Sunday, April 11, 2010

I love a Parade

The headline reads
Income Gap Grows During Recession

Well, sure. A recession is a time when fewer people do well. So the article's opening statement --
Even as the economy shrank last year, the income gap—the divide between the country’s richest and poorest citizens—kept growing.
-- should come as no surprise. Here's what's outrageous: The economy was mostly growing for the past 30 years, and the income gap was increasing all the while.

Stats reported by the article:

  • In 1978, CEOs at the largest U.S. companies earned 35 times as much as the average worker. Today, that figure is more than 300:1, according to the Harvard Business Review.
  • In 2008, the U.S. Census Bureau reported that income inequality had reached a modern high, with the wealthiest 10% of the population earning 11.4 times as much as the poorest 10%.
  • Research by Kevin Hallock, a professor at Cornell University, indicates that the trend persists: “From 1979 to 2009, after adjusting for inflation, the highest earners in the U.S. saw dramatic growth in their earnings while the lowest earners now make less than they did 30 years ago.”

Note that these stats do not reflect changes over the past two years, which may be due to the recession. The stats reflect a change that occurred over the last three decades.

Get that headline out of your head. The recession is not the problem. It is a problem, yes, but not the problem.

What changed in our economy, that brought about this 30-year change in the income gap?

Short answer: Economic policy.

Why economics is important to me:

A gap between society’s rich and poor can have ugly consequences. Countries with greater income inequality have higher rates of teen pregnancy, infant mortality, obesity, mental illness, drug use, imprisonment, and homicide than countries where wealth is more evenly distributed, according to research by epidemiologists Richard Wilkinson and Kate Pickett.

The things we see as problems of society are almost always, in my view, consequences of economic problems. That's why economics is important. That's why it matters that we get it right.


Jerry said...

There is a nice graph of this.


Jerry said...

well, for a certain definition of "nice".