This piece was originally published on Capital & Main.
As it pushes historic levels, inequality has become a hot topic. Activists have organized around the rich-poor divide, with “The One Percent” and “The 99 Percent” becoming a part of everyday language. The President made inequality a focus of this year’s State of the Union address and called for a new “middle-class economics.” And a French economist, Thomas Piketty, reached the top of the American best seller list – when did that last happen? – with a dense volume called Capital in the Twenty-First Century that has jump-started a global conversation about the distribution of income and wealth.
Piketty’s detailed research shocked some: As he noted, the United States today is characterized by “a record level of inequality of income from labor (probably higher than in any other society at any time in the past, anywhere in the world).” But it was not necessarily a big surprise to those of us in California: As with demographics, the Golden State seems to have foreshadowed national trends.
California, for example, is the home to more super rich than anywhere else in the country – and it also exhibits the highest poverty rate in the nation, when cost of living is taken into account. Income disparities in the state of California are among the highest in the nation, outpacing such places as Georgia and Mississippi in terms of the Gini coefficient, a standard measure of inequality.
But it’s not just the extremes – with wages falling and insecurity rising, the middle class is also squeezed. And, as it turns out, none of this is good for economic growth: A new wave of research, including from the Federal Reserve Bank of Cleveland, has been finding that high levels of inequality and racial and class segregation are actually associated with slower and less sustainable growth, providing at least one explanation for the state’s subpar economic performance.
To be clear, some degree of income inequality is to be expected – people have different talents, skills and predilections, and markets will reward these in different ways. But there are serious consequences when things tip too far in one direction, as seems to be the case for California and the nation. Increasingly, inequality limits our economic potential, threatens our democracy and even cuts into our life expectancy.
The stakes are high and the solutions are emergent. Some reasonably point to reining in excess wealth – after all, as the California Budget Project has noted, in 2010, the incomes of California’s 41,000 millionaires added up to nearly $144 billion, seven times the income needed to lift every Californian out of poverty. But any real solution also needs a broader strategy to raise the floor on wages and employment standards, create pathways to good jobs that include efforts targeting underrepresented groups, and encourage a new vision of more inclusive growth.
Why the Gaps?
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