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On Hillary, Income Inequality, and the GOP
During her economic policy speech Monday, Hillary Clinton said the “evidence is in: Inequality is a drag on our entire economy.” But it is far from clear that’s empirically the case with advanced economies (vs. developing ones), studies suggest. For instance: There was a big jump in 1%-99% inequality during the 1990s to 21.5% in 2000 from 13.4% in 1991. (It’s actually a bit less today.) Yet both income growth and GDP growth were very strong. Clinton may credit her husband’s policies for that, but whatever. It is an example that greater inequality and broad-based income gains can coexist.
Inequality also rose in the 1980s but, again, strong income growth. As Brookings scholar Rob Shapiro wrote recently about the 1980s and 1990s: “… households of virtually every type experienced large, steady income gains, whether they were headed by men or women, by blacks, whites or Hispanics, or by people with high school diplomas or college degrees.” That even though high-end inequality doubled.
What’s more, a recent OECD study found this interesting dynamic between inequality and growth: “While the overall increase in income inequality is also driven by the very rich 1% pulling away, what matters most for growth are families with lower incomes slipping behind.” And this: “In contrast, no evidence is found that those with high incomes pulling away from the rest of the population harms growth.” And, by the way, the rise in high-end US inequality hasn’t been accompanied by worsening economic mobility.
So is income inequality a non-issue? Not at all. Center-right policymakers need to think creatively about an economy where a rising tide fails to lift all boats. Here is how I think about it, at least one facet:
Published in EconomicsThe big problem with high-end inequality is not that it necessarily reduces GDP growth. Instead, it increases the impact of barriers to income mobility such as poor schools, pricey colleges, weak public transit, and onerous occupational licensing schemes. If you can’t climb the ladder, then a top rung that’s ever further away becomes a bigger problem. While conservatives should applaud when an entrepreneur strikes it rich thanks to an innovative new idea, product, or service, they should freely criticize crony capitalist policies that benefit the powerful and politically connected, such as special tax breaks, strong intellectual property laws, or the safety net for Wall Street banks that are “too big to fail.” When income inequality starts to hurt middle-class opportunity, it should be the concern of both parties.
Hear hear!
And what is the common denominator among “poor schools, pricey colleges, weak public transit, and onerous occupational licensing schemes”? Too much government. Government is the chains that hold the less fortunate captive.
(But enough with the ‘middle-class opportunity’ – it’s everyone’s opportunity.)
If there are fewer people in a position to start new businesses or expand old ones, there will be fewer additional jobs and the number of folks who are desperately poor will grow.
Socialism — even social democracy — means stagnation at best. Just look at France. Thirty-five years of minuscule growth, and growing social unrest.
Thank you, James—helpful!
Accepting the truth of the OP’s comment (and I don’t mean to suggest that I don’t), what does that say about Hillary? At least three things occur to me that should be emphasized by her eventual opponent: (1) to the extent she tries to emphasize the growth that occurred under her husband’s administration, she must be made to own the increased income inequality that accompanied it; (2) it is crass politics to campaign on the increase in income inequality when your family has been one of the most prominent beneficiaries; and (3) more of an observation, does it seem reasonable to assume that part of the reason Hillary (and others like her who have benefited greatly from an expanding economy) argue so strenuously about income inequality is because of feelings of guilt over their good fortune compared with those at the bottom of the income pyramid? In other words, constantly making this argument helps relieve them of feelings of guilt or hypocrisy stemming from their good fortune, while at the same time they are not required to do anything concrete to alleviate the inequality. The Clinton Foundation seems to function in exactly that manner: receive obscene amounts of money and dole out a comparatively minuscule amount to causes that claim to aid the less fortunate and the Clintons can then be relieved of any feelings of guilt for retaining substantially all the “donations.”