This is part three in a debate with liberal blogger Tim Mitchell on whether income inequality is a problem. In part one I laid out why income inequality isn’t a problem. In part two I refuted arguments made by Mr. Mitchell. In this post I show why Mr. Mitchell’s arguments continue to fall short. For part one from Mr. Mitchell, click here. For part two from him, click here. For part three from him, click here.
The fundamental point about income inequality remains: All income groups have made solid economic gains over the past few decades, and nothing in Mr. Mitchell’s arguments indicates otherwise.
In the opening paragraph, Mr. Mitchell states that questioning why income inequality matters if all income levels are gaining is “a poor way of framing the argument as it makes magnitude irrelevant. Indeed, following Mr. Weinberger’s logic, the top 1% could be taking home $0.99 of every dollar the entire country earns, essentially turning our society into an oligarchy, yet Mr. Weinberger would ask what the problem is.”
This statement encapsulates most fundamentally the difference in worldviews. The left sees inequality itself as a problem. This is because equality is one of the left’s highest values. The right values equality, too, but in a different sense. The left values equality in the sense of equal outcomes. The right values equality in the sense of equal opportunity. The conflict arises because equality of opportunity is incompatible with equality of outcome.
In response to Mr. Mitchell’s point, let’s assume for a moment that we’re in an economy where the top 1 percent takes home $0.99 of every dollar (We’re nowhere near that today), but everyone is still gaining. How could this be, some may ask?
If there are more dollars in the economy, everyone will gain. For example, if we had an economy that produced $100 trillion per year, instead of our current $14 trillion per year, there would be many more dollars from which everybody could take a slice. So, even though the slices of each dollar would be unequal, everyone would be taking more total slices, resulting in gains for all.
As a hypothetical, think about it like this: Would it be better to take 40 cents of every dollar in a $10 trillion economy, or to take 20 cents of every dollar in a $30 trillion economy? Alternately, assume in 1980 that the poor made $1 and the rich made $100. Assume that in 2010 the poor made $3 and the rich made $300. In this scenario, inequality has increased, but the poor have tripled their earnings. Would anyone argue that the poor aren’t any better off?
Furthermore, purchasing power would continue to increase – every dollar would buy more goods and services – as I highlighted in my original post.
So how one frames this debate comes down to one’s worldview: Is equality (of outcome) a goal in and of itself? If not, then why does it matter that some have gained more than others?
However, Mr. Mitchell takes issue with my argument that all have gained. Specifically, he offers a rebuttal my point that lower- and middle-income earners have gained:
Economists Ian Dew-Becker and Robert Gordon find that “over the entire period 1966-2001, as well as over 1997-2001, only the top 10 percent of the income distribution enjoyed a growth rate of real wage and salary income equal to or above the average rate of economy-wide productivity growth.
First, the study doesn’t deny that all income groups have gained. Rather, it argues that incomes apart from those in the top ten percent didn’t grow equal to or faster than average productivity growth. In other words, income gains weren’t equal because the top gained more than the bottom.
Arguing that incomes for 90 percent of Americans didn’t grow faster than average productivity growth is a far cry from arguing that, “for most households, income growth in the 1970s and 1980s was hardly noticeable and was actually negative for 60% of the population during the Bush years,” as Mr. Micthell argued in his original post.
Besides, when looking at income gains, isn’t the relevant question, who is productive? Isn’t it very possible that top earners – Steve Forbes, Steve Jobs, etc. – were most productive? Among other things, top earners do tend to work longer hours than the rest.
Even so, this study understates the gains of the lower- and middle-class. Like the Census Bureau, Picketty-Saez and CBO numbers Mr. Mitchell earlier supplied, this study also doesn’t take into account benefits and pension in addition to income (total compensation).
Nor does it adjust for number of people per household. Mr. Mitchell questions whether adjusting for this is really important, arguing that in doing so “we would be attributing growing incomes to the fact that American families chose to have fewer children. But why should the choice to have a smaller family be considered a form of income growth?”
The point, though, is that the data he provides measure households, not individuals. High-income households tend to be married couples with multiple members of the family earning money, while low-income households tend to be single-parent households with fewer people earning. Assuming they’re all making similar salaries, would it be appropriate to count people in households which have three income earners as rich, while counting people in households with one income earner as middle-class?
Thus, absent from Mr. Mitchell’s response is a refutation to the central fact that when total compensation is taken into account and household adjustments are made, the statistics are clear that the middle-class has made a 33 percent gain, or $18,000, since 1979, and this has come with little personal debt.
And as I added, these statistics also don’t account for equalizing factors such as taxation, which is much heavier on the rich, nor transfer payments, which favor lower- and middle-income earners. Excluding these two factors make economic inequality appear much more unequal, and miss a large chunk of lower- and middle-income compensation.
So not only have lower- and middle-income earners made significant gains relative to 1979, but wealth concentration has stayed pretty flat, indicating that when “all financial and nonfinancial assets, including bank accounts, investments, houses, cars and debt,” are taken into account, there is more equality. This supports the evidence that consumption inequality is not as large as income inequality.
Mr. Mitchell argues that consumption inequality is not really smaller. He states:
…we know that prices overall are increasing, but if computers and cell phones are getting cheaper, something else must be driving the increase in prices. Health care is an obvious answer; the cost of college tuition is another.
But the important point is that while most things that were once available only to the rich are now cheaper and available to the middle- and lower-class (TVs, cell phones, cars, computers, air travel, vacations, cabins, iPods, among others), since 1979, more people than ever before from the middle- and lower-class also enjoy college education, despite its rising costs. Similarly, compared to 1979, more people from the middle-class today are insured and receive health benefits from their employers (part of total compensation). In fact, health benefits have been a huge part of compensation over the past few decades.
And lastly, progressive Stephen Rose is right when he argues that the “entire ‘decline’ of the middle class came from people moving up the income ladder.” Mr. Mitchell responded that “by focusing on income levels rather than growth rates, Rose totally misses the boat: that’s only about a 1% annual income growth rate…”
In other words, according to Mr. Mitchell, gains weren’t equal enough: Some were gaining much more than others.
So we arrive back to the point I raised in the introduction of this post: If all income groups have gained since 1979 – some groups by 33 percent, others by 333 percent – why does inequality matter? The answer may well depend on whether one more strongly values equality of outcome or equality of opportunity. But the statistics are clear: No matter how one slices it, all income groups have gained over the past few decades.