The rich are getting richer and the poor are getting poorer in America, and nowhere else.
This reality is popular in the news these days, as it both provokes maximum interest and also opens itself to be manipulated by all sorts of political spinmasters, which in turn creates more news. The Left savors every glimpse of middle-class struggles during economic expansion, which they tout as the golden nugget of proof finally adjudicating the free market as inherently bad for workers. Europeans lead this chorus, where they are already aghast at America’s assumptions of the free market’s social value.
But the data is welcomed on the Right, too, to the extent that it “proves” the economically-injurious impact of immigration. Rich business owners hire illegals, lowering costs and getting richer, so goes the argument, while poor white Americans are left without jobs.
Independent of ideology, the fact remains that despite low unemployment and high growth, the prosperity of the current economic boom is noticeably bypassing the have-nots. It is too rarely noted, however, that there are legitimate and positive reasons for this that neither side of the current debate mentions.
1. The Problem of Poverty: Some Americans are on the losing end of progress
The core causes of widening inequality, observed correctly by both the Right and Left, are technology, globalization and immigration. However, they are both wrong about the lasting impact of all three.
Technology displaces workers who do tasks that can be replicated by machines, computers and robots. Not surprisingly, those whose jobs can be performed by machines, computers and robots are neither the most educated nor the wealthiest. Thus, technology’s impact makes them worse-off, even while it helps many more (see point 2).
Globalization transfers positions to where they can be performed for cheaper than in the United States. These jobs, in contrast to those affected by technology, tend to be white-collar, middle class jobs. Countering this effect, however, the savings from outsourcing positions are passed on to the consumer in the form of lower prices or invested in future production.
Immigrants work for less and compete for the jobs of natives. Like technology, they tend to threaten the poorest and least educated native workers. Yet there are several well-documented advantages to effective immigration. American Latinos, for one, are three times more likely to start their own businesses than the national average, spurring economic growth. Anecdotal tales abound of immigrants, such as Arnold Schwarzenegger, who rose from penury to incredible success through the same economic system currently derided as anti-poor.
These three factors increase the competition for jobs. These are unique challenges. For how those threatened by these factors can win the competition, see point 3.
2. The rich are on the winning end, for better or for worse
The rich are getting richer because they, by contrast, successfully harness and exploit the advantages and opportunities inherent in technology, globalization and immigration.
They use technology, as it was intended, for greater productivity. Advancements in telecommunications, for example, allow business to be conducted with more flexibility and efficiency. Those who can translate this potential into value for a company are duly rewarded.
They successfully use globalization to efficiently offer their resources and services to a worldwide audience. It is profitable, not only because successful globalization create value-added efficiency and cost savings for an organization, but also because a global market exponentially multiplies the size of the market for your product or service.
This is not to say that all rich exhibit these characteristics. As will always be the case, America’s elite is full of lazy, ineffectual snobs. Such is inevitable – but it is worth noting two facts. First, the point of this article is to show that the present polarization of wealth (i.e. why lately only the rich have substantially seen their fortunes increase) is the result of those who are hard-working and successful. Trust fund babies blow their money on Ferraris – they don’t grow richer through market capitalization and entrepreneurship. Second, the modern globally competitive market has made the idle rich a scarcer species. In America in 1916, only about 20% of the richest 1% made their wealth through paid work. Today, it is over 60%.
So we see these artifacts of modern progress displace and threaten the poor and middle class and are mastered and applied by the rich. Is this a good thing? Well, that doesn’t matter much, as it turns out…
3. The Way Out: How quality education can alleviate inequality, anyway
The mere existence of wealth inequality should not be cause for alarm, despite the frantic noises made by John Edwards, Nancy Pelosi, or other hyperventilating socialists. Successful societies can develop three palliatives.
First is sustained economic growth, which through tax revenue and public spending, achieves gains for the rich and poor, independent of individual income. John F. Kennedy stated this well with his famous analogy, “a rising tide lifts all boats.” American economic growth, at present, is still the envy of the Western world.
Second is a welfare system that shields all from destitution. For this, there are several excellent proposals to provide unemployment benefits without unnecessarily discouraging work, including PI’s negative income tax, and targeted subsidies in use in Latin America.
Third is the constant opportunity for all Americans to freely climb the social ladder through hard work. Called the American Dream by us patriotic folk, it is the maintenance of a system of unlimited opportunity for all who seek it.
Romantic ideals aside, it is here where the bone of contention is found. Socialists distrust the market’s ability to provide this meaningful opportunity for upward mobility, fantasizing instead that firms mostly conspire to enslave and destroy the American worker. Conservatives, opposing them, tend to oversimplify the issue, assuming always that the American system is perfectly liquid even in the face of contradictory evidence.
Unquestionably the biggest current obstacle to the American Dream is also its incubator: education. America’s K-12 educational system is in miserable shape, inexcusably falling behind nearly every other nation in the rich world in all measures of success.
Despite this, a quality American education is still, in many ways, the golden ticket to success: it is the greatest opportunity for advancement available to every American. Despite several shortfalls, a degree remains a peerless tool to guarantee future earnings. Those who pursue a CPA, a J.D., an MBA, or a medical degree, among many others from a prestigious university, are nearly all swiftly placed in a six-digit position immediately upon graduation, assuring themselves of a lucrative career and commodious lifestyle.
Whether the argument is dressed in populism or otherwise, the best and only way to compete against the competition from technology, globalization or immigration is education. The American worker has the best system in the world to learn how to do something a computer, Indian or Mexican can’t. Unemployment among college graduates in the US is a Lilliputian 2%, simply because neither Jose nor a machine can replace an MBA.
Education, as the best method of advancement, becomes a necessity for the workers facing new competition. These workers face a strong economic incentive (socialists call it being “forced by the system”) to get educated and become a more competitive, productive worker. If they don’t, they risk losing their jobs to the machines and/or foreigners. Despite their grievances, a more educated workforce and society sounds like a good idea. And it would most certainly reverse the current inequalities of wealth – it would allow the poor and middle class to join the rich in their upward mobility.
4. American education is the solution, but has its problems. Vouchers help
America’s universities are the gold standard of educational institutions. They dominate the world of academia in all measures of quality. The Institute of Higher Education at Shanghai’s Jiao Tong University ranks the world’s universities on a series of objective criteria such as the number of Nobel prizes and articles in prestigious journals. Seventeen of the top 20 universities in that list are American, as are 35 of the top 50. American universities employ 70% of the world’s living Nobel prize-winners, produce about 30% of the world’s output of articles on science and engineering and 44% of the most frequently cited articles.
But it is not only the elite who benefit. A community college system without equal in the world offers all adults the opportunity to transfer into more prestigious institutions or attain smaller degrees. Many states give high achieving or underrepresented students nearly-free schooling, guaranteed. A staggering plethora of institutions gives every student the unequalled opportunity to find the “perfect” school.
Why are American universities so good? The answer is because they are free to compete.
Administration is not state-controlled, as in many European countries. Independent universities receive private funding from many different sources, widening the landscape of influence and ballooning the number of institutions available. Individual schools can pursue individual subjects, goals and methods without the approval of the lumbering state.
Universities also compete for resources, most importantly, professors and students. Their existence is dependent upon their ability to offer something of value over their fellow academies. They also freely accept and reject students, allowing them to enhance the quality and value of their teaching and scholarship.
European universities, not surprisingly, often resemble American K-12 institutions in their operations, and their results are similarly dismal. They are nationalized, egalitarian, and inefficient. America, for obvious reasons, is by large margins the first-choice destination for foreign college students. It’s the competition, stupid.
Most importantly to their success, American universities are supported with private funds. From tuition and voluntary donations from alumni, they secure their budgets by providing valuable service, not effective lobbying. As a result, their responsiveness and quality is without equal. They serve as yet another shining example of the wisdom of privatization and deregulation. By terrible contrast, America’s K-12 institutions are free at the point of consumption, publicly funded, nationalized, and homogenized.
Unfortunately, there are still numerous careers lacking an educational support structure. College athletes, for example, are often well-served economically by leaving school before graduation. Unorthodox career paths, such as those of rappers, have no mainstream educational institution. Will the market adapt? It may, but the only certainty is that the state will not.
The best method to develop K-12 education along the competitive, innovative, and successful model of higher education is through school vouchers. Such a system would ensure both that all children have an opportunity to attend a quality school and that the schools themselves will be high quality. It would allow every parent ultimate control to determine the ideal educational institution for his or her child, and it would spur the independent, competitive behavior which keeps this country’s universities at the top of the global list. Most importantly, it would force institutions to compete for students, the core factor driving the world-class quality of American universities.
Private K-12 schools, many of which already exhibit the efficient success of universities, will certainly flourish under vouchers, attracting students and expanding their market to offer the diverse quality private colleges exemplify.
However, all would not be lost for America’s public school system under vouchers, despite the whining protestations of the public school teachers’ unions. Competition among colleges is fierce, yet state schools are often among the greatest performers. It is only from a lack of faith in their own abilities to attract students that public schools should fear vouchers. They may well successfully compete alongside private schools. To have a chance, however, control over all aspects of education must immediately be ceded from Washington to the principals, teachers and parents in individual schools.
We see that unique challenges of the 21st-century world, technology, globalization and immigration, have unequal impacts on the rich and poor. However, rather than punish the wealthy, America should be concerned with helping the poor meet these challenges and become rich themselves. To do so will require education. But to ensure the education is up to the task, competition and free choice must triumph over bureaucracy and regulation.