Monday, February 3, 2014

The Rich Need to Reduce Income Inequality

Why should the rich care about reducing income inequality aka keeping most people in the middle class?

My last job showed me why.  In Canada and USA, right now, the majority of people are middle class, meaning they own some assets (cars, houses, TVs..), have a home with heat, light, and running water, have reasonable health care, do not suffer hunger, do not suffer from crime, can raise and educate a family, and enjoy some leisure time.  There is concern in the USA that this middle class is declining and the disparity between rich and poor is widening, and this is worrying to me.

In my past job, I visited Latin America a lot: Brazil, Chile, Mexico, Peru.  While these countries are increasing their middle class, they still suffer from historical huge wealth and income inequalities.  I think they get the concept that they need to grow a large middle class, while maybe the USA has forgotten why this is important.  In Latam, crime is much more prevalent that the US or Canada, there is more corruption, infrastructure is spotty (very good or very bad), courts are unreliable, education is expensive or hard to get, and Government is unpredictable (left wing, right wing, populist, fascist, or some interesting combination).  For the tourist or the middle class latin american, this means that you are forever fearful of crime (kidnappings, robbery, burglary) and live in a protected compound, you cannot rely on the police or courts to protect you, you cannot drink the water because it is not safe, traffic is awful, luxury goods are heavily taxed and hard to find, and life is, in general, more difficult.  The rich might be able to afford a huge villa with saber wire on the tops of the walls, a helicopter, bodyguards, bulletproof cars, but I don't think they enjoy living this way.  This is why successful latin american countries like Peru, Brazil and Chile are working to increase their middle class, with some success lately, and more power to them I say.

Basically, a large middle class in a country increases quality of life for everyone.  The middle class does not tend to tolerate crime, corruption, or poor government because they and their family have a strong stake in making a country safe, successful economically, and orderly in general.  These things maintain their standard of living and keep them happy.  Of course, they also want social mobility so that they or their children can advance based on merit.  In this environment, the rich need not fear excessive crime and the poor see that they can aspire to a better life.

So the rich American should be in favor of policies that reduce income inequality and maintain the middle class.  You can debate the content of these middle class friendly policies (tax, education, social programs, infrastructure, health..), but I don't think you can debate the desired outcome.

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