Surprise! It Is Progressives Who Drive Income Inequality

 

The economist Lawrence Lindsey has an Op Ed in yesterday’s Wall Street Journal  analyzing Census Bureau data here, and here showing that income inequality rose more under Bill Clinton than under Ronald Reagan.  It also has risen much more under Barack Obama than under George W. Bush.
Capture6Here is the explanation for this:

  • Cheap money is a boon to those who have access to it.
  • Bill Clinton, George W. Bush and Barack Obama all presided over bubble economies fueled by easy monetary policy. But the effects of the Bush housing bubble were more evenly distributed than for the Clinton stock market bubble or the Obama credit bubble.
  • In 1968 government transfer payments totaled $53 billion or roughly 7% of personal income. By 2014, these had climbed to $2.5 trillion or 17% of personal income. Despite the redistribution of a sixth of all income, inequality is far higher today than in 1968.
  • Two earner households have become the backbone of the American middle class.
  • When families with children making between $20,000 and $50,000 attempt to have a second earner go back to work, the effective tax rate on the extra earnings, including lost government benefits, is between 50% and 80%. This “working class trap” is increasing income inequality and keeping the income of these households lower than they would otherwise be.
  • During the first six years of the Obama presidency, the number of two-earner households declined, while the number of single-earner households rose by 2.6 million and the number of no-earner households rose by 5 million. In other words, two-thirds of the increase in the number of households under Obama is accounted for by households with no one working. This is the reason the middle class has shrunk and that inequality is increasing.
  • A recent Brookings Institution study shows that boosting the top tax rate from 39.6% today to 50%, and redistributing the additional $95 billion in tax revenue to the bottom 20% of wage earners would reverse only 20% of the increase in income inequality under Obama.

As Mr. Lindsey concludes, “Attacking the rich and running against inequality may be a sensible political strategy. But in the end the programs to implement this strategy make the problem worse.”

Follow me on Twitter: https://twitter.com/jack_heidel
Follow me on Facebook: https://www.facebook.com/jack.heidel.3

4 thoughts on “Surprise! It Is Progressives Who Drive Income Inequality

  1. Jack,

    Why is it that progressive leadership is made up an educated segment of society that refuses to understand what either fuels or weakens the national economy? Surely a good portion of that leadership has heard of the WSJ. At the same time, I wonder why leading progressive business leaders like our own Warren Buffet do not make it clear to the Democrat leadership, especially presidential candidates that their positions on the economy, are no more than a political shrill game.

    Chuck

    • Good question. Obviously Warren Buffett knows how the economy works. I’ve heard him say that he agrees with the Democrats on social issues. This, of course, implies that he doesn’t necessarily agree with Democrats on economic issues. But he doesn’t want to disagree with them either! I think he’s just being very, very cagey!

  2. Disclosure: Mr. Lindsey, a former Federal Reserve governor and assistant to President George W. Bush for economic policy.

    You left that part out.

    This is the same guy who estimated the Iraq/Afghanistan wars would cast 200-400 billion. In 2007, the CBO projected about 1 trillion. Today that estimate has ballooned to 4-6 trillion after appropriations.

    Reading a graph is one thing. Understanding it is another. In 2007-2008, jobs were being shed by the hundreds of thousands per month which explains single vs dual earner disparities – all of which Obama inherited.

    • I think that the NYT and WSJ are credible sources of information regardless of the backgrounds of their staff or guest writers. In other words I’m willing to assume that Mr. Lindsey’s data is correct.
      Presidents have only limited control over the behavior of the stock market and Federal Reserve during their term in office. Lindsey is merely pointing out that the Clinton and Obama bubbles caused a much greater increase in inequality than the Bush bubble.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s