Point of View

We're seeing more inequality

August 9, 2010 

— Over the past three decades the American left has made much of the fact that income inequality in this country has been rising steadily - a rise, in its view, that constitutes ironclad evidence that the economy is increasingly troubled.

When the political left has mounted such arguments, the right generally has countered by pointing out that income levels in the U.S. were also rising and that upward mobility, long a hallmark of the American economy, was not only still possible but also quite common.

Until recently, it was hard to declare a clear-cut winner in this protracted debate. Both sides could produce reasonable support for their respective positions, and most centrist observers would probably call it a draw and be on their way.

Today, though, a certain dispiriting clarity is emerging, which is placing the right's argument in considerable jeopardy.

To cut to the chase, over the past decade or so inequality in the U.S. has increased, median income has stagnated and the chances for upward mobility have dwindled.

Measuring, let alone interpreting inequality, income levels and mobility is tricky business, so one has to be careful about overclaiming. Nonetheless, evidence is mounting that more and more Americans are experiencing economic stress. Perhaps more important, it is becoming increasingly apparent that for many the American dream is being downsized and American aspirations increasingly unmet.

First, rising inequality. Virtually no one disputes the fact that income inequality has risen significantly in the U.S. since 1980.

Inequality can be measured in many ways. Two measures - the share of total household income held by the top 1 percent of households, and the so-called Gini coefficient, a measurement of inequality, ranging from zero to one, with zero indicating total equality and one, total inequality (in this case, all income in the hands of one household) - are perhaps the measures most frequently employed.

A 2010 study by Edward N. Wolff, one of the leading experts on the subject of inequality in the U.S., captures well the trends over this period. According to Wolff, in 1982 the top 1 percent of households accounted for 12.8 percent of total household income in the U.S., while by 2007 the top 1 percent accounted for fully 21.3 percent.

The shift toward greater inequality is also apparent in the Gini coefficient. In 1982 the Gini coefficient for household income inequality in the U.S. was 0.48. By 2007, this coefficient had risen to 0.57. For purposes of comparison, the Gini coefficient for income inequality in Denmark is about 0.25, and in 2005 it was about 0.31 for the entire European Union.

In the past, conservatives would acknowledge rising inequality but suggest that inequality in and of itself is not necessarily a major problem so long as average household income is rising. According to Wolff again, household income virtually stagnated for the average American household over the 1990s and 2000s, with median household income increasing by 2.3 percent between 1989 and 2001, falling by 1.6 percent between 2001 and 2004 before rising again by 3. 2 percent between 2004 and 2007.

Moreover, as Edward Luce recently observed in The Financial Times, median household income actually fell by $2,000 during our last full-blown economic expansion (January 2002-December 2007), the first time in U.S. history that "most Americans where worse off at the end of a [business] cycle than at the start."

What about mobility, or, more precisely, upward mobility? For most of its history, the U.S. has been characterized by considerable inequality, but we've purportedly always had the "right to rise," as the Republican Party often put it during the Age of Lincoln. Do we still?

Not according to Bhashkar Mazumdar, a senior economist at the Chicago branch of the Federal Reserve Bank. In several careful papers Mazumdar argues that intergenerational mobility in the U.S. has long been significantly overstated, and that in terms of intergenerational mobility the U.S. today lags behind France, Germany, Canada, Sweden, Norway and Denmark, indeed, almost every high-income country for which data are available except the U.K.

Any wonder, then, that there is today a feeling of unease among many Americans whether on the left, the right or somewhere in between?

Peter A. Coclanis is Albert R. Newsome distinguished professor of history and director of the Global Research Institute at UNC-Chapel Hill.

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