The myth about income inequality
Posted: Mon Jun 02, 2014 7:48 am
Not your grandpa’s inequality
Robert J. Samuelson
The Washington Post
It’s not the 1920s. One common line in the debate over economic inequality is that the income gaps between the rich and everyone else have reverted to levels not seen since the ’20s or earlier. The conclusion is damning. It implies that we’ve lost nearly a century of social progress. But as economist Gary Burtless of the Brookings Institution shows, it’s “flatly untrue”: Inequality isn’t as great now as in the ’20s. This is history’s real lesson. Although the debate over inequality is legitimate and important, we shouldn’t distort it with misleading and overwrought rhetoric.
Start with a thumbnail portrait of the 1920s economy. It may be that, by some statistical indicators, inequality was great. But at the time, what most Americans experienced was sweet prosperity. Recessions, after the severe 1920-21 slump, were mild. Unemployment was low. New technologies spawned mass markets. From 1919 to 1929, car ownership rose from 6.8 million to 23.1 million. Annual radio sales jumped 1,300 percent from 1922 to 1929.
“The boom was built around the automobile, not only the manufacture of vehicles, but tires and other components, roads, gasoline stations, oil refineries, garages, and suburbs,” wrote the late economic historian Charles Kindleberger. “Electrical appliances — radios, refrigerators, vacuum cleaners — unknown at the start of the decade, were commonplace by 1929. Another innovation was in motion pictures, with talkies introduced in 1926. . . . While impressive, the boom was not frenzied, except perhaps in stock market speculation.”
The figures that have invited comparisons between now and then come from economists Thomas Piketty, author of the controversial book “Capital in the Twenty-First Century,” and Emmanuel Saez of the University of California at Berkeley. Using tax records, they have estimated that today the richest 1 percent of Americans receive roughly 20 percent of the nation’s pretax “market income,” mainly wages, salaries, dividends, interest and other business income. The richest 10 percent account for about 45 percent of “market income.” These shares mirror those of the 1920s.
From this and other studies, two tenets of conventional wisdom have emerged. First, today’s income distribution is as lopsided as it was in the 1920s. Second, most income gains in recent decades have gone to the people at the top; incomes for most middle-class and poor Americans have stagnated.
Not so, argues Burtless in a recent essay.
The trouble with “market income,” he notes, is that it ignores taxes, most fringe benefits (mainly employer-paid health insurance and pensions) and government transfers (Social Security, Medicare, food stamps and the like). All these affect inequality and living standards. So does the slowly shrinking size of U.S. households. Smaller households mean that a given amount of income is spread over fewer people. Per capita incomes rise. Two people with $75,000 are better off than four people with $75,000.
https://www.google.com/search?num=20&newwindow=1&hl=en&site=webhp&source=hp&q=Not+your+grandpa%E2%80%99s+inequality&oq=Not+your+grandpa%E2%80%99s+inequality&gs_l=hp.12...1969.1969.0.3941.2.2.0.0.0.0.190.289.1j1.2.0....0...1c.1.45.hp..2.0.0.0.IpZLdWAT-8k
Robert J. Samuelson
The Washington Post
It’s not the 1920s. One common line in the debate over economic inequality is that the income gaps between the rich and everyone else have reverted to levels not seen since the ’20s or earlier. The conclusion is damning. It implies that we’ve lost nearly a century of social progress. But as economist Gary Burtless of the Brookings Institution shows, it’s “flatly untrue”: Inequality isn’t as great now as in the ’20s. This is history’s real lesson. Although the debate over inequality is legitimate and important, we shouldn’t distort it with misleading and overwrought rhetoric.
Start with a thumbnail portrait of the 1920s economy. It may be that, by some statistical indicators, inequality was great. But at the time, what most Americans experienced was sweet prosperity. Recessions, after the severe 1920-21 slump, were mild. Unemployment was low. New technologies spawned mass markets. From 1919 to 1929, car ownership rose from 6.8 million to 23.1 million. Annual radio sales jumped 1,300 percent from 1922 to 1929.
“The boom was built around the automobile, not only the manufacture of vehicles, but tires and other components, roads, gasoline stations, oil refineries, garages, and suburbs,” wrote the late economic historian Charles Kindleberger. “Electrical appliances — radios, refrigerators, vacuum cleaners — unknown at the start of the decade, were commonplace by 1929. Another innovation was in motion pictures, with talkies introduced in 1926. . . . While impressive, the boom was not frenzied, except perhaps in stock market speculation.”
The figures that have invited comparisons between now and then come from economists Thomas Piketty, author of the controversial book “Capital in the Twenty-First Century,” and Emmanuel Saez of the University of California at Berkeley. Using tax records, they have estimated that today the richest 1 percent of Americans receive roughly 20 percent of the nation’s pretax “market income,” mainly wages, salaries, dividends, interest and other business income. The richest 10 percent account for about 45 percent of “market income.” These shares mirror those of the 1920s.
From this and other studies, two tenets of conventional wisdom have emerged. First, today’s income distribution is as lopsided as it was in the 1920s. Second, most income gains in recent decades have gone to the people at the top; incomes for most middle-class and poor Americans have stagnated.
Not so, argues Burtless in a recent essay.
The trouble with “market income,” he notes, is that it ignores taxes, most fringe benefits (mainly employer-paid health insurance and pensions) and government transfers (Social Security, Medicare, food stamps and the like). All these affect inequality and living standards. So does the slowly shrinking size of U.S. households. Smaller households mean that a given amount of income is spread over fewer people. Per capita incomes rise. Two people with $75,000 are better off than four people with $75,000.
https://www.google.com/search?num=20&newwindow=1&hl=en&site=webhp&source=hp&q=Not+your+grandpa%E2%80%99s+inequality&oq=Not+your+grandpa%E2%80%99s+inequality&gs_l=hp.12...1969.1969.0.3941.2.2.0.0.0.0.190.289.1j1.2.0....0...1c.1.45.hp..2.0.0.0.IpZLdWAT-8k
