Tuesday, October 19, 2010

Why is Life so Hard

So there you are.  Debt.  First you got the clothes that the fashionable people have.  Then you splurged on the catered birthday party because the boss had one.  Next thing you know you’re divorced and bankrupt.  And everyone around you in middle class land is suffering the same fate.  You wonder, this can’t just be me. Well, it isn’t.

Cornell economics professor Robert Frank says it’s inequality baby.

What’s income inequality?  Why should I care?  Income inequality is the income difference between the highest earners and the lowest earners in a society.  Frank argues that it’s the bedrock of a lot of our modern day issues.

In the US, the rich are getting richer faster than the middle classes ability to keep up.  That doesn’t stop the middle class from trying to keep up though.  Instead, they use debt and second jobs to maintain a standard of living of the person just above them.  Frank calls this expenditure cascades.

The rich have been spending more simply because they have so much extra money. Their spending shifts the frame of reference that shapes the demands of those just below them, who travel in overlapping social circles. So this second group, too, spends more, which shifts the frame of reference for the group just below it, and so on, all the way down the income ladder. These cascades have made it substantially more expensive for middle-class families to achieve basic financial goals.

But what makes this article great is that Frank has looked at 100 countries and he finds concrete evidence that in countries where inequality is getting worse, there are higher rates of all forms of stress: marriage stress (more divorce), financial stress (bankruptcies), and driving stress (longer commuting times because of affordable housing).  

And yet, even though income inequality is such a driving force to many of today’s social woes, it hardly gets talked about as an economic issue. 

When Fox News screams against taxing the top 1% of the rich, remember that it’s not because Democrats don’t like rich people.  It’s because lower income inequality is a major economic force.  And when Sarah Palin yells freedom, we should take into mind that policies that favor income equality may actually lead to more freedom (freedom from stress) than policies which say that the government shouldn’t do anything. 

As we head into the polls next month, people are angry.  But I can guarantee the policies of hands off, let the rich get richer will do nothing for us.  Except make life harder.

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