Economy: Is income inequality overstated?
New research is poking holes in the conventional wisdom about income inequality, said The Economist. The idea that the richest 1 percent has “detached itself from everyone else” is a rallying cry for populists like Bernie Sanders and Elizabeth Warren. But some economists have “recrunched the numbers” and are calling out the research behind this “almost universally held” belief. They note, for example, that Emmanuel Saez and Thomas Piketty, the economists most responsible for the uproar over inequality, built their estimates by focusing on household income rather than individual income, even though “marriage rates have declined disproportionately among poorer Americans.” That means that the data is spread over more lower-income households, “even as the top incomes remain pooled.” Then there is the misreading of the effects of the Ronald Reagan–era 1986 tax reform, which “created strong incentives for firms to operate as ‘pass-through’ entities, where owners register profits as income on their tax returns,” thereby inflating some top-income shares after 1987. Accounting for flaws such as these, the income share of the top 1 percent actually “may have little changed since as long ago as 1960.”
This is not a simple rich-versus-poor issue, but politicians “aren’t interested in nuance,” said Jeff Jacoby in The Boston Globe. The new analysis proves that ideologues’ claim that “working-class Americans are being impoverished as plutocrats grow ever richer is just not plausible.” And if the rich have gotten richer, “that doesn’t mean the nonrich haven’t improved their condition, too,” said Jerry Muller in Foreign Affairs. Thanks to technology, our overall quality of life has changed in ways “that are literally immeasurable.” Communication today is “instantaneous and cheap, shopping is easier and better informed,” and “nobody ever gets lost.”
Enough, said Annie Lowrey in The Atlantic. We just finished a decade in which “the middle class shrank, longevity fell, and it became clear that a whole generation was falling behind.” And now we’re being told “the decade went so well,” thanks to free shipping and cheap stuff on Amazon? Look around you: Middle-income families are facing “a cost-of-living crisis,” thanks to “an egregious housing shortage that led to ballooning rents and long commutes, sky-high child-care prices, spiraling out-of-pocket health-care fees, and heavy educational debt loads.”
It’s reasonable to question whether inequality is up as much as Piketty and Saez might say, said Noah Smith in Bloomberg.com. But in the end, to whatever degree, “almost everyone agrees that wealth and income have become more concentrated at the top in recent decades.” That’s worth addressing “with moderate correctives rather than wholesale changes based on the most extreme and alarming set of numbers.” ■