This article on NYT discussed the big question we had in class last time. It's pretty surprising to imagine that the rich has actually gotten "poorer" as the data presented in this article shows. The article also shows how Washington has made effort in helping the middle class since the financial crisis, which explains why inequality has not increased since.
"How could that be? Because the crisis, which ran roughly from 2007 to 2010, reduced the pretax incomes of the wealthiest Americans more than the incomes of any group. The wealthy have indeed received the bulk of the gains since the recovery began, but they still haven’t recovered their losses. Meanwhile, the steps that the federal government took in response to the crisis, including tax cuts and benefit increases, have mostly helped the nonwealthy."
"Both point in the same direction: The income of the top 1 percent – both the level and the share of overall income – still hasn’t returned to its 2007 peak. Their average income is about 20 percent below that peak. Yet we have all become so accustomed to rising inequality that we seem to have lost the ability to consider the alternative. Maybe it’s because many liberals are tempted to believe inequality is always getting worse, while many conservatives are tempted to believe that the Obama economy is always getting worse.
The numbers, however, make clear that inequality isn’t destined to rise. Not only can economic forces, like a recession, reduce it, but government policy can, too. And Washington’s recent efforts to fight inequality – as imperfect and restrained as they’ve been – have made a bigger difference than many people realize."
"But the fact that inequality hasn’t continued rising in the last several years matters – first, because facts matter, and, second, because it helps show what Washington has the potential to do. For much of the last few decades, rather than attacking inequality, government policy has exacerbated it. Tax rates on the very rich, the same group receiving the largest pretax raises, have fallen the most.
In the last several years, however, the federal government has tried to combat inequality, through a combination of tax and spending policies. These efforts weren’t aggressive enough to bring major raises to most families. The financial crisis was too big, and Washington’s response was too restrained. Yet the efforts were aggressive enough to make a difference.
They are a reminder that rising inequality is not inevitable, and that the country has the power to shape its economy."
Overall, the author only discusses how tax policy has helped the middle and low income earners and kept inequality from rising, but did not mention the role of capital income in this article at all. What do you guys think?
I think that the omission of capital income almost nullifies this argument, or at least puts it in a completely different context than what Piketty is arguing, because inequality is not necessarily perpetuated by income inequality but unequal distributions of capital, as capital grows nearly 4-5 times faster than economic growth (i.e., wages or income). For example, Piketty shows how the multibillionaire heiress of the L'Oreal fortune is worth $30 billion and can earn $500 million per year on her capital, although through legal financial creativity is taxed annually on only $5 million. Thus, inequality must be measured through capital wealth rather than income.
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