This is the first post in a two post series. I’ll publish the second part dealing with ways and means tomorrow.
When I read this piece on income inequality at the Washington Center for Equitable Growth by Thomas Piketty, Emmanuel Saez, and Gabriel Zucman, the first thing that came to mind, perhaps unkindly, was to wonder how much insight three French economists actually have into the conditions that go to producing income inequality in the United States. I suspect that they’re better equipt to describing what has happened than to explaining why it happened or proposing solutions. For good or ill the United States is not France.
Make no mistake about it, the inequality in the distribution in income in the United States has increased prodigiously over the period of the last half century. Here’s just one illustration:
In 1970 the incomes of big company CEOs was about 20 times those of their workers. Now it’s hundreds of times greater. That hasn’t happened all at once—it has taken place over years—but it was off to the races starting in the early 1990s. What happened in the early 1990s isn’t a state secret. Two of the major developments include changes in the rules governing the taxability of executive compensation to favor stock options and China’s pegging the yuan to the dollar.
The second thing that occurred to me was that if there’s a better illustration than the graph at the top of this post of a point I’ve made around here often, that the U. S. is better understood as simultaneously a rich, developed country and a middle income developing country than it is a single mostly homogeneous country like, say, Denmark, I don’t know what it would be.
There’s pretty clearly a point of inflection around 1980. What happened around then? Among the things that would appear relevant are
- The stock market took off after 17 years of slumber, i.e. practically no gains.
- We started experiencing a surge in immigration, largely from Mexico.
- China opened up its economy to trade with the rest of the world.
The third thing that occurred to me was should we try to do something about it and if so what? My country, the country that I grew up in, the one I wanted, and the one in which I expected to live was much more egalitarian than the United States of today. It was not perfect but with the exception of blacks in the South and to a somewhat lesser degree in the North it was much more equal.
The solution to that inequality seemed simple: improve the conditions of blacks. The situation now is much more complicated and may have become intractable.
I don’t relish the idea of a United States permanently divided into a small mostly white aristocracy, a medium size, struggling white or brown middle class, and a large, permanent brown or black underclass.
The discussion of ways and means for addressing the problem of inequality have typically suffered from a fallacy of composition. In my post tomorrow spitballing some ideas for dealing with the problem, I’ll divide my comments into the .1%, the 1%, and the rest of us. Attempting to come up with a single one-size-fits all solution that addresses the challenges posed by the .1% (people with annual incomes greater than $2 million), the 1% (people with annual incomes greater than $300,000), and the balance of the population IMO produces more heat than light.
