You Get What You Pay For

Interesting conversation recently. It began with the subject of the fast food workers who were striking to earn $15 an hour. It continued with a discussion of how the middle class in the United States has been hollowed out, with meaningful, well-paying jobs going overseas as consumers search for the least-expensive items without regards to the impacts of those purchasing decisions.

McDonaldsFrom there, we talked about the high cost of Starbucks coffee versus the coffee at McDonald’s. I pointed out that, while there may be many reasons to explain the price difference between Starbucks and McDonald’s, one main reason has to be that Starbuck’s provides a relatively generous set of benefits to front-line employees, compared with McDonald’s. Kind of illustrates the point about the impacts of our purchasing decisions.

starbucks-barista-620xaA gross oversimplification, of course, but if we choose to buy from companies that poorly compensate their employees, we are sending a message. If we choose to buy from companies that treat employees better, we are sending another message.

 

Rising Inequality – Why Don’t We Care?

There’s an interesting “Room for Debate” series in the NY Times titled “Rising Wealth Inequality – Should we Care?“.   The series was sparked by an intriguing survey by Michael Norton and Dan Ariely that found that Americans generally estimate that wealth distribution is far more equal than it actually is and, if given a choice, they would select an even more equitable distribution as being the ideal scenario.  The graph below shows the results of the survey.

Income Distribution 

Of course there will always be a uneven distribution of wealth, and that in and of itself is not a bad thing.  Systems such as communism and socialism have proven to be an ineffective way of raising standards of living, whereas capitalism has done a pretty good job on the whole.  But are the wealthiest 1% or 10% of our nation (or of any nation) actually contributing to their society in a manner proportionate with their wealth?  Are they wealthy because they’re reaping the rewards of their hard work, or is it a matter of inheritance, loopholes, and offshore accounts?

It seems that the economic theory known as “trickle-down economics” – in which you give the wealthy more of their money through a lowering of taxes in the belief that they will spend more, thus fueling economic growth – has largely been proven to be bogus.  The wealthy spend a proportionately smaller share of their income than do people further down the socioeconomic ladder.  The rest goes into investments.

What most confuses me is why so many people who are middle class or lower, are against raising taxes on the ultra-wealthy.  They seem to hold a belief that they may one day be in that top few percent and have to pay that “too high” a marginal tax rate, when in reality their only realistic chance of becoming a millionaire, let alone a billionaire, is to win the lottery.  Heck, even Warren Buffet, one of the nation’s wealthiest men, says he needs to be paying a higher tax rate.

The debate series in the NY Times lays out the different perspectives, but I’m curious to hear yours:

Why don’t people seem to care about rising inequality?  Is the rising inequality something we should be concerned about?  Is that lack of caring about it also something we should be concerned about?