The most frightening thing about inequality

by Site Author

It used to be that only academics studied inequality. Now politicians openly discuss it. President Obama has called inequality “the defining challenge of our time.” Senator Chuck Schumer was asked to give the Washington Post his favorite graph of 2013. He gave them the figure from the CBO, below, which tracks income gains across the income distribution.

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There’s no question that inequality has risen, and that this trend began around 1980. The gap between average high school graduate wages and average dropout wages started to grow then. But even “within-group” inequality increased. There’s been growing inequality amongst college graduates.

The best summaries of all this are survey articles by David Autor, or the book The Race between Education and Technology by Goldin and Katz.

It’s not obvious how the government should respond to growing inequality. The tax system could be more progressive, and many have called for an increase in the minimum wage. But such policies come with tradeoffs, and, anyway, they are not politically viable at the moment.

The most frightening thing about inequality is not just its growth over the past thirty years. What is much more frightening is how, as a matter of historical fact, the growth in inequality might simply be a return to business as usual.

Consider, for instance, the following figure, which comes from Emmanuel Saez and Thomas Piketty.

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Overall, inequality fell tremondously after the Second World War. (Some call this the “Great Compression.”) And so the rise of inequality since 1980 might sadly be a return to the way things used to be.

What if an unequal society is the natural state of things? “Natural” in the sense that it’s been like that for more of history than we’d like to admit. The era after World War II is an era that defined many of our values. What if that era is coming to an end?