The Impact of Income Inequality

Last week I wrote about verifiable outcomes. We should be making decisions based on the impact they have.  Well, it turns out that income inequality kills the economy. That isn’t a guess, or an idea, it’s a verifiable consequence. So … what are we going to do about it?

Joseph Stiglitz, a professor at Columbia University Business School, has written a great article about how income inequality kills the economy and what we can do about that. It’s worth reading, here is the link:

Here is the problem in a nutshell. Hoarding of wealth at the top means less wealth circulates in the economy. Wealth is the life blood of the economy. If the wealth stops moving, systems start dying.
There are several reasons why wealth gets hoarded and wealth inequality happens. But a lot of it has to do with laws and policies written by our government. To create more wealth equality, we have to change some of our laws.

For instance, minimum wages, help ensure that some of the wealth is shared and not hoarded. Places that raise their minimum wage see more vibrant economies. If you are in HR, you can encourage better salaries as a way to ensure that your company not only gets and retains good talent, but that you do your part to ensure that wealth isn’t hoarded. Keep reminding yourself wealth needs to be shared to be useful.

Stigilitz’s closing paragraph has a list of things we should be doing to correct course and end the wealth hoarding in America to get us back on track. He says,

“The economic policies required to change this are not difficult to identify. We need more investment in public goods; better corporate governance, antitrust and anti-discrimination laws; a better regulated financial system; stronger workers’ rights; and more progressive tax and transfer policies. By ‘rewriting the rules’ governing the market economy in these ways, it is possible to achieve greater equality in both the pre- and post-tax and transfer distribution of income, and thereby stronger economic performance.”

Interesting, one of the first things he suggests is more investment in the public good. In my course on Bridging the Generation Divide, it turns out that the level societal investment in our communities is one of the biggest differences in the generations and it directly impacts how much social trust a person has. More social investment in your youth equates to more social trust as you enter the workforce. Less social investment, means less social trust. Want to know why millennials don’t trust your company? It’s because society didn’t invest in them the way it did for boomers and gen x.

We are all in this together. We all benefit when our economies thrive. Our individual and collective decisions impact how much wealth is shared and how much is hoarded at the top. As I write this, congress is considering a bill that would give a tax break to the top 400 wealthy people in America. So that they can keep even more of their money. The trade off is less spending on public health. Less spending on the public good.  It is decisions like this that exacerbate income inequality and income inequality hurts us all. We as individuals and as a body politic need to start making decisions that are based on verifiable consequences and not on an ideology that has proven again and again to lead to bad outcomes and stagnating economies.

To learn more about how social investment impacts your employees – check out my Bridging the Generational Divide course

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