Monday, February 7, 2011

The problem of income inequality: Day One

When I pledged to make 2011 the year of my reading about income inequality and the welfare state, I thought I’d be able to contain myself to, oh, a dozen or so really smart books—representing a range of viewpoints—to give me a solid grounding. And I thought I’d start with Paul Krugman’s now slightly dated 2007 book, “The Conscience of a Liberal.” What I didn’t realize is that once I started thinking about these related topics, I’d start seeing good reading on them everywhere.  There’s been lots of magazine articles and blog posts to take note of just in the first month of this project. So this month’s installment will also draw on some recent magazine articles — “The United States of Inequality” by Timothy Noah at Slate, “The Rise of the New Global Elite” by Chrystia Freeland at The Atlantic, and “Business Is Booming,” by Harold Meyerson at The American Prospect—as well as Tyler Cowen’s new mini e-book, “The Great Stagnation.” (Other sources will be cited, as needed.) Instead of reviewing Krugman, he is the jumping-off point for the project.

 My sources generally come from the left side of the spectrum. Obviously I do to. But I’m going to try not to put my thumbs on the scale, because my aim is to understand the issues and what solutions, if any, are best suited to resolving them. Which is why, in coming months, you’ll see texts from the right of center, as well.

 That said, I had a series of questions in my mind when I started reading, and I’m going to take them one-by-one each day this week.

* Is there an issue of growing income inequality in the United States?

Yes. Next question?

OK, let’s add some depth. Here’s what it boils down to: Since 1980, the United States economy has grown quite a bit — even when taking the recent Great Recession into account. But those gains have gone almost entirely to the country’s ultra-elite: 80 percent of the gains went to the richest 1 percent of Americans. Wages for everybody else, on the other hand, have more or less stagnated. Case closed.

Here is one of a million charts that make the case:

“In the 1980s, however, it gradually become clear that the evolution of America into a middle-class, politically middle-of-the-road nation wasn’t the end of the story,” Krugman writes. “A small number of people were pulling far ahead, while most Americans saw little or no economic progress …. those trends continue to this day: Income inequality is as high as it was in the 1920s, and political polarization is as high as it has ever been.”

Let’s skip the political polarization, for now, and focus on the income. National Review’s Michael Barone asserts that the real picture looks a little different than Krugman’s case. “One reason is that economic statistics can miss important things that affect people’s lives,” he writes. “After adjusting for inflation, wages may not have risen much since 1973, but that’s partly because the tax code encourages increased compensation in the form of benefits, including health insurance.” Add in the fact that yesterday’s luxury goods—like calculators and Trader Joe’s-quality foods—are more accessible and cheaper than ever, he says, and it’s no wonder that Americans aren’t seething with class envy.

Even lefty blogger Kevin Drum seems to endorse this idea, to some extent, with a recent blog post suggesting that advances in medicine and technology at the very least make the question of living in 1973 or 2011 a close call. Cowen, on the other hand, suggests that the advances in technology have mostly served to make the rest of us more comfortable, entertained and educated while our income levels stagnate and crumble. It’s not that there aren’t more of us feeling relatively poor—it’s just that we can be happier in our poorness than the people of a couple of generations ago. And it’s true, to some extent: 2010 was the worst earning year of my adult life, and yet I had streaming movies from Netflix, books and newspapers on the iPad, and a creative outlet through this blog. All very cheap, really, after you account for the hardware costs. So there’s that.

Then again, cheap Netflix doesn’t put clothes on my son’s back or food in his belly. And it certainly won’t permit me to save money for what I hope is a brilliant college career to commence some 16 years from now. Tuitions are growing faster than inflation while incomes have stagnated. Globalization has made clothes cheaper; food prices are relatively cheap thanks to government subsidies, but you can argue that’s led to an explosion of cheap processed foods—consumed more by the middle and lower classes—that has actually lead to a loss of health and quality of life; if employers have picked up more of healthcare costs than they did in 1973, that might be a wash for lots of individuals because (thanks in part to technology) healthcare costs so much that families have seen their bills rise anyway. In other words, life outside the simple measurement of income is better in some ways, and worse in some ways. It’s probably a wash, overall.

There’s also this: I don’t live in 1973. None of us do. So even if what is “poor” in 2011 would’ve been the envy of a late 19th-century oil baron, it doesn’t really matter that much.

So, yes, there is growing income inequality. But that’s not really the end of the discussion. The next question is: Does it matter? That’s the question I’ll try to tackle tomorrow.



KhabaLox said...

The rich and the rest
What to do (and not do) about inequality

In case you didn't see this, The Economist has a recent piece on income inequality which could supplement your right side of the spectrum reading on the subject.

Also from TE:
Unbottled Gini

How does inequality matter?
A response to the above

The links between rising inequality, the Wall Street boom and the subprime fiasco

I'm sure you can find a lot of interesting and insightful reading if you browse their site.

namefromthepast said...

I wonder how many times John Maynard Keynes has to be proven wrong before his disciples are no longer cited as credible sources? The faith-yes faith-the left puts in the theory is boundless.

ANYway. This inequality not only has a home in the US but around the world.

I suspect the information that I'm curious about isn't available but here are some questions I have.

What percentage of the total wealth or income in the US is held by the bottom 50% of the population? How does that compare with the Soviet Union, Cuba, China?

My gut tells me the disparity in the US is less than other countries.

Of the people in the top third of income today, what percentage of them came from homes that were in the bottom third? Top third to bottom third? What are the percentages from the countries listed above?

Is income inequality a problem of the system or a product of human nature?

I know you are just getting started and it is a challenging and complex subject.

I wish you well.

KhabaLox said...

"How does that compare with the Soviet Union, Cuba, China? "
How is that relevant? If their Gini is .7 and ours is .5, does that make .5 "good"?

And by the way, China is about .415 and the US about .45, according to the CIA.

"Of the people in the top third of income today, what percentage of them came from homes that were in the bottom third? "

Check out this report on intergenerational income mobility. When I first read it, I was surprised by how mobile income was. Wealth is, of course, much less mobile.

7.4% of children whose parents are in the lowest income quintile reach the highest quintile, and another 12.5% reach the second quintile. However, a full 33.5% remain in the lowest. Meanwhile, 37.8% of children whose parents were in the top quintile remain in the top quintile.

"Is income inequality a problem of the system or a product of human nature?"
So you admit it's a problem/ ;) Just kidding. I think it's a combination of both. Deregulated capitalism seems to produce more income inequality, going by the Gini's of various countries. There are 21 countries under 30 on that list from Wikipedia, and they are all European (save Khazakstan).