How do we fix the unequal economy?

BY Paul Solman  January 17, 2014 at 1:19 PM EDT
The solution to economic inequality depends on what you think the cause is. Photo of the Central Park United Methodist Church weekly food pantry in Reading, Penn., by Spencer Platt/Getty Images

The solution to economic inequality depends on what you think the cause is. Photo of the Central Park United Methodist Church weekly food pantry in Reading, Penn., by Spencer Platt/Getty Images.

Paul Solman answers questions from the NewsHour audience on business and economic news on his Making Sense page. Recently, it seems, readers have had inequality on the brain, and Friday’s questions are an attempt to address some of those concerns, many of which Making Sense has explored before. Find an overview of our inequality coverage here.

Florence Bird — Spring Green: How do we fix the unequal economy?

Paul Solman: If you’re a liberal: Raise the minimum wage. Strengthen the bargaining power of unions. Make a massive public education investment in the human capital of those at the lower end of the economy, like the 70 percent of Americans who never get a four-year college degree (see Harvard psychologist Jerry Kagan’s grim assessment of the current state of affairs in a very popular Making Sen$e Business Desk post last year.) Hire unemployed Americans to work in child and elder care. Raise taxes on the wealthy.

If you’re a skeptic of government and proponent of freer-market solutions: Dismantle the welfare state and thereby provide a really strong incentive for people to work harder and pull themselves up by their bootstraps.


Anna Lee — Atlanta, Ga.: How much is inequality fueled by the U.S. running a trade deficit that has been huge for decades?

Paul Solman: I don’t know. I don’t imagine anyone does. Is your premise that if we spent more at home than we do abroad, thus running less of a deficit or even a surplus, our increased domestic demand would raise wages for lower-income Americans?

The answer to that question doesn’t seem to be an obvious “yes.” Wouldn’t it depend on what we spend the money on and whom would benefit from the increased domestic spending?

For those who think the two main drivers of increased inequality may be labor-replacing technology and the increasing political power of those with wealth, the trade deficit seems pretty irrelevant.


Kyle Allen — Marietta, Ga.: Sir, the workforce is impacted by new robots replacing workers. This is occurring at a rapid rate. No one ever discusses this. Why?

Paul Solman: We certainly do discuss this and have — for years. You might check out this story on the “jobless recovery” from more than a decade ago.

Or this one on the vanishing factory job a year later. Or this post on the manufacturing robot “Baxter.”

And, of course, our 2012 report on “Man Versus Machine,” which you can watch below.

Connor Ashby — Plainview, Texas: I recently read Nassim Taleb’s “The Black Swan.”

To your knowledge, is there any other investment fund that is using a Black Swan risk scenario as a trading strategy, other than Taleb’s company?

Paul Solman: I have no such knowledge. But let me use your email as an excuse to push two of Nassim’s other books: “Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets,” which preceded “Black Swan,” and his latest, “Antifragile: Things That Gain from Disorder.” By the way, we debuted the Black Swan argument on the NewsHour back in 2007 before the book was published and have interviewed Nassim a couple of times since — with mathematician Benoit Mandelbro and economist Nouriel Roubini


Paul Solman: And finally, here’s an email in response to our recent story about “the deadweight loss of Christmas” that we found illuminating:

David Alvarado — San Marino, Calif: One factor this story, and perhaps the scholars, have overlooked is not the value of the gift being given, but the value to the gift-giver of giving a gift. This is an immensely important factor in gift-giving and in charitable acts. I can see that the $50 that I spend on the Santa Claus tie might not be valued as such by the recipient, however, the satisfaction I get in giving a gift might be worth every penny. So I sort of agree with the behavioral psychologist in the piece (Dan Ariely) that gifts have other non-material value. I just would like to accent the often overlooked self-serving reason we give gifts and the value it provides.

On this page, Joel Waldfogel, the father of the “deadweight loss of Christmas,” expanded on his theory in an extended conversation. Waldfogel’s University of Minnesota colleague Avner Ben-Ner argued in response that there’s more to bestowing gifts than concerns about economic efficiency.