The case that income inequality is currently harming the US economy is not a strong one. A recent blockbuster study from the Equality of Opportunity Project found “little or no correlation” between the share of income going to the 1% and upward mobility. And new data analyzed by e21 has seriously undermined the White House’s “Great Gatsby Curve,” which supposedly suggested that diminished mobility was the logical consequence of higher income inequality: “When we plot the inequality levels of the U.S., Canada, and Sweden against their relative mobility levels, the Great Gatsby Curve indicates that higher inequality corresponds with less immobility, not more.” Finally, CBO data find that real incomes for the broad middle-class were 40% higher in 2010 than in 1979, hardly stagnant.
Lots of inconvenient facts for die-hard, inequality worriers. Of course the impact of upper-tail income inequality could change in the future. A lack of GDP growth and good jobs would seem to be the bigger problem right now, though. To focus on inequality is to distract from improving mobility and raising living standards.
So with the economic case against income inequality in ill health, some progressives are switching to a moralistic, emotional one. Here is New York Times columnist Paul Krugman:
It’s all very well to talk in the abstract about the dignity of work, but to suggest that workers can have equal dignity despite huge inequality in pay is just silly. In 2012, the top 40 hedge fund managers and traders were paid a combined $16.7 billion, equivalent to the wages of 400,000 ordinary workers. Given that kind of disparity, can anyone really believe in the equal dignity of work?
How exactly would we determine “equal dignity of work?” Equal pay for all? Equal incomes for all? Some might suggest that, unfortunately. Scott Hodge of the Tax Foundation calculates that to give household in America the current average income of $82,000 would require taking 74% of the top 20%’s income versus 21% today and redistributing it. I would guess such an income grab would radically change incentives for work and risk taking for that group. Anyway, here is Krugman’s solution:
So what would give working Americans more dignity in their lives, despite huge income disparities? How about assuring them that the essentials — health care, opportunity for their children, a minimal income — will be there even if their boss fires them or their jobs are shipped overseas?
OK, he’s losing me here. I thought it was the pre-tax, pre-transfer disparity that was immoral? Is this column still about inequality? Now Krugman seems to be saying, what, that a stronger safety net and better schools will restore dignity to the middle-class despite that disparity? All is revealed in this next bit:
Conversely, the drive by conservatives to dismantle much of the social safety net, to replace it with minimal programs and private charity, is, in effect, an effort to strip away the dignity of lower-income workers.
Oh, I get it. It’s one of those columns by Krugman, the red-meat kind that assumes everyone to his right wants to return to the pre-New Deal, pre-Fed, pre-income tax status quo. This is the kind of column meant to close minds, rather than open them. Some on right do fit Krugman’s characterization — just as some on the left might want to radically equalize incomes — but hardly all or even most. Here is my boss, Arthur Brooks:
One of the things, in my view, that we get wrong in the free enterprise movement is this war against the social safety net, which is just insane. The government social safety net for the truly indigent is one of the greatest achievements of our society. And we somehow want to zero out food stamps or something, it’s nuts to want to be doing something like that. We have to declare peace on the safety net.
The reform conservative movement seeks to strengthen the middle class, reform the safety net, and increase the rewards for low-income work. At the same, it rejects crony capitalist policies that enable vast wealth through government favor rather than innovation. Lots of interesting economic policy ideas are being generated and discussed: wage subsidies, expanded child tax credit, copyright and patent reform, a college completion agenda — just to name a few. Seems like they would make for far more interesting analysis by a Nobel laureate than something meant to confirm the existing biases of readers.