Economics: George Bush, Egalitarian Hero?

All through the 1992 campaign, Bill Clinton beat up on George Bush for letting the rich get richer and the poor get poorer. The incumbent president who loved racing cigar boats near his Kennebunkport mansion and quail hunting with millionaires in Texas never could shake the political handicap of being born with a silver spoon in his mouth.

In retrospect, however, some liberals may have to put Bush in their pantheon of heroes. New and unpublished data compiled by Census Bureau economist Paul Ryscavage indicate that from 1989 to 1991, the last year for which figures are available, a longstanding trend toward greater income inequality took a surprising U-turn.

Income, for reasons explained recently in these pages (see "Inconspicuous Consumption," July), is not the best measure of true differences in people's well-being, but it certainly is the most convenient yardstick and the one most often whipped out for political debate. Yet critics who decried the widening gap between haves and have-nots in the 1980s have been remarkably silent about the apparent reversal of that trend in the Bush years.

Economists use various arcane formulas to measure the overall level of economic inequality. Each one weights income at different ends of the spectrum somewhat differently. But by practically every measure, the rising trend in income inequality—which began well before President Reagan and the "decade of greed"—reversed itself around 1989. (See graph.)

The middle class, whose death some pundits announced prematurely during the 1980s, made relative gains on other groups after 1989, the census data show. From 1989 to 1991, the middle 60 percent of American households expanded their share of money income from 49.8 percent to 50.2 percent. Their gain came at the expense of the most affluent, not the poor, who held their ground. The top 20 percent of households slumped from 45.6 percent to 45.2 percent of all income. The top 5 percent dropped even faster, from 18.6 percent to 17.9 percent.

Of course, three data points do not make a trend. The statistical significance of these shifts is doubtful. But when they point in a direction contrary to conventional wisdom, they are surely worth tracking and investigating. Randall Eberts, an economist at the Cleveland Fed who spent many months at Bush's Council of Economic Advisers reviewing the politically charged literature on income inequality, said dryly, "This 1991 data certainly would have been welcome in the Bush administration had we had it."

Some economic, social and demographic changes may help account for this at-least-temporary reversal of trends in inequality. The country's merchandise trade deficit fell nearly in half during these years, reducing the pressure on manufacturing workers who face competition in the form of imports produced by low-wage workers abroad. The precipitous drop in union membership during the 1980s stabilized in this period, albeit at a low level (16.1 percent of the workforce). The minimum wage jumped from $3.35 to $4.25, benefiting those at the bottom who kept their jobs. And these years also saw a slowdown in the rapid growth in the fraction of households headed by single parents, which aggravates the poverty problem, and those with both spouses working, which tend to be among the more affluent households.

Before the cheering begins, however, take a closer look at the data. The share of households at the bottom, earning from $1 to $24,999, increased from 27.9 percent to 29.2 percent. Those in the middle, earning up to $74,999, grew from 52.5 percent to 52.9 percent. The richer households, earning $75,000 or more, sank from 19.6 percent to 17.9 percent.

In other words, Americans became more equal as most of them became poorer in the recession.

This is actually an unexpected result. As Lynn Karoly, an economist for the Rand Corporation, observes, "We normally expect recessions to worsen income inequality" as blue-collar workers and those with lower incomes take the brunt of rising unemployment. But the 1990-91 recession hit white-collar and managerial workers much harder than past downturns. As executives lost their jobs and expensive homes plummeted in value, many who profited from the roaring '80s were dragged back down into the common heap.

That's not what most Americans bargained for, of course. President Bush's resounding defeat says exactly what voters thought about gaining more equality at the expense of economic opportunities.

At least three lessons emerge from these data. One is that no trend lasts forever, whether one is tracking inequality or oil prices. The second is that presidents have a lot less control over income distribution than critics ever admit; not even Bush's admirers (or his detractors, for that matter) really contend that he caused income shares to shift as they did. The third, and most important, lesson—well understood by every Eastern European—is that equality of misery is no substitute for a rising standard of living fostered by sound economic policies.

Contributing Editor Jonathan Marshall is economics editor of the San Francisco Chronicle.