Is inequality really worsening?

Rising inequality is a fixture of left-wing polemics. Sanders harps on it. Lamenting a widening gap between the richest and the rest. A lot of numbers are invoked — the top X%’s wealth share has grown from Y% to Z% over such-and-such a time span. As if such numbers are simple facts.

They never are. A recent in-depth lead article in The Economist explored all the assumptions and difficulties behind any such calculations. It casts much doubt on the “rising inequality” narrative, at least within rich countries.

Globally, inequality has indisputably been falling. That’s because economic growth rates in developing countries have greatly exceeded those in mature economies, narrowing that gap.

We keep hearing about “exporting jobs.” When we then import the goods produced from, say, China, cheaper than we can make them ourselves, that savings actually makes Americans collectively better off, even while some Americans who lose jobs are worse off. That job shift is a wealth transfer from richer nations to poorer ones — again, decreasing global inequality. Indeed, the numbers of people in extreme poverty have plummeted. Which progressives should welcome, no?

The Economist addresses four pillars of the “rising inequality” narrative: top earners snare a greater share of income; middle class incomes have stagnated; this is because labor’s share of rising productivity has fallen relative to capital’s; thus wealth has been concentrating at the top.

In each respect, you get very different results depending on how the numbers are parsed. It’s complicated: you must take into account not just raw income data but also taxes and government transfer programs, and fringe benefits, especially increasingly valuable medical benefits. And demographic factors — “household income” is often the focus, yet households grow smaller as marriage rates fall, with more single parenthood, thus income is divided among more “households.”

Results also greatly depend on how you adjust for past inflation. It’s widely acknowledged that government inflation numbers are too high, failing to properly account for, among other things, technological changes. For example, they actually disregard the valuable benefits from smartphones. When you chart pay levels over time using overstated inflation estimates, you can show pay falling even while the quality of life people get from it is rising.

The Economist also notes that while “returns to capital” (that is, to owners of corporate shares) have grown, a lot of that actually flows to the middle class because an increasing chunk of the stock market is owned by pension funds. Furthermore, as far as wealth is concerned, the effect of shareholding is actually eclipsed by the long-term rise in the value of home ownership, again mostly benefiting the middle class. This is another (usually overlooked) counter to the idea of rising wealth concentration at the top.

But on the other hand — showing how complex all this is — at the bottom of the income scale, educational inequality looms large. Kids born poor tend to stay poor because of lousy education. That’s largely because of where they live. Rising home values tend to lock them out of better locales. Moreover, higher house prices go with areas where good jobs concentrate. Everything is interconnected.

Meantime, when we say the top 10% or 1% of Americans’ wealth share has risen, we imagine we’re talking about the same people in Year X as in Year Y. Life doesn’t work that way. Those in the top groups in 2020 often differ from those who comprised those groups in 1990 or 2000. At the beginning, your income and wealth may be low because you’re a student or just starting out. The picture changes greatly in your peak earning years. So people move in and out among income groups at different stages of life. Students will of course appear very unequal vis-a-vis middle agers. Differences like that are a huge part of “inequality.”

So where does all this leave us? “Inequality” is almost surely not growing in the way many scream about. That doesn’t mean all is fine. A dynamic complex economy — and society— like ours will always have inequities of one sort or another, and we must constantly seek to diagnose and combat them.

I’ve mentioned one big example, educational inequity. Another factor is our allowing some businesses to be protected against competition. But we have to be clear on what the problems really are, and what they are not.

One thing that’s not a problem is people being rich. They’re not the cause of others being poor. Our focus should be not bashing the rich but lifting up the poor, giving more people opportunities to earn enough to live decently. And worldwide, thanks to globalization, capitalism, and free trade, that’s been happening a lot. A real social justice revolution.

6 Responses to “Is inequality really worsening?”

  1. Doug Weston-Kolarik Says:

    I it amazing what you people will do to attract readers.

    Your arguements fail miserably. Your numbers are false in relation to the reality of inequality in this pathetic country. Essentially, you manipulate the truth toward your selfish needs.

    You think mainstream Americans are stupid and that assumption will eventually be your end. Thank God.

    On Fri, Feb 28, 2020, 7:24 AM The Rational Optimist wrote:

    > rationaloptimist posted: “Rising inequality is a fixture of left-wing > polemics. Sanders harps on it. Lamenting a widening gap between the richest > and the rest. A lot of numbers are invoked — the top X%’s wealth share has > grown from Y% to Z% over such-and-such a time span. As if su” >

  2. Chips Says:

    “Lifting up the poor” will require resources. You are a deficit scold. Assuming this constraint, lifting up the American poor will require resources that only the rich have. This means higher tax rates for the wealthy. If we add to that your desire to see the deficit reduced, it would require even higher taxes on those with wealth.

    Is this the rich-bashing you lament? Or, is it mean tweets?

    Now, let’s talk not about the poor but the American middle class. As this recent report by the conservative Manhattan Institute shows, even the average find it nearly impossible to pay for the basics.

    https://www.washingtonpost.com/business/2020/02/24/this-chart-is-best-explanation-middle-class-finances-you-will-ever-see/

    So, regardless of the composition of wealth distribution in the U.S. and in spite of the gains enjoyed by the impoverished globally, some contribution by the wealthy will be required here in the interests of lifting the lot of the poor. The wealthy benefit uniquely from the society we all constructed and it is only fair that some portion of the benefits they have enjoyed be used to contribute and support that society.

  3. Lee Says:

    Yes, everyone agrees that the poorest today are doing better than the poorest 50 or 100 or 200 or 300 years ago. The big question is the extent to which we can and should do even better. I think it is past time for us to join most of the civilized world in providing universal health coverage.

    I think people like Andrew Yang are absolutely right in pointing out that technology is shifting wealth and that those who don’t control technology will too easily find themselves trapped in permanent poverty. A universal basic income (aka negative income tax) will go a long way towards ensuring that we each have enough for basic food, housing, and education, so that each of us has a good chance of being the next Steve Jobs.

    If you can find a way to pay for that without substantially increasing the tax burden on multi-millionaires and billionaires, I would very gladly support it. Barring that, I think we need to cancel Trump’s tax cut for the rich (which, in no small part, is implemented through a tax cut for corporations) and replace it with a negative income tax (or universal basic income) that instead benefits the poor.

    There are right-wing politicians and members of the press who cast such a shift of taxation as “rich bashing” but pay no attention to them; it’s just their approach to avoid talking about the merits of such a change.

  4. rationaloptimist Says:

    I opposed Trump’s tax cuts, and have advocated higher taxes on the better-off. What I mean by rich-bashing is when people like Bernie say billionaires should not exist, that their being rich is evil.

  5. Lee Says:

    My quick web search does not show that Sanders ever said that billionaires are evil. Well, there is an article about how right-wingers are making up quotes that include that, but ….

    The proposals that he and other progressives have do not legislate billionaires out of existence; they just tax them.

  6. Steve Strahan Says:

    I don’t need statistics to tell me that something is wrong in the United States. I’ve traveled a lot over the past several years and have eyes which show me the economic destruction in places like eastern Ohio, West Virginia, west Texas, Oregon, Washington and many places in between.

    I volunteer to serve the local homeless and those at risk for insufficient food. Our single location serves over 5,000 people per month in a single sector of a city with about 175,000 inhabitants. Given there are numerous other groups providing similar services it isn’t unreasonable to infer that there are 25,000 people (~14%) in need of these services here.

    As was once said, one doesn’t need a weatherman to tell which way the wind blows. All that said, any effective response to this issue needs clear-eyed and objective. It’s not going to be resolved by propaganda or wishful thinking.

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