Monday, March 2, 2015

Misunderstanding Inequality

When people talk about rising inequality in America, they talk about two very different things that may not be related at all. Some talk about a growing gap between highly educated people and people without valuable education or skills. And there is such a gap; people with degrees from good colleges, plumbers, and coders are doing ok in America, while high school dropouts fall farther and farther behind. You can see this in the CBO chart above, which shows that people in the top 20% of family incomes are getting reasonable gains in income; the difference between them and the bottom 20% has a lot to do with education and skills (and hard work and other good American things). When Republicans talk about inequality they like to talk about this gap, because they can pretend that the problem is failed education systems or too much regulation of small business and so on.

But there is also a different story, the one  about the 1% or the 1/10% and everyone else. As you can see in the chart above, the real story of the American economy is that while everybody else is treading water, the rich are booming. This gap has nothing to do with education; Wall Street insiders, CEOs, the Koch brothers and Taylor Swift are not better educated than I am. The growing wealth and clout of billionaires cannot be ameliorated by better education or programs to help poor mothers get jobs. As Paul Krugman says this week:
As for wages and salaries, never mind college degrees — all the big gains are going to a tiny group of individuals holding strategic positions in corporate suites or astride the crossroads of finance. Rising inequality isn’t about who has the knowledge; it’s about who has the power.
Krugman offers this chart as more evidence that education has nothing to do with this stark inequality betwen tycoons and the rest of us. Since  our civilization peaked in 1999, the wages of men with college degrees have fallen steadily, and they show no sign of heading back up. So in this sense the big inequality story has nothing to do with education, and more education will do nothing about it.

On the other hand, $76,000 a year is not really so bad, is it?

Should we be worried about men with jobs who earn more than $60,000 a year, or should we be focusing all our efforts on people at the bottom, toiling for minimum wage or not able to get any kind of job at all?

Does it really matter that the rich are getting scandalously rich? How does that hurt the rest of us?

When moderate politicians like Obama or Jeb Bush pivot from talking about inequality to advocating more investment in community colleges, are they ignoring the elephant in the room (capitalism), or are they actually focused on the real, pressing problem?

I personally worry about inequality and the rise of billionaires for two reasons: because I think all that money can buy power, undermining democracy, and because I suspect that the changing economy really is shifting gains away from the mass and  toward the few. I admit that I cannot prove either of these things. But it is true that the biggest economic gains for poor people in America and Europe came in the 1945 to 1979 period, which was also when we had the highest taxes on the rich and when inequality was substantially decreased. Since 1979 the Reagan-Thatcher revolution has led to huge tax cuts for the rich, deregulation of financial markets, and the collapse of unions, and this in turn has led to a gigantic accumulation of capital in the hands of billionaires. The rest of us have gotten a lot of exciting new technology, but not much else. I strongly suspect that the slowdown in wage gains for the average person is related to the growing wealth and power at the top. And that sort of inequality can only be addressed by the sort of measures we had in place in 1950: high taxes on the rich, strict regulation of the financial sector, and support of unionization.

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