More on Income Inequality

Yesterday I posted a link to David Brook's NYT column about the income inequality debate (here).  In his NYT column today, Princeton economist Paul Krugman responds to Brooks (without naming him) and others.  MOJ-readers who are not NYT subscribers won't be able to access the column, so here it is:

Whining Over Discontent

By PAUL KRUGMAN

We are, finally, having a national discussion about inequality, and right-wing commentators are in full panic mode. Statistics, most of them irrelevant or misleading, are flying; straw men are under furious attack. It’s all very confusing — deliberately so. So let me offer a few clarifying comments.

First, why are we suddenly talking so much about inequality? Not because a few economists decided to make inequality an issue. It’s the public — not progressive pundits — that has been telling pollsters the economy is “only fair” or “poor,” even though the overall growth rate is O.K. by historical standards.

Political analysts tried all sorts of explanations for popular discontent with the “Bush boom” — it’s the price of gasoline; no, people are in a bad mood because of Iraq — before finally acknowledging that most Americans think it’s a bad economy because for them, it is. The lion’s share of the benefits from recent economic growth has gone to a small, wealthy minority, while most Americans were worse off in 2005 than they were in 2000.

Some conservatives whine that people didn’t complain as much about rising inequality when Bill Clinton was president. But most people were happy with the state of the economy in the late 1990’s, even though the rich were getting much richer, because the middle class and the poor were also making substantial progress. Now the rich are getting richer, but most working Americans are losing ground.

Second, notice the amount of time that inequality’s apologists spend attacking a claim nobody is making: that there has been a clear long-term decline in middle-class living standards. Yes, real median family income has risen since the late 1970’s (with the most convincing gains taking place during the Clinton years). But the rise was very small — small enough that other considerations, like increasing economic insecurity, make it unclear whether families are better or worse off. And that’s the point: the United States as a whole has grown a lot richer over the past generation, but the typical American family hasn’t.

Third, notice the desperate effort to find some number, any number, to support claims that increasing inequality is just a matter of a rising payoff to education and skill. Conservative commentators tell us about wage gains for one-eyed bearded men with 2.5 years of college, or whatever — and conveniently forget to adjust for inflation. In fact, the data refute any suggestion that education is a guarantee of income gains: once you adjust for inflation, you find that the income of a typical household headed by a college graduate was lower in 2005 than in 2000.

More broadly, right-wing commentators would like you to believe that the economy’s winners are a large group, like college graduates or people with agreeable personalities. But the winners’ circle is actually very small. Even households at the 95th percentile — that is, households richer than 19 out of 20 Americans — have seen their real income rise less than 1 percent a year since the late 1970’s. But the income of the richest 1 percent has roughly doubled, and the income of the top 0.01 percent — people with incomes of more than $5 million in 2004 — has risen by a factor of 5.

Finally, while we can have an interesting discussion about questions like the role of unions in wage inequality, or the role of lax regulation in exploding C.E.O. pay, there is no question that the policies of the current majority party — a party that has held a much-needed increase in the minimum wage hostage to large tax cuts for giant estates — have relentlessly favored the interests of a tiny, wealthy minority against everyone else.

According to new estimates by Thomas Piketty and Emmanuel Saez, the leading experts on long-term trends in inequality, the effective federal tax rate on the richest 0.01 percent has fallen from about 60 percent in 1980 to about 34 percent today. Meanwhile, the U.S. government — unlike any other government in the advanced world — does nothing as more and more working families find themselves unable to obtain health insurance.

The good news is that these concerns are finally breaking through into our political discourse. I’m sure that the usual suspects will come up with further efforts to confuse the issue. I say, bring ’em on: we’ve got the arguments, and the facts, to win this debate.
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