The WSJ on Income Inequality

The editors of the Wall Street Journal remark on changes in income inequality:

The left’s apocalyptic economic predictions for the Trump Presidency haven’t panned out. With jobs plentiful and wages rising at the fastest rate in a decade, liberals are doubling down on alarms about inequality. The inconvenient evidence is that low- and middle-income folks are reaping more economic benefits than during the Obama years.

Democrats flogged last week’s Census report that showed health coverage and Medicaid enrollment declined in 2018. But they ignored the other side of that story: Worker earnings increased by 3.4% while the poverty rate declined 0.5 percentage points to 11.8%, the lowest level since 2001. Benefit rolls are shrinking as low-income workers earn more.

According to the Census Bureau, the number of full-time, year-round workers increased by 2.3 million in 2018, and employment gains were biggest among minority female-led households. The share of workers in female-led households who worked full-time year-round increased by 4.2 percentage points among blacks and 3.6 percentage points among Hispanics.

As a result, real median earnings for female households with no spouse present jumped 7.6% last year. The poverty rate among female households declined 2.7 percentage points for blacks, four percentage points for Hispanics and 7.1 percentage points for their children. Remember this the next time Senator Kamala Harris complains that Mr. Trump’s policies are harming women and minorities.

These findings reinforce Labor Department monthly reports that have shown stronger employment and earnings gains in industries dominated by women such as health care and hospitality. The jobless rate for black women last month fell to a historic low of 4.4% and neared a nadir for Hispanic women at 4.2%.

Democrats also keep saying the middle class is shrinking, but income gains are being distributed more evenly. The share of households making less than $35,000 in inflation-adjusted dollars has fallen 1.2 percentage points since 2016 while those earning between $50,000 and $150,000 and more than $200,000 have both increased by 0.8 percentage points.

More Americans are making more across the income spectrum, which has kicked some in the middle class into the ranks of the affluent. The Census Bureau reported no significant increase in real median household incomes last year, but this is probably because a decline in transfer payments and investment income offset wage and salary increases.

Seniors are also retiring in greater numbers, which usually results in an income drop. But, notably, real median incomes increased in households between the ages of 15 to 24 and 25 to 34 by 9.1% and 5%, respectively. Avocado toast-eating Bernie Sanders voters are among the biggest beneficiaries of the Trump years.

Here’s where we part company:

What really matters for a healthy democratic society, however, are economic opportunity and income mobility.

I don’t think that’s the limit of what matters in this context. As I’ve said before I don’t care about the wealth of top-earning athletes, performers, or business owners. I care about their power and I think that’s a consequence of corruption in government.

Does anyone think that Jeffrey Epstein could have maintained his empire of teenage girls without government at many levels looking the other way? I don’t. I think he had lots of help and they’re all still out there. Can anyone seriously contend that wealthy people secure sweetheart deals and tax breaks in the absence of political and governmental corruption?

The home mortgage interest deduction is widely billed as a benefit to the middle class but most of its benefits go to the rich. The ultra-rich don’t pay cash for their mansions, you know. They have mortgages just as middle class folks do. When you dig into the details rich people get most of the benefit from the home mortgage interest deduction. That same pattern is true of a lot of tax breaks. We should not be subsidizing the rich.

Additionally, I don’t believe republican government can survive a culture of adulation or envy of the rich. Tamping that down would require some cultural changes, particularly among the rich. The rich are different from you and me. They have more money as Ernest Hemingway retorted. And, in my experience, they care more about having more money. As Paul of Tarsus wrote in 1Timothy, a love of money is the root of much evil (ῥίζα γὰρ πάντων τῶν κακῶν ἐστιν ἡ φιλαργυρία).

What is the cure? I think that we need a diverse, dynamic economy, control over immigration, and more open and honest government. All tall orders.

3 comments… add one
  • steve Link

    “I care about their power”

    Yup. Some inequality is beneficial. When it becomes too extreme it becomes negative. Much/most legislation is written to benefit the ultra wealthy and their interests. A very small number of very wealthy people can influence elections. Beyond their influence on government, they also control think tanks and media. They decide where to move our factories, call centers and research centers.


  • Guarneri Link

    “and more open and honest government. ”

    And since that will never happen, the next best option is smaller, less invasive government.

    “The ultra-rich don’t pay cash for their mansions, you know. They have mortgages just as middle class folks do. When you dig into the details rich people get most of the benefit from the home mortgage interest deduction.”

    The Zuckerberg example is propaganda. He was given a below market rate and the associated arbitrage for whatever reason.

    When I see the income and wealth splits published from time to time they say I am rich. Not ultra-rich, but rich. I can borrow at 4-ish pct for a mortgage, or 5% on a line of credit secured by securities held with my wealth manager. The latter is not tax deductible. The former is tax deductible but capped at $750K.
    A moderately conservative investment portfolio can generate 4%. So I can take out a mortgage for $750K and pay 2% after tax deduction for the money, or I can not take out a mortgage and lose 2% of investment income. (And here’s one for you: if you eliminate a mortgage dollar what is the return? Risk free, its 4%. Its sure. Think about that.)

    What to do is personal choice. But a large number of “rich” people pay cash for their homes. Almost all middle and upper middle class people use metered money, because a $500K – $2MM downstroke is beyond their capability. The very few ultra-wealthy may follow Zuckerberg’s lead because they get a non-market deal.

    “..they also control think tanks and media. They decide where to move our factories, call centers and research center.”

    Yes, those Democrats need to have their wings clipped…….

  • According to the Wall Street Journal many billionaires have mortgages.

    And according to the Tax Foundation:

    Despite the claims of various industry groups that the home mortgage interest deduction is an important factor promoting broad-based home ownership, IRS data show the bulk of mortgage interest deductions are claimed by a relatively small fraction of Americans with incomes well above average. As a result, it is likely that the deduction primarily encourages larger and more expensive homes among a relatively small share of taxpayers, rather than promoting broad-based home ownership among ordinary Americans.

    or, said another way, in addition to being a benefit for the rich the home mortgage interest deduction produces market distortion and malinvestment.

    Nearly all of the money spent by government is spent on just a handful of things: old age pensions, health care for the poor and elderly, the military, and interest on the debt account for about three-quarters of federal spending. In that remaining quarter are paying for the federal courts, USDA food inspections, the NIH, the FDA, and lots of other things that people think are essential functions of government. I think that corruption is a better target than cutting the fat.

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