Sunday, January 15, 2012

CEA Chair Kreuger: Inequality hurts us all

It's not up for debate anymore whether income inequality has been growing in the United States since the 1970s, (with the exception of the Clinton years). America's level of inequality more closely resembles Brazil or Russia's than Germany, Japan or Great Britain's.

Apropos, here are some excerpts a recent speech by Alan Krueger, the chairman of the White House Council of Economic Advisers, to the Center for American Progress, a left-leaning think tank. I encourage everybody to read it.

Here Kreuger debunks the myth of income-mobility in the United States:

"Studies that use income data averaged over longer periods of time for parents and children tend to find higher correlations between parental and children's income. A reasonable summary is that the correlation between parents' and their children's income is around 0.50. This is remarkably similar to the correlation that Sir Francis Galton found between parents' height and their children's height over 100 years ago. This fact helps to put in context what a correlation of 0.50 implies. The chance of a person who was born to a family in the bottom 10 percent of the income distribution rising to the top 10 percent as an adult is about the same as the chance that a dad who is 5'6" tall having a son who grows up to be over 6'1" tall. It happens, but not often."

Here Krueger debunks the myth that our tax system redistributes wealth on par with "socialistic" countries: "Of all the OECD countries, only Chile, Korea, and Switzerland have tax systems that reduce inequality by less than the U.S."

And here he explains how greater income equality would be beneficial for all Americans:

"... restoring more fairness to the economy would be good for all parts of American society. This is not a zero-sum game. The evidence suggests that a growing middle class is good for the economy, and that a more fair distribution of income would hasten economic growth. Businesses would benefit from restoring more fairness to the economy by having more middle class customers, more stable markets, and improved employee morale and productivity."

Moreover, a recent study by the IMF covering countries from 1950 to 2006 found that a 10 percent decrease in inequality increased the expected duration of economic growth by 50 percent. Inequality hurts us all in the long run.

By Alan B. Krueger
January 12, 2012 |

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