- - Tuesday, June 27, 2017

ANALYSIS/OPINION:

Rising inequality is a gold vein for politicians seeking votes among Americans weary of stagnant incomes.

Hillary Clinton’s campaign was premised in large measure on taxing the wealthy to pay for federally subsidized child care, free college and other new entitlements. She reasoned rising inequality deprived the economy of consumer spending that could instigate more hiring and better wages.

Donald Trump promised to tackle low wages by cutting off illegal immigration and fixing the trade deficit to bring back factories but also pledged to maintain the social safety net.

He is finding those promises tough to keep — not simply because Congress has its own ideas but also owing to the refusal of foreign leaders to simply roll to his demands. Mrs. Clinton likely would have faced equally vexing obstacles.

That’s not all bad, because the connection between inequality and growth is more complex than either liberal or conservative politicians are inclined to accept.

Economic theory and empirical evidence indicate some inequality is good for growth. Higher wages for doctors encourage people to trudge through medical school and internships, but too much inequality makes folks at the bottom too poor to invest in education.

America is teetering on the edge of the latter, but palliatives like free health care and college would make the problem worse, not better.

Rising inequality in America has two fundamental sources — globalization and technology.

Inexpensive Chinese labor displaced workers who once sewed dresses in Los Angeles. Immigrants do drive down wages for laborers in construction. However, the same forces create more opportunities for skilled workers and raise incomes overall — witness the vibrant growth on the two coasts from selling information technology and financial services to the world.

The revolution in robotics and artificial intelligence is extending automation, which once only displaced farmers and semi-skilled factory workers, to many better-paying occupations like insurance adjusters and fashion designers. However, those innovations create new jobs for noncollege graduate technicians to run and service machines and for college graduates with specialties in systems management and design.

The winners should outnumber the losers, and we should be able to retrain displaced workers to participate in new fields. Economic growth has stagnated in large measure, because not enough of the latter is happening.

Too many Americans are stranded in rural areas and small towns that couldn’t support new factories and service enterprises even if Mr. Trump persuaded business to bring factories back from Mexico.

Nowadays, firms that sell beyond their local markets cannot be run without broadband access, and large swaths of America’s interior are too sparsely populated to support the cost of building out fiber optic networks. And much of rural and small town America lacks educational programs to adequately train workers for the specialized jobs that are hard to fill in manufacturing and sophisticated business services, and is disadvantaged by much lower labor productivity.

Generally, the focused community college and apprenticeship programs championed by Presidents Obama and Trump work best in alliance with existing employers and with high concentrations of well-motivated students and a range of businesses — not in places where Medicaid-supported hospitals and doctors are the principle employers.

Similarly, most young people who get to college from those lower-income communities too often receive a second-rate education at nonselective private or state institutions that don’t adequately improve their critical thinking and executive skills. And whose faculties are better at liberal political indoctrination than providing professional training in technical disciplines like engineering.

In the end, folks in the rural communities and smaller towns that voted for Mr. Trump will have to move to bigger cities to appreciably improve their lot. They have to be willing to wait on tables, work in construction and the like and avail their children of better educational opportunities cities offer.

We do know from the Clinton era that imposing work requirements for welfare inspired recipients to seek work and get training. Now doing the same for Medicaid, food stamps and other entitlements would likely motivate people to move to cities that offer better opportunities.

Similarly, linking access to Pell Grants and student loans to the starting salaries of new graduates from community colleges and universities would have profoundly beneficial effects.

Offering tough love is not a winning formula in politics but in the end, the country can’t succeed without it.

• Peter Morici is an economist and business professor at the University of Maryland, and a national columnist.

LOAD COMMENTS ()

 

Click to Read More

Click to Hide