16 Fischer et al - Inequality by Design CRACKING THE BELL...

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Unformatted text preview: Inequality by Design CRACKING THE BELL CURVE MYTH + CLAUDE S. FISCHER, MICHAEL HOUT, MAR'IiN SANCHEZ JANKOWSKI, SAMUEL R. LUCAS, ANN SWIDLER, AND KIM V035 Department 01' Sociology University of California, Berkeley PRINCETON UNIVERSITY PRESS PRINCETON, NEW JERSEY CHAPTER 5 sides of the debate, the “altruists” who favor intervention for equalizing and the supposed “realists” who resist it, agree that inequality can be shaped by policy decisions: wittingly or unwittingly, we choose our level of inequality. CONCLUSION Either we Americans have come to desire the inequality we live with or the inequality we live with reflects our desires (or both). Certainly, there are values and beliefsiindividuulism, capitalism, freedomw—that can justify creating a more unequal society. But many Americans also believe that such levels of inequality are inevitable, the result of inequality in natural ability or of the market or both. This belief has no basis in evidence. [11— come and, more generally, wealth, standard oi,‘ living, and quality of life have been more equal in other times and are more equal in other places, without any evidence that talents were more equal Earlier or are more equal elsewhere, or that market pressures are different there. Perhaps today’s trend toward inequality will reverse; it has reversed be— fore in American history, ".18 economic and political conditions changed. But the keys to understanding inequality will remain. The degree of in— equality wc live with is not a “natural” result of either inherent human talents or a “free” market. Certainly, people’s skills and societies” eco~ nomic conditions strongly influence the shape of inequality. But a people, acting through its government, can contract or expand that inequality. The policy changes enacted by the 1995796 Congress will, certainly in the short: run and most probably in the long run, widen inequality. We explore the choices we have in more detail in the next chapter. 128 g t i l Snué- .; ., 'l' CHAPTERG ’3‘ How Unequal? America’s Invisible Policy Choices AMERICANS can significantly alter how much inequality there is among them. In chapter 5, we showed how inequality changes over time and how much it varies from nation to nation. Such fluidity results in large measure from changes and variations in policy. In this chapter we focus on several specific American policy choices that shape inequality. Obvious redistributive programs, such as welfare spending. are not the only policies, or even the most important ones, that affect inequality. Many “invisible” practices are more significant. For example, American housing and road-building programs have largely subsidized the expansion of sub- urban homeownership for the middle class. Other largely unnoticed poliv cies set the ground rules for the competition to get ahead. Just as in haste- ball, where the height of the pitcher’s mound ntl'ccts whether pitchers or batters have the advantage (see box. p. l30). so in the marketplace laws and regulations favor some competitors and disadvantage others. We saw in the last chapter that the United States has the greatest inequality in earnings among full-time workers and that that inequality has increased since, 1970. Some policies narrow inequality and some widen it. Again and again we will see that the basic dimensions of social inequality—~llow rich the rich are. and how poor the poor are, and even who becomes rich or poor-ware a result of our social and political choices. Many of our policies operate in directly, and hence invisibly. The programs that help the poor are glaringly obvious, but those that aid the rich and middle class tend to be invisible. Obscurcd even more are the policies that set the rules of “the game” for the labor market, In this chapter, we will reveal some of the many ways that social policy shapes inequality We will begin by lo ' king at one general pattern of American social pol— icy, which 1sto provi e,i‘with one hand, limited direct help to some of the poor and indirectly toysubsidize, with another, the middle class and the wealthy. Next, we will uncover one of the most hidden arenas of social policy, therregulation ofgrthe, labor market, and show how the ground rules shape inequality. Finally, through an examination of hi ghcr education, we a l29 CHAPTER 6 BASEBALL: How RULES HELP PICK THE anms i In sports, talent and effort should determine. who wins. But the rules also determine who has the advantage and even the kinds of players who suc— cccd, We see that in the history of baseball. In 1893 the team owners lengthened the pitching distance to sixty feet and pitchers lost an edge; runs soared to an average of fifteen per game the next year. Then, in the early 1900s, the number of runs per game plummeted (to seven in the National League) because new rules created a wider home plate and counted the lirst two I’oul balls as strikes. These new regulations, in turn. partly determined who became successful players. Baseball historian Ben- jamin Rader writes: With the lengthening of the pitching distance in 1893 and the grow— ing practice of placing the pitching slab on a mound of dirt (“the mound”), the sheer size of pitchers began to increase sharply. In 1894 the pitchers were relatively small; they averaged l68 pounds (4 3 pounds lighter than the hitters) and stood at five feet and ten inches tall, the same height as the hitters. By 1908, however, pitchers (at 5’] l”) averaged an inch and a half taller than the hitters and were an average of 9 pounds heavier (l lit) lbs. vs. 171 lbs). Notice that the pitchers of 1908 weighed a whopping 12 pounds more than the aver age of their counterparts in 1894. Following another hitting drought in the mid—1960s, baseball owners again attempted to right the balance by lowering the pitching mound from fifteen to ten inches, ordering umpires to tighten the strike zone, moving fences closer to home plate. and in the American League allowing a “des— i gnated hitter" to bat for the pitcher.* AS we write, owners once again are changing rules in the pitcher’s favor. * Rader, Bn‘rrlrn/l, pp. 87, 89, 114-16, 169. will look at. some of the diverse ways inwhich public investment also molds inequality. in the end. we will better understand the major reasons ”r4722“? " i. H \. W why mortality is historically so inconstant and why inequality in America is so high. 130 HOW UNEQVAL‘? VISIBLE POLICY: REDUCING POVERTY runouon REDISTRIBU’I‘JON Over the last century, American government has done much to help those left poor by the market. Public health programs, school lunches, food stamps, Aid to Families with Dependent Children (AFDC). and survivors’ benefits have reduced the inequality left by earnings differences. Yet Americans have chosen not to pursue such programs as Far as citiyens in other affluent nations have (and the programs are being sharply cut back as we write). Most industrial societies provide “family allowances” to all fam— ilies with children and some form ol‘ universal health care or health insurx ance to all residents. In such ways, the numbers and problems of the very poor are sharply reduced by government policies that are directed toward everyone and that do not single out the poor. Most American welfare pro grams, in contrast, are “means—tested”——availahle only to those who can prove that they are poor and that they are otherwise deserving. These tar» geted, programs consequently lack wide political support and are vulner— able to budget~cutting. Only social security and Medicare, nearly universal entitlements for the elderly, have largely survived cutbacks in recent years. Most other nations, unlike the United States. also substantially subsidize housing for many moderate-income citizens, provide stipends for students who make it into higher education, and support the long~term unemployed. Recent American antipoverty programs have had some success, but mostly in reducing poverty among the elderly. largely through social secu— rity and Medicare, and in taking the edge off misery (see figure 55). We can see the emphasis on the elderly by looking at the percentage of Ameri- cans who are pulled above the poverty line by all government financial programs (taxation, unemployment support, welfare, social security. etc.) put together. in 1992, 22 percent of Americans would have had incomes below the poverty line if all that had been available to them were their families” earnings. Government taxes and transfers reduced that to 12 per cent,a drop of ten points in the proportion of poor Americans. For the elderly, taxes and transfers reduced the proportion by forty points, from the 50 percent who would have been poor based on nongovcrutuental income alone to the ll) percent who were poor after including governmental it» come and taxes. For children, however, the net effect of taxes and transfers was to reducepoverty rates by only serm points, from 24 percent to .17 percent. For young adults, the drop was merely five points, from 21 percent 131 " CHAPTER 6 to 16 percent.1 This generational imbalance is, in part, the outcome of pol,— icy changes during the 1980s that weakened the equalizing effects of taxes and transfers.“ (As of yet, we have no data on the effects of the 1993 Clin- ton tax changes that raised the earned income tax credit for low—income families and raised the income tax rates for the very wealthiest households. Presumably, these laws shifted net incomes toward equality a little. But the changes enacted by the Republican Congress elected in 1994 will shift incomes away from equality.) If we list all the programs that helped nonelderly Americans with low incomefi—food stamps, AFDC, Women, infants and Children (VVIC‘a nu— trition program), Medicaid, SSI disability, the earned income tax credit, eta—«they sound like a lot. Adding together these programs and adding in as well a variety of federal, state, and local spending directed not just at the poor but also at many people who are above the poverty line, such as col— lege loans, job retraining, and energy assistance, the total‘egpenditures for “pet‘sonswwith limited income” in 1992 amounted tohlmost $290 billion. As sizable asthat figure is, it represents less than 12 percentiofialligovem— ment expenditures at all levels that year. It comes to about $5,900 per low- income person. Almost half of this total, $134 billion, was for medical care, largely Medicaid. Nonmedical spending came to about $3,200 per limited- ineome person. of which about $2,100 was in the form of cash or food stamps. That $2,100 is roughly what the typical American family spent on eating out in 1992; it is within a few hundred dollars of what typical home- owners saved on their federal income taxes by being able to deduct mort— gage. interest. Even after this government spending—which is probably a highend estimate of what America spent to aid low—income people in 1,992w—over 14 percent of Americans, 21 percent of American children, remained poor.3 Vt’e can best evaluate the effort to redress poverty comparatively. Low— incomc American children are worse off than low—income children in aify’i‘ither industrial nation. in the 19805, for example, about 20 percent of American children lived in poverty, while 9 percent 01. Canadian chil— dren and of Australian children were poor, 7 percent of children in the United Kingdom, and even fewer in France, W’est Germany, and Sweden, respectively.4 Why are so many American children poor? Charles Murray claimed in an earlier book that American children are poor because welfare policies encourage poor women to have more children. He is wrong. Careful studies by demographers demonstrate minimal effects, if any, of AFDC on child— bearing. Rather, young parents are more susceptible to poverty. and their l 3‘7. We.mws.dm.w.a .m. . m.W¢~.,wrw “‘waw.,cwawa.WWNt was, came mam. “We; HOW UN EQUAL“! poverty makes their children poor.5 American children are more often poor, first, because American adults are more unequal in both wealth and income than people in any other industrial society. Second, children suffer espe« cially because the incomes of young men have, fallen so sharply since the i:nid»1970s. More young men cannot earn enough to keep their children out of poverty, and many then refuse to take on the responsibilities of marriage. leaving young mothers and children even poorer. lNe can see how American government compares with others in dealing with poverty by turning again to the Luxembourg Income Study. Lee Rain— water and Timothy Smeeding calculated, for eighteen nations, the percent- age of children who were poor. (To be able to compare across countries, “poor" was defined as being in a household with real purchasing powerless than half that of the median in the nation. Hall" the median is roughly what the poverty line in the United States was in the 1960s when it was first, calculated.)6 Figure 6.1 shows the percentage of children who were poor belor‘. and then after including taxes and government transfer payments in the calculations. Again, we look only at the populous nations. Before gov: ernment intervention, a relatively high percentage of American children were poor, but not as high as in France and the United Kingdom. After counting taxes and government payments, however, the poverty rate for American children was substantially higher than that elsewhere (including nine other nations not shown in the figure). Even those countries with higher before—government child poverty than the United States managed to reduce their poverty levels to far below the level here. Two objections might be raised to the evidence that America leaves so many ot'its children in poverty. One is that so many American children are poor because so many live in singlcmparent families. That is true. However, Rainwater and Smeeding also looked separately at children in two‘parent and in single—parent families. In each case, the same pattern appears as in figure 6.1: American children were exceedingly likely to be left poor after government action.7 The "other objection is that being poor in America, being below 50 percent of the median, is in material terms not as terrible as being poor elsewhere. Unfortunately, that: is not so. Rainwater and Smecd— ing calculated how much real purchasing power children at the 10th, 50th, and 90th percentiles of the income distribution had available in each coun— try. American children near the top and at the middle did, indeed, have more real income than did children near the top and at the middle else— where. But American children near the bottom had less real income than children in the other nations, 25 percent less than poor Canadian cl’iildren and 40 percent less than poor West German children. And again. the t 122’ CHAPTER 6 Government in the United States does the least to reduce the proportion of children who are poor: percent of children poor before and after government action. United States Australia Canada United Kingdom Italy West Germany France Netherlands 6.1. Percentage of Children 'W ho A re Poor, Before and After Government Action, in Eight Nations (Note: “Poor” is defined as children in house— holds with incomes below 50 percent of the national median household income. Government action includes all taxes and all cash and “near— cash” transfers. Source: Adapted from Rainwater and Smeeding, “Doing Poorly," 121th A-Z) researchers did not count some of the in—kind resources provided to poor children overseas.8 The United States does less than any other advanced nation to reduce poverty through government benefits.° In addition, our spending to aid the poor is precarious. Assistance is a dmmtion; it is not a right, as it is else— 1 34 HOW UNEQUAL'? where, and it is therefore politically yulncruhlc. For example. the main program that supports children, AFDC, has been repeatedly cut such that the monthly benefits dropped 25 percent in real value between 1980 and l993.10 And it will continue to decline as the federal government transfers responsibility for welfare to the state governments, Also, unlike aid to the poor in most other nations, these programs form an overlapping, conflict— ing, and sometimes impenetrable morass. One reason they do is that each program was targeted to a specific need and requires wouldmhe clients to meet exacting qualifications. 'l‘hese features of American policies to help the unfortunate are consistent with Americans" belief that aid to the poor must be limited, conditional. and sufficiently unappealing so as to push people off assistance and into jobs.11 One of the newest and most ambitious efforts to redistribute income, one consistent with the American attitude toward aid, was the expansion oldie eqrncd income tax credit (EITC) that President Clinton. with liipurtisun support. enacted in l993. The EITC was originally established to refund low~income earners the money deducted from their paychecks to pay for federal insurance programs like social security. The 1993 expansion turned it into a general income support program for such workers. in which earners would get more money from the federal government the more they earned on their own, up to a ceiling. According to the 1993 law. workers filing income tax returns would have gotten, by l996, credits worth 40 cents for every dollar they earned, up to a maximum refund of about $3,500. (That would have been for a family of four with earnings in the $8,400—~$ll.000 range; a fully employed worker earning the minimum wage grosses under $9,000.) Beyond $11,000 in earnings, the lil'l‘C would gradually shrink until reaching zero for families earning 3327.000. Expand sion of the EITC was initially popular among conservatives because it re- wards working and among liberals because it provides the working poor with supplementary income in a nonstigmntiziug way (applicants need only fill out an income tax return). Projections were that by the year 2000. EITC would have transferred $30 billion a year to poor and low income families, more than either AFDC or food stamps.12 Hmvevcr, the changes enacted by the 1995—96 Congress scaled back the expansion of the ETC. The history of the EPIC sheds light on the American approach to redis~ tribution. First, the EITC provides no support at all for families whose head of household is, for whatever reason, not working. One must earn and de— serve the help;.the more you get in the marketplace. the more you get from government. Second, more generous than most programs, it is still limited. By one estimate, had it been fully implemented in 1996, ElTC would have 1’25 CHAPTER 6 moved onlv about 25 percent of working poor f arnilies above the poverty line. Third: the design and discussion of the ElTC has largely focused, not on how best to reduce poverty. but on how to aid only the deservmg and to reward work effort. That is why, fourth, it encountered serious political trouble. Anger at unqualified recipients who fraudulently claimed the credit and concerns that the rebate structure may lead some workers near the top of the eligibility range to cut back on their work liourswtogether with efforts to balance the federal budget—«propelled Congress to scale back the EITC.13 . . Overall, then, American government policy does reduce inequality by I aiding the poor. The New Deal and the Great Society programs substan— tially helped the elderly and reduced some of the misery for othersiall that the programs were ever designed to do.‘4 This HHX ofpohcres may be what most American voters wish. There are prominent votces argutng that even this amount of redistribution to the nonclderly poor is too much, that it hurts the economy and even hurts the poor by undermining their self— reliance. Our point here is that in the case of our most visible policies, ones to aid the poor, Americans have chosen to do less rather than more, have designed greater inequality. lNVlSlBLE POLlCIES l: Sunsrnvmo Tin-1...
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