Snow on Income Inequality
Greg Ip of the Wall Street Journal interviewed Treasury Secretary Snow last week about the subject of income inequality. From today’s article:
Treasury Chief Says Many Benefit From Expansion; Some Data Show Otherwise
WASHINGTON — Confronting criticism of the Bush administration’s economic record, Treasury Secretary John Snow said the widening gap between high-paid and low-paid Americans reflects a labor market efficiently rewarding more-productive people. But he insisted Americans are still broadly sharing in the economic expansion.
…Mr. Snow, a former CEO of CSX Corp. who holds a doctorate in economics, said the administration intends to publicly challenge perceptions that typical workers and families haven’t benefited much from the economic expansion.
Mr. Snow distributed a fact sheet that showed after-tax income per person, adjusted for inflation, rose 8.2% from January 2001, when George W. Bush took office as president, through January 2006. The sheet also showed that per-person net worth — total assets minus debt — rose 24%, unadjusted for inflation, from early 2001 to the end of 2005. “People have more money in their pocket” and in their bank accounts, he said.
…Other data suggest the typical family has seen little advance in income or net worth since Mr. Bush took office. Census Bureau data show median family income — half of families have income greater than the median, half have less — fell 3.6% from 2000 through 2004. Incomes for the poorest families fell even further. The only group to gain was the family at the 95th percentile — that is, richer than 95% of all families.
…As for net worth, a triennial Federal Reserve survey found that the net worth of the median family rose 1.5%, after inflation, from 2001 through 2004. That is far less than the 17% increase from 1995 to 1998 and the 10% increase from 1998 to 2001.
Greg Ip deserves his usual kudos for providing some good context for Snow’s comments. One additional thing that Ip could have mentioned regarding the rise in wealth is that it is not really true that Americans have “more money in their pockets and bank accounts”. The level of real per capita financial wealth of US households is still lower than it was in 1999 or 2000. All of the growth in household net worth since then is due to high house prices.
Interestingly, the administration seems to want to use the same approach to the problem of income inequality as they use with respect to Iraq: their goal is to change the American public’s perceptions of each issue, rather than to change what’s actually happening. I suspect that their new PR offensive on the issue of income inequality will probably meet with the same success as their efforts to convince people that things are going well in Iraq.