Good News, Everyone! There Is Slightly Less Inequality

Recently, the columnist David Brooks asked the following rhetorical questions about capitalism as he related the latest Census Bureau figures for last year, which find, Brooks writes, that the share of national income going to labor is now rising, while the share going to capital is falling: [W]hat if there are no structural flaws? What if the market is working more or less as its supposed to? He adds, Thats certainly the evidence from the last two years, and then identifies middle-class wage stagnation as the biggest economic fact driving American politics an arguable proposition, but let us set that aside.

According to what Brooks calls the common argument, our reigning economic system has led to a radically unequal distribution of resources as wages have become decoupled from productivity. However, since 2015, the benefits of economic growth have been shared more widely. Patricia Cohen agrees that there has been unmistakable progress, but that it remains dwarfed by profound changes that have been building for nearly a half-century: rising inequality and rusted-stuck incomes. Last month, David Leonhardt, citing the work of economists Thomas Piketty, Emmanuel Saez, and Gabriel Zucman, brought attention to this graph, which depicts all of the income growth going to labor in 1980 and in 2014.

In a well-functioning economy, Brooks opines, workers are rewarded for their productivity. As output, jobs and hours worked rise, so does income. Over the past two years, that seems to be exactly whats happening. What seems to have happened over the preceding generation is apparently irrelevant. The problem of the middle-class squeeze, in short, he continues, may not be with how the fruits of productivity are distributed, but the fact that there isnt much productivity growth at all. Its not that a rising tide doesnt lift all boats; its that the tide is not rising fast enough.

So the problem is productivity, not inequality. Since that is now the case, radically different politics is demanded than were seeing today. Namely, the radically different politics should be about more antitrust enforcement and fewer licensing regulations, letting in more skilled immigrants, putting more money into human capital, relaxing rules on urban land usage, apply a mystical concept called market incentives into education and health care, which are described as low productivity sectors, and subsidizing more research into promising technologies like new energy storage systems. The last point sounds eminently reasonable, but it is strange that the assumption that education and health care should have a profit motive goes entirely unquestioned.

Despite eight years of economic growth since a brutal recession, Binyamin Appelbaum wrote in the New York Times last Tuesday, some politicians and economists have worried that many Americans have not felt the benefits of the expansion. The new numbers from the Census Bureau painted a brighter picture, suggesting that the recovery had shifted into a new phase in recent years and is now distributing its benefits more broadly. This is not inaccurate, but adding after decades of systemic plunder would add context. Appelbaum cites the work of the Economic Policy Institute, which observed that median household income in 2016 was still 2.4 percent lower than in 1999 and 1.6 percent below the level reached in 2007, before the recession began.

In other words, The news was especially good for the poor, as Brooks noted. Appelbaum, referring to the Census Bureau data, pointed out the Bureau also found that, adjusted for inflation, average household income for the poorest fifth of households fell by $571 from 2006 to 2016, while the average income for the wealthiest fifth of households rose by $13,479. The news was especially good for the poor. Furthermore, Racial disparities also have increased, Appelbaum wrote. The bureau reported that the median income for African-American households has fallen by 1.6 percent since 1999. The adjusted numbers provided by the Economic Policy Institute pegged the drop at 7.5 percent.

Ben Leubsdorf reported in the Wall Street Journal that incomes still hadnt fully recovered from the 2001 recession after the technology boom and bust and then families were battered by the 2007-09 downturn, which was accompanied by a housing crash and global financial crisis. A slow and uneven recovery followed. The Journal printed this chart, showing how household-income thresholds have shifted since the previous time the median was at its highest point on record:

Still the benefits of a long economic expansion appear to be spreading now to lower-income families. The official U.S. poverty rate in 2016 was 12.7%, meaning 40.6 million Americans were living in poverty, the agency said. That was down from 13.5% in 2015 and around its 2007 level, Leubsdorf wrote, right before the Great Recession. Poverty is back to pre-crisis levels, which remain mortifyingly high for the wealthiest country in history. The news was especially good for the poor.