Growing income inequality is one of the biggest problems facing nations of all shapes and sizes. Even the world’s richest and most sophisticated countries such as the United States are not immune from this scourge.
Fortunately there are actions that government and society can take against income inequality. Unfortunately our leaders; even disruptive ones like Donald J. Trump, seem reluctant to take these steps.
Some of the actions that our governments can take against income inequality include:
Basic Income. Under a basic income scheme the government gives citizens cash payments to keep them out of poverty. There are two models; Alaska’s Permanent Fund; which pays every resident of the state a flat cash payment based on oil revenue, and schemes in which traditional welfare is replaced with a cash payment. A popular variation is the negative income tax in which poor households receive a “refund” based on their income level. Scotland and Ontario are among the jurisdictions experimenting with basic income.
Negative Interest Rates. Under negative interest rates a central bank pays financial institutions to lend money at very low rates to stimulate the economy and raise living standards. An example of this is the US Federal Reserve’s Quantitative Easing policy, which has been credited for the current American economic recovery. A more radical option would be direct cash payments made to citizens’ bank accounts to encourage spending. So far no government has tried permanent negative interest rates but it might be coming.
Digital currencies. The idea is for a central bank to create a next generation cryptocurrency similar to Bitcoin. The bank; or the government, would then have the ability to make seamless cash payments directly to citizens. Technologies like smartphone payment apps and debit cards would allow cash to be distributed to everybody including the poor and the unbanked. The People’s Bank of China and the Bank of England are researching such a cryptocurrency. Bill Gates has proposed that governments use a payment app like Apple Pay to distribute cash to the poor. Such an app combined with a cryptocurrency would make it possible to directly distribute large amounts of cash to the poor.
The Robin Hood Tax. During the presidential campaign. U.S Senator Bernie Sanders (I-Vermont) proposed using a tax on financial transactions such as sales of stock and bonds to fund college tuition for Americans. This idea is attractive because most of the wealth in developed nations like the UK and the USA is now generated by investment rather than wage employment. Such Robin Hood taxes can be used to transfer wealth to poorer citizens in the form of increased government services. The problem is that such systems are often inefficient and only benefit politically-influential groups such as senior citizens.
Increased income taxes. The idea of increased income taxes is very popular with left-wing politicians like Sanders and French President Francois Hollande. The idea is to use the taxes to fund increased government services or spending to spread the wealth. This often fails because such taxes are very easy to evade; so they often favor the wealthy and politically-connected and make income inequality worse. A greater drawback is that government bureaucracies are often inefficient; and incapable of widely dispersing wealth, or reaching many citizens.
These ideas seem radical but we need to consider them because robotization and technological unemployment are rapidly creating an economy incapable of providing “jobs” for every citizen. That means income inequality will get worse and we will have to take radical steps to deal with income inequality whether we want to or not.