Krugman Destroys the 20%/80% Fallacy as an Explanation for Rising Inequality

http://select.nytimes.com/2006/02/27/opinion/27krugman.html?hp

This article by Krugman on rising inequality explains the real problem of rising inequality. He attacks our Fed Chairman for attributing the problem to educational inequality but he could also attack our president along with conservatives such as Tyler Cowan and David Brooks (who are posted below) who attempt to divert attention from the real problems of rising inequality.

The 20% versus the 80% fallacy looks at the inequality between the top 20% and the bottom 80% as the inequality problem. It is very clear that most folks in the top 20% have a better education than those in the bottom 80% and that education is therefore correlated with higher income. This is one of the common ways that income inequality is explained away. If only we could provide everyone with a better education we would have less income inequality. The problem is in the education system and not in the nature of our economic system or in our politics.

Krugman shows us that the real income gains in the US have been concentrated within the top 1% of income income earners. It is a diversion to restrict our analysis to the top 20%. He shows us that those in the 99th percentile, which requires around $400,000 of income, had their incomes grow by 87%. Those in the 99.9th percentile earned a minimum of $1,600,000 and had their incomes grow by 181%. The biggest gains went to those in the 99.99th percentile, with an entry income of around $6,000,000. This group saw its income increase by 487%. Its hard to explain the different growth rates within the top 1% as a consequence of superior education. Moreover, the level of education within the top 20% is probably very similar, and cannot explain why the growth in income has been concentrated within the top 1%.

It is very clear from Krugman's analysis that the wealthiest Americans have seen the greatest increases in their incomes and that their gains cannot be explained away by focusing on educational attainment. The concentration of income within to top 1% is also a problem in democratic society. Our economic system and our political system is contributing to a Plutocratic form of government in which political power and income are highly correlated. Of course, this is precisely why the focus has been on the top 20% versus the bottom 80% and why the education system has been viewed as the source of inequality.