Class Matters: On Income Inequality

Mallaby on inequality:
"But in 1980, the top fifth of families earned 7.7 times as much as the bottom fifth; by 2001, that ratio had risen to 11.4. So even though the bottom fifth of households made modest gains, the inequality ratio jumped by almost 50 percent. If you measure inequality by wealth rather than earnings, the results are even more preposterous.

Inequality in the United States is now more pronounced than in any other advanced country. Comparing the top 10 percent of households with the bottom 10 percent, the United States during the 1990s was nearly twice as unequal as Sweden and about a third more unequal than France.

Why does this matter? Inequality is socially acceptable and even economically desirable to the extent that it reflects differences in talent, risk-taking and hard work. But if it reflects the circumstances of birth, it is immoral and wasteful. The problem with the 50 percent jump in the inequality ratio is that it gives the offspring of the rich such fundamentally different education, health care and social horizons that it's hard for the rest to catch up. Sharper class differences mean more rigid class differences as well. Talent is squandered.

... At the most selective private universities in 2003, more freshmen had fathers who were doctors than the combined total whose fathers were hourly workers, teachers, clergy or members of the military.

If this is morally intolerable and economically wasteful, what is government doing about it? Shockingly little, is the answer. According to data compiled by the Century Foundation, the U.S. poverty rate before accounting for the effect of government programs is fairly typical for an advanced country. But U.S. government interventions reduce the final poverty rate by just over a third, whereas Canada's cut it by nearly two-thirds, and those of Britain, Sweden and Holland cut it by about three-quarters."

The US model will prevail over the Canadian-European models in a WTO world. The race to the bottom means that China and rest of East Asia, will be less inclined to copy the Western European model of generous state benefits. Our best hope is to help shape Free Trade accords to reflect our environmental and social justice values. In a future post, I will comment on the inequality numbers from Latin America. Stay tuned.