Income Disparity and its Discontents

From Joseph Stiglitz's recent article inVanity Fair:

"It’s no use pretending that what has obviously happened has not in fact happened. The upper 1 percent of Americans are now taking in nearly a quarter of the nation’s income every year. In terms of wealth rather than income, the top 1 percent control 40 percent. Twenty-five years ago, the corresponding figures were 12 percent and 33 percent. One response might be to celebrate the ingenuity and drive that brought good fortune to these people, and to contend that a rising tide lifts all boats. That response would be misguided. While the top 1 percent have seen their incomes rise 18 percent over the past decade, those in the middle have actually seen their incomes fall. For men with only high-school degrees, the decline has been precipitous—12 percent in the last quarter-century alone. All the growth in recent decades—and more—has gone to those at the top. In terms of income equality , America lags behind any country in the old, ossified Europe that President George W. Bush used to deride. Among our closest counterparts are Russia with its oligarchs and Iran. While many of the old centers of inequality in Latin America, such as Brazil, have been striving in recent years, rather successfully, to improve the plight of the poor and reduce gaps in income, America has allowed inequality to grow."

The notion of "income equality" is a new one. It is a slight variation of the old socialist outrage. But whether it is earned income or net worth, the idea that the government should have a hand in balancing things out is revolutionary for the United States. This is simply not a nation that historically would permit such an intrusion in peoples' lives. Moreover, there is the question of the value of such an intrusion. Are there studies that support the notion that disparities in income are particularly bad? Is it reasonable to compare the income disparities between those in Saudi Arabia and the U.S.? Are rich people really responsible for the failure of poor people to be rich?

There is a lot going on in this country that is wrong. Cheaper labor competition, short-term economic thinking, unproductive foreign wars, unmanaged entitlements, scandalous financial mismanagement, an aging population are all serious problems with serious negative impact on the country's economic health. The shift in the nation's emphasis from production, creativity and development to the collection of management fees has been a terrible shift as well. But income disparity? Is that a cause or an effect of problems? And can the government fix that fairly? The same government that felt it could fix the Iraqi nation?

A study from the University of Michigan's Panel Study of Income Dynamics reported the following numbers from the period 1984 to 2009:

The median net worth of the members of the house of Representatives rose 2.5 times--inflation adjusted!--from 280,000 dollars to 725,000 dollars. In the same period the average net worth of the average American family fell from 20,600 dollars to 20,500 dollars.

Now there is an income and net worth disparity worth some scrutiny.