Gary Burtless — Inequality: Making the Point

In the essay that Marshall Steinbaum criticizes, I discuss findings by Professors Thomas Piketty and Emmanuel Saez showing that market income inequality has returned to the peak last seen in the 1920s. In my essay I do not criticize those findings. In fact, in previouswritings I have strongly defended Piketty and Saez’s landmark research against criticisms by conservative commentators.
Instead, my recent article makes two simple points. First, inspired by the recent publication of Piketty’s best-selling book, a number of people have described in a misleading way the implications of that book for the long-term trend in U.S. inequality. Many writers appear to misunderstand the limited concept of “inequality” that Piketty and Saez have estimated. Under a comprehensive income definition, inequality today is certainly below, and probably far below, its level in the 1920s. Second, contrary to a common claim advanced in many discussions of the Piketty-Saez estimates, real incomes of Americans in the middle and at the bottom of the income distribution have increased over the past 35 years. Although the growth in their incomes has fallen far short of the income gains enjoyed by the top 1%, it is simply wrong to say that all or nearly all U.S. income gains have been obtained by the top 1%....

Steinbaum and I agree that inequality has increased since the early 1980s, regardless of whether inequality is measured with market income alone or with income measured under a comprehensive definition that includes taxes and transfers. We also probably agree on many policies that would improve the distribution of net incomes. It seems to me foolish, however, to pretend that the only or the best measure of income is one that ignores the crucial contribution of government redistribution to family incomes. Public redistribution has succeeded in greatly reducing the gap between rich, middle class, and poor, even if our best estimates of market income inequality suggest otherwise. Steinbaum’s point seems to be that government policy could and should do more. I agree. But it is not “missing the point” to remind Americans that inequality has fallen substantially over the past century because public policy has produced a final income distribution that differs significantly from the one we would see based on market incomes alone.

Brookings
Inequality: Making the Point
Gary Burtless | Senior Fellow, Economic Studies, The John C. and Nancy D. Whitehead Chair
(h/t Brad deLong)