Editor’s note: This article was initially published in The Daily Gazette, Swarthmore’s online, daily newspaper founded in Fall 1996. As of Fall 2018, the DG has merged with The Phoenix. See the about page to read more about the DG.
On Tuesday, March 15, more than 300 students, staff, and faculty members joined Economics Professor Mark Kuperberg and Kevin Hassett ‘84 in LPAC for a debate on economic inequality. Hassett is a scholar at the non-partisan think tank American Enterprise Institute. A former student of Kuperberg, he later received a Ph.D. from the University of Pennsylvania. The two main questions explored in the debate were: 1) Is economic inequality a problem? and 2) Should we do anything about it?
Kuperberg, who gave a 2012 TED talk titled “The Case for Big Government: The Case Americans Don’t Want to Hear,” argued that economic inequality was a problem. He identified two types of economic inequality: inequality of income and inequality of economic opportunity.
For most of Kuperberg’s slides, the point of interest was the year 1980. Complemented by a bar graph that showed incremental productivity increase and steady total income decrease, Kuperberg showed that at around 1980, productivity and total income growth diverged, while income inequality expanded. Now, the top 3% of earners in the U.S. receive 54% of after-tax capital income, and the top 0.1% hold as much household wealth as the bottom 90%.
In response to the popular defense that inequality is acceptable as long as there’s mobility, Kuperberg showed the “Great Gatsby Curve,” a regression line showing that as inequality increases, upward economic mobility decreases.
Hassett, however, argued the opposite point, focusing on the benefits of capitalism and free markets. The AEI scholar cited the fact that GDP per person skyrocketed when economic liberalization became the norm during the 1800s, Hassett said, “all of this wealth is created by capitalism.”
According to Hassett, the decline in global poverty is also a byproduct of the rise of capitalism.
“In 1970, half of the world was below the poverty line. Now the World Bank reports a 9.6 global extreme poverty rate. The economic system that we helped spread has helped decrease poverty dramatically in the world.” Hassett said. Although he conceded that between 1970 and 2010, income for the top 5% of the U.S. households increased from 17% to 20%, he pointed out that U.S. transfer payments (e.g. welfare, subsidies, etc.) have increased proportionally, alleviating some problems from income inequality.
Hassett went on to say that a misunderstanding of economic inequality has caused bad public policy decisions. He stressed that the most important type of inequality is actually “spatial inequality,” which describes the unequal amounts of qualities or resources based on location. Some of Hassett’s research include working with the Economic Innovation Group to create a “distressed communities index” to identify pockets of economic distress based on zip code.
“The core of the problem of inequality is the lack of resources,” Hassett said. From this conclusion, Hassett says that the solution to empowering these distressed communities may lie in the financial sector.
“If we created an investment fund that invests only in domestic emerging markets, where people could only make a profit by making a difference in distressed communities, then we create a race to make a difference,” Hassett said.
Kuperberg did not reject the viability of Hassett’s idea directly, and said that economic inequality is more complicated than just the lack of resources.
“It’s a combination of lack of physical and human capital that’s creating these inequalities. I don’t think giving the financial sector the chance to inject capital into distressed communities is going to resolve these deficiencies. I also don’t think relabeling distressed communities as emerging markets is going to fool anybody,” Kuperberg said.
Gloria Kim ’18 and Paige Willey ’16, members on the campus AEI Executive Council, helped organize the event.
“My goal wasn’t to get the event attendees to conclude one thing or another about economic inequality and what to do about it. The two speakers serve as an excellent example of how academic inquiry — and friendship! — need not suffer in the face of political differences,” Willey wrote in an email.
Gloria Kim ’18, who was inspired to join the AEI Executive Council when she saw that “many students [were] hesitant to speak up in fear of being antagonized for their conservative background.” The group hoped to “exemplify civil discourse and tolerance for difference” with the debate, she added.
“How do you know if you win a debate?” Hassett asked before he began his presentation. “From my perspective, I win a debate if I learn something.”
That’s what most Americans don’t understand. The middle class pays around 25% of their income in taxes, and everybody assumes that the rich pays even more. But, the rich really don’t make much as far as “income” goes. They invest billions into the stock market, and make what is known as “capital gains”, which is taxed differently than income. They make millions, even billions per year, in personal income, but it is taxed at the “capital gains” tax rate, which is 15%. Therefore, the rich pay 15% tax while we pay 25-30% tax. Most middle class people don’t really understand this distinction.