Inequality is real, and it is growing. It is debilitating for democratic institutions, as the Supreme Court's Citizens United case and its aftermath start to impact the federal elections and as the money from the Koch brothers, Walton heirs and others swings the debate with purchased sound bites designed to deceive and enable the "enrich the rich" winner-take-all economy created by right obstructionism (itself enabled by the relaxation of the filibuster rule that created a 60 vote requirement in the Senate and allowed an intransigent minority to prevent legislative enactments supported by a clear majority).
Tax policy matters to income inequality. For background on this, read The 30-year growth of income inequality, A Civil American Debate (Apr. 10, 2011) (providing two graphs showing the top tax rate over time the income inequality (the percentage of total income going to the top 10%), which shows that income inequality levels inversely track the top tax rate--as the rate increases, income inequality decreases). When top tax rates are lowered too much, they do not do their work in maintaining respectable limitations on income inequality. With the slide in economic fairness under reaganomics (privitization, deregulation, tax cuts--especially for the wealthy, and militarization), the US has now "two economies, a wealthy 'top' economy doing very well, and a 'bottom' economy for roughly the bottom 99% facing income stagnation, with dwindling wealth and resources." The growth in income inequality shows that gains at the top dwarf, by any measure, those for everybody else.
(Note: the most recent CBO report has slightly different numbers, but in the same range--close enough for our purposes.)
Even these solid income inequality facts are treated by the right as sound bites to be manipulated. An article in The New Republic debunks the American Enterprise Institute's Jim Pethokoukis's attempt to mask the facts. See Matt O'Brien, Is Income Inequality a 'Myth'?, The New Republic (Oct. 31, 2011) (hat tip Mark Thoma) (discussing Jim Pethokoukis, 5 reasons why income inequality is a myth--and Occupy Wall Street is wrong, EnterpriseBlog, American Enterprise Institute (Oct. 18, 2011).
As O'Brien puts it, Pethokoukis's article asserting that income inequality is a myth "suffers from the defect of having a tenuous relationship with reality." Especially when, as Jared Bernstein noted, whatever the cuase for the increase in inequality (and there are several likely suspects), "the highest quality data that we have all show the same thing: significant increases in inequality."
Petrhokoukis tries to suggest that the "move rightward toward a greater embrace of free-market capitalism" is proof that inequality hasn't exploded in the reaganomics era because inequality should have led to "beleaguered workers unit[ing] and demand[ing] a vastly expanded safety net and sharply higher taxes on the rich." He calls the "occupy wall street" protesters "radicals"--I guess because they are willing to sacrifice personal comfort to bring a non-violent message to the world through their signs and statements about the unfairness of today's society with its gaping inequalities in income and wealth, resulting in an influential 1% that can arrange laws to suit them. He tries to argue that the very idea that "the rich are getting richer at the expense of the middle class and poor" is left-wing fantasy.
Of course, the dominance of the free-market mantra is actually proof of inequality, not evidence of some kind of notion of growing equality. The irrational adoption of Friedmania "free market" anti-factual policies has taken place due to the inordinate advantage enjoyed by the uberrich in promoting policies favorable to their own wealth and status in winner-take-all politics, enhanced by recent decisions granting state-created concessions (corporations) "free speech" rights to intervene in political campaigns in which corporations do not have a right to vote,
And the ability of the uberrich to buy policies that suit them means that legislation to re-empower unions as an antidote to plutarchy can't get passed the "bought and paid for" legislatures. A majority of workers want to be able to unionize; a majority of Americans want higher taxes on the rich; a majority of Americans oppose the kinds of "bailout" policies for banks espoused by Bush where there was lots of taxpayer money and no accountability. The policies favored by the 99% aren't enacted because of the power of money wielded by the 1%.
So what does Pethokoukis rely on to make his case? snips and snippets of the following:
- Pethokoukis claims that income gains have been shared "fairly equally" among workers and managers." While it is true that one piece of research suggests that the gap between productivity and wages may not be as high as commonly thought. Pethokoukis stretches (and abuses) that research in making his claim. There's clearly a gap, it may be debatable what it's exact size is, but there's no debating the story of runaway wealth at the top of the income distribution.
- Pethokoukis claims that after-inflation median incomes haven't really stagnated in the last 30 years. He relies on a pair of Federal Reserve studies that use different numbers to jigger the after-inflation incomes produced by CBO. Voila--with these 'adjustments', the numbers don't say what they appear to say. That's not research--that's fudging the numbers to get the desired result.
- Pethokoukis asserts that better accounting for positive transfers (taxes, benefits, pensions, healthcare) and consumption would show there is no real inequality gap. While it is true that after-tax inequality is smaller than pre-tax inequality (thank goodness), it is not true that inequality is eliminated or even that as much inequality is eliminated as used to be. Taxes and benefits are less redistributive downwards than they used to be. and tax cuts have been primarily redistributive upwards. Even taking all benefits into account, inequality is increasing rapidly. As for consumption, the wealthy don't have to consume as much of their income as the poor (increases inequality), and the poor and middle class had to borrow in order to maintain consumption (shows increases in inequality).
- Pethokoukis claims that measuring inflation correctly shows inequality has been "roughly" unchanged. That's ridiculous. Yeah, higher end goods show more inflation in price than the lower-end goods consumed by the growing class of poverty-striken Americans as Americans move from middle to lower middle and lower income groupings. The market can still function at the high end with price increases because the wealthy have more income to pay those inflated prices. The fact that the wealthy have more money to buy more inflated higher end goods doesn't mean inequality hasn't increased. Fewer middle class can shop regular goods and now have to shop for discounts. That's more proof of inequality, not less (inequality still underlies the consumption patterns).
- Petrokoukis asserts that the fact that most of the population has the ability to take advantage of technological advances (long-distance telephone calss, air condition, dishwashers, iPods, digital cameras and color TVs) means that inequality isn't growing because "America is better off today." Of course, this is a straw man argument. First, the growing numbers of American affordable gadgets doesn't reduce the shame, humiliation and degradation of poverty for the growing numbers of Americans living in poverty. Every family will have some of those gadgets, just like poorer families after the advent of trains could enjoy faster transportation (on the few occasions they used it) by train than queens and kings had indulged in in the age of chariots. Doesn't mean that inequality isn't rampant, or that those technological benefits make up in any way for the substantial detriments of a highly unequal society where the benchmark norm is whatever everybody has access to and the relative comparison is in terms of what the wealthy have that others don't have. What the wealthy have these days are not so much technological advantages (though those also exist in signficant degree and kind different from what the middle and poor classes enjoy) but advantages in terms of education, opportunity, jobs, access to power, access to influence, health care, travel, leisure, personal space, food, entertainment, etc. The suggestion that everybody has been so benefited by the gadget culture so that the huge problem of inequality should be ignored shows that somebody has lived on the "right" side of the tracks for so long that they cannot even comprehend what it is like to be on the losing side of the winner-take-all economy.
The concluding paragraph of the New Republic report sums it up.
Since 1979, incomes for the broader middle class increased 40 percent, while the top one percent shot up a staggering 275 percent. Conservatives can pretend otherwise, but the numbers won’t.