A few charts and graphs from recent NYTimes articles to llustrate the income inequality situation:
And here’s one from today’s WSJ:
These come from articles tracking two trendy themes in the business press: One is the question of whether the slightly rich resent the ultra rich? A recent article in Fortune kicked off this meme. The other is summed up by the hed of Eduardo Porter’s Sunday NYTimes story linked above: “If All the Slices Are Equal, Will the Pie Shrink?” — if we divvy up the fruits of economic growth to benefit capital and labor, will the results stifle growth overall? These are variations of the same issue really: Does the invidious comparison that gross inequality prompts create healthy incentives to achieve or does it create widespread unhappiness and discontent with the overall system? Should the less fortunate simply ignore the greater gains of the wealthy and be pleased that the rising tide allegedly lifts all boats? Porter explains, “A shrinking share of the nation’s economic spoils will not only reduce workers’ stake in the current social setup; it will leave them with few resources for investment in economically crucial items like education. Rising inequality will also hamper teamwork. And it may ultimately destroy incentives. If the rewards of economic growth are monopolized by the very top earners, the rest of us may find little reason to make an effort.” The stories about the rich vs. the superrich reveal how this resentment is drifting upward as more and more income is commanded by the economy’s “superstars” — those who, as Sherwin Rosen argues, have suceeded in leveraging a small difference in talent across a huge economy to yield massive gains over the slightly less talented. And then once these superstars have established themselves the fundamental attribution error and network effects kick in to keep them on top. The result, as Porter suggests, is a greater incentive to cheat and resort to white-collar crime — when some CEOs’ incomes seem criminally high already, it may foster a climate of permissive criminality (backdating stock options, etc.) among the rest of the executives trying to keep up.
So what to do? This chart from WSJ has a helpful catalog of the Democratic Party’s ideas:
Ezra Klein, who thinks income inequality is primarily a symptom of the working class’s lack of political power, would probably emphasize the “strengthen union clout” aspect of this — one possibility is to pass a card-check law, which would allow unions to better organize. Whether the ideas about taxation strike you as any good probably depends on how important you regard income incentives in spurring individuals to make efforts to innovate — I tend to think (perhaps naively) that people are motivated by some kind of recognition that money is only a proxy for. Perhaps if people could be paid in meaning…