Changing the Debate: Inequality, Growth, & Government in America

How does inequality inhibit economic growth? MacArthur Foundation report explains.

July 25,2013

From sequestration’s spending slashes to big bank bail-outs, it seems as if the United States government’s response to the Great Recession has avoided the issue of economic inequality in order to focus on growth. Recent economic research indicates why this strategy is misguided, and CDCs should use these studies to redirect governmental officials’ attention to equity. A working paper by Professors Chris Benner and Manuel Pastor entitled Buddy, Can You Spare Some Time?: Social Inclusion and Sustained Prosperity in America’s Working Metropolitan Regions demonstrates how inequality actually inhibits long-term economic prosperity, suggesting that the public discourse surrounding the relationship between economic growth and inequality, as well as governmental policy, need to be updated.

A major drag ... inequity's impact on economic growth

According to the study, social distance, as measured by income inequality and segregation (on socioeconomic, racial, or geographic lines), renders American metropolitan regions less likely to sustain economic growth. As the authors point out, however, all too often inequality is perceived as a “luxury” or secondary issue, to be dealt with only after addressing overall growth. Their research shows, however, that inequality is inextricably linked to overall growth levels, and so we can no longer afford to think of them as separate issues. If we care about growth and recovery, we can’t ignore income and racial inequality. That’s why the real tragedy is how little political policies have changed since this academic discovery.

Adding sequestration to the mix

Effects of sequestration extend beyond the benignly inconvenient, such as the lack of tours at the White House and national parks. Many of the federal spending cuts exacerbate inequality by targeting the most vulnerable sectors of the American population.

Reduced funding to the Indian Health Service will compromise psychological counseling services for a population with quadruple the national average suicide rate. With almost $2 billion cut from public housing alone, rental assistance and affordable housing will continue to be out of reach. Shrinking Tenant Based Rental Assistance (TBRA), for instance, will leave thousands more at risk of homelessness, including many veterans, disabled persons, and families; over 100,000 could lose assistance from the federal housing choice voucher program. The long-term unemployed will lose an average of $450 annually, damaging their potential to recover from the economic downturn. SNAP cuts will reduce much-needed food aid, and Head Start will no longer be able to provide as much nutritional and educational assistance to at-risk children. The list of programs that will lose funding stretches on. These painful outcomes will not go unnoticed by our nation’s poor and marginalized, since inequality will not only persist but also be reinforced.

Likewise, community development corporations and their associations are well aware of the suffering sequestration has and will continue to inflict if nothing is done. They are all too familiar with the burden of meeting increasing need, due in large part to inequality, without sufficient capacity.

CDCs and economic growth

What CDCs might not know is that there is a fundamental contradiction when others claim that the cuts’ purpose is to boost long-term economic growth. Whenever governmental policies that are allegedly designed to “kickstart” the economy intensify inequality by abandoning the poor, they sacrifice rather than promote growth, and it would behoove CDCs and their associations to remind the US government of that fact (and this study). Benner and Pastor’s study indicates that cuts will drag down economic growth. CDCs and their associations should use this study to redirect the public discourse and government officials towards equity whenever their fixations on growth patterns come at the expense of the poor.

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