Samuelson on income inequality

Here is Robert Samuelson, on "Our Growing Inequality Problems."  Here's a bit:

[T]he annual numbers are less important in addressing the trickle-up question than long-term trends. Here are three that I think matter.

Living standards aren't stagnating. Over any realistic period -- say a decade -- they've risen for almost everyone. From 1992 to 2002, ownership of microwave ovens by the poorest tenth of Americans went from 39 percent to 77 percent, reports one Census Bureau study. VCRs went from 22 percent to 56 percent, computers from 4 percent to 21 percent. Households, when adjusted for their size, uniformly have higher incomes. From 1995 to 2005, the median income of four-person households rose 10.5 percent to $69,605; for three-person households, the increase was 9.6 percent to $58,917. These are real gains, though modest.

The rich are getting an ever-bigger piece of the economic pie. In 2005, the richest 5 percent of households (average pretax income: $281,155) had 22.2 percent of total income, reports the Census. In 1990, the share was 18.5 percent; in 1980, 16.5 percent. These figures exclude capital gains -- profits on stocks and other assets -- that have most benefited the richest 1 percent. With capital gains, their pretax income averaged about $1 million in 2003. That was about 20 times the average income of households in the middle of the economic distribution. In 1979, the ratio was 10 to 1.

The inflow of poor Hispanic immigrants, along with their (often) American-born children, has increased poverty. From 1995 to 2005, the rise in the number of Hispanics in poverty -- by 794,000 -- more than accounted for the entire increase in the U.S. poverty population. Poverty among blacks, though still high, declined. Among non-Hispanic whites, it held roughly steady. Health-insurance coverage has also been affected. Since 1995, Hispanics account for about 78 percent of the increase in the uninsured.

The bottom line: Productivity gains (improvements in efficiency) are going disproportionately to those at the top. We do not really understand why. Globalization, weaker unions, increasingly skilled jobs, the frozen minimum wage and the "winner-take-all society'' (CEOs, sports stars and movie celebrities getting big payouts) have all been cited as reasons. Costly employer-provided health insurance is also squeezing take-home pay in the middle.

What might government do? The Bush administration's enthusiasm for tax cuts for the rich could be tempered; to reduce the budget deficit, their taxes could be raised without dulling economic incentives. (For the record: I supported the first Bush tax cut and opposed his cuts on capital gains and dividends.) Equally, liberals and others who support lax immigration policies across our Southern border should understand that these policies deepen U.S. inequality.

But many familiar proposals would be mostly symbolic or hurtful. Raising the minimum wage might directly affect only about 5 percent of workers and might destroy some jobs. Protectionism might save a few well-paid jobs but would inflict higher prices on those least able to afford them. Still, no one should be happy with today's growing economic inequality. It threatens America's social compact, which depends on a shared sense of well-being.