Jeff Madrick — Inequality Is Not the Problem

The American dream should be built on expanding opportunities for the entire society, which can only come about if average real wages go up. Earning more than your parents is as much or even more a result of the rise of wages after inflation across the economy as it is a reflection of income mobility. In other words, if you are born into the bottom quintile but real wages rise, you will likely exceed your parents’ income even if you remain in that quintile....

The New York Times just published calculations based on the detailed data collected by the Luxembourg Income Study that show middle class incomes in America are now lower than in some other nations. And Sawhill shows that out of every three adults who were children in 1968, one is earning less than his or her parents did. That latter number is troublingly big, and since the Great Recession it has probably risen.

What we now know is that we can’t rely on income mobility to solve these problems. Because there has been growth, if modest compared to earlier times, about two out of three children are doing better than their parents. But many of them are not doing much better—about half of this group remain in the same quintile they were born into. Indeed, rising income inequality also makes it harder to move from one quintile to another: the rungs on the ladder are farther apart....

Yet for all this, the problem of inequality is an inadequate description of the situation. Inequality has traditionally meant that incomes at the top grow faster than the next category down, which in turn grow faster than the next category, and so on. All categories can grow to some extent. As has been apparent to economists for several years, however, this is no longer the case. We now have stagnating incomes for a large majority of Americans and runaway incomes at the very top—especially the top tenth of the top one percent. This is not so much “inequality” as a complete lack of growth for much of the country. And this is what the nation should focus on.

I agree that now is the time to drop the austerity meme and focus on growth, which has been lagging through this weak recovery if it can be called that yet. However, I think he then goes off the rails with this:

There is simply no escaping the central fact that the welfare of Americans depends on faster economic growth. Progressives and conservatives should agree on this.

The issue as I see it is growth measured as per capita GDP versus distributed (shared) prosperity. The capital share and labor share are out of whack. Let's focus on the reasons for it, such as managerial capitalism, managing toward stock price, tax policy, privatization, deregulation, etc., much of which can be attributed to neoliberalism as a social, political and economic ideology directing policy. No matter how much per capita GDP increases, the distributional share will not change without a change in policy since it has become abundantly clear over decades that the trend is toward increasing capital share over labor share through all possible means.

The New York Review of Books
Inequality Is Not the Problem
Jeff Madrick | editor of Challenge: The Magazine of Economic Affairs, visiting professor of humanities at The Cooper Union, and director of policy research at the Schwartz Center for Economic Policy Analysis, The New School.