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.

The Class War

What? Amer­i­ca is a class­less soci­ety? Ide­al­ly, yes. In real­i­ty, no.

Sure, in Amer­i­ca any­one is able to climb the social class lad­der through hard work, ini­tia­tive, etc., etc. But this is not as true as some would have you believe.

Gen­er­al­ly, the rich get rich­er and the poor get poor­er. The lat­est reces­sion is telling. Lots of bailouts for the wealthy who are today again receiv­ing their cus­tom­ary fat bonus checks. How are you doing?

The Repub­li­cans take the House of Rep­re­sen­ta­tives and, under the guise of bal­anc­ing the bud­get, attempt to slash spend­ing that ben­e­fits the low­er and mid­dle income pop­u­la­tion. Spend­ing stim­u­lus bills are now ver­boten (though tax cuts, espe­cial­ly for the wealthy, are always wel­come), so the states can­not receive any extra sup­port to bal­ance their bud­gets from the feds.

The Repub­li­cans in the states use the (sup­posed) state bud­get crises to destroy pub­lic employ­ee unions. Despite the fact that

over the last fif­teen years the pay of pub­lic-sec­tor work­ers, includ­ing teach­ers, has dropped rel­a­tive to pri­vate-sec­tor employ­ees with the same lev­el of edu­ca­tion — even includ­ing health and retire­ment benefits.

I do not have the num­bers, but I would bet that the pri­vate sec­tor employ­ees have not exact­ly done all that great over the past fif­teen years. Based on the Win­ners Take All graphs (scroll down just a bit) at Moth­er Jones, it does­n’t look too good.

James Taran­to opines at The Wall Street Journal:

Actu­al mid­dle-class Amer­i­cans don’t feel put upon by “cor­po­rate pow­er” or “the busi­ness com­mu­ni­ty,” because by and large, they own the means of pro­duc­tion: They run busi­ness­es; they hold shares in cor­po­ra­tions through their invest­ment and retire­ment accounts.

I would love to see the polling on that.

I actu­al­ly qual­i­fy as some­one who holds shares in cor­po­ra­tions through a retire­ment account. Odd­ly, I do find myself put upon by cor­po­rate pow­er. My expe­ri­ence is that big busi­ness will screw me over every chance it gets.

But I digress. Mem­ber­ship in unions has dropped a lot over the past few decades. In 1977 26.9% of non-agri­cul­tur­al work­ers were cov­ered by a col­lec­tive bar­gain­ing agree­ment. In 2009, this num­ber is 13.7%.

And over the past few decades, inequal­i­ty has increased. Note that the share of income after tax­es has declined for the bot­tom 80%.

Yes, the rich have done very well for them­selves over the past few decades. But it is not enough it would seem. Class war has been declared by the 20% against the 80%. It is a sad fact that many of the 80% are sup­port­ing the 20% in the war.