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Kevin Hassett and Aparna Mathur’s op-ed in today’s Wall Street Journal (“Consumption and the Myths of Inequality”) is an exercise in denialism that makes me nostalgic for the days when the right forthrightly advocated social Darwinism. Yes, conservatives used to say, life is hard for many people, but that’s because they have little to contribute to society. Rather than rail against inequality, these mental pygmies should work to unfetter John Galt-like mental giants, without whose wealth creation their puny lives would be punier still. This worldview wasn’t very nice, but at least it acknowledged a recognizable social reality: a few people had a lot and a lot of people had very little.
In today’s focus-group-driven world, Republicans can’t afford to be seen demonstrating overt contempt for or indifference to the have-nots; that’s one reason Mitt Romney had to disavow his ghastly remarks about the “47 percent,” uttered in what he thought was the privacy of a Boca Raton fundraiser. It’s also why Paul Ryan, in a speech yesterday about poverty, framed his message (poverty programs foster dependency) as an upbeat one about charitable giving and helpful friends and neighbors and mutually supportive communities rather than as a scolding message about parasitic malingerers bent on sucking the Treasury dry.
When the topic is growing income inequality, it’s hard to prettify an imbalance between the rich and everybody else, so instead conservatives try to argue that it doesn’t exist. “Today,” write Hassett and Mathur, “we hear that the gains from economic growth accrue to the highest-income earners while the standard of living of the poor and middle America stagnates and the gap between the richest and the poorest grows ever wider. That portrait of the country is wrong.”
A bold claim, given the overwhelming evidence to the contrary. Thomas Piketty and Emmanuel Saez have demonstrated pretty clearly that America’s top one percent have doubled their income share over the past three decades. (If you want to play with the data, check out their World Top Incomes Database.) Hassett and Mathur answer that such studies “leave out too much.” They don’t include employer-provided benefits, or they don’t include government-provided benefits and taxes. Politicians who ignore the effects of the safety net “are putting their thumb on the scale.”
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The problem with that argument is that while some studies have indeed left out such factors, others have not. A 2011 Congressional Budget Office study that included all those factors found that, whaddya know, between 1979 and 2007 the top 1 percent saw its income grow by 275 percent, which was about seven times more than income growth for the middle 60 percent and about 15 times more than income growth for the bottom 20 percent. Anyway you slice it, income inequality has been growing rapidly. (Overall, the federal government effects about one-quarter less redistribution today through taxes and benefits than it did in 1979. And if conservatives like Hassett and Mathur and Romney and Ryan get their way, it will effect a whole lot less redistribution in the future.)
Stee-rike one.
Hassett and Mathur next point out that people’s earnings tend to rise over their working lifetimes, so “snapshot measures of income inequality can be misleading.” True, but when you correct for demographic factors (today’s population is older than it was 33 years ago, and divorce and single parenthood have made households smaller), you find that income inequality, though less extreme than shown by the standard measure, is also growing faster than shown by the standard measure.
Stee-rike two.
Sensing perhaps that these two arguments are entirely bogus, Hassett and Mathur next move on to the subject of consumption, which is where inequality denialist arguments pretty much always end up. What matters isn’t how much money you have, they argue, but how much stuff you have, and the income gap isn’t matched by a comparable consumption gap.
The first thing to be said about this argument is that when a libertarian starts arguing that money doesn’t matter you know it’s time to reach for your wallet. Hey, Kevin Hassett! If money doesn’t matter, can I have yours?
The second thing to be said about this argument is that the data on consumption are, as you might expect, a little squishy—so squishy that while some studies show a consumption gap much smaller than the income gap, other studies (here’s one) show a consumption gap that’s the same size as the income gap. From reading Hassett and Mathur’s op-ed piece, you would never know that there’s a disagreement among serious academics on the basic question of whether consumption patterns match income patterns or not. (Hassett and Mathur do acknowledge that disagreement, briefly, in the American Enterprise Institute paper on which the op-ed is based.)
I have no idea who’s right about whether the consumption patterns do or don't match growing income divergence. But let’s assume Hassett and Mathur are right. One would still like to know how relative consumption of particular items has changed over three decades. Not all consumption is created equal. Which items are cheaper? Which are more expensive? Hassett and Mathur don’t say. The answer is that clothing and food and electronics are cheaper (Hassett and Mathur marvel that even low-income people often own microwave ovens and cell phones) while housing, transportation (read: automobiles), higher education, and health care are more expensive.
Perhaps you’ve heard that the number of people lacking health insurance rose pretty steadily over the past decade and a half (though that increase was halted last year thanks to Obamacare). The reason why is that health care has gotten a lot more expensive. The poor person who can afford a flat-screen TV is a lot less likely to afford a gall bladder removal. Health care is especially expensive when people have no health insurance, or lousy health insurance. In 2010, for instance, Latinos saw their health care expenditures rise by 17 percent (i.e, by $274), while non-Latinos (who tend to be wealthier) saw their health care expenditures rise by a mere one percent (i.e., by $4). On a per-dollar basis, Latinos “consumed” more health care than non-Latinos. But obviously that’s a meaningless statistic. The non-Latinos had cheaper access to health care, which is what matters. (In general, I believe that categorizing health care as a “consumption” item is ghastly and wrong, but it can’t be avoided when you’re measuring what money will and won’t buy.)
Assuming Hassett and Mathur are right that consumption patterns haven’t diverged along with income, there is something else one would like to know: How can that possibly be? To buy stuff you need money, right? Hassett and Mathur pretend this question doesn’t exist, but the answer is obvious. If the middle class really is keeping up with the affluent Joneses, it’s through borrowing. And in fact, a growing body of work (including this recent Century Foundation paper) suggests that income inequality has been driving America’s debt binge. Between 1983 and 2007, the top 5 percent saw their debt fall from 80 cents for every dollar of income to 65 cents, while the bottom 95 percent saw their debt rise from 60 cents for every dollar of income to $1.40. That suggests President Obama is probably right when he says that Republican tax cuts in the early aughts helped bring about the sub-prime financial crisis of 2008. Americans were binging on debt because Americans were binging on inequality.
So. Even if Hassett and Mathur are right that consumption has neutralized the effects of income inequality (a premise I happen to find dubious), it would logically have to be debt-fueled consumption, which is not anything America needs more of, particularly when the debtors lack the means to repay the loans. Why would a conservative, of all people, overlook that?
Stee-rike three, and they’re outta there.
16 comments
Gawd, I love it when conservatives are hoist on their own petard.
- cspencef
October 25, 2012 at 5:20pm
Usually, when someone struggles with reality, it means they have trouble grasping reality. But when Conservatives struggle with reality, I think they actually try to defeat it.
- Nusholtz
October 25, 2012 at 5:37pm
Conservative inequality denialism is actually two denialisms, the relative standard of living of the poor and affluent, which Noah addresses, and the absolute negative consequences of high levels of inequality for poor and affluent alike, which I will address. Only twice in the past 100 years has America experienced the level of inequality that we are rapidly approaching, in 1929 and in 2008, and both times the consequences were not good. In 1929, the government did not intervene, the nation sunk into a prolonged depression, and the level of inequality plunged. In 2008, the government intervened, the nation avoided another depression, and the level of inequality slipped for a short time but will soon recover to its pre-2008 level. This time when the economy collapses, don't expect America to tolerate another intervention.
- rayward
October 25, 2012 at 6:16pm
Just as insidious as inequality denialism itself are reporters blaming it on technology and globalization instead of protectionism, policy decisions on minimum wages and unionization, and many other policy decisions). Pretending unemployment is structural serves the same people who want to trim social security, Medicare, and Medicaid, and spoiler alert, that's not the average voter. Dean Baker constantly catches this denialism http://www.cepr.net/index.php/blogs/beat-the-press/income-inequality-and-globalization-the-protectionists-rule
- JCAtwood
October 25, 2012 at 6:43pm
hey, so what I caint afford me my dieohbeeties medicine, I got myself a shiny new celluloid phone with what which to be burided with. praise jeebus
- blackton
October 25, 2012 at 6:48pm
"Hassett and Mathur marvel that even low-income people often own microwave ovens and cell phones." Say what?! In the 1940s I suppose they would have marveled that low-income people owned hot plates and had a dirt cheap dial phone if they had any telephone at all. Hasn't it occurred to them that there are cell phone plans affordable to low-income folks. It's no-frills but at least it's a phone? Would they consider denying low income folks the most basic and affordable means of connection with the outside world. Jerks!
- Tgossard
October 25, 2012 at 7:50pm
I'm dreading the next few years of Seattle linking several hundred times to the Hassett-Mathur op-ed as THE authoritative source on all matters relating to inequality.
- Fishpeddler
October 25, 2012 at 8:08pm
You are right, JCA, but there is an equally important point not to be overlooked. Even if the growing income inequality is entirely due to market forces that are beyond our control, or that we can control only at the sacrifice of output (neither of which is the case but let us assume so), there is no reason whatsoever that we cannot redress the income inequality at the macro level with a suitable system of progressive taxation and government benefits. We could, for example, eliminate payroll taxes and make up the difference with high-end tax increases. We can have government financed health care, relieving everyone of that direct expense, again financed with high-end taxes. We can make higher education free to the qualified, as it largely is in much of Europe. If retirement, health, and education are no longer goods that individuals have to buy, and progressive taxation is used to fund them, then the poor and middle class need considerably less market income to maintain a decent life. In short, we can have whatever income distribution we want and consider just -- the sharing out of our economic output -- without having to mess at all with the market forces and incentives that are indeed useful for generating wealth. People with these basic needs met, would still have plenty of incentive to work to provide for their food, clothing, shelter, transportation, and entertainment. If the high-end earners are moved to goof off because they cannot pocket as much net after-tax income, that is all to the good. Leaves more opportunity for others to get a piece of those jobs. The US economy is plenty productive. What has changed over the last 30 years, directly as a result of government policy, is that 50% of GDP now goes to the top 10% (with most of the gain going to the top 5%). In 1980, the figure was 33%. That difference, 17% of GDP, is about $2.5 trillion in today's economy, more than enough to eliminate the deficit with money left over. The very reason we have deficits is not spending, but the fact that the income has shifted to the top while top tax rates have been reduced dramatically so that the income escapes taxation.
- roidubouloi
October 25, 2012 at 9:38pm
Libertarians...shouldn't be allowed to discuss economics in public, or own guns, as they're always shooting their mouths off in ways dangerous to themselves and others. I mean, pretty much, 'libertarian economics' qualifies as an oxymoron anyway.
- jet
October 25, 2012 at 9:43pm
Yes, "libertarian economics" is an oxymoron, just like its kissing cousin, "supply-side economics." And because they are oxymorons, they can only be supported by relentless falsification or ignoring of the evidence. For example, does it matter to the supply-side nuts that their austerity agenda, touted as the solution to the economic crisis, is failing everywhere, and I mean everywhere, that it is being tired while the Keynesian methods employed here, inadequately, are faring much better? No. It doesn't matter to them at all. In the face of copious and uniform evidence to the contrary, they continue to insist that austerity is the answer. In the same vein, they insist that tax cuts are the answer even though the correlation of tax cuts with slow growth is completely negative. Whenever they implement their tax cut regime, we get nothing but slow growth, joblessness, and bust. Do they care that ALL the evidence is that they are wrong -- there is no giant turtle? Nope. The are completely free of any need to relate their claims to evidence. All just bible stories. They believe the fairy tales because they do, and demand that we do too.
- roidubouloi
October 25, 2012 at 10:11pm
Oops. The giant turtle reference relates to a similar discussion on the thread about global warming -- libertarianism is the equivalent of creationism, or the myth that the earth is carried through the heavens on the back of a giant turtle.
- roidubouloi
October 25, 2012 at 10:13pm
"They are completely free of any need to relate their claims to evidence. All just bible stories." Yes, roi, Libertarians, starting with Ayn Rand, base everything on faith. The scientific method is the devil to them. They want belief, not reason. They twist everything in the real world to fit their preconceived, unchangeable ideas. And yet they insist that they are scientific and thus can claim that anything they make up has basis in fact. E.g., when they blame market forces for income inequality, they ignore that fact that monopoly is a major cause of income equality, and monopoly is not a market force, except among criminals. Pure religious belief.
- magboy47.
October 26, 2012 at 12:42am
Agreed roid.
- jet
October 26, 2012 at 2:51am
"In short, we can have whatever income distribution we want and consider just." Sadly, no, we can't. The reality of American politics means that fully 47% of the electorate will not approve of the sorts of (they think) draconian Social Engineering this requires. Shoot, we're a mere 4 years beyond a Great Depression style economic melt-down, and Romney is proposing an additional 20% cut in tax-rates, and 1/2 of the electorate cheers. We can have whatever income distribution that we can sell politically. That's dramatically different from what we want and consider just.
- AllanL5
October 26, 2012 at 9:15am
Allan, I don't see the distinction between what can be sold politically and what we want. What can be sold politically IS what we want. The conservative claim is that we cannot, as a technical matter, have the distribution that we want politically without damaging or destroying our ability to generate wealth and income. This is absolutely false. My whole point is that the obstacle is political, not economic.
- roidubouloi
October 26, 2012 at 4:05pm
It's a shame that so few on the left have ever read actual Libertarian texts. Hayek and von Mieses are both clear that it is the responsibility of politics/government to reduce the influence of monopolistic interests, which usually work through regulatory capture in the State. Neither are opposed to social welfare programs, public education, and etc, and in fact state pretty much the case roi does: that we can have the distribution that we want politically without damaging or destroying our ability to generate wealth and income-- IF we don't fall for the the idea au courant when they were writting that the State-controlled central planning model was more "efficient". Ayn Rand was a crackpot novelist, not a serious Libertarian thinker, and the current brand of Republican faux Libertarianism is junk economics pushed by vested interests.
- Robert Powell
October 27, 2012 at 5:20am