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Doesn't economic growth cause income inequality?

A commenter asks: "Can liberals and conservatives politely agree that the only time an economy can grow is when 'income inequality' is widening?"

Sure. Absolutely. In a hypothetical case where everybody's income was growing 10 percent a year, that 10 percent would add up to a lot more dollars for the rich guy than the poor guy. But a chart depicting their incomes would show more or less the same rate of growth rising in concert with each other, even as the gaps between the lines grew wider. That might eventually produce a problem—but then again, it might not.

That's not really the situation in the United States, though. Here's a chart from the CBO's October report about income inequality.

The 21st through 80th percentiles—essentially, the middle class—barely see their income edge up between 1979 and 2007. The Top 1 Percent? With a brief break for the post-9/11 recession, their income curves sharply, sharply up, diverging from the other lines pretty dramatically. It's true the economy was generally growing during these periods. But it's also true the gains from that growth went almost entirely to the top of the distribution curve. To me, that suggests something is out of whack.


namefromthepast said…
Something is out of whack.

Are low wage earners content?
Do low wage earners feel held down or discouraged? If so by what?

The pie grew considerably in this time frame with fortunes made by many. But almost exclusively to those who took big risks won big. Are low wage earners not risk takers?

The chart does show that the lower income earners far better off than they were in '79.

Here is another blog with another way to look at the data.

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