Inequality–the facts speak for themselves (don’t listen to the apologists on the right)
by Linda Beale
Inequality–the facts speak for themselves (don’t listen to the apologists on the right)
Inequality is real, and it is growing. It is debilitating for democratic institutions, as the Supreme Court’s Citizens United case and its aftermath start to impact the federal elections and as the money from the Koch brothers, Walton heirs and others swings the debate with purchased sound bites designed to deceive and enable the “enrich the rich” winner-take-all economy created by right obstructionism (itself enabled by the relaxation of the filibuster rule that created a 60 vote requirement in the Senate and allowed an intransigent minority to prevent legislative enactments supported by a clear majority).
Tax policy matters to income inequality. For background on this, read The 30-year growth of income inequality, A Civil American Debate (Apr. 10, 2011) (providing two graphs showing the top tax rate over time the income inequality (the percentage of total income going to the top 10%), which shows that income inequality levels inversely track the top tax rate–as the rate increases, income inequality decreases). When top tax rates are lowered too much, they do not do their work in maintaining respectable limitations on income inequality. With the slide in economic fairness under reaganomics (privitization, deregulation, tax cuts–especially for the wealthy, and militarization), the US has now “two economies, a wealthy ‘top’ economy doing very well, and a ‘bottom’ economy for roughly the bottom 99% facing income stagnation, with dwindling wealth and resources.” The growth in income inequality shows that gains at the top dwarf, by any measure, those for everybody else.
(Note: the most recent CBO report has slightly different numbers, but in the same range–close enough for our purposes.)
Even these solid income inequality facts are treated by the right as sound bites to be manipulated. An article in The New Republic debunks the American Enterprise Institute’s Jim Pethokoukis’s attempt to mask the facts. See Matt O’Brien, Is Income Inequality a ‘Myth’?, The New Republic (Oct. 31, 2011) (hat tip Mark Thoma) (discussing Jim Pethokoukis, 5 reasons why income inequality is a myth–and Occupy Wall Street is wrong, EnterpriseBlog, American Enterprise Institute (Oct. 18, 2011).
As O’Brien puts it, Pethokoukis’s article asserting that income inequality is a myth “suffers from the defect of having a tenuous relationship with reality.” Especially when, as Jared Bernstein noted, whatever the cuase for the increase in inequality (and there are several likely suspects), “the highest quality data that we have all show the same thing: significant increases in inequality.”
Petrhokoukis tries to suggest that the “move rightward toward a greater embrace of free-market capitalism” is proof that inequality hasn’t exploded in the reaganomics era because inequality should have led to “beleaguered workers unit[ing] and demand[ing] a vastly expanded safety net and sharply higher taxes on the rich.” He calls the “occupy wall street” protesters “radicals”–I guess because they are willing to sacrifice personal comfort to bring a non-violent message to the world through their signs and statements about the unfairness of today’s society with its gaping inequalities in income and wealth, resulting in an influential 1% that can arrange laws to suit them. He tries to argue that the very idea that “the rich are getting richer at the expense of the middle class and poor” is left-wing fantasy.
Of course, the dominance of the free-market mantra is actually proof of inequality, not evidence of some kind of notion of growing equality. The irrational adoption of Friedmania “free market” anti-factual policies has taken place due to the inordinate advantage enjoyed by the uberrich in promoting policies favorable to their own wealth and status in winner-take-all politics, enhanced by recent decisions granting state-created concessions (corporations) “free speech” rights to intervene in political campaigns in which corporations do not have a right to vote,
And the ability of the uberrich to buy policies that suit them means that legislation to re-empower unions as an antidote to plutarchy can’t get passed the “bought and paid for” legislatures. A majority of workers want to be able to unionize; a majority of Americans want higher taxes on the rich; a majority of Americans oppose the kinds of “bailout” policies for banks espoused by Bush where there was lots of taxpayer money and no accountability. The policies favored by the 99% aren’t enacted because of the power of money wielded by the 1%.
So what does Pethokoukis rely on to make his case? snips and snippets of the following:
- Pethokoukis claims that income gains have been shared “fairly equally” among workers and managers.” While it is true that one piece of research suggests that the gap between productivity and wages may not be as high as commonly thought. Pethokoukis stretches (and abuses) that research in making his claim. There’s clearly a gap, it may be debatable what it’s exact size is, but there’s no debating the story of runaway wealth at the top of the income distribution.
- Pethokoukis claims that after-inflation median incomes haven’t really stagnated in the last 30 years. He relies on a pair of Federal Reserve studies that use different numbers to jigger the after-inflation incomes produced by CBO. Voila–with these ‘adjustments’, the numbers don’t say what they appear to say. That’s not research–that’s fudging the numbers to get the desired result.
- Pethokoukis asserts that better accounting for positive transfers (taxes, benefits, pensions, healthcare) and consumption would show there is no real inequality gap. While it is true that after-tax inequality is smaller than pre-tax inequality (thank goodness), it is not true that inequality is eliminated or even that as much inequality is eliminated as used to be. Taxes and benefits are less redistributive downwards than they used to be. and tax cuts have been primarily redistributive upwards. Even taking all benefits into account, inequality is increasing rapidly. As for consumption, the wealthy don’t have to consume as much of their income as the poor (increases inequality), and the poor and middle class had to borrow in order to maintain consumption (shows increases in inequality).
- Pethokoukis claims that measuring inflation correctly shows inequality has been “roughly” unchanged. That’s ridiculous. Yeah, higher end goods show more inflation in price than the lower-end goods consumed by the growing class of poverty-striken Americans as Americans move from middle to lower middle and lower income groupings. The market can still function at the high end with price increases because the wealthy have more income to pay those inflated prices. The fact that the wealthy have more money to buy more inflated higher end goods doesn’t mean inequality hasn’t increased. Fewer middle class can shop regular goods and now have to shop for discounts. That’s more proof of inequality, not less (inequality still underlies the consumption patterns).
- Petrokoukis asserts that the fact that most of the population has the ability to take advantage of technological advances (long-distance telephone calss, air condition, dishwashers, iPods, digital cameras and color TVs) means that inequality isn’t growing because “America is better off today.” Of course, this is a straw man argument. First, the growing numbers of American affordable gadgets doesn’t reduce the shame, humiliation and degradation of poverty for the growing numbers of Americans living in poverty. Every family will have some of those gadgets, just like poorer families after the advent of trains could enjoy faster transportation (on the few occasions they used it) by train than queens and kings had indulged in in the age of chariots. Doesn’t mean that inequality isn’t rampant, or that those technological benefits make up in any way for the substantial detriments of a highly unequal society where the benchmark norm is whatever everybody has access to and the relative comparison is in terms of what the wealthy have that others don’t have. What the wealthy have these days are not so much technological advantages (though those also exist in signficant degree and kind different from what the middle and poor classes enjoy) but advantages in terms of education, opportunity, jobs, access to power, access to influence, health care, travel, leisure, personal space, food, entertainment, etc. The suggestion that everybody has been so benefited by the gadget culture so that the huge problem of inequality should be ignored shows that somebody has lived on the “right” side of the tracks for so long that they cannot even comprehend what it is like to be on the losing side of the winner-take-all economy.
The concluding paragraph of the New Republic report sums it up.
Since 1979, incomes for the broader middle class increased 40 percent, while the top one percent shot up a staggering 275 percent. Conservatives can pretend otherwise, but the numbers won’t.
November 02, 2011 in Inequality of wealth or income, Right Wing Rhetoric |
originally published at ataxingmatter
I’ll not trust anyone who tries to talk to me about changes in inequality of household income but isn’t willing to talk about changes in assortative mating as a cause of some/a lot of it.
Sorry, but I just won’t. If you want to present figures on inequality of individual incomes and not discuss it that’s fine. But the rise of the dual professional income household obviously and clearly has something to do with that chart.
Heck, we might even be able to spot the kink in it whre Maria married Arnie.
“It is debilitating for democratic institutions, as the Supreme Court’s Citizens United case and its aftermath start to impact the federal elections and as the money from the Koch brothers, Walton heirs and others swings the debate with purchased sound bites designed to deceive”
Well, I have benefited from it in an upcoming election. Living in California, my default position is to vote No on initatives and propositions, because even your friends will screw you. But the other day I received in the mail a multi-page glossy brochure arguing against a proposition. I am now inclined to vote Yes. 😉
I agree (except about the lack of trust). I think that the focus on households rather than individual incomes masks a lot. The move from single earner to double earner households is an important socio-economic fact.
Because household income does not take into account the rise of dual-income households, the lack of growth in household incomes–except at the top–over the past three-plus decades probably is worse than it looks. These households should be better off. First, real wages haven’t grown much if at all, although they should have grown with our gains in productivity and GDP/capita over the past three decades–for many individuals, real wages have fallen. Second, there are the added expenses of neither member of this household staying at home. Third, each member of this household probably experiences periods of unemployment more often, since we lowered the political priority of a low unemployment rate. All three of these factors probably are affecting couples earning $50,000/yr more than couples earning $500,000/yr.
I’m sorry, but as far as I can tell the increase in inequality is almost entirely explained by differences in household composition as people choose ‘spatial freedom’ (their own home or apartment) over ‘general wealth and security’ and as women have entered the workplace and become more comfortable running single households. (see attached image).
Even if your analysis were true, your graph simply shows that our laboring classes are internationally uncompetitive, and that we have experienced a great deal of immigration (20M+) from the third world accounting for as much as 10% of the population, but are unable to provide more productive jobs for them. (No wonder, since the number of ‘hard degrees’ has remained constant since about 1963 per Menand.) So the graph simply shows that our lower classes were temporarily privileged by virtue of the temporary accident of the 20th century postwar benefit from being the only survivor of the european civil war. (Which is why we disparage those of you who rely upon postwar data alone – it’s an exception not a rule.)
The sentiment felt by the population is not false. They feel their marketability is sinking is true, and the feeling that their status is sinking is true, – and while humans may note be able to sense quantitative trends with ease, they are easily able to sense even minute changes to their status ‘asset’.
There is a great segment of the population that has been raised under an artificial boom. And a great frustration felt by people who are from working classes who felt entitled to middle class lifestyles and people from middle classes who felt entitled to upper middle class lifestyles. But it’s not possible to maintain those lifestyles without being internationaly competitive. There just isn’t enough to distribute lying around.
If you try to solve inequality you will run up against the very real problem of tribalism – that humans are racially and culturally biased (demonstrated by the consistent limits to racial and cultural mixture by women). The tea party is effectively the beginning of white people acting like a minority and this trend will continue indefinitely. At some point anti-white protestant male ethos simply will cease to be utilitarian, and at that point all parties will compete for power and status and will abandon all pretense that the state is valueable or that traditions – which are the causal properties behind the law, be upheld.
As someone who has been in the upper 1% a number of times, and in the lower 90% most of the time, and as someone who has recorded >1M in taxable income repeatedly without actually having a single penny in my pocket, I also realize that a great deal of this supposed wealth and income is a fiction for the purpose of tax collection.
You just can’t have 1% of something’s share of Y go from about 9% to 24% and not produce greater inequality. I don’t care how the 99% something is organized household, family or individually wise. There is a smaller portion of Y for the 99% to divide up.
Curt:
1. Doesn’t the Gini Ratio relate to wealth rather than income? I believe we are discussing income.
2. How is our Labor uncompetitive? This is a broad statement and needs additional definition.
3. What segment of the cost of manufacturing is uncompetitive when compared internationally?
4. Has Productivity when compared to other nations slipped when considering Labor input?
5. Are the numbers of legal and illegal immigrants in the nation today any different historically?
You have made a rather general analysis of Linda’s article and I am nosey also as to your basis.
Min:
Short term benefit. In Michigan we are experiencing the buying of elections by the Koch Bros
Min:
Yes I agree Min. I would also point out the same as Dr. Elizabeth Warren points out, the two earner household income has not kept pace with the increase in expenses. Furthermore, male income has either been stagnant or decreased as women have joined the Civilian Laboe Force. The net effect has been no true increase in Household Income.
The gini index has a longer history than your graph shows, and I’m not sure that the graph is quite right although it looks close to the mark. It rose quite a bit 1981-1993. http://en.wikipedia.org/wiki/File:Gini_since_WWII.gif Before 1981, it hit it’s low point in 1968 before slowly rising back to 50s-levels during the 1970s. http://www.census.gov/prod/1/pop/p60-191.pdf Since 1993, slow growth led to reaching an all-time high in 2009 http://newsbatch.com/econ.htm Of course, the gini index is only one measure of inquality.
Regarding your point regarding the international competitiveness of wages, I’m going to talk with my local pub waitress tonight about this. I’m sure we’ll agree that this is a much bigger problem than, say, deunionization.
Regarding you claim that common-folk benefited from our post-war economic strength relative to others in the world–presumably while our wealthy did not–I guess that’s an assertion that ought to be supported. It’s not your only one, but it does lead me to wonder if you don’t appreciate the rise of US economic power 1776 to 1940 and subscribe to (and probably even prefer policies that would support) the “declinist” view of the country’s future. But I suppose I could be wrong.
Tim:
If Linda’s analysis is unsupported, then your generalities are even worse. Lets start here: Assortative Mating?”
Lets consider for a moment the CBO’s numeric breakdown of household income by quintile and also by smaller category. It would appear that only the top quintile had a growth in the share of income from 1979 to 2007 while everyone else decreased 42 to 52%. If we look at the upper 10% of the household, the growth is ~11%. Looking at 5% of the housholds, the growth is still 11%. At 1% of the household incomes, the growth is ~10%. Even in the top quintile, the growth is focused amongst the 1 percentile of the households with little trickling down to the top quintile and nothing to the lower levels. The vast majority od income equalization has come in the form of gov. transfers. http://www.cbo.gov/publications/collections/tax/2010/after-tax_income_shares.pdf
I would say Household Income and two earners has had little and no impact on income for the vast majority of households and only the top 1 to 2% of the houshold incomes have gained ground. Labor has lost ground.
run the gini coefficient often is applied to income, as well as to wealth, and to other things as a generic measure of unequal distribution. I’ve never seen it applied to compensation levels within a business, however. 🙂
There’s a huge difference in household composition between the quintiles/deciles.
At the top end it’s likely to be a two earner household. At the bottom end a one or no earner household. This is a huge change over the last 40-50 years as women (quite rightly) have entered the paid labour market.
Please note that I’m not trying to defend current levels of inequality, nor attack them. I’m not saying that it’s a good thing, a bad thing, caused by evil Republithugs or just one of those things.
What I am saying is that to present changes in household inequality without discussing the rise of the two professional income household, a product itself of later ages at marriage and assortative mating, is to be horribly misleading about the inequality.
Allow me to put up a possible model. No, I don’t believe it either, I’m just using it to illustrate the point I’m trying to make.
So, we have society A. Married women do not work. Households are therefore by definition single earner households. We have some level of household inequality as there is inequality among the incomes of those single earners. Lawyers make $100,00 a year, janitors $20,000 a year.
Fast forward 50 years and society A has turned into society B. All married women do work. Most people meet their marriage partner at work or possibly college. We see assortative mating: professionals marrying professionals, not-professionals marrying not professionals. Quite simply because people are meeting their possible intended where society is already sorted in this manner: college and work.
So we now have professional households making $200,000 a year and janitorial ones $40,000 a year. Inequality hasn’t risen.
Add one more point. Not all married women do work. For whatever reason. We will have some two professional income households on $200,000 a year and some single income janitorial households on $20,000 a year. Inequality in household income has increased not because wage income inequality has increased but solely and purely because marriage habits and female working habits have changed.
So here’s the bit that not even I believe: that this explains all of the change in inequality of household incomes. But it could, it’s possible in theiry that it does.
So, what we now need to do is work out *how much* of the increase in inequality of household incomes comes from this cause and how much from other factors. Because, if we want to try and reduce that inequality (for whatever reason) we need to know the causes so that we can try and correct those causes leading to the result we don’t want.
For example, if the increase in inequality is purely to do with changing marriage patterns then changing the inequality of income per job isn’t going to make much, if any, difference, is it?
Which is why when we discuss this subject we’ve got to be aware of the differences between household income, household composition and individual incomes over time.
The greatest inequality in the United States is in education. Public schools that serve the poor and minorities are far more likely to have math and science instructors without degrees in the field they are teaching. If your kids are not able to grow up to be engineers, entrepreneurs, accountants, etc, they will not be economically mobile.
If you want to decrease inequality, fix the educational systems of Newark, Newport News, and Oakland.
Just to be clear the idea behing raising the effective taxes on the rich (especiall through raising the rates on capital gains) ISN’T that this will somehow take sufficient money from the rich to raise everybody else up. Instead it is to disencentivise the granting of the outsize salaries and returns to them in the first place. What is it the conservatives always say “Tax something and you’ll get less of it.”
Just to be clear the idea behing raising the effective taxes on the rich (especiall through raising the rates on capital gains) ISN’T that this will somehow take sufficient money from the rich to raise everybody else up. Instead it is to disencentivise the granting of the outsize salaries and returns to them in the first place. What is it the conservatives always say “Tax something and you’ll get less of it.”
Linda again writes an excelent detailed analysis of an issue, but unfortunately it is followed by the most inane collection of comments I’ve ever had to plod through. I should have stopped at Worstall’s first idiotic protestation concerning family compostion, but no I had to continue reading a rediculus set of responses and come across Curt’s incredibly stupid reference to the same issue of family composition.
Curt, before we can sympathize with your having been, “someone who has recorded >1M in taxable income repeatedly without actually having a single penny in my pocket,” we’ll need a bit more explanation of how that came to be. And Tim, “the rise of the dual professional income household obviously and clearly has something to do with that chart,” to a far greater extent than the rise in dual household poverty, unempl;oyment, underemployment, etc. That’s the point Tim, lots of people at the top are making a heck of a lot of money and they need to pay taxes in proportion to that disproportionate share of the income. You’re right, combining large incomes makes even larger incomes. And combining little or no income doesn’t amount to much. Was that your point?