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Economic inequality is the wrong issue

By Michael Gerson,November 03, 2011

It is the primary liberal argument that America’s primary economic problem is growing income inequality.

For three decades, in this view, the rich have grown richer while middle-class incomes have stagnated. This emphasis on economic discontents is purposeful. Any political coalition for income redistribution that does not include middle-income voters will fail. So the message has been: Suburbanites of the world, unite. You have nothing to lose but your student loans.

The response of many conservatives has been that the growth of income inequality is a “myth” and that any mention of the topic is class warfare.

The reality, as usual, is less ideologically satisfying for all concerned. Economic inequality among U.S. households has increased in recent decades — but one of the main causes is a shift in the composition of households themselves.

“Married-couple households,” writes economist Terry Fitzgerald of the Federal Reserve Bank of Minneapolis, “have much higher incomes than other household types, and there has been a large decline in married-couple households. . . . As an extreme but illustrative example, consider what would happen if one-half of all married couples were to divorce next year. Median household income would plummet as each higher-income married couple household is dissolved into two lower-income households — the same income is spread across more households.”

Even by the household measure, middle-class incomes have not been stagnant. Over the past 30 years, the largest income gains have come for the wealthiest 20 percent of households — about a 65 percent increase, adjusted for inflation. But middle-class incomes have also risen about 40 percent. “The outsized gains of the rich,” says Fitzgerald, “do not mean that Middle America stagnated.”

So the rich are getting richer and those in the middle class are getting richer at a lower rate — while the bottom 20 percent of households have only seen an 18 percent increase in income. This is not a pre-French Revolution situation. But at some point along this trend, the increase in relative inequality becomes a source of national division, with rich and poor sharing a country but living in different worlds. Citizens can lose the sense of belonging to a shared national enterprise. And Republicans would be unwise to ignore the genuine struggles of the middle class as technology and globalization diminish the economic prospects of moderately skilled workers.

Still, the most important measure of U.S. economic success is not income equality but social mobility. Economic inequality can be justified in a fluid society, in which economic advancement is a realistic goal. Economic inequality in the absence of economic mobility amounts to a class system in which the circumstances of birth are the main economic blessing or curse.

“We are an upwardly mobile society,” argued Rep. Paul Ryan in his recent Heritage Foundation speech, “with a lot of income movement between income groups.” It is the American self-image, but it is only partially true.

There remains a considerable amount of economic mobility, upward and downward, in the middle class. But nearer the bottom of the income scale, upward mobility is weak and stuck. As a result, according to the Economic Mobility Project, the U.S. economy is less fluid than the economies of Canada, France, Germany or the Scandinavian countries.

Individual advancement is closely tied to educational achievement and family structure. An economy that rewards skills and other forms of human capital is not a good place to be a dropout with a child out of wedlock.

Conservatives are correct that tax increases on the wealthy to fund entitlement commitments that go mainly to the elderly would do precious little to address this problem.

Liberals are right that a combination of rising economic inequality (even if the rise is gradual) with stalled economic mobility is an invitation to destructive social resentments. Americans will accept unequal economic outcomes in a fair system. They object when the results seem rigged. That way lies the Bastille.

So the question comes to liberals and conservatives: If social mobility is the goal, what are the solutions? What can be done to improve the quality of teachers in failing schools, to confront the high school dropout crisis, to encourage college attendance and completion, to reduce teen pregnancy, to encourage stable marriages, to promote financial literacy, to spark entrepreneurship?

Both Democrats and Republicans should have something to contribute to the development of this agenda. Neither party, however, currently has much to say. And this is not likely to change until the discussion turns from equality to mobility.

michaelgerson@washpost.com

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