Matt Zeitlin: Impetuous Young Whippersnapper

Lane Kenworthy has a fantastic series of graphs showing how nearly all of the incrase in inequality has been due to the top 1% having a huge increase in income – both pre and post tax. Even though the difference between post tax income as a portion of pretax income has grown from 70% to 84% since 1960, Kenworthy shows that even if we had the same high marginal tax rates of the 60s and 70s – up to 70% on the richest – we still would have seen a huge leap in inequality:

Kenworthy takes these results to mean that if the next president wants to address inequality, he or she will have to do more than tinker with tax rates. While this is certainly true, what I take form Kenworthy’s data is that inequality, per se, is not all that important. When liberals talk about the economy, they always talk about inequality, but they seem to spend more time on the “middle class squeeze”, rising health care costs, lack of health insurance for 40 million people and stagnant median wages. Even though one can make a good rhetorical case that is all part of one eternal golden braid of conservative economic malfeasance, it’s also true that one could address all the aspects of our current economy that are substantively bad (lack of health care, financial insecurity, middle class squeeze) without substantially lowering inequality. Sure, even implementing the full Robert Reich agenda would involve raising marginal tax rates on the rich pretty substantially, but no one is suggesting a return to full on 1970s level tax rates, and even if they were, Kenworthy suggests that it wouldn’t affect inequality all that much.

So could we learn to live with high inequality if we just taxed those very rich people to fully finance the social welfare state of liberal dreams? I think so, and especially if Democrats – after realizing they can’t do much about inequality per se – turn to an agenda focused on social mobility. This focus would probably work better politically, because Americas are generally not resentful or jealous of the rich and instead want to be rich themselves. But they also tend to be concerned with fairness and equality of opportunity, and so low levels of social mobility ought to be a good issue to organize around.

The US fares no better on mobility as they do on inequality. Most Scandanvian and Western European countires have higher rates of income mobility than the United States. But it’s also true that income mobility and inequality appear to be related. But despite the date on inequality and mobility – which is pretty solid – from a policy perspective, I’d rather see a focus on mobility that would then result in some reductions in inequality than policies that went the other way (reduce inequality and then also get some increases in mobility).