This article in the liberal NYT, by a former Wall Street executive who was in the Obama administration, provides us with data on growing income inequality in the US. It goes down hill after that by ignoring the problem that it described and proposing a solution for a different problem. It turns out to be a rationale for a solution to problems that the Obama administration is willing to deal with.
The data on income inequality is stunning and difficult to deny. The top 1% received 93% of the growth in national income from 2009 to 2010. The top .01%, representing 15,000 households with an average income of $23.8 million received 37% of the gain in income. The super-rich saw their income grow by 21.5% in a period of high unemployment. The growth in income going to super rich is our real problem. We need to understand why that is happening and we need to deal with the problem of political inequality that results from growing income inequality.
Unfortunately, after describing this problem, the author turns to a problem that he is more comfortable with. He tells us that the income of college grads has grown by 15.7% over the last 32 years, and that the income of those without a high school diploma has dropped by 25.7% in that period. The problem has shifted from where the growth in income has gone, to where it has not gone. A 15.7% growth in the incomes of college graduates over 32 years is about one half a percent per year. That is nothing to be proud about. It is well below the growth in productivity over that period. We should be wondering why our highly skilled workers with college educations are doing so poorly relative to a handful of the college educated in the top 01% But that does not concern him because it does not square with his solutions for growing inequality.
He turns away from the real problem, and tells us that we need to address problems in the education system which have nothing to do with the fact that a small segment of the college educated are benefiting from the growth in national income. Moreover, we should not cut government spending on programs that help those with very low incomes. That is a good recommendation but it has nothing to do with the fixing the maldistribution of income problem that he raised.
He then turns his attention to the tax code which was made less progressive in the Bush administration and we should let some of those tax cuts expire. This would bring the tax system back to where it was under Clinton, when most of gains in income also went to the top 1%. That does not fix the problem of growing pre-tax inequality, but it would make a small dent in the problem of post-tax income inequality. If we want to use the tax system to fix the problem of income inequality we should be trying to make it much more progressive. The researchers whose data he reported on rising income inequality found that a top marginal tax rate of 73% would reduce post-tax inequality and would not have a negative effect on economic growth. The US economy grew fast when rates were at that level prior to the Reagan administration when they dramatically reduced.
The author alludes to globalization, which may be part of the problem of growing income inequality, but he assumes that government can do nothing about that problem. I was rather surprised to learn that governments have nothing to do with trade policy. Of course, if government policy is to whatever multinational corporations want it to do, I can understand his reasoning.
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