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Tuesday, July 24, 2007
NYT's Brooks: If Inequality is So Real, Why Are Liberals Talking About It?
People who downplay inequality are like the cranks who don't believe in global warming. The find evidence on the margin that is supposed to cast doubt on the macrophenomenon. They bob and weave, admit this exists, but say we can't do anything about it, etc. etc.
David Brooks is inequality's equivalent of the American Petroleum Institute. His column ($) today provides a fine example of the type of sophistry he peddles. Let's examine:
First, pile on the studies that downplay inequality, so you seem like you know what you're talking about and overwhelm your audience.
The first complicating fact is that after a lag, average wages are rising sharply. Real average wages rose by 2 percent in 2006, the second fastest rise in 30 years.
The second complicating fact is that according to the Congressional Budget Office, earnings for the poorest fifth of Americans are also on the increase. As Ron Haskins of the Brookings Institution noted recently in The Washington Post, between 1991 and 2005, "the bottom fifth increased its earnings by 80 percent, compared with around 50 percent for the highest-income group and around 20 percent for each of the other three groups."
The third complicating fact is that despite years of scare stories, income volatility is probably not trending upward. A study by the C.B.O. has found that incomes are no more unstable now than they were in the 1980s and 1990s.
If that doesn't work, argue that inequality is justified, because the people earning more deserve what they have.
The fourth complicating fact is that recent rises in inequality have less to do with the grinding unfairness of globalization than with the reality that the market increasingly rewards education and hard work.
Then, say that this is the best of all possible worlds- that gaping inequality is good for us all. Oh, and throw in some specious fiscal policy data.
Eighth, to the extent that C.E.O. pay packets have thickened (and they have), there may be good economic reasons. The bigger a company gets, the more a talented C.E.O. can do to increase earnings. Over the past two and a half decades, the value of top U.S. companies has increased 500 percent, according to Xavier Gabaix and Augustin Landier. The compensation for the C.E.O.'s of those companies has also increased 500 percent.
Ninth, we're in the middle of one of the greatest economic eras ever. Global poverty has declined at astounding rates. Globalization boosts each American household's income by about $10,000 a year. The U.S. economy, despite all the bad-mouthing, is chugging along. Thanks to all the growth, tax revenues are at 18.8 percent of G.D.P., higher than the historical average. The deficit is down to about 1.5 percent of G.D.P., below the historical average.
Oh, and before your done, give a little ground so you seem fair- the Brooks' touch.
All of this is not to say everything is hunky-dory. Inequality is obviously increasing. There's evidence that global trade is producing more losers.
Ah, but wait- does all this microdata contradict the macro? No, of course not- growth in the median wage has not tracked productivity gains for almost all of the last 30 years. In fact, the median wage has been nearly stagnant, and the wealthy few have almost solely benefited from the increase in productivity. Brooks doesn't even attempt to challenge these facts- all he does is make points, credible or not, about subsections in the data.
As for the benefits and justice of inequality: there is little international correlation between inequality and GDP growth. And productivity gains are thoroughly distributed through most sectors. Everyone should be getting a bigger piece of the pie, but they aren't.
But today's super-wealthy appreciate the effort, Mr. Brooks. They can rest a little easier tonight, their conscience clear of all doubts that perhaps they don't deserve to keep every single penny of what they have. Brooks truly is a servant of the needy.
Posted by Matt Lewis
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