The hottest issue in American politics is income inequality. Inequality is to be the central theme of President Obama’s State of the Union speech. This discussion is of special interest to residents of the District of Columbia because DC is among the most unequal places in the country.
Income inequality and its Siamese twin, the “War on Poverty,” are really just symptoms of the same disease. The disease itself is unemployment and underemployment. For our purposes being unemployed means you are out of work and actively looking for a job. Underemployment generally means that you are involuntarily working part-time or in a low wage job.The vast majority of the 30 million or so adult Americans living in poverty are either unemployed or underemployed.
This situation disproportionately effects African-American and Hispanic residents of the District. According to the Henry J. Kaiser Foundation, the poverty rate for white DC residents was 6% in 2011. For African-Americans it was 39% and for Hispanics, 23%. Another factor that has a high-correlation with poverty is single-motherhood. 47% of African-American families with children under 18 headed by a single mother live in poverty. Only 8.4% of African-American families with two married parents (irrespective of their gender) live in poverty.
The unemployment rate in the predominantly African-American areas of the District has come down in recent months, but what is not clear is how much of that drop consists of people who are so frustrated about not being able to find a job that they’ve dropped out of the labor force altogether. Once someone removes themselves from the labor force, they are not counted as being unemployed. We would venture to guess that the unemployment rate and underemployment rate, combined with the number of people who have given up looking for work in frustration accounts for just about all of the 39% rate of poverty among African-American District residents.
So, the War on Poverty and the income inequality problem basically amount to the same thing. What we need, as a country and as a city, is a War on Unemployment. How do you win that war? Ordinarily, economic growth rebounds strongly after a recession, reducing unemployment in a fairly rapid fashion. Historically, the deeper the recession, the stronger the recovery, but for whatever reason, that has not happened after this recession. Some would contend that inequality itself has led to a slower recovery, but we think the evidence for that is weak.
To win a war on unemployment, the pace of economic growth must accelerate significantly. That is the only way the economy will generate the number and kinds of jobs that we’ll need to conquer this crisis. If you believe we suffer from an aggregate demand problem, then you would propose deficit spending. We think that Keynesian stimulus provides no more than a temporary bump and there is no comparable aggregate demand problem in the District in 2013. The overall unemployment rate is 8.1%. What’s left is what has been an intractable, long running battle against poverty in certain parts of the city that we can’t seem to shake.
For broad-based and self-sustaining growth, the District needs a more favorable business climate. The key is to make the District a better, easier, and less expensive place to do business. This requires the District government to rethink the way it taxes and regulates. Many important strides have been made under the Gray administration that probably don’t get a lot of attention, but there remains much to do.