Chapter 18: Inequality, Poverty, and Discrimination

Start Up: Occupy Wall Street and the World

It all began September 17, 2011, with a march by thousands of demonstrators unhappy with all sorts of things about the United States—the distribution of income, with rallying cries on behalf of the 99%; “greed” on Wall Street; the bailout of many banks; capitalism in general; and a variety of other perceived ills, from hostility to certain nonfinancial companies such as Walmart and Starbucks to calls for the United States to pull out of military operations around the world and to abolish the Federal Reserve Bank. The symbol of the movement became the occupation of a small park in the neighborhood of Wall Street—Zuccotti Park. Two months later, the park continued to be jammed with demonstrators using it as a campground, after which New York City Mayor Michael Bloomberg shut it down as a place for overnight lodging.

Well before then, the “Occupy Wall Street” movement had become a national phenomenon and then an international phenomenon. The Economist in mid-October reported demonstrations in more than 900 cities and in more than 80 countries. The demonstrators generally rejected the entire concept of making specific demands, preferring instead to protest in support of an ill-defined, but clearly compelling, message—whatever that message might have been.

Who were the demonstrators? Douglas Schoen, who once worked as a pollster for President Bill Clinton, had his survey firm interview about 200 protesters occupying Zuccotti Park in mid-October of 2011 about their views. According to Schoen’s survey, the Zuccotti Park demonstrators were committed to a radical redistribution of income and sharp increases in government regulation of the economy, with 98% of them supporting civil disobedience to further their aims and 31% advocating violent measures to achieve their goals. A Pew survey at about the same time found Americans divided in their opinion about the “Occupy Wall Street” movement, with nearly 40% in support and about 35% opposed. At the same time, support and opposition for the Tea Party were running 32% in favor and 44% opposed.“Not Quite Together,” Economist, October 22, 2011; Douglas Schoen, “Polling the Occupy Wall Street Crowd,” Wall Street Journal Online, October 18, 2011; “Public Divided Over Occupy Wall Street Movement,” Pew Charitable Trust Pew Research Center for the People & the Press, http://www.people-press.org/2011/10/24/public-divided-over-occupy-wall-street-movement/.

Whatever the makeup of the groups demonstrating throughout the world, they clearly brought the issues examined in this chapter—poverty, discrimination, and the distribution of income—to the forefront of public attention. It was not obvious why inequality and related complaints had suddenly become an important issue. As we will see on this chapter, inequality in the U.S. distribution of income had begun increasing in 1967; it has continued to rise ever since.

At about the same time as the movement was in the news, the poverty rate in the United States reached its highest level since 1993. The number of people below the U.S. poverty line in 2010—an annual income of $22,314 for a family of four—rose to 15.1% of the population. The number of people considered to be below the poverty level rose to 46.2 million, the highest number ever recorded in the history of the United States. Those statistics came more than four decades after President Lyndon B. Johnson stood before the Congress of the United States to make his first State of the Union address in 1964 to declare a new kind of war, a War on Poverty. “This administration today here and now declares unconditional war on poverty in America,” the President said. “Our aim is not only to relieve the symptoms of poverty but to cure it; and, above, all, to prevent it.” In the United States that year, 35.1 million people, about 22% of the population, were, by the official definition, poor.

The President’s plan included stepped-up federal aid to low-income people, an expanded health-care program for the poor, new housing subsidies, expanded federal aid to education, and job training programs. The proposal became law later that same year. More than four decades and trillions of dollars in federal antipoverty spending later, the nation seems to have made little progress toward the President’s goal.

In this chapter, we shall also explore the problem of discrimination. Being at the lower end of the income distribution and being poor are more prevalent among racial minorities and among women than among white males. To a degree, this situation may reflect discrimination. We shall investigate the economics of discrimination and its consequences for the victims and for the economy. We shall also assess efforts by the public sector to eliminate discrimination.

Questions of fairness often accompany discussions of income inequality, poverty, and discrimination. Answering them ultimately involves value judgments; they are normative questions, not positive ones. You must decide for yourself if a particular distribution of income is fair or if society has made adequate progress toward reducing poverty or discrimination. The material in this chapter will not answer those questions for you; rather, in order for you to have a more informed basis for making your own value judgments, it will shed light on what economists have learned about these issues through study and testing of hypotheses.

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