ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, September 2, 1996 TAG: 9609030126
SECTION: EDITORIAL PAGE: A-6 EDITION: METRO
ON THIS Labor Day, working America finds itself in a good news/bad news position.
The good news: Inflation is low. The economy is near full employment, and its growth accelerated last quarter. Many working Americans are faring nicely.
The bad news. Many working Americans are not faring so well. If average after-inflation wages are starting to climb after a quarter-century of stagnation, any sign of it is still faint. The income gap between high-pay and low-pay jobs continues to widen, and is wider in the United States than in most other industrialized nations.
But is the income gap really bad news, or does it portend continued economic growth whose benefits eventually will trickle down to even the least-paid among us?
Bitter experience has left one tenet of supply-side economics, the belief that tax cuts pay for themselves, without any but the most zealous adherents. Another supply-side tenet, that capital accumulation among the wealthy is the key to economic growth, is of more venerable vintage and remains very much in play. But this notion, too, may be ready for the dustbin.
The mechanism by which the rich getting richer is supposed eventually to benefit everybody is the presumed greater rates of savings and investment that ensue. Critics of such trickle-down economics have long argued, however, that policies during the 1980s for putting more money in wealthy pockets - for example, reducing marginal tax rates for the affluent - had little or no discernible impact on increasing America's low savings rate.
Overseas, as Peter Passell observed recently in The New York Times, trickle-down's critics can also find evidence by comparing East Asia's and Latin America's divergent paths to economic development. His conclusion: Spreading the wealth wields a mightier economic-growth sword than concentrating it in the hands of a leisured elite.
For cultural, geographic, historical and other reasons, the societies and economies of East Asia are more egalitarian than those of Latin America. In South Korea, for example, the richest fifth of the population averages only 5.7 times the income of the poorest fifth; in Brazil, the richest fifth averages 32 times the income of the poorest fifth. Yet it is the East Asian nations, with their big middle classes, that lead the world in savings rates and are the world's economic tigers. It is the Latin American nations, with their extremes of wealth and poverty, where savings rates are low and economic growth has been disappointing.
The United States, where the richest fifth-poorest fifth income ratio is now up to 14-1, is moving away from the East Asian model of income equity, toward the Latin American. Our economy is booming now. But the future depends on reducing the wealth gap.
LENGTH: Medium: 54 linesby CNB