Berkeley Blog: Second Semester Subjects - Wealth & Poverty (part 1)

Preface: When I first started writing this post, I got caught up quickly in political ideals, democrats vs. republicans, viewpoints of liberals, conservatives, and "others, " but I quickly had to remind myself why I am taking the time to write in the first place. Mainly, summarizing helps me focus on what to study, and posting it publicly pressures me to make it clear. I could just write outlines in word, privately, which I do sometimes, but at some level finding a common thread and a "bigger picture" amongst the sea of facts helps me staying motivated and focused. So, instead of posting a political opinion rant, I want to focus on the class itself, and what topics and ideas were discussed. So, enjoy!

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Wow. This. Class. Is. Fantastic.

Public Policy 103, better known as "Wealth & Poverty," is one of the most popular classes at Berkeley, and arguably one of the best. Taught by President Clinton's former Labor Secretary, Robert Reich, a 4ft tall rock-star professor, this class is so full that kids sit against the walls and in the aisles, sacrificing comfort to hear some of the finest, best lecturin' these parts have to offer. Normally, a hour-and-half session about public policy would seem drab, but Reich's ability to keep this class interesting is partly why the class is so great. Currently, a feature documentary is being filmed about this class (yes, I may be in some of the background). "Inequality For All" is its tentative title to be released sometime in the Fall. The film has a facebook page with a few still shots from the class.

At this point, you might be wondering, "But Matt! Public Policy? I thought you were a Psychology Major! What the eff is your problem!" Well, you're right, this is class mainly designed for Econ, Policy, or Political Science majors. But thankfully, Berkeley lets free about 50 or so seats for non-policy students like me, to add some depth to their own majors, and to inject some outside ideas for these policy students to mull over. Speaking of the students, occasionally these kids' brains just blow me away. They have a grasp of concepts that would take me years to even read through let alone understand. Even though I'm outmatched in many ways, my psychology background and age plays a key role in adding the depth, purpose and meaning to these public policy topics. Speaking of topics, let's get started shall we?

In the first week, the lecture titled "The Big Split", the main questions were, "How should we define economic 'inequality?' What’s the meaning of 'wealth' and of 'poverty?' How quickly is inequality widening in the United States? To what extent is it also happening in other nations?" GDP and productivity in America since the Great Depression has been increasing at record speeds yet wages have remained relatively flat. Even for the richest of the rich, wages have not kept up with productivity. Before the 1970's the economy and profits grew, so did wages. From the time between 1947 to 1979, called the "Great Prosperity," the annual growth rate of income was equally distributed among all classes, about a 2-3% growth. Since that time, however, wage growth for the poor decreased, while the main growth was seen in the richest classes. This resulted in the largest income inequality seen since the Great Depression. In about 3 decades, income inequality shifted the equivalent of 1 trillion+ of annual income to the top 1%. Even though the income inequality is largest in America, other countries have seen similar trends as well. The consequence of these income inequalities results in a smaller middle class. Procter & Gamble, the world's largest maker of consumer products, is shifting focus away from middle class products and into luxury products for the rich and cheap products for the poor. The evidence for increasing inequality are clear, but the reasons why the inequality occurred are not covered until later lectures.



In the second week, the lecture titled "Should We Care?", the main questions were, "Isn’t inequality inevitable and necessary? At what point, if ever, does it become a problem? What kind of problem?" Firstly, some inequality is a actually good thing. Inequality can increase income incentives and increased productivity. With inequality comes competition. Competition leads to high levels of workers and doles out rewards based on hard work, perseverance and determination. But there is tipping point where inequality becomes a problem. Below is the American Social Contract, 5 rules that have generally been agreed upon by most Americans.

1) No one who works full time should be poor.
2) Everyone should have equal chance to make it, based on their hard work and talents.
3) Everyone should have an opportunity to make the most of themselves through education.
4) No one should enjoy special privilege based on wealth and class.
5) Individuals should take responsibility for themselves and their families, but deserve help if they need it through no fault of their own.

Unfortunately 1, 2, 3, and 4, currently, aren't exactly happening. The probability of a child born into a poor family reaching a level of wealth in the 90^thpercentile was merely 6%. Compare that to the nearly 40% chance for a wealthy child to obtain wealth. For the poor child, there was a 42% chance he would grow up to be poor, and for the rich only 9% chance. Also, countries with the biggest increases in inequality also reported the largest increases in divorce rates…long commute times…and reduced voters’ willingness to support even basic public services. Busted dams, longer commute times on broken roads, and insecure ports continue to add to the problems of an already taxed poor society. Health and social problems are closely related to inequality among rich countries. In unemployed men, the overall mortality rate increased by 44 percent during the first four years following job loss. And for both sexes, there was a twofold short-run increase in suicides and alcohol related mortality. More people suffer from mental illnesses in more unequal countries. Infant mortality and low life expectancy are also related to inequality. Trust is lower in people from unequal countries. The growth of inequality comes at the price of not only a broken economy but a broken society. Even for the wealthy, more riches do not produce a better quality of life. Rising income eventually reaches a level where diminishing returns set in and additional income buys less and less additional health, happiness and wellbeing.  Inequality then, not only hurts the poor, but wastes the excess on the wealthy, as they are already too overstuffed to fully utilize their wealth.

Now, in the next post, we focus on some of the reasons for the inequality.