Why does the United States have among the highest rates of poverty and income inequality of any developed nation, and what, if anything, can and should we do to reduce the prevalence of these problems in our country?
The United States has a higher level of poverty and greater income inequality than most other developed nations because of a stricter reliance on having a free market economy. Though having a command economy and a welfare society does decrease the number of those living in abject poverty, it also severely limits the ability of many people to raise their standard of living beyond low to middle income levels. Decreasing poverty should not be a project or program of the federal government. It should come as a result of greater economic prosperity for all. As President Kennedy stated, “A rising tide lifts all boats.” To reduce the magnitude of poverty and income inequality in the United States, the country must encourage citizens to work harder, lessen its restrictions in the labor market, and encourage the nation’s wealthiest to give back.
Common remedies for decreasing income inequality, i.e., wealth redistribution, provide disincentives for working hard and trying to improve one’s economic situation. Incentives matter. A person will not typically put forth effort if he or she knows nothing beneficial will come from it. If we live in a world where self-improvement or an increase in skill comes with minimal benefits, very few people will have a desire to work harder. In contrast, providing those of able body and mind unlimited access to income subsidies and amenities is a negative incentive that can quickly turn into a never-ending cycle of complacency and dependency. When a government provides benefits without the need to work, it disincentivizes hard work and keeps the population at an economic level above poverty, but without the ability to rise higher.
The solution to high poverty and income inequality does not lie in bringing the top down, but rather in raising the bottom up. This can be accomplished by making educational and training opportunities readily available and disentangling the labor market from artificial restraints. A free labor market forces competition among employers and puts the control of wages into the hands of the workers. In order to find the best employees, companies must compete in this setting to provide the most desirable contract available. Increasing the level of incentives pushes people to work harder because the payoff is a higher standard of living. This is a win-win situation because the employer benefits from a skilled and engaged workforce while the employees gain from higher wages and increased additional benefits.
The wealthiest members of our society have a special role to play. While forced redistribution of wealth by increased taxation on the super wealthy is not appropriate. Society should expect more from those who have achieved great success. First, they have the economic wherewithal to do great things. Second, they have talents and abilities that can be shared with the rest of the population. The knowledge and strategies they used to become successful should be used to aid others to increase their economic standing. Extending entrepreneurial knowledge and investing in the resultant opportunities (like Shark Tank or All-American Makers, but on a larger scale) provides a mechanism for economic expansion and an investment vehicle for those in a position to do it.
While it is true the United States has a higher rate of poverty and greater income inequality than many developed nations, the solution does not lie in providing direct aid to those in poverty. The key is to enable a highly skilled, motivated labor force that will be readily employed by a diverse and willing group of successful businesses, while encouraging entrepreneurship to expand opportunities even farther.