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.