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U.S. Needs to Return to New Deal Principles to End Economic Injustice

January 20, 1985|LESTER C. THUROW | Lester C. Thurow is Gordon Y Billard Professor of Management and Economics at the Sloan School of Management at Massachusetts Institute of Technology in Cambridge. and

Americans are uncomfortable when it comes to talking about equity or economic fairness. They are willing to help those in need, but they don't like to think about economic justice in a larger context. Taking from one and giving to another somehow feels wrong. Basically, Americans wish that the issues of economic equity would go away and hope that the market will turn up an acceptable distribution of income. Perhaps because of this strongly held desire, Americans of all income classes tend to believe that the distribution of income and wealth is more equal than it is.

As the Federal Reserve Board recently noted, the American distribution of income has become noticeably more unequal. Between 1969 and 1982 the income share going to the bottom 50% of all American families has fallen from 23% to 20% of the total, the income share going to the next 40% has fallen from 48% to 47%, while the income share of the top 10% of the population has risen from 29% to 33% of the total.

As officially defined, poverty ($10,178 for a family of four in 1983) fell from 22% of the population in 1960 to slightly above 11% of the population in 1973, hovered between 11% and 12% until 1980, and then rose rapidly to 15.2% of the population in 1983. A large percentage of those added to the poverty roles were children. After being virtually eliminated in the late 1970s, cases of hunger and malnutrition were once again being seen at places such as the Boston City Hospital.

Slow productivity growth, recessions and large trade deficits have all played a role in rising inequality, but the programs of the Reagan Administration have contributed. According to the Congressional Budget Office, Reagan cutbacks added 557,000 people to the poverty rolls, and the Urban Institute estimates that Reagan programs subtracted $281 from the average income of those in the poorest 20% of all families while adding $598 to the average income of those in the richest 20% of all families.

If one looks at the distribution of wealth--or net worth--the inequalities are much larger and growing faster than are the inequalities of income, according to the Federal Reserve Board. While the top 10% of the population receives 33% of total income, it owns 63% of total net worth. Two decades earlier, in 1962, they owned only 55% of total net worth.

Given the prominence of stock market reports on the evening news, one would expect that most Americans owned shares in corporate America. In fact, only 19% of all American families own any shares whatsoever--and the number is falling rapidly. In 1977, for example, 25% owned shares. Of those who do own shares now, only 40% of them (8% of the total population) own shares in more than one company.

If one were writing an income distribution motto for America, one would have to tack "The top 10% gains; the bottom 90% loses" above the fireplace. But that is not a motto I believe that most Americans want written over their society.

While Americans prefer not to think about inequalities, they are also uncomfortable that those inequalities exist. The discomfort starts with our religious heritage. Not many of us would want to explain to Saint Peter, for instance, why we allowed children to go hungry and did nothing about it. It also goes to our vision of what makes America great: In the words inscribed on the Statue of Liberty, "Give me your tired, your poor, your huddled masses." At a more self-interested level, it is simply nicer to live in neighborhoods and cities without poverty and hunger. At the most self-interested level, there are few examples of democratic societies that have managed to survive while tolerating extreme disparities in income and wealth.

When confronted with hungry children, our leaders may look the other way, pretend that these children do not exist, or argue that the market mechanism is the most efficient way to eliminate their hunger, but few are willing to argue that hungry is just the way America should be. For most Americans, to allow such conditions is to demean ourselves as well as to permit real deprivation among those unable to help themselves.

The problem of economic justice is not going to go away as long as black males earn significantly less than white males (58% as much in 1983), as long as all women earn significantly less than men (64% as much in 1983) and as long as the gaps between rich and poor are growing as they are now growing. Income distribution problems may for a while be superseded by other problems, but they will inevitably reappear. Democracies that profess to believe in political equality only uneasily live with rising economic inequalities.

While Americans don't like gross inequalities, they also don't want to put people on welfare. Nor should they. No one should want to put people on welfare. The best that can be said for welfare (and it is quite a bit) is that it is better than having a society full of hungry people. But it is a second-best solution.

The best solution is jobs for everyone able to work and a restructuring of the work place to narrow the rising income differentials. These were the beliefs that were firmly held by President Franklin D. Roosevelt and the New Deal. It was all right to provide relief for those who could not work (the elderly, the handicapped, the sick), and it was all right to give temporary relief to those who had previously been working and who had been thrown out of work (unemployment insurance), but permanent general welfare programs were never part of the New Deal ideology.

Instead, jobs were provided. In 1938, 4.3 million people were employed in agencies such as the Works Projects Administration, the Civilian Conservation Corps and the National Youth Administration. To employ a comparable fraction of the labor force today, more than 9 million jobs would have to be provided.

To prevent the current surge in inequality, America is going to have to return to those principles.

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