Sunday, November 20, 2011

We have to do better on inequality

Actually, the middle-class has done worse than this, because these look like figures for household income, and include the increasing number of two-income families. It's hard to find data for individual incomes. I expect that this is at least partly deliberate.

The writer is Charles W. Eliot university professor at Harvard, and a former US Treasury secretary (1999-2001) and director of the National Economic Council (2009-2010)


November 20, 2011 7:35 pm
By Lawrence Summers

The principal problem facing the US and Europe for the next few years is an output shortfall caused by a lack of demand. Nothing would increase the incomes of all citizens – poor, middle-class and rich – as much as an increase in demand and associated increases in incomes, living standards and confidence in institutions and the future.


The most important of these is the strong shift in the market reward for a small minority of citizens relative to the rewards available to most citizens. According to a recent Congressional Budget Office study, the incomes of the top 1 per cent of the US population, after adjusting for inflation, rose by 275 per cent from 1979 to 2007. At the same time, the income for the middle class grew by only 40 per cent. Even this dismal figure overstates the case of typical Americans, as the number unable to find work or who have abandoned the search has risen. In 1965, only 1 in 20 men between 25 and 54 was not working; by the end of this decade it will probably be 1 in 6, even if the full cyclical recovery is achieved.

Those who remain serene in the face of these trends or favour policies that would disproportionately cut taxes at the high end assert that snapshot inequality is acceptable as long as there is social mobility within lifetimes and across generations. The reality is that there is too little of both. Inequality in lifetime incomes is only marginally smaller than inequality in a single year. According to the best available information, intergenerational mobility in the US is now poor by global standards and probably for the first time no longer improving. Take just one statistic: the share of US college students that comes from families in the lowest quartile has fallen over the last generation while that from the richest has increased.


At the same time, those who are quick to label any expression of concern about rising inequality as misplaced or a product of class warfare are even further off base.


What then is the right response to rising inequality? There are too few good ideas in current political discourse and the development of better ones is crucial. Here are three.

First, government must be careful that it does not facilitate increases in inequality by rewarding the wealthy with special concessions. [see original article for details]

Second, there is scope for pro-fairness, pro-growth tax reform. When there are more and more great fortunes being created and the government is in larger and larger deficit, it is hardly a time for the estate tax to be eviscerated. .....

Third, the public sector must insure that there is greater equity in areas of the most fundamental importance. ..... What is more troubling is that the ability of the children of middle-class families to attend college has been seriously compromised by increasing tuition fees and sharp cutbacks at public universities and colleges.


Most alarming is the near doubling over the last generation in the gap between the life expectancy of the affluent and the ordinary.



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