Good news on inequality awkward for left and right
Before retiring, a recent Manhattan district attorney said he would not prosecute people who jump subway turnstiles to avoid paying fares because this is a crime of poverty. A retired New York police chief responded with a challenge: Find a turnstile jumper who does not possess a smartphone. Remember this item (from Heather Mac Donald’s 2023 book “When Race Trumps Merit”) during cloudy election-year campaign rhetoric about the nature and importance of economic inequality.
In more than 50 years, government transfer payments (Medicaid, food stamps, etc.) to the average household in the bottom quintile of earners, have risen (in inflation-adjusted dollars) from $9,700 to $45,000 annually. Why, then, does the government, which is substantially staffed by progressives, use — actually, abuse — statistics to suggest the futility of progressive anti-poverty policies? Because this provides a permanent rationale for government growth: perpetual undiminished poverty.
In their 2022 book “The Myth of American Inequality: How Government Biases Policy Debate,” Phil Gramm, Robert Ekelund and John Early demonstrate gross defects in the Census Bureau’s measurement of inequality. By not counting about 88% of government transfer payments that enlarge the buying power of lower-income households, and not counting taxes that lower the wealth of higher-income households, government statistics purport to prove that the average income in the top quintile of earners is 16.7 times that of the average in the bottom quintile. Counting transfers and taxes, however, the actual ratio is 4 to 1. Which is unsurprising, given this:
In 2017, 40% of the $2.8 trillion in transfer payments distributed by federal, state and local governments went to the bottom 20% of income households, and 68% to the bottom 40% of households. Eighty-two percent of the $4.4 trillion Americans paid in all taxes came from the two most affluent quintiles. And allowing for transfers and taxes, the average household income in the lowest quintile is only 8% less than the average in the second lowest, and only 24% less than in the middle quintile.
Economist Pierre Lemieux, writing in the Cato Institute’s journal Regulation, says that in 2017, 44% of all households had real (inflation-adjusted) incomes that 50 years earlier were earned only by those in the top 20%. “Recall,” he says, “that real wages increased by 74% over the past 50 years and the real median household income nearly doubled.”
Amid increased attention to income inequality, the populist right — “national conservatives” — and the progressive left favor “industrial policy” that regressively funnels money upward to corporations. The populist right advocates protectionism (tariffs to shield corporations from competition), and the populist left advocates hundreds of billions of dollars of subsidies (for semiconductors, electric vehicles, solar panels, etc.).
Yet Americans remain stubbornly exceptional. A November report from the European Research Council addresses a phenomenon vexing to progressives: Why does a six-country opinion survey (Australia, France, Germany, Switzerland, the United Kingdom and the United States) reveal the United States as uniquely resistant to media narratives that inequality is the result of systemic unfairness and that this requires energetic government redistribution?
Their twofold answer is that Americans, rejecting the left’s equation of fairness with equality, are incorrigibly optimistic about individual effort being rewarded by the market with high social mobility
A third reason might be that U.S. government policies have more or less efficiently ameliorated inequality (with some negative effects on workforce participation in the bottom quintile). This is inconvenient for the progressives’ the-economy-is-rigged narrative, and for the conservative argument that redistributive government is discordant with national values and practices, and beyond government’s competence.