In his latest New York Times Magazine column, Adam Davidson writes, "many do want a return to the spirit of the old rules, when the government sought to make life more equal, more stable and, for some, less rewarding."
To continue the discussion, we asked two economists on different sides of the debate — Alan Reynolds of the Cato Institute and Christian Weller of the Center for American Progress — to answer the following question:
Should the government take stronger measures to close the gap between the top 1% of earners and everyone else?
To read Alan Reynold's answer, click here. Christian Weller's answer is below:
The recent frustrations voiced by protesters on the left and the right are not only about massive income inequality but even more so due to the lack of economic opportunities. People feel they are stuck in place and can't get ahead. There is ample evidence that income inequality today is decidedly worse than several decades ago, and that economic mobility is slowly evaporating for too many American families. The promise that the next generation will do better than previous ones rings hollow for many families today.
The federal government should do more to create more economic opportunities for America's middle class. Past policies, after all, contributed mightily to the current situation. Large-scale tax cuts were skewed toward the richest families. Financial deregulation contributed to massive financial market speculation, and the subsequent crises led to trillions of dollars in lost wealth and stubbornly high unemployment. A higher Social Security retirement age reduced benefits. Workers wanting to join a union often enjoyed few or weak protections when facing employers who broke the law. And inflation ate away at the minimum wage.
Policymakers can do more right now to create more and better economic opportunities, including taking back the Bush tax cuts for the top income earners, closing tax loopholes for corporations, and eliminating tax giveaways to the richest one percent of earners—all of which blow a hole in the federal budget without adding much to economic growth. Policymakers also could enforce better consumer protections in financial markets to prevent some of the most egregious excesses from happening again. And they could raise the minimum wage to at least keep pace with inflation, and enact more protections for workers who want to join a union by increasing employer penalties for those who break the law.
But policymakers' top priorities right now are to get people back to work and get families out from under crushing debts. The faster people get back to work, the sooner they can pay back their loans and focus on building their futures. Problem is, companies won't step up hiring until consumers have less debt and start spending again. Policymakers can break this vicious cycle of high debt and low job creation by offering incentives to create more jobs and through regulations that reduce debt.
Proposals and programs to accelerate job creation and step up debt reduction already exist, but they either have not been acted on or they could be expanded. President Obama laid out several proposals in his American Jobs Act to create jobs in construction and manufacturing through more infrastructure spending and put hundreds of thousands of teachers, firefighters, and police officers back to work in states and localities all across the country. Congress has yet to act.
On its own, the Obama administration announced changes to existing programs that would reduce mortgage payments for an estimated million homeowners, a step that should be vigorously implemented. Other barriers to home mortgage refinancing should also be quickly removed. And the administration's proposed opt-in "Pay as You Earn" program that caps student debt payments at ten percent of a graduate's earnings should be expanded by making enrollment in the program automatic for all borrowers.
We need ample opportunities for America's middle class to get ahead. Past policies helped to create the mess we are in, but smart new policies can lay the foundation for a stronger future middle class. Rectifying past mistakes, supporting job creation, and lowering crushing debt burdens are the most relevant and most immediate steps that policymakers can take now to help America's middle class workers and their family's believe once again in the American Dream.