March 24, 2016 by Jean
Recently, I have been reading Joseph E. Stiglitz’s The Great Divide: Unequal Societies and What We Can Do About Them (W.W. Norton, 2015) in preparation for this month’s discussion with my retirees lunch group. Stiglitz is a recipient of the Nobel Prize in Economics, and this book is a particularly timely group reading selection because his ideas seem to be the theoretical underpinning for the Presidential campaign of Bernie Sanders. Stiglitz argues that, since the 1980s and especially in the aftermath of the Great Recession, economic inequality has been growing in the United States, with the result that the United States now has the greatest economic inequality and the least equality of opportunity of the advanced industrialized countries. He further argues that this inequality is not an inevitable result of capitalism but a consequence of political choices and policies that have enriched the top 1% at the expense of everyone else, particularly those in the bottom and middle of our country’s economic distribution.
An important part of Stiglitz’s analysis is the relationship between economic inequality and political inequality. Economic inequality leads to political inequality, especially in the United States through the mechanism of campaign financing. Political inequality then leads to even greater economic inequality as legislators pursue the interests of wealthy donors they are beholden to rather than the interests of ordinary citizens. To change policies, we would need to break into this cycle. Thinking about how to do this led me back to an idea that I toyed with twenty years ago, tying the salaries of the members of Congress to the economic fate of average Americans.
Official measures of income and inequality usually measure income at the household level using a statistic called the median. If you took all the households in the United States and lined them up, from the household with the least annual income at one end of the line to the household with the most annual income at the other end of the line, the median would be the income of the household that fell exactly in the middle of the line. In 2014 (the most recent year for which data are available), the total income (from all sources and all wage earners) before taxes of that median household was $53,657. The 20% of American households with incomes that cluster around this median had total household incomes that ranged from $41,187 to $68,212. This is the true “middle income” in the United States; 40% of households have incomes lower than this range and 40% have incomes higher than this range. Government data tell us that real median income (with inflation taken into account) reached its peak in 1999 and has been on the decline since. In 2007, just before the financial crisis began, middle income households had .7% less income than they’d had in 1999; in the years since, their income has fallen another 6.5%.
Many people in the United States who are considerably more affluent than the incomes in this middle range think of themselves as “middle income.” I suspect that quite a few members of Congress think of themselves as “middle income,” which means that most affluent Americans, including most members of Congress, are pretty out of touch with what the lives of average, middle income American households are really like.
My original idea to increase awareness and accountability was to make Congressional salaries twice the median income, which would enable members of Congress to support households living as well as the average American household in both Washington and their home district. Some would argue that members of Congress, in order to do their jobs, also have outsize transportation expenses as they travel frequently between Washington and their home districts. Others might note that Washington, D.C. is a more expensive than average city to live in. We could adjust for that by making the Congressional salary 2 1/2 times the median income or even 3 times the median income. Please note that any of these multipliers would result in a decrease from the current Congressional salary of $174,000. If we wanted to avoid making members of Congress take a pay cut, but tie their economic fate to that of the average American household going forward, we could make their salary 3 1/4 times the median household income. This would mean that if the Congress pursued policies that enriched those at the top of the income hierarchy at the expense of those in the middle, their own salaries would be affected. If median income stagnated, even in the face of increasing costs of living, Congressional salaries would not be increased to reflect rising costs. If median income went down, so would Congressional salaries.
Would tying Congressional salaries to median income make members of Congress more aware of who benefits from the laws and budget priorities they adopt or make them more accountable to real middle-income Americans? I don’t know, but I think it’s an idea worth considering.