Why Redistribution is a Quality Investment

Income inequality. It’s a dirty term, but someone has to use it. Unless you’ve been actively hiding from any conversation, headline, or news report involving wealth and income inequality, you probably already know that the income gap between the mega-rich and the “regular folk” has grown exponentially since the 1970s.

Yeah, yeah, yeah.

Tell you something you don’t know? Well, how about inequality’s ties to the U.S.’s slow economic growth since its attempt to bounce back from the Great Recession?  According to economists, our country is in a “permaslump”, which basically means the economy is moving about as fast as a sloth.

We know our economy is largely based on capitalism. Spending money is a big part of most of our lives (think Black jump start imageFriday, Back to School season, and even Valentine’s Day), but the biggest spenders are typically not the biggest money makers.  And here is where income inequality comes in to play.

“House of Debt”  bloggers, authors and economists Atif Mian and Amir Sufi have shown that low income households spend money, on average, more than high income households who tend to save their money. This was a big problem during the Great Recession because low income households were spending less due to unemployment, uncertain job security, and housing instability. Meanwhile, the higher income households continued to save. Even in a healthy economy, the savers still save.

With the majority of the country’s capital concentrated amongst so few households, our nation’s money is essentially being held hostage. When so much of it is tucked away, there is little spending money left to go around, and it prevents the needed reinvestment of capital into businesses and banks that is necessary to truly jumpstart the economy.

Luckily, we are not without solutions in addressing this. Unfortunately, many of them are considered to be the words of “class warfare-mongers”.

Let’s get this out of the way: “job creators” are important. More importantly, small businesses are the bread and butter of our employment and economic system. However–take a deep, calming breath in–according to The Organisation for Economic Co-operation and Development (OECD) , along with Mian and Sufi, job creators cannot be relied upon to stimulate the economy–and exhale.

Stay with me here.

The Economic Policy Institute (EPI) (http://www.epi.org/) has seen evidence that, in regards to the top 1%, the money corporations are making is remaining at the executive level, and the compensation for CEOs has returned to its pre-Great Recession heights. Meanwhile, the “regular workers” have still yet to make up what they lost after 2008. What’s more is there is no evidence to show that CEO performance is linked to increased productivity by corporations. This suggests that redistributing the capital from the top of the food chain to the bottom would not negatively impact corporations’ productivity.

You’ve already seen it: redistribution. The big trigger word. When used on a national policy level, it brings visions of lazy, entitled, welfare recipients to the minds of those who rebuke its relevancy. When used at the business level, invest imageemployees are warned that their heretical requests will create such losses that sacrifices in the form of work hours and benefits will be their only salvation. But in all seriousness, there is only so much to go around, and the lobbyists have done a pretty good job ensuring new money is funneled right back up to the tippy, tippy top.

We know this is not sustainable. We know that historical, and global evidence shows tightening the gap between the “haves” and “have-nots” makes for a healthier economy, along with a happier, healthier, more productive and better skilled citizenry.  We know a happier, healthier, more productive and better skilled citizenry is good for business. And we know CEO pay rarely reflects actual company performance. So why not consider redistribution as an investment instead of an outrage? Why does this type of investment not peak the interests of our “too big to fail” institutions?  Is it the government’s involvement that is unappealing? The top companies are in the best spot politically, and financially, to influence smart policies on how to wisely invest their money in the middle and lower income households. They have the power as well as the know-how to not just benefit themselves, but also help the greater good. And as the saying goes “With great power, comes great responsibility”.

Here is an incomplete list of some of the suggestions from researchers and experts to reduce income inequality:

  • Increases in the top marginal tax, capital gains tax, and/or estate tax
  • Repeal tax deductions for CEO compensation
  • Improve labor laws to allow for collective bargaining
  • Increased minimum wage
  • Corporate policy changes in governance that allow stakeholders to have a say in compensation
  • Disclose and/or put a cap on CEO-to-worker ratios

Comment below and let me know of any additions you would suggest for the list. Check out EPI’s Raising America’s Pay initiative to stay current on this issue.  Lastly, share so we can continue the conversation.



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