Income Inequality

Robert Samuelson has a pretty sane column on income inequality. Which is no mean feat, considering all the hysteria being propagated by both the right and left wings of American politics. the truth is, measured income inequality has increased fairly dramatically when you are looking at income tax returns. It has increased less when looking at consumption measures, estate tax returns, and other measures. But it's nearly impossible to argue that income inequality hasn't increased at all in recent decades (although Alan Reynolds makes the case, and many of his arguments have not yet been done away with).

But the relevant question for policymakers is "why has income inequality increased?" And there is no clear answer to that question. Most likely, it's a combination of factors: the rise in globalization and economic restructuring which comes with it, a higher college wage premium (and even greater increase for post-grad degrees), superstar economics, booming stock markets, dramatic restructuring of the tax code since the early 1980s, demographic/composition changes (such an increase in immigration of poor, unskilled laborers), and other factors.

Politicians will take the populist line during campaigns, and will cite inequality statistics to try to garner support for universal health care, increased minimum wages, and all manner of other policies which are completely unrelated to the topic. But it's important to remember that the truth is much more nuanced than they will ever say. There is fierce debate amongst economists as to the extent and causes of economic inequality, and even more on how to mitigate it (or if we even should). When the views of the experts are spread so far apart, don't expect politicians to be passing along anything close to the real Truth.