Stuck in the Middle With You

For all the talk about how Bush's tax cuts have gone disproportionately to the rich, and they have, it is worth noting that the tax burden on the middle quintile of the population has been at historic lows during Bush's administration (scroll down to graph).

(ht: Greg Mankiw)

Inequality

Greg Mankiw points to Cox and Alm in the NY Times, and pulls this quote:

So, bearing this in mind, if we compare the incomes of the top and bottom fifths, we see a ratio of 15 to 1. If we turn to consumption, the gap declines to around 4 to 1. A similar narrowing takes place throughout all levels of income distribution. The middle 20 percent of families had incomes more than four times the bottom fifth. Yet their edge in consumption fell to about 2 to 1.

Let’s take the adjustments one step further. Richer households are larger — an average of 3.1 people in the top fifth, compared with 2.5 people in the middle fifth and 1.7 in the bottom fifth. If we look at consumption per person, the difference between the richest and poorest households falls to just 2.1 to 1.

The trouble is this: nobody who is concerned about rising income inequality is comparing the top quintile with the bottom quintile. People who are concerned about rising income inequality are comparing the stagnant wages of the bottom 2/3 of the population with the sky-rocketing wages at the very top (i.e. 10%, 5%, & 1%) of the distribution.

Measuring inequality through consumption data is also misleading, since it is only one way to use income. The saving rates of those in the bottom quintile are negative (as Cox and Alm point out, but Mankiw), by a factor of two. In other words, the bottom quintile consumes twice as much as it makes, which makes future consumption impossible. For some -- like the retired, who often have no income but quite a bit of consumption -- that's fine. But for the rest, this means that their children don't have college funds, they don't have retirement plans or investment portfolios, and/or that their future consumption will have to decline. For those at the top of the distribution, the opposite is true.

False Populists

Matthew Yglesias questions the meaning of a sentence from Bush's State of the Union address from last night:

Here's a random note from last night. Bush, talking about a free trade pact with Colombia, said "If we fail to pass this agreement, we will embolden the purveyors of false populism in our hemisphere." The purveyors of false populism are, I guess, Hugo Chavez and other murky conspirators. But why is it false populism? Chavez is a real populist. Maybe you think he's a populist peddling fake solutions to Latin America's problems, but he's certainly not a secret pro-business neoliberal.

Or, perhaps Bush was referring to the fact that, despite Chavez's rhetoric, income inequality has increased during his tenure as Glorified National Leader and Great President. The economic disparities in Venezuela are nicely captured by the above photo, of Caracas. Similar stories may be told of Brazil (11th most unequal country in the world), Bolivia (6th most unequal), and just about every other country in Latin America, many of which are led by "real populists".

For the record, the U.S. was right at the global weighted average. List here.

U.S. Mobility

Many economists maintain that levels of income inequality aren't of great concern so long as there is a substantial amount of income mobility. In other words, so long as the all the gains from a growing economy are not going to only a few people, all the time, then the social economic situation isn't unjust. Arnold Kling rounds up several studies which have recently come out, examining the state of American income mobility, and the results are very positive:

A Wall Street Journal editorial reports,

The Treasury study examined a huge sample of 96,700 income tax returns from 1996 and 2005 for Americans over the age of 25. The study tracks what happened to these tax filers over this 10-year period. One of the notable, and reassuring, findings is that nearly 58% of filers who were in the poorest income group in 1996 had moved into a higher income category by 2005. Nearly 25% jumped into the middle or upper-middle income groups, and 5.3% made it all the way to the highest quintile.

Of those in the second lowest income quintile, nearly 50% moved into the middle quintile or higher, and only 17% moved down. This is a stunning show of upward mobility, meaning that more than half of all lower-income Americans in 1996 had moved up the income scale in only 10 years.

My metaphor for income distribution is an escalator, with new families and immigrants starting at the bottom and most people moving up. This new study appears to be consistent with the metaphor.

A commenter found the actual study. I did not read it carefully, but I don't see how looking at tax returns can be complete, because some people don't file (of course, many who file pay no taxes, but that is ok as long as their returns are included).

Meanwhile, another study was conducted by Julia Isaacs of the Brookings Institution, using the Panel Study for Income Dynamics, following families from the late 1960's through today.

Isaacs' study is called the Economic Mobility Project. It is covered in The Wall Street Journal. The Executive Summary says,

Median family income for adults who were children in the late 1960s and are now in their 30s or 40s increased 29 percent, from $55,600 for parents to $71,900 for their children, adjusting for inflation. Moreover, family sizes have shrunk over this same period (from 3.1 to 2.3 individuals between 1969 and 1998), so higher incomes are spread over fewer people.

...four out of five children whose parents were in the bottom fifth of the income distribution end up with higher incomes than their parents.

...Forty-two percent of children born to parents in the bottom fifth of the income distribution remain in the bottom, while 39 percent born to parents in the top fifth remain at the top.

An executive summary of Differences by Race says,

Between 1974 and 2004, white and black men in their 30s experienced a decline in income, with the largest decline among black men. However, median family incomes for both racial groups increased, because of large increases in women’s incomes. Income growth was particularly high for white women.

The lack of income growth for black men combined with low marriage rates in the black population has had a negative impact on trends in family income for black families.

...Overall, approximately two out of three blacks (63 percent) exceed their parents’ income after the data are adjusted for inflation, similar to the percentage for whites.

However, a majority of blacks born to middle-income parents grow up to have less income than their parents. Only 31 percent of black children born to parents in the middle of the income distribution have family income greater than their parents, compared to 68 percent of white children from the same income bracket.

The demographic effects are important: middle-class men have lost income as women have increasingly become substitutes for their labor. In other words, the supply curve shifted pretty far right during the latter-half of the 20th century, forcing down wages for some men who faced more wage competition. Overall, however, the trends was largely up, especially for households. It's also important to recognize, as the study does, that household size has decreased while household income has increased. If household size is controlled for, the income gains would be even higher. Similarly, the decreases in the size of black household income is probably largely explained by the decrease in the number of black households rather than institutional discrimination (I'm guessing that increased education premiums and skill-biased technological change have something to do with it also). Overall, the news is pretty remarkably positive.

Now, I might hear you say, the increases in household income have come because women are working, and therefore there are more total household hours engaged in market work. Therefore, the gains are artificial: it isn't that the economy is any better, but that more people are working more hours. But that would be to miss the point. To a large extent, home work and market work are substitutable, especially if part of the earnings from market work go to purchase labor-savings devices (e.g. new technologies which save labor time) and/or substitute laborers from household tasks (e.g. hiring a landscaper or a housecleaner). So, the extra income gains are real, and not artificial.

All in all, these studies could go a long way in rebutting the charge that America is a less egalitarian country than it used to be.

Have American Middle Incomes Stagnated?

Yes, says Paul Krugman and many other class warriors, and it's due to rising income inequality. Not so fast, says the Federal Reserve. The rub? Basically, Krugman (et al) forget to include noncash payments (i.e. retirement accounts, health insurance, stock options, etc.) in their calculations. These are all compensation for work which really didn't exist several generations ago. Now, they represent a very significant portion of total compensation for many American workers, especially in the middle class.

(ht: Greg Mankiw)

Whose Money Is It, Anyway?

Ezra Klein approvingly quotes Robert Reich suggesting that we should, in effect, end the tax exemption for charitable donations, and adds some commentary of his own:

"I'm all in favor of supporting the arts and our universities," writes Robert Reich, "but let's face it: These aren't really charitable contributions. They're often investments in the lifestyles the wealthy already enjoy and want their children to have too. They're also investments in prestige -- especially if they result in the family name being engraved on the new wing of an art museum or symphony hall."

Agreed. The tax deductibility of charitable donations to private universities, the arts, and so forth are a bit of a scam. This year the Treasury will forgo $40 billion in tax revenue due to the deductibility of philanthropic donations. That makes sense when the money is going to feed the poor -- but studies show that only 10% of charitable donations go directly to the poor. And there's no reason the rest of us should be subsidizing an I-banker's desire to fund a named chair at his alma mater and, oh yeah, help his kid get into the school to boot.

Additionally, charity has become something of a lifestyle, with large donations buying you entrance into concerts, gala dinners, special exhibits, networking events (see Global Initiative, Clinton), and much else. In such cases, charitable donations are closer to purchasing tickets than selflessly and anonymously giving up private wealth for public ends. "Awhile ago," says Reich, "New York's Lincoln Center had a gala supported by the charitable contributions of hedge-fund industry leaders, some of whom take home $1 billion a year. I may be missing something, but this doesn't strike me as charity. Poor New Yorkers rarely attend concerts at Lincoln Center." And they shouldn't be subsidizing those who do.

The unspoken assumption here is that Klein believes that peoples' money does not belong to them, but rather to the government. In other words, allowing people to channel their money to the programs they'd prefer to improve should be disallowed.

So here's a question for Klein/Reich: the government taxes citizens to pay for all sorts of programs, including funding for the arts and education. The government, in fact, pays for a lot of arts and education programs which primarily benefit the relatively wealthy. Why are they better at distributing that money than individuals, for whose interests the government is (presumably) acting?

Not only that, but who gets to decide what is a "real" charity and what isn't? A lot of "real charities" -- e.g. food banks and homeless shelters -- are run by religious groups who use the opportunity to proselytize. Should they be exempt, since the government isn't allowed to endorse religions? What if one wishes to donate to a relatively wealthy public school in Manhattan? Should the gift be refused tax-exempt status because there are poorer schools in Queens?

Who cares if some of the reasons people donate are self-serving? The point of the exemption isn't to boost some particular charity over others; the point is to give citizens more direct control over where their money ends up. That is a fine end unto itself, and one that Klein/Reich don't even consider.

Politically Incorrect Blogging

Alex Tabarrok points us to a study indicating that Bill Cosby may have been right:

Several years ago Bill Cosby chided poor blacks for spending their limited incomes on high-priced shoes and other items of conspicuous consumption instead of investing in education. Cosby was widely criticized but I went to the numbers, specifically Table 2100 of the Consumer Expenditure Survey and found the following for 2003:

Average income of whites and other races: $53,292.
Average income of blacks: $34,485.

Expenditures on footwear by whites and other races: $274
Expenditures on footwear by blacks: $440.

As I noted then "to do a proper comparison we would have to correct for income and other demographic variables." The correction has now been done by three researchers in an NBER working paper (non-gated version). The results didn't surprise me. How about you?

Using nationally representative data on consumption, we show that Blacks and Hispanics devote larger shares of their expenditure bundles to visible goods (clothing, jewelry, and cars) than do comparable Whites. We demonstrate that these differences exist among virtually all sub-populations, that they are relatively constant over time, and that they are economically large.

To give the authors credit where credit is due they also show that the differences in conspicuous consumption are large and important. The differences in spending on clothing, jewelry, and cars, for example, can explain half of the differences in wealth between the races (conditional on permanent income) and a significant share of the differences in education and health spending.

This is indeed significant: half the differences in wealth accumulation between the races are explained by this phenomenon (so it isn't all George W. Bush's fault after all, I guess). Tabarrok guesses that this is best explained in terms of signaling: an upper-middle-class white collar worker receives less of a marginal social benefit from conspicuous consumption than do lower-class citizens. Since average incomes for whites are higher, whites may be less inclined as a group to spend it all on physical goods in order to convey status; instead, they may spend it on getting their child into a high-profile private school, or on a larger suburban home. Meanwhile, blacks may be more inclined as a group to purchase goods which convey outward signs of high status such as cars, clothes, and jewelry.

In other words, Brad DeLong might be right: much of our consumption might be nothing more than a hopped-up East African plains ape pissing contest.

Why Is Income Inequality Increasing?

According to a new Brookings study by Claudia Goldin and Lawrence Katz, much of the increase in income inequality is due to an increase in the education premium:

Another key point we will make is that the majority of the increase in wage inequality since the 1980 has come from rising education wage differentials, particularly rising returns to post-secondary schooling.

This disputes earlier research blaming skill-based technological change, or more surplus going to capital, or whatever. It also disputes Paul Krugman's assertion that it is all George W. Bush's fault. It's a perfect example of how convoluted economics can be, especially when you are looking for policy implications.

Stop It, Klein

Ezra Klein is not making sense again. He posts this graph, and then says that this is Bush's fault. His commenters are even worse. One of them even says that conservatives would try to defend Bush by blaming these figures on illegal immigration. I responded in the comments:

Well, you could blame it on immigration, but you'd be wrong. It'd be better to say, simply, that there was a recession during those six years, which is why everyone was worse off. The recession had literally nothing to do with anything that George Bush did, since it began in 2001, before any of his policies took effect. Indeed, it may have already begun before he took office.

During recessions, pretty much everybody does badly. But recessions are harder on less educated, less skilled workers. On average, blacks have less education than whites in this country. So blacks did worse than whites, who are more educated as a group.

Plus, Clinton's welfare reform package -- which was passed on 1996 -- had a five-year limit for welfare coverage. 2001 is five years after 1996, so welfare benefits decreased or disappeared for a lot of people. And blacks as a group are more dependent on welfare programs than whites. Again... this had nothing at all to do with anything that George Bush did.

*Everything* isn't George W. Bush's fault. Or, if you think it is, you've got to do better than innuendo. What, precisely, did George W. Bush do to specifically make black people poorer?

The State of American Opportunity

A new study (free link here) by Wojciech Kupczuk, Emmanuel Saez, and Jae Song says that social mobility has been stable since the 1950s (specifically, that mobility for men has decreased, but mobility for women has increased, and the two are relatively self-canceling in the aggregate; a causal relationship was not tested.). I haven't read the whole thing because I don't have NBER clearance and I haven't seen an ungated link, but here's the abstract:

This paper uses Social Security Administration longitudinal earnings micro data since 1937 to analyze the evolution of inequality and mobility in the United States. Earnings inequality follows a U-shape pattern, decreasing sharply up to 1953 and increasing steadily afterwards. We find that short-term and long-term (rank based) mobility among all workers has been quite stable since 1950 (after a temporary surge during World War II). Therefore, the pattern of annual earnings inequality is very close to the pattern of inequality of longer term earnings. Mobility at the top has also been very stable and has not mitigated the dramatic increase in annual earnings concentration since the 1970s. However, the stability in long-term earnings mobility among all workers masks substantial heterogeneity across demographic groups. The decrease in the gender earnings gap and the substantial increase in upward mobility over a career for women is the driving force behind the relative stability of overall mobility measures which mask declines in mobility among men. In contrast, overall inequality and mobility patterns are not significantly influenced by the changing size and structure of immigration nor by changes in the black/white earnings gaps.

It's interesting to note that immigration doesn't affect mobility (so those damn dirty Mexicans aren't stealing all our good jobs after all). Kopczuk and Saez published an earlier study showing that wealth inequality (as measured by estate tax returns) is unchanged since World War II, and Saez co-authored (with Thomas Piketty) the biggest study on income inequality (as measured by income tax returns) in the United States, concluding that income inequality has risen dramatically since 1973, and continues to rise.

What does all this mean? Saez would probably say that progressive taxation and inheritance taxes have kept wealth inequality consistent, and that is a good thing. But he would say that income inequality has been rising, and that is a bad thing. He would say that this increase in income inequality has not been matched by increased social mobility, and that is a bad thing.

I would say that progressive taxation, inheritance taxes, and a more open economy (caused by increased education, technological advance, and greater egalitarianism in labor markets -- esp. w/r/t women and minorities -- as well as greater investment opportunities in financial markets for middle and lower classes, and more common retirement plans) have kept wealth inequality consistent, and that is a good thing. I would say that measured income inequality is increased, but that the measurements aren't always measuring the appropriate things, so some studies aren't painting an appropriate picture of reality, and that I care rather less about income inequality than about absolute gains in real wages across society and social mobility, so the inequality studies are a mixed bag. I would say that the fact that mobility has remained unchanged since 1950 is a good thing, and that we seem to be assimilating immigrants and minorities into the economy is a good thing, but with a caveat: male mobility has decreased, and this could be cause for concern.

This part of the abstract is also very interesting: "Mobility at the top has also been very stable...". I'd taken it as something of a given that mobility at the top of the distribution was higher than in other slices of the distribution. I thought that for obvious reasons:

1. Depending on how you define it, "the top" of the income distribution is a pretty small sample, and superstar theories, lucky breaks, and creative destruction should play a much heavier role there. For example, the Youtube guys made a bunch of money when they sold out to Google, but relatively little money in the year before and year after. So, for one year (and, presumably, only one year), they fit in to the top of the distribution. A similar story might be told of athletes who make a lot of money over their careers, but almost all of it is in a handful of years. Or singers who have a multi-platinum album one year, but don't release anything in the next.

2. CEO compensation is often centered around stock option packages, which are usually exercised all at once. True, these guys make decent salaries in every year, but only the year with exercised options should propel most of them into the top 1% (or so) of the distribution.

Now, the study doesn't say that mobility for the top of the distribution is at the same levels as the rest of the population; only that it has been stable relative to itself. But I would've assumed that the composition of the top of the income distribution would have become more volatile over the past five decades, as technology provided more opportunities to get rich quickly, and as CEO compensation changed. Also, incomes for athletes and entertainers increased a lot in those five decades (and inequality, especially, increased within those occupations). Dr. Galbraith's "five counties" study -- in which almost all of the increase in inequality disappears when controlled for Silicon Valley, Microsoft, and investment bankers in Manhattan -- was evidence in support of my intuition. According to this study, however, I'm wrong.

Tyler Cowen says this:

It should be noted that Saez is the leading measurer of income inequality and also a critic of such inequality. In his view a constant level of mobility means that no force is offsetting ongoing inequality. I believe he would likely read his own paper as support for a left-wing view of the world and as support for concern with income inequality. He would not read his work as reason to dismiss the mobility issue. My view differs, as I worry about mobility -- can a hard-working person get ahead? -- but I do not worry about inequality per se, nor do I require of mobility that it overturn a particular level of inequality.

I'm waiting for commentary from Megan McArdle. I'm sure it will be forthcoming.

Chavez's Growing Inequality Gap

By at least one measure, things aren't looking so good in Caracas:

Despite Chavez's "revolution for the poor" the Gini coefficient has increased from 0.44 in 2000 to 0.48 in 2005.

A commenter there piles on:

Part of it has to do that after soon nine years of chávez´s “socialist government” gas is sold at less than 12 US cents per gallon, less that its direct cost of distribution and with this about 10% of GDP is transferred from those who have nothing to those who buy gasoline. Annual gasoline subsidies amount to US$ 3.000 per car.

(ht: Marginal Revolution)

Changing the Income Inequality Debate

An important paper by Steve Kaplan and Joshua Rauh, pointed by Tyler Cowen, who says this:

Here is the link, here is the non-gated version. How about this bit from the text?:

...the top 25 hedge fund managers combined appear to have earned more than all 500 S&P 500 CEOs combined (both realized and estimated).

This is important too:

...we do not find that the top brackets are dominated by CEOs and top executives who arguably have the greatest influence over their own pay. In fact, on an ex ante basis, we find that the representation of CEOs and top executives in the top brackets has remained constant since 1994. Our evidence, therefore, suggests that poor corporate governance or managerial power over shareholders cannot be more than a small part of the picture of increasing income inequality, even at the very upper end of the distribution. We also discuss the claim that CEOs and top executives are not paid for performance relative to other groups. Contrary to this claim, we find that realized CEO pay is highly related to firm industry-adjusted stock performance. Our evidence also is hard to reconcile with the arguments in Piketty and Saez (2006a) and Levy and Temin (2007) that the increase in pay at the top is driven by the recent removal of social norms regarding pay inequality. Levy and Temin (2007) emphasize the importance of Federal government policies towards unions, income taxation and the minimum wage. While top executive pay has increased, so has the pay of other groups, particularly Wall Street groups, who are and have been less subject to disclosure and social norms over a long period of time. In addition, the compensation arrangements at hedge funds, VC funds, and PE funds have not changed much, if at all, in the last twenty-five or thirty years (see Sahlman (1990) and Metrick and Yasuda (2007)). Furthermore, it is not clear how greater unionization would have suppressed the pay of those on Wall Street. In other words, there is no evidence of a change in social norms on Wall Street. What has changed is the amount of money managed and the concomitant amount of pay.

There is a great deal of analysis and information (though to me, not many surprises) in this important paper. The authors also find no link between higher pay and the relation of a sector to international trade.

The broader the literature gets in studying the make-up and causes for the big wage share gains by the top 1%, 0.1%, and 0.01% of the income distribution, the more it looks like the system isn't biased in favor of the rich, as so many left-of-center economists shrilly maintain. It looks like Superstar Economics combined with incentivized tax shifting is the major cause of increased inequality. It looks like Piketty-Saez aren't the end of the discussion. It looks like more natural workings of the economy, even if there is some irrationality behind it (i.e. huge pay increases for hedge fund managers).

I'm waiting for Krugman's inevitable reply with baited breath.

Brad DeLong Doesn't Agree with Krugman Either

Brad DeLong, who very rarely disagrees with Paul Krugman on anything, disagrees with Paul Krugman on his latest inequality column:

Paul Krugman writes about the link between expanding trade--especially between the U.S. and China--and rising income and wealth inequality within the United States. I find myself skeptical. Yes, China is exporting a lot of goods that it produces using low-skill labor. But if those goods were to be produced here in the United States, they would be produced with higher-skil labor and with lots of capital. The key question is how has the shift in economic activity created by expanding trade affected the demand for different kinds of labor and capital here in the United States. We have had:

• A shrinkage in export and import-competing manufacturing.
• A tremendous expansion in construction.
• An expansion in consumer services.

I don't see how those shifts significantly reduce the demand for factor of production "labor" and enhance the demand for factor of production "capital." Construction employs lots of capital--but so does tradeable manufacturing. I want to see Leontief input-output matrices for the U.S. before I upweight trade and downweight education, collapsing unions, migration, changing norms, monetary policy, and other factors as more likely to be responsible for the lion's share of the increase in U.S. inequality over the past generation and a half.

And "outsourcing": outsourcing seems at least as likely to me to equalize the U.S. income distribution as to give it a further inequality boost. Consider what kinds of jobs are likely to be outsourced.

Right. Plus, as I mentioned before, this goes against the changes in inequality that shows up in the Piketty-Saez data: namely, that nearly all the increased inequality is benefiting the top 1% of the population; they aren't really affected by a loss of American manufacturing jobs (unless they are all CEOs of corporations with subsidiaries in China, I guess).

Paul Krugman Says Globalization Leads to Higher Income Inequality After All

This is a big difference from the mantra in the 1990s and early-00s. And he blames China:

At the same time, the rise of China has prevented, for the time being, a development that I and others expected to mitigate the effects of trade on income distribution: up-skilling by the developing country exporters. “As newly industrializing countries grow,” I wrote in 1995, “their comparative advantage may shift away from products of very low skill intensity.” And that’s exactly what happened – for the countries that were the major exporters of manufactured goods to the OECD then. As John Romalis has shown, the exports of the original group of Asian newly-industrialising economies have shifted dramatically away from labour-intensive toward skill-intensive products.

But along has come China, which is far more labour-abundant now than the NIEs were then. A simple indicator is relative wage rates: in 1990, according to the US Bureau of Labor Statistics, the original four Asian NIEs had hourly compensation costs that were 25% of the US level. Now the BLS estimates that China’s labour costs are only 3% of US levels.

In 1995 I also believed that the effects of trade on inequality would eventually hit a limit, because at a certain point advanced economies would run out of labour-intensive industries to lose – more formally, that we’d reach a point of complete specialisation, beyond which further growth in trade would have no further effects on wages. What has happened instead is that the limit keeps being pushed out, as trade creates “new” labour-intensive industries through the fragmentation of production.

Strangely, however, this contradicts some of his earlier premises. Namely, that increased income inequality is almost all concentrated in the top 1% of of Americans, and the further up the ladder you go, the further the gains in income shares are held. So, if China has increased the college wage premium at the expense of lower-skilled workers, we should expect the income gains to be spread more broadly across those in the distribution who have attained higher levels of education. But they haven't been; the gains in wage shares have gone almost entirely to the very top of the income distribution.

The data, especially the Piketty-Saez data that Krugman loves to cite, is more consistent with Rosen's "superstar" theories, or (especially) with the the "income shifting" arguments of Slemrod and others, or with the data that shows that changes in the tax code led wealthy Americans to work more, or that changes in the tax code changed the predominant method of CEO compensation from wages to stock options. If China is truly significant, it's importance is seemingly being crowded out by other factors. Either that, or the Piketty-Saez data isn't providing a true representation of inequality.

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.

Pobre Paris

Good Klein has got it right. The rich shouldn't be able to buy their way through the justice system. Because that would be, y'know, unjust.

The country we live in allows one to up-grade one's jail room for a fee of ~ $82/day. A quirk of the system which, I assume, Ms. Hilton will take full advantage of.