than investment income. Now that is reversed and investment income is taxed at a lower rate than wages.

In biblical economics, income equality is wrong because it goes against God’s justice. But there are also practical problems. Professor Frank reports that higher divorce rates and greater social stress correlate to areas of greater income inequality. And there is a tearing of the social fabric. Because the middle class is squeezed, voters are less willing to support public services. He writes, “Rich and poor alike endure crumbling roads, weak bridges, an unreliable rail system, and cargo containers that enter our ports without scrutiny. And many Americans live in the shadow of poorly maintained dams that could collapse at any moment.”

The argument in favor of income inequality is that it rewards hard work and promotes economic growth, but Frank argues that this is simply not so:

There is no persuasive evidence that greater inequality bolsters economic growth or enhances anyone’s well-being. Yes, the rich can now buy bigger mansions and host more expensive parties. But this appears to have made them no happier. And in our winner-take-all economy, one effect of the growing inequality has been to lure our most talented graduates to the largely unproductive chase for financial bonanzas on Wall Street.

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