Income Inequality Redux

INCOME INEQUALITY REDUX….Boomshock, responding to my series of posts about income inequality (specifically this one), picks up on a comment by David Adesnik suggesting that inequality isn’t as bad as I make it out to be because the poor get additional income from government programs (food stamps, Medicaid, housing assistance, etc.) He cites some figures from Stephen Cohen showing that while the rich are indeed getting a larger percentage of national income than they did in 1980, the after-tax effect isn’t as dramatic as I make it out to be.

Maybe, but as Boomshock notes, no matter how you spin the numbers the basic trend is still the same as I suggested: the rich are getting richer a lot faster than anyone else. However, a couple of comments:

  • The poor do indeed get government benefits, but so do all of us. Remember, the government doesn’t put its money under a mattress, it spends it. What’s more, when you go down this road you open yourself up to wildly varying interpretations, so you have to be careful. What’s the value of the court system to a rich person vs. a poor one? If the rich guy wins a settlement worth $10 million, it’s worth quite a lot, isn’t it?

  • Although I’m in favor of government programs that help the needy, my real concern when I talk about growing income inequality is the middle class. My reading of history tells me that a growing and thriving middle class is essential to democracy and to a flourishing economy. Both suffer if the middle class stagnates for too long, and that’s what’s been happening for the past 20 years.

The problem of the working poor and the unemployed is, I think, different from that of the middle class and requires different approaches. An increase in the minimum wage, for example, would help the poor, while reforming executive compensation to bring it more in line with average worker pay would benefit primarily the middle class.

We have deliberately followed policies for the past 20 years that have brought about these problems, and that’s what I object to. For the working poor, the minimum wage has fallen dramatically in real terms. The working class has been squeezed by union contracts that barely match inflation and nonunion jobs that don’t even provide that much. The higher reaches of the middle class have been punished by corporate “downsizing” that forces down average salaries and cuts benefits.

But if all those workers are being squeezed, where is their income going? The economy is still chugging along, producing ever more income every year, and if you deliberately squeeze the poor, the working class, and the middle class, there’s only one place for all that income to go: the upper class. And guess what? That’s exactly what’s happened.

UPDATE: John Quiggin has more on this subject.

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