Wednesday, November 12, 2008

Income inequality...

Throughout the election, Barack Obama was attacked as a "redistributor" and a "socialist" by the right. The implication is that a downward distribution of income from the wealthy to the middle classes is somehow a bad thing, and that all of the benefits of economic growth are equally shared. Those who perpetrate these claims are either (a) wealthy, (b) cronies of the wealthy or (c) bamboozled by rhetoric and lacking evidence or the skills to interpret the evidence.

As just one simple piece of evidence, from 1979-2004 the real (that is, adjusted for inflation), after-tax income of the top 1% of society rose by 176%. The top 20% of society saw an increase of 69%. The bottom 20% saw an increase of only 6%. No quintile below the top saw an increase of over 30%, and the pattern is distinctly regressive. Here is my source, and I would like to point out that the data used comes from the Congressional Budget Office.

So, either the wealthiest in our economy are suddenly much better entrprenuers than they were 30 years ago (given boom-bust cycles, I doubt it!) or they have benefited from a set of policies related to international trade and investment, as well as domestic welfare policies, that favor an upward redistribution of income at the expense of the lower and middle class. I might point out that Reagan was elected in 1980, and in the period mentioned there has been only one Democratic president, Bill Clinton. Even Clinton was hamstrung by a Republican Congress for much of his term, and was a pro-free trade, pre-free investment, financial deregulator and fiscal conservative.

Small wonder this election saw a mandate for change in Washington policies - indeed, its a wonder that Obama's victory was not a landslide. Sadly, this may be a testament to the pervasive and simplistic "free market" ideology long advocated by the right, and the manipulative anti-communist rhetoric employed to promote it. One wonders if John Maynard Keynes, the chief architect of the post-WWII international economic regulatory structure, would be labelled a socialist in today's politics! We need to move past such divisive ideology to get to the point where people understand (at least roughly) that economics is fundamentally about manipulating incentives to produce a beneficial outcome - and that the "free market" vs. "socialism" is a dangerous false dichotomy that hinders real progress in the USA.