The Economist is getting a lot right these days. After dropping some wisdom on celebrity columnist Dana Milbank and torture advocate Marc Thiessen (both of the Washington Post), they’re weighing in on inequality and social mobility in the U.S. They lay out some facts:
"Between 1947 and 1973, the typical American family’s income roughly doubled in real terms. Between 1973 and 2007, however, it grew by only 22%—and this thanks to the rise of two-worker households. In 2004 men in their 30s earned 12% less in real terms than their fathers did at a similar age, according to Pew’s Economic Mobility Project." [emphasis added]
And, “The richest 10% earned nearly half of all income, surpassing even their share in 1928, the year before the Great Crash.” (That’s British for the Great Depression.) They also mention that “parental income is a better predictor of a child’s future in America than in much of Europe,” something we shared with you several months back. And, they even go a step further, citing a study by the Economic Mobility Project, which finds that “those born to black middle-class families are much more likely than their white counterparts to fall in rank.”
Nicely done, but they still missed the mark on a few points. For instance, they write, “[T]he recession came at the end of a period marked by record levels of inequality.” Close, but the recession didn’t end growing inequality, it’s actually making it worse, a fact they point out later in the same article.
"The recession, meanwhile, may have exacerbated trends in inequality. The capital markets, points out Timothy Smeeding of the University of Wisconsin, have recovered more quickly than the housing or labour markets. This is troubling for the poor and the middle class, since homes represent a greater share of their wealth. Unemployment has been concentrated in America’s lower ranks. As the rich recover, poor and middle-class people may lag behind. Young workers may fare badly, too. Those who graduate in recessions have lower incomes in the long term, according to Lisa Kahn of Yale University." [emphasis added]
While it’s good that they corrected themselves, it’s odd that they needed to. As with their premature declaration of the end of a period of record inequality, they also jumped the gun on the end of the Bush tax cuts for the wealthy. We’re still working on that. For the record, President Obama has proposed ending the Bush tax cuts on top incomes while extending them for everybody else, but Congress has not yet taken up his budget proposal. When they do, even Obama’s modest tax proposals will be under withering attacks from America’s angry, but misguided anti-tax movement. That’s why we need as many voices as we can get calling for fairer economic policies.
The Economist has long been the world’s leading journal of laissez-faire economics. So, we weren’t shocked to see a call for “reducing entitlements” in their conclusion. It’s disappointing and wrong, but it’s still refreshing to see them addressing inequality at all.