While past posts have focused on defining the issue and scope of income inequality, this post will target an externality of income inequality: the absence of environmental and social sustainability associated with income inequality. Income inequality impacts sustainability in a few different ways.

First, studies have illustrated a close correlation between levels of income inequality and levels of homicide, imprisonment, infant mortality, teenage births, and obesity. These cause resources to be funneled into economically unproductive targets, such as prisons or increasing healthcare and security costs. A study done by University of Oklahoma’s Daniel Hicks and UC Berkeley’s Joan Hamory Hicks observed the relationship between visible differences in discretionary spending versus crime in an area and crime. They found that the greater the variability in spending and the display of money was, the greater murder and assault rates in the area. This added evidence to strain theory as a way to describe criminal behavior. This theory dictates that when people perceive greater economic disparity, they feel less obligated to conform to socially acceptable behavior and as a result are less opposed to crime. In general, the resources that are used to combat this in hindsight could be allocated proactively towards environmentally friendly projects or decreasing the income inequality.

Second, the greater concentration of wealth contributes to an evaporation of the middle class.  According to Harvard Business Review, the share of national income earned by the top 1% nearly tripled, rising from 9% to 24%. Clearly this growth is not sustainable, as the top 1% cannot earn 100% of the income. In the past, it took World War I the Great Depression, World War II and the progressive movement to offset the growth in income inequality from the Gilded Age. The chart below demonstrates how these events lowered the percentage of income the top 1% earns and how this percentage has climbed rapidly over the past 30 years.

As mentioned, this growth is not sustainable and will eventually slow. Thus the main issue is whether this growth will slow gradually or abruptly. Some companies have already capped maximum pay as a multiple of the lowest paid employee in a company. Others, such as JPMorgan have spoken out in favor of an increased minimum wage. With the World Economic Forum listing income inequality as the issue most likely to cause serious damage globally in the next decade, there are levels of awareness surrounding this issue. More importantly however will be whether this awareness is translates into any real progress towards change. If no substantial change is instituted and growth in income inequality growth continues unchecked, a large scale social uprising is possible. As income inequality growth grows, there will be more support for causes such as the Occupy Wall Street movement in 2011. Eventually, one of these could cause a restructuring in how wealth is shared in the economy.  

Finally, a paper published by the United Nations showed a relationship between income inequality and increased harm to economic sustainability. The study looks at variations in income inequality on a state by state basis, as well as a country by country basis. In the cross-state analysis, there was a statistically significant value (p < .10) that income inequality was negatively correlated with the total number of permanent bird species.

Below is a chart that shows the relationship between Net Gini (A common income inequality metric) and the number of threatened plants and animals. While there is no perfect relationship, the trend line shows levels of association, with a 1% increase in the Gini coefficient being met with a 2% increase in the amount of threatened species.

Finally, while the exact mechanisms of this income inequality are unknown, studies have suggested that the relationship between increased waste and increased income inequality contribute to the environmental damage. Below is a clear chart that shows a relationship between income inequality and water consumption by country, with the size of the bubble representing the population.

To conclude, income inequality is clearly not socially or environmentally sustainable and eventually there will be a shift in the distribution of wealth. Whether this shift is rapid or gradual is yet to be seen.

https://hbr.org/2014/01/income-inequality-is-a-sustainability-issue-2

https://www.theatlantic.com/business/archive/2014/10/does-inequality-cause-crime/381748/

http://cepr.net/publications/graphic-economics/income-share-of-the-top-1-percent-1913-2012-annotated

http://www.un.org/esa/desa/papers/2015/wp145_2015.pdf

This blog post will discuss the relationship between housing and income inequality. Specifically it will detail some of the factors that have led to the housing decay many people face on a daily basis. 

Eviction rates are at all time highs as rising housing costs and stagnating or falling wages make it more difficult than ever to afford rent. Currently, only one out of four families that qualify for government housing programs actually receive any support. The remaining families are forced to struggle in trailer parks and inner city housing with the majority of low income families contributing over half of their income to housing costs and one in four contributing over 70 percent of their income towards rent and utilities. This makes it impossible for families to afford food, let alone considering saving money for future emergencies.

This leads to a shocking statistic: approximately 46 percent of Americans stated that they do not have enough money to cover a 400 dollar emergency expense. Car repairs, medical bills or even basic home repairs could easily reach 400 dollars. Further, an economist concluded “a family in the middle quintile, with an average income of roughly $50,000, could continue its spending for … six days.” While many blame this on the individuals for irresponsible spending, rising rent costs can be seen as a main contributor. Rental rate increases have been outpacing inflation for decades, while middle-wage salaries have increased an average of less than 0.2% per year over the past 34 years.

This graph clearly depicts the rising cost of housing in the past century. Despite the slight decline following the 2008 housing crisis, real house prices, which account for inflation have experienced extreme growth. This housing price growth was driven by high income earning individuals who have been able to capture an increasing percentage of global wealth, largely due to their financial assets. Specifically, more than 80% of the U.S. stock market value is held by the top 10% of individuals. Resultantly as the stock market has increased, the distribution of wealth and the ability to spend money on housing has become much more distorted.

Caroline Dewilde and Bram Lancee published a comprehensive paper detailing links between income inequality in their paper published in 2013. Specifically, the paper focuses on European countries and how they deal with low-income housing issues. The paper revolved around three main issues, problematic housing costs, insufficient quantity and insufficient quality of low-income housing. The study found that the absolute levels of income for families and the resulting housing situations were not constant across countries, indicating that some some places are able to offer better low-income housing options than others. Additionally, the paper found that there was no data to support any type of trickle down housing effect. This idea said that when the rich moved into higher quality places, others would move into their old houses and everybody’s housing situation would improve. Further, they found that as more money is invested into high income housing, property values for low income housing increased, providing upward pressure on low-income rent prices.

One proposed solution put forward by the Children’s Defense Fund suggested distributing vouchers to families with children that were below 150 percent of the poverty line and whose rent exceeded more than 50 percent of their income. The Children’s Defense Fund estimated that this would reduce child poverty 20.8% and lift 2.3 million children out of poverty. It is important to note that these type of programs only work if families stay in similar housing situations as they already live in. If families take the vouchers to move into more expensive places, upward pressure on wages will be exerted. To combat this, some cities have placed rent freezes.

The Child Defense Fund also included other initiatives in its proposal including child tax credits, creation of subsidized jobs, and encouraging the creation of low income food. In total, the Children’s Defense Fund estimated a program cost of 77.2 billion dollars. This money would improve the well-being of 43.3 million children who are in desperate need of assistance. Specifically as a result of the proposal economic resources for poor children would average 10,087 dollars a year compared to 1,945 dollars before the proposal. While this may be a large sum of money, it is difficult for me to imagine spending money on a group that needs it more.

http://www.childrensdefense.org/library/PovertyReport/EndingChildPovertyNow.html?referrer=https://www.google.com/

Income Inequality and Access to Housing in Europe

https://www.huffingtonpost.com/marian-wright-edelman/income-inequality-the-hou_b_9646938.html

https://www.usatoday.com/story/money/personalfinance/2017/10/06/why-half-of-americans-cant-come-up-with-400-in-an-emergency/106216294/

http://time.com/money/4830674/rent-afford-increase-prices/

https://www.weforum.org/agenda/2017/04/four-charts-which-should-worry-you-about-rising-house-prices-and-inequality/

Supreme Court Justice Louis D. Brandeis once said, “We may have democracy, or we may have wealth concentrated in the hands of a few, but we can’t have both.” In a time where the core values of our democracy are being challenged, we should consider underlying societal conditions behind our issues.

Almost every financial statistic indicates a widening income gap in the United States. According to CNN, since 1979 the pre-tax incomes of the top one percent of American households have increased 4.4 times as fast as the bottom 20 percent pre-tax incomes. The U.S. tax bracket system was enacted to compulse wealthier individuals to pay higher tax rates, thus an effective system, would curb exponential income growth at the very top.

However, according to CNN, the disparity of incomes is strikingly similar after income taxes, with the top one percent post-tax incomes growing 4.2 times as fast as the bottom 20 percent post-tax incomes since 1979. Furthermore, once you include sales tax, a regressive tax that has the greatest effects on impecunious individuals, the gap in post-tax income widens further.

I believe this widening income gap is the cause of many of our issues. The United States likes to see itself as a meritocracy, where the smartest, hardest working individuals rise to the top. However, the widening income gap provides substantial resistance to this deeply held American belief.

The lack of income equality results in an imbalance of opportunity. Research has shown that parents spend more on their children than ever before. Children from high income families receive more tutoring, books, art supplies, and more opportunities from a young age. As a result, education, a major barometer for the future success of an individual, has become extremely partitioned. Sean Reardon states, “The academic achievement gap on standardized tests between students for low- versus high-income families has increased by 40% over the last 30 years.” Not only is there a deep chasm between the education of high and low-income students, the chasm is widening daily.

The imbalance is perpetuated by a school system that raises money through local property taxes. For example, while the Ann Arbor school districts flourish, the Detroit schools, serving a substantially poorer population, lag far behind, with 96 percent of eighth-grade students not proficient in math and 93 percent not proficient in reading (National Assessment of Educational Progress). In Pennsylvania, while the State College School District wins national awards, the Harrisburg School District would have been forced to cut athletics, band, and kindergarten programs had a philanthropist not intervened.

Further, the chasm widens at the college level. According to a New York Times Study, at 38 mostly elite universities in the United States, including five Ivy Leagues schools, there are more students from the top one 1 percent than the bottom 60 percent. Of students whose parents are in the top 20 percent of income earners in the United States, about 18 percent attend elite or ivy level schools and 62 percent attend selective schools or better, with less than 13 percent not attending college. Conversely, of students whose parents are in the bottom 20 percent of income earners in the United States, less than 3 percent attend elite or ivy level schools and about 12 percent attend selective schools or better, with about 63 percent of students not attending college.

This graph essentially ties together the entire post and I believe it explains why income equality has continually widened. The bottom axis shows the parents income rank and the left axis shows the child’s income rank. As you can see from the differences in the lines, there is a distinct difference in average income depending on the strength of school attended, but once somebody attends the university, the relative flatness of the line shows that the expected income between students from all socioeconomic classes is very similar. This debunks the idea that students from top schools find monetary success because they come from wealthy families and instead shows that placement at universities is a very strong indicator of monetary success.

Now, it should be evident that mostly upper income students attend upper level universities and separately, students who attend prestigious universities are able to find monetary success.  

I believe that in order to achieve a more equal level of education in the United States, funding for local school districts through property taxes should be repealed and replaced with broader K-12 funding at the state or preferably national level. This will certainly be controversial, as it may hamper the expansion of services provided at traditionally wealthy school districts. Further, I believe Pell Grants at the college level should be expanded to allow for the admittance of lower income students. To conclude, there is research-based evidence on the correlation between education and productivity in the workforce, so in order to maximize our country’s efficiency, education should be targeted.

Links:

https://www.nytimes.com/interactive/2017/01/18/upshot/some-colleges-have-more-students-from-the-top-1-percent-than-the-bottom-60.html

http://money.cnn.com/2016/12/22/news/economy/us-inequality-worse/index.html

https://cepa.stanford.edu/content/widening-academic-achievement-gap-between-rich-and-poor-new-evidence-and-possible

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