Hitting an Income Wall of American Making (Video)

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Is there a a United States of Inequality?

We have now reviewed all possible causes of the Great Divergence—all, at least, that have thus far attracted most experts’ attention. What are their relative contributions? Here is a back-of-the-envelope calculation, an admittedly crude composite of my discussions with and reading of the various economists and political scientists cited thus far:

* Race and gender are responsible for none of it, and single parenthood is responsible for virtually none of it.
* Immigration is responsible for 5 percent.
* The imagined uniqueness of computers as a transformative technology is responsible for none of it.
* Tax policy is responsible for 5 percent.
* The decline of labor is responsible for 20 percent.
* Trade is responsible for 10 percent.
* Wall Street and corporate boards’ pampering of the Stinking Rich is responsible for 30 percent.
* Various failures in our education system are responsible for 30 percent.

Most of these factors reflect at least in part things the federal government did or failed to do. Immigration is regulated, at least in theory, by the federal government. Tax policy is determined by the federal government. The decline of labor is in large part the doing of the federal government. Trade levels are regulated by the federal government. Government rules concerning finance and executive compensation help determine the quantity of cash that the Stinking Rich take home. Education is affected by government at the local, state, and (increasingly) federal levels. In a broad sense, then, we all created the Great Divergence, because in a democracy, the government is us.

Will Wilkinson at The Economist claims Timothy Noah “…failed squarely to confront recent findings that challenge the premise of his exercise.”

Mr Noah does touch on the possibility that reports of rising inequality have been greatly exaggerated only to wave it off. Mr Noah cites the Cato Institute’s Alan Reynolds, but he might have checked in with Robert Gordon, an economist from Northwestern University. In a recent paper weaving together several strands of new research, Mr Gordon reports that improved use of income datasets “shows that there was no increase of inequality after 1993 in the bottom 99 percent of the population, and can be entirely explained by the behavior of income in the top 1 percent.” So we are left needing an explanation for the rise of “the stinking rich”, as Mr Noah calls them. But when it comes to rising inequality, that’s all there is to explain. Maybe the subject doesn’t merit a ten-part series after all.

Mr Gordon’s surprising conclusion is based upon recent studies showing that measured income inequality has been overstated due to inadequacies in traditional methods for constructing price indices and estimating real income.

This is also a rejoinder to Don Zeko’s argument here.

So, it’s just a numbers game? Noah takes issue with that charge, too. But, I think the number-crunching obscures Noah’s major premise: it’s the political economy that’s rotten, not just the economy. In a very positive sense, this debate doesn’t undermine the hope, that voters can devise a way to a better political economy. It just reinforces the fact, that there are many who put more faith in numbers or social equality, rather than people.

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