Americans have already heard the Washington storybook tale of inequality many times. According to this popular yarn, government is an innocent bystander. However the real story is that the government has instituted a number of policies over the last three decades that actively promote inequality.
At the top of this list is trade. We have explicitly pursued trade policies designed to put our manufacturing workers in direct competition with low-paid workers in the developing world while largely leaving in place protections for highly paid workers such as doctors and lawyers. This has put downward pressure on the wages not only of manufacturing workers but also of tens of millions of workers in other industries, where manufacturing workers sought jobs after they were laid off.
The policy of repeated bailouts and subsidies for the financial industry has hugely added to inequality. Many of the country’s highest earners are employed at places such as Goldman Sachs and Citigroup, which would have been put out of business in the financial crisis without massive government assistance. In addition, Bloomberg News has estimated the size of the ongoing government subsidy to the too-big-to-fail banks at $80 billion a year, more than the annual budget for the Supplemental Nutrition Assistance Program (food stamps), which was cut by $5 billion in November.
The government has also pushed a patent policy, both domestically and in trade agreements like the Trans-Pacific Partnership, that allows drug companies to get rich at the expense of everyone else. The amount transferred from the rest of us to drug companies because of government-provided patent monopolies is close to $300 billion a year, or $1,000 per person.
It would be welcome if the government raised the minimum wage or took other steps to help people at the bottom, but such steps would follow massive steps taken by the government to increase inequality rather than reduce it.