The title of the post at the blog of the Center for American Progress is “Why Income Inequality Has Skyrocketed In The Last 30 Years”:
American income inequality has skyrocketed over the last 30 years, as compensation for the wealthiest Americans has grown while wages have stagnated for the middle- and lower-classes. Incomes for the wealthiest 20 percent of Americans are now eight times higher than incomes for the bottom 20 percent, according to a study from the Center on Budget and Policy Priorities and the Economic Policy Institute. The gap between the rich and poor has grown because incomes for the top 20 percent grew at an annual pace that exceeded the total growth of incomes for the bottom 20 percent over a 30 year period.
A better title might be simply “Income Inequality Has Skyrocketed In The Last 30 Years” because their answer to “Why?” is that the incomes of the highest earners has grown faster than those of the lowest earners which isn’t a great deal more than a restatement of the thesis. It leaves me wanting more. Why have the incomes of the highest earners grown faster than those of the lowest earners?
I think that increasing income inequality in the United States is deplorable for several reasons:
- High earners have the ability and incentives to employ lobbying to get even more income.
- Low earners have incentives to demand policies which will make matters worse.
- A country with a relatively small number of very rich people, a large number of rather poor people, and not a great deal in between is not the country I grew up in, is not what I expected, and is not what I want.
In the interests of exploring the question in a little more depth, let’s brainstorm it. Please list the explanations you think are most likely explanations for increased income inequality. Don’t defend them (although you may be asked to defend them later) or criticize the explanations provided by others. If you don’t think that increasing income inequality is a problem, say that. If you think that increasing income inequality is a problem but nothing can be done about it, say that. This is brainstorming. I’ll start. In no particular order:
- Poor people immigrating into the country.
- Currency manipulation by the Chinese, Japanese, and others.
- The amount of total compensation being taken in the form of healthcare insurance means that income is a misleading measure.
- Large subsidies paid to the healthcare and financial sectors.
- Barriers to entry in and protection to sectors and jobs in which incomes are rising.
- Intellectual property law that is balanced in favor of owners rather than creators.
- Regulatory capture.
- Assortative mating.