The rise of income inequality and the struggles of so many families to get ahead have shaken American politics across the spectrum. President Donald Trump invokes the plight of “the forgotten people.” Liberals call for massive new government programs. Wall Street titan Jamie Dimon proposes “a Marshall Plan for America.” Ideological conservatives warn of a socialist uprising that would ruin American capitalism.
But economists who study the issue say it need not come to that. With bold and targeted steps, they argue, government can increase opportunity and incomes for many more people in ways that strengthen, not weaken, American capitalism.
Here are five of them:
Bolstering human capital
“We could tax more from all the folks at the top to spend money making investments in the people who are being left behind,” says University of Maryland economist Melissa Kearney. That includes access to affordable health care, job training, apprenticeships and vocational education. Most important is improved basic education, beginning with prekindergarten programs for 3- and 4-year-olds. “I don’t think education by itself is a solution to income inequality,” says MIT’s David Autor. “It’s the best tool in our toolkit.”
Raising wages and returns
Government can make employment more profitable for low-income workers. A higher minimum wage is just one way, and a limited one. “There’s only so much you could do in terms of making workers more expensive without actually harming the people you’re trying to help,” Kearney said.
Alternatives include increasing the earned income tax credit and subsidizing child-care services so more low-income parents can work. Easing occupational licensing requirements would smooth the path to more people taking up higher-paying lines of work, and loosening prohibitions against work would boost incomes for millions of Americans now reliant on disability benefits.