On April 1, the Senate Budget Committee held a hearing entitled “Opportunity, Mobility, and Inequality in Today’s Economy.” The hearing focused on wealth and income inequality, as well as unemployment and tax policy as they related to inequality in the United States.
Witnesses were Dr. Joseph Stiglitz, University Professor of Economics at Columbia University, Dr. Raj Chetty, Professor of Economics at Harvard University, and Dr. Keith Hall, Senior Research Fellow at the Mercatus Center, a research center based at George Mason University.
Committee Chair Patty Murray (D-WA) opened the hearing, stating that she was increasingly concerned with growing income inequality in the United States. She believes foundational priorities must be set to combat its proliferation. Senator Murray included increasing the minimum wage, investing in education, and strengthening the safety net, specifically food assistance and affordable housing, among these priorities.
Ranking Member Jeff Sessions (R-AL) offered his opening statement saying he believes citizens should see an increase in their quality of life. He wants to see a trend of upward mobility in the future. Senator Sessions continued that he believes any new welfare programs should only be funded using money saved or taken from other programs. He stated that “we spend enough on it,” referring to welfare programs.
Dr. Stiglitz testified that inequality “is the result of policies, what we do and don’t do.” The great concentration of wealth among the top tier of the income brackets actually diminishes the economy in that it “shrinks the economic pie from what it otherwise would be.” The immense gains of the wealthiest 1% since the economic recovery began that have not translated to growth for the middle class or improvement in the standard of living for lower income people.
Dr. Stiglitz said that any notion that an economy needed inequality to grow was false. Rather, demand for jobs should create jobs, but distorted tax policy incentivizes businesses to move jobs abroad. He asserted that extreme inequality in the U.S. is a threat to our democracy and society, as well as bad for the national budget. He said “the budget deficits of recent years are a result of our weak economy, not the other way around.” He concluded by emphasizing that inequality can be solved through policy with more support for education, increasing the minimum wage, strengthening the earned income tax credit, and improving unions, for example
The testimony of Dr. Chetty focused on the lack of upward mobility in the United States, pointing out that a child born to parents in the bottom fifth of the income distribution has only a 7.5% chance of reaching the top fifth of the income distribution in his or her lifetime. The American child born in the lowest income quintile has a 50% less of a chance reaching the top quintile than a child born in Denmark.
However, Dr. Chetty showed that in certain areas of the United States, there is more upward mobility, “suggesting that mobility can in fact be improved.” Some U.S. cities such as San Jose and Salt Lake City have mobility rates comparable to Denmark, while other cities such as Charlotte and Milwaukee show little signs of mobility. Dr. Chetty reported that factors associated with lower economic mobility in these cities are larger African-American populations, more racial segregation, greater inequality among residents, quality of education, the amount of social capital concentrated in cities, and the numbers of single parents.
Dr. Chetty suggested four policy implications to help improve mobility. The first is to address mobility place by place, using local initiatives to address local issues. Second, focus on childhood environments rather than focusing exclusively on adults’ resources. Third, invest in the education system. And finally, disseminate information on local performance to encourage local policy makers to address specific problem areas identified by the data.
The final witness, Dr. Hall, focused on the size of the labor force and what he calls a growing and disturbing trend of labor force disengagement, stating, “Since the beginning of the recession, participation in the labor force has fallen to just 63%.” His argument centered on increasing the number of jobs in the U.S. in order to reduce income inequality. Dr. Hall warned that raising the minimum wage could have a negative effect on job growth and therefore income inequality. He spoke on his view of regulations as disincentives to job growth, and stated that tax policy should be simplified as to avoid “de-incentivizing” work.
In his final remarks Senator Bernie Sanders (I-VT) said, “This is a moral issue. What kind of a nation do we want to become?”
Watch the full hearing here: http://1.usa.gov/1jd7xEO