In its never-ending battle to persuade us that neoliberal economics are, in fact, good for working people, the last issue of The Economist featured a leader and an article telling us that inequality never actually rose that much and is currently falling. The justifications for these statements are rising real wages for unskilled workers over the last few years and a few new, hotly disputed studies which allegedly establish that inequality has barely increased “since the 1960s.” Should we accept these arguments?
The two propositions should be taken separately. There is, in fact, plenty of evidence that the combination of demographic change and a hot American economy has helped unskilled workers and reduced inequality–not that Biden is being given any credit for it. The demographic change is here to stay but will matter only if the pace of globalization remains slow; after all, there are still plenty of underemployed people in Asia and Africa to pick up the slack. In addition, AI may wind up reducing the demand for labor; we just don’t know. Finally, fiscal problems may ultimately result in an economic slowdown and lower real wages for workers. The Economist should take that possibility seriously, since it has been predicting a recession for most of Biden’s term.
As to the studies, they aren’t quoted at length, but as far as I can tell, they have the following flaws:
- Using “the 1960s” as a baseline presents a problem for two reasons. First of all, I can’t tell if that means before or after the approval Great Society programs; second, the relevant date for lovers of neoliberalism is 1980, not 1960. The Reagan era is when inequality really took off, thanks to the tax cuts.
- As I’ve noted before, it appears that the authors of the studies are including transfer payments in government health care programs in their analysis, which essentially makes soaring American health care costs an economic plus for workers rather than a painful offset. That’s stupid.
- The studies clearly focus on incomes, not wealth. We all know that rising asset prices are primarily responsible for the increase in inequality. A genuine, unbiased review of the inequality issue would take net worth as well as realized income into account.