1. There are three factors that contribute to income inequality: technology, trade, and politics. Starting back in 1918, the rich took in a very large portion of the total income of the United States, decreasing growth and median wages, and in 1928, the economy peaked, before crashing (Reich 5). During the Great Prosperity, the nation grew fast, increasing median wages, which allowed the middle class to consume more. This created more jobs and increased demand. Then, in the 1970’s, the middle class stopped growing when the wages dropped due to an advance in technology, where computers and machines started taking American jobs and companies expanded oversees where labor would be cheaper. They then traded with them, saving more money on labor but taking away more American jobs. The middle class kept spending and around 1990, 55% of women with kids were working for a salary, bring in more income to families and allowing them to continue spending (Reich 7). However, once this spending became too much, citizens went into debt and the debt per household increased by a third over the next 17 years (Reich 7). While all this spending was happening, the government made the mistake of slashing government spending on buildings and roads. It also stopped supporting unemployed workers and allowed companies to punish workers who joined unions (Reich 11). In addition, the government cut the taxes of the top earners in half, bringing out the income inequality that the wealthier don’t have to pay as much while the middle class have to still pay the same amount just because they make less. In lowering the taxes of the wealthy, the sales tax and payroll taxes were raised, taking more money from the middle class. The American people revolted against the government and it basically fell apart. The Great Regression, which allowed the U.S. to come back from these falls, are mostly because of the actions of the politicians. The top 20% has contributed to lower taxes due to their high campaign donations, allowing the economy to grow. In summary, the three factors that contribute to income inequality are technology, trade, and politics and they significantly changed consumers income, wealth, and inequality.
2. In the countries Germany and Denmark, income inequality has actually decreased while income inequality in the United States has increased significantly. In Germany, the economy has grown more than the U.S. in the past 15 years and the hourly wages has increased 30% while the United States hourly wages has only gone up 6% (Reich 16). Another significant point is that the top 1% of Germany only takes in 11% of the total income compared to 40% of the United States (Politizane). The reasoning behind this accomplishment is that Germany focuses on making sure its citizens are well educated. In Denmark, the disposable income percent on the Gini Coefficient Graph is a lot lower than that of the United States. They do this by taxing 51% of the income and using this extra income to better its economy and provide more free benefits to its citizens while the US taxes only 31% and provides very few benefits (Sachs 3). While Denmark may have higher taxes, they are ranked first for the happiest country and they have a lower poverty line than that of the United States (Sachs 3). In order to increase income and wealth inequality, the U.S. needs to make more benefits for the working class and create more policies that will help more people get educated.
3. In the situation where those who come from wealth are or are not more likely to remain among the wealthy than those who come from poor families, it is more likely that the rich will stay rich and the poor will stay poor, which is not an equality of opportunity. According to the reading, “only 58 percent of Americans born into the bottom fifth of income earners move out of that category, and just 6 percent born into the bottom fifth move into the top” (Stiglitz 4). This shows that only about half of Americans who are born into the bottom 20% will earn enough to move up a level. A reason behind this is that a student’s born into wealthy families can get a better education, usually at private schools, and go to better colleges because their parents have more money and can afford more expensive colleges. Americans who grow up in poor families on the other hand face this dilemma: If they don’t go to college, they won’t be able to get a good job; If they go to college, then they will be paying off that debt for a majority of their life (Stiglitz 11). Whichever they choose, they will still be worse off than wealthy families. So, either way, the lower class doesn’t have an equality of opportunity compared the higher class.
4. In the article “Equal Opportunity, Our National Myth”, Stiglitz suggests changing policies related to equality with the focus on the young generation of Americans so that they can get out of poverty and move out of the bottom 20%. Such examples of these policies are getting health care to mothers who have kids and make sure all kids get a good education starting with preschool. This will start their learning at a young age, decreasing their chances of remaining in the bottom 20% after growing up (Stiglitz 14). Another policy incorporates giving money to low-income communities for programs to improve students learning. Education in the U.S. is closely linked to educational opportunity and economic mobility. The bottom 20% of society that can’t afford higher education, miss out on the opportunity to get higher-paying jobs and improve their place in society, which results in unequal opportunities for them. These policies will give everyone the chance to have an equal educational opportunity and will improve economic mobility in society. In the article, “Income Inequality and Educational Opportunity”, it says that there are opportunities to strengthen the federal tax system where high-income citizens can get away with less taxes than low-income citizens and this shouldn’t be the case since the amount should remain equal based on the amount of income (Tyson 16). There should also be more programs that benefit poor families who can’t afford basic necessities such as food and healthcare. These reforms will hopefully help students from all levels see their potential to succeed and that will motivate them to work hard and get a good job.
5. The U.S. is very far from an ideal society in terms of economic equality. What Americans don’t want is a society where you enter at a random place and will remain in that section for your entire life with no opportunity to move up or down the status quota (Ariely 8). If this were the case, people wouldn’t have any motivation to work hard and invent new things because they are stuck in the same social class for their entire life. The economic inequality is so significant that people in the bottom 80% only take in 7% of the total income in the U.S. while people in the top 1% take in 40% of the total wealth in the U.S. (Politizane). In 1976, the 1% only took in 9% of the total wealth. Then, in 2012, the amount raised to 24%. Now, only 5 years later, the amount is at 40% (Politizane). This is such a significant problem because the number is only going up. One-hundred years from now, the top 1% could be taking in close to 80% or 90% of the total income in the U.S. if the government doesn’t make a change. What can stop this inequality from getting worse would be education. According to statistics, if you were born in the bottom 20% and drop out of high school, there’s a 50% chance you will stay at the bottom 20% (Reeves). On the other hand, if you were born in the bottom 20% and get a college degree, you have a 16% chance that you will stay in the bottom 20%; however, you also have a 20% chance that you will make it to the top 1% (Reeves). Education can change the distribution of wealth and make our society more equal in terms of income. The government could create more programs that support high school students from low-income communities, preventing as many from dropping out. This would allow the U.S. to become more economically equal.