Read Scott Winship and Mike Konczal on inequality
Check out the very high quality debate on inequality and middle class living standards between Scott Winship and Mike Konczal. Winship (in two posts) suggests that complaints about middle-class living standards over the past three decades are overdone. Konczal rejoins that even if so, during the last decade something changed, with middle-class income stagnating entirely and debt growth accelerating. Plus, he reminds us, many of the gains in middle class household income prior to the millennium were due to women working more rather than increased wages. Finally, he notes that it’s pretty hard to accentuate the positive for the middle class just now, given the impact of the housing bust and recession. Another piece of the puzzle that Konczal doesn’t address here (but has addressed fabulously elsewhere) is Elizabeth Warren’s point that the operating leverage of middle class households — the proportion of their wealth devoted to fixed necessary expenses — has dramatically increased, leaving families more vulnerable to shocks and worse off in risk-adjusted terms than their (modest) income growth suggests. (Hat tip to Rortybomb commenter RW.)
For the point I’d like to get at about the tension between inequality and stable growth, Kumbaya!, I don’t have to take sides. Winship points out that
what has likely happened is that the very top—the top one-half of one percent—has pulled away from everyone else, though the increase from 1980 to 2009 has probably been fairly modest.
The hypothesis I’m playing around with is that income at the top end of the scale, for a variety of reasons, has a harder time reproducing itself than income going to people whose consumption wants are less completely satiated. (Econogeeks — nonsatiation may not mean what you think it means in a monetary economy under uncertainty.) So even “pareto improving” gains at the top may create a problem for sustaining overall GDP growth. Microeconomics and macroeconomics, alas, need not go together in perfect harmony. Things don’t compose.
I still haven’t made that case — I want to stew on it a bit. More soon, I hope.