Inequality

"We imagine that punishing the rich will miraculously uplift the poor," Says Washington Post Columnist

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class warfare
Mendenhall

Evidently the Democrats hope that flogging the class warfare, uh, the growing inequality meme will enable them to cling to their control of the U.S. Senate and put them in charge of the House of Representatives. Over at the Washington Post columnist Robert Samuelson takes on the rhetorical misuse of inequality and makes the entirely sensible point that…

…Economic inequality is usually a consequence of our problems and not a cause.

For starters, the poor are not poor because the rich are rich. The two conditions are generally unrelated. Mostly, the rich got rich by running profitable small businesses (car dealerships, builders), creating big enterprises (Google, Microsoft), being at the top of lucrative occupations (bankers, lawyers, doctors, actors, athletes), managing major companies or inheriting fortunes. By contrast, the very poor often face circumstances that make their lives desperate.

What kind of circumstances? Not graduating from high school and having kids before getting married.

A few weeks back, citing recent Congressional Budget Office data I explained "Why President Obama Is Wrong on Inequality":

Are the rich getting richer? Yes. Are the poor getting poorer? No. In fact, over the past 35 years most Americans got richer. Has income inequality increased in the United States? Yes….

…from 1979 and 2010, the last year for which data are available, the bottom fifth's after-tax income in constant dollars rose by 49 percent. The incomes of households in the second lowest, middle, and fourth quintiles increased by 37 percent, 36 percent, and 45 percent, respectively. The poor and the middle class got richer.

Burtless then divides the households situated in the top fifth of incomes into four groups: those in 90th percentile and below, those in the 91st through 95th percentiles, those in the 96th through 99th percentiles, and the top 1 percent. From 1979 to 2010, incomes for those fortunate households increased by 54 percent, 67 percent, 79 percent, and 202 percent, respectively. The rich got richer too, and they got richer faster.

Samuelson agrees. Parsing the CBO data a bit differently, Samuelson reports:

True, the top 1 percent outdid everyone. From 1980 to 2010, their inflation-adjusted pretax incomes grew a spectacular 190 percent, almost a tripling. But for the poorest fifth of Americans, pretax incomes for these years rose 44 percent. Gains were 31 percent for the second poorest, 29 percent for the middle fifth, 38 percent for the next fifth and 83 percent for the richest fifth, including the top 1 percent. Because our system redistributes income from top to bottom, after-tax gains were larger: 53?percent for the poorest fifth; 41 percent for the second; 41 percent for the middle-fifth; 49 percent for the fourth; and 90 percent for richest.

Samuelson concludes:

Americans in the top 1 percent are convenient scapegoats. They don't naturally command much sympathy, and their rewards sometimes seem outsized or outlandish. When most people are getting ahead, they don't worry much about this economic inequality. When progress stalls, they do. There's a backlash and a tendency to see less economic inequality as a solution to all manner of problems. We create simplistic narratives and imagine that punishing the rich will miraculously uplift the poor. This vents popular resentments, even as it encourages self-deception.

For more background see Reason.com editor Nick Gillespie's excellent column, "Why Obama Can't Solve Inequality" over at The Daily Beast.