A new debate is raging on an old subject: How fair is America? – WaPost editorial
“America’s story might be due for some reinterpretation. Perhaps the very rich do not take quite as large a slice of the pie as many thought. Still, the ‘new’ version of the United States remains a remarkably unequal place, more so than most other industrialized countries…
“This inequality matters, going hand in hand with the United States’ poverty rate, which is higher than peer nations’. Whether measured by obesity, life expectancy, infant mortality, maternal mortality, the incidence of hepatitis B, or the number of accidental poisonings or suicides, the United States is an outlier, worse off than peer nations. And it’s Americans on the lower rungs of the socioeconomic ladder who suffer most.
“America’s exceptional inequality may not directly cause these conditions, but together the numbers sketch out a picture of a nation that looks less fair than others. The economists’ new debate, in which government programs to reduce poverty and improve health and living conditions feature as key inequality-lowering factors, also points to a central feature of any response: making those programs more robust, efficient and effective.”
As with economic policy analysis generally, a lot depends on how issues and debates are framed. In the US, discussion of inequality typically involves comparing some fraction of those at the very top of the pyramid (“the top 1%”) to rest. This website was one of the first to focus on the “bottom 50%.” People at the top have the most capital with which to generate more wealth. People at the bottom have virtually none. Along with income differences, ownership of profit-yielding assets is a key driver of market inequality.
What typically is left out of American analysis of inequality is how the upper middle-class (say the top 20%) is faring compared to people at the top and bottom. The Washington Post editorial above follows this pattern. As the current debate over inequality measurement shows, public policy can have an important influence on market-generated inequality. And the top 20% (lawyers, businesspeople, doctors, and top public officials) have a great deal of influence on shaping political party agendas, laws and regulations that may advance their own class interests. Focusing on the top 1% reflects the upper-middle-class desire to gain a larger share of wealth and income at the top. American households in the bottom half are pawns in inequality debates. What does it matter to workers in the middle and below how the elites split the economy’s gains?
The web is rife with data comparing the income at the very top to the rest. Finding income distribution by quintiles (fifths) is much harder. The Tax Policy Center is one of the few places this information is readily available. Try searching for tables and analysis of income distribution by deciles (tenths), which would be more revealing about how the economic pie is split between social classes and layers of workers with differing capacity to influence business practices and public policies.
Clarifying America’s Great Inequality Debate – Daron Acemoglu/Project Syndicate
“When Auten and Splinter, and some in the media, argue that there has been no increase in inequality, they are referring to yet another important indicator: the level of inequality that exists after taxes and transfers. This one is particularly tricky to measure, because there is quite a bit of redistribution embedded in the US tax code, and the country’s broader tax-transfer system is extraordinarily complicated. For example, determining who receives employer-paid benefits and retirement income is far from straightforward…
“But such debates should not obscure what matters most in the story of the US economy since World War II. After three and a half decades in which all demographic groups largely benefited from economic growth, the pattern of shared prosperity unraveled. Though some of the resulting social and economic costs have been neutralized by taxes and transfers, that doesn’t change the fact that the market economy – together with the technological trends it has engendered and the globalization it has encouraged – has malfunctioned and generated a huge amount of inequality.”