The Hindu Business Line : Bernanke, the Untypical Republican

Mr Ben Bernanke, the current Chairman of the US Federal Reserve and Federal Open Market Committee (FOMC), which sets US interest rates, is a registered Republican. But he seems to be much more than a closet liberal.

For, in a recent classic speech, he dwells upon the controversial (and sensitive) subject of economic inequality - a topic generally avoided by politicians and economists of a conservative hue. Even Left-leaning Democrats praised his outspoken admission of and concern about the growing concentration of income and wealth in America.

Recent US statistics and visual evidence point to the already rich earning and owning an increasingly disproportionate share of income and assets. At their present rate of accrual, the top one per cent of the population could soon command half of the household wealth.

Note that this does not necessarily mean the rest are worse off; just that the distance between them and the wealthy is growing and is an automatic consequence of today's exceptional rewards for exceptional talent and skills and the property and stock market boom, which has immensely added to the riches of the stock and property-owning classes.

Even if equality of opportunity is assured or assumed — and these are big ifs — in a competitive system, there will be some winners and a large number of losers. Mr Bernanke agrees with adherents of free markets that the prospect of success is a huge incentive for hard work and innovation. In the process, the individual as well as society benefit. Growth and progress result. This is pretty much the story of modern capitalism.

Failures too

But what about failures — both of individuals and markets? Their causes are several — loss of jobs because of layoffs in struggling and closing businesses or offshoring, lack of jobs matching the skills of the jobless and inability to learn or acquire the skills in demand. Unwillingness to work to earn a living, especially in the generous welfare States of Europe, is probably another reason.

Granting that every human being is entitled to a minimum in terms of food, shelter and clothing, the issue is what can or should the State do about it.

Since governments must necessarily finance such support out of taxes, will it damage the incentive-driven motivation of those creating wealth? Or, to put it differently, at what level do taxes become a disincentive to work?

Poverty offends human sensibilities. America is the richest country in the world, but 35 million of its people are below the minimum norms of existence. It seems easy enough for its Government to redistribute income just sufficiently to lift them out of poverty. However, Right-wing ideologues argue that this would destroy the basis and foundation of the hugely successful American-style capitalism. Mr Bernanke, therefore (rightly), concludes that these are matters of politics and political economy.

Even though global resources and wealth can largely rid us of poverty, the picture of extraordinary affluence coexisting with appalling squalor looks set to remain with us for some time to come.

More Stories on : People | Financial Scan

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page