Income Inequality is Not the Problem

Now Mitt Rom­ney is get­ting a lot of crit­i­cism for say­ing that income inequal­i­ty should be dis­cussed in “qui­et rooms” instead of in our pub­lic debates. Mitt deserves this crit­i­cism. It is absurd to say this does not belong in the pub­lic debate.

Appar­ent­ly, the Oba­ma re-elec­tion cam­paign is going to talk about income inequal­i­ty a lot. They may or may not be talk­ing about it correctly.

Here is a chart I stole from TPM:

The chart shows that the prob­lem is not income inequal­i­ty. The prob­lem is income growth inequal­i­ty. From 1947 to 1979, all income groups saw rough­ly equal per­cent­age growths in their incomes. This still results in an increase in income inequal­i­ty. If you are mak­ing one mil­lion dol­lars, a 2.5% increase is $25,000. If you are mak­ing $25,000, a 2.5% increase is only $625. But that’s OK.

Income inequal­i­ty, in and of itself, is not the prob­lem. In fact, it is an impor­tant fea­ture of our eco­nom­ic sys­tem. Incen­tive does mat­ter. Yes, many of the wealthy got that way by sheer luck or hap­pen­stance or acci­dent of birth. But I’m bet­ting (will­ing to believe…willing to delude myself…too lazy to research it) most of them achieved their wealth through hard work that con­tributed pos­i­tive­ly to the over­all econ­o­my and that most of them did so because of the incen­tive of wealth (though I think many just were hav­ing fun and the wealth was sim­ply bonus).

The prob­lem is income growth inequal­i­ty. There is going to be a lot of dis­con­tent when the wealth­i­est con­tin­ue to get even rich­er while the bulk of the pop­u­la­tion is tread­ing water (espe­cial­ly rel­a­tive to infla­tion) or get­ting poorer.

Note that the wealthy did bet­ter when every­one did better.

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