Inequality 1.

In December 2013 President Obama called income inequality “the defining issue of our time.” He’s agin it. Soon afterward Thomas Piketty, Capital in the Twenty-First Century (2014) garnered many accolades and some readers. This added academic fuel to the populist fires.

Already by Summer 2014, however, there were reasons to doubt the substance behind the passions aroused by the issue. Eduardo Porter raised two issues.[1] First, the problem of income inequality isn’t that important compared to other problems facing the United States. Social scientists have been trying to demonstrate that the rise of the “One Percent” has harmed society. They haven’t been able to prove it. Second, it may not be a problem with a practical solution.

What we think of as “globalization” (technology + open world markets) has polarized people toward the extremes of income: high-earners and low earners, but fewer and fewer people in between. The relationship between one’s job and technology is key. Someone who has a job that is not easily replaced by a machine, but which requires the manipulation of technology, is in a good place. In contrast, anyone with a job that can—or one day could be—done by a machine is in a bad place.[2] Generally, higher incomes are flowing toward people with higher education.[3] That’s true both within the United States and within the global economy. From this perspective, the “defining issue” is how to promote enough economic growth to insure a rising standard of living for the low-earners. Gregory Mankiw, a Harvard economist who served as an economic advisor to both George W. Bush and Mitt Romney, argues that raising the amount of education of American workers offers the best path to higher incomes.

Seen dispassionately, the best solution would be to help the people at the bottom of the income ladder without preventing the people at the top of the income ladder from doing the stuff that generates income for all. Allowing the gains from growth to flow only to those at the top of the income pyramid will not head off political trouble.  More could be done to take the rough edges off the state in which we find ourselves. For one thing, cuts in public aid to state colleges and universities has shifted a heavier burden onto parents and students seeking the higher education that is supposed to allow them to climb out of the pit. Restoring that aid would be a valuable step. Increasing the Earned Income Tax credit is another way. Developing policies to make the urban cores of the dynamic cities affordable to low-income workers by is another way. Still, reducing inequality by higher taxes on the well-off and an ever more generous social welfare system[4] cannot turn back the tsunami of change.

However, dispassionately isn’t how most engaged people are seeing the issue. Both the political parties have a stake in stirring up passions by misrepresenting the realities. The Right sees President Obama as an anti-business zealot. The Left sees Republicans as pawns of corporations.

How long will it take to make a more educated and better educated workforce? In the meantime, how does the country manage the social costs of the transition?

[1] Eduardo Porter, “Income Inequality And the Ills Behind It,” NYT, 30 July 2014.

[2] A 2012 poll of economists showed that the great majority believed that the uneven impact of technological change best explained the rise of income inequality. Reagan, Bush II, “deregulation,” and the other usual suspects didn’t figure

[3] Scholars have compared the college graduation rates for those born in the early 1960s with those for 1979-1982. People in the top 20 percent of incomes rose from 36 percent to 54 percent, while it rose from 5 percent to 9 percent for those in the bottom 20 percent. Furthermore, even the real incomes of people with a BA have hardly risen since the mid-1970s. NB: There is a lot you can do with this basic set of statistics.

[4] “Free sandals for foot fetishists,” as the Democratic columnist Mark Shields once described the policy prescriptions of the Democratic Party of the 1980s.

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