Chapter 20 Reflections: Income Inequality and Poverty

How do we determine who is rich and who is poor? 

To be considered rich in the United States a person has to make more than $200,000 annually, this is the top 5%. The bottom 5th would be those who make $27,800 annually or less. Everyone else is in the middle. I think it also depends on how many people that annual salary has to take care of, what kind of bills one has, what kind of debt one has and many other factors but for the sake of this entry we will be talking about annual salary only.

I recently watched a movie on Netflix called "The Queen of Versailles," a documentary on the lives of David and Jackie Siegel. David is owner and founder of Westgate Resorts, the largest time-share company in the world. To everyone they would be considered rich, with the huge mansion that they live in, the 90,000 square foot one that is currently being constructed for them, the limos, the private plane, designer clothes, and endless "things." David is portrayed as the always-working provider while his wife is in constant spend-mode. Only he and his accountants know his true wealth but it would seem to me that he is stressed because he knows how much money he owes his banks and creditors and he also knows how much he is actually bringing in. I wonder how "rich" he considers himself.

I don't have to tell you who would be considered poor or what constitutes poor. Poor people don't have enough to feed themselves of their families. They may or may not have a home to live in. They may or may not have a car. They are unable to pay their bills. They may be swarming in credit card debt or they may just not have enough, if any, income to help sustain a comfortable lifestyle. They may be on welfare or some other types of government assistance. They may not be well-educated.

Measuring inequality.

Inequality is measured in terms of income distribution over time. "In 2008, the top 5% of families received 20.5% of total income, which was greater than the total income of the poorest 40%" Mankiw writes. When we look at the poverty rate, or the percentage of the population whose total family income falls below an absolute level that has been set by the federal government. On page 421 it talks about the richest 5th U.S. households in 2006 made a little less than $150,000 annually while the poorest 5th made a little less than $10,000. Granted, the wealthiest will always pay a higher percentage of its income to taxes while those at the bottom will pay very little, if any.

What constitutes as poverty?

Click here to see how the Census Bureau of the United States constitutes poverty. 

Redistribution of Income 

There are two schools of thought when it comes to redistribution of income:

• The government has an obligation to take care of its people.
• The citizens have an obligation to take care of themselves.

The political philosophies of the redistribution of income are made up with several types of thoughts:

• Utilitarianism- Says that the government should choose to maximize the total "utility" of everyone in society. Find out what makes them happiest. As their income rises so does their happiness.

• Liberalism- The government should choose policies that are deemed as "just." The goal is to raise the welfare of the worst-off person. 

• Libertarianism- Believe that the government should not take from "some individuals and give to others" or redistribute income. They believe that the equality of opportunities is more important, make sure that everyone is playing on a level playing field.

How can we help the less-fortunate?

This chapter talks about several ways to help reduce poverty: setting appropriate minimum wage laws, government programs such as welfare, negative income tax (subsidies for low-income households, high-income households are taxed which creates revenue), in-kind transfers (charitable contributions of goods and services), and lastly antipoverty and work incentive programs. 

I would also add education in there. By educating the less-fortunate we give those who have less the opportunity to better themselves, not just putting a band-aid on the wound but actually healing the wound and giving them clean dressing for the wound. The use of pell grants, scholarships and other aid help those who have fewer opportunities to gain an education a way of bettering themselves!