Manhattan Institute's Winship: Income Inequality Is Actually Shrinking

Friday, 27 Feb 2015 06:00 AM

By Dan Weil

You've surely been reading a lot about the growth of income inequality in recent months. But not so fast, says Scott Winship, a fellow at the Manhattan Institute for Policy Research.

"The top 1 percent is obviously not hurting by anyone’s standards, but it remains the case that income inequality is lower and the rich are poorer than at the start of the recession," he writes in The Fiscal Times.

The Great Recession lasted from December 2007 until June 2009.

Estimates from economists Emmanuel Saez and Gabriel Zucman show that the wealth of the top 1 percent fell 3.5 percent from 2007 to 2012, Winship reports.

"Incomes at the top had clearly not recovered by 2013, while the wealth of the top probably had not by 2012. Strong claims beyond these conclusions are unwarranted."

Income measures how much money you have coming in, while wealth measures how much you are worth.

Many financial commentators posit that that income inequality is the main factor holding down the middle class. But that's not the case, says Washington Post columnist Robert Samuelson.

"We have this not from some right-wing think tank but from President Obama's top economists," he writes. "The bigger culprit, they show, is the slow growth of productivity — that messy process by which the economy improves efficiency and living standards. Greater inequality is a distant second in assaulting middle-class incomes."

Productivity, which measures output per hour worked, fell 1.8 percent annualized in the fourth quarter.

A report from the White House Council of Economic Advisers assumed productivity sustained its rapid growth rate of the 1950s and 1960s, that income inequality didn't rise and that labor-force participation didn't fall.

The scenario produced middle class income of $100,000 after inflation, double its actual level.

Faster productivity growth accounts for about $30,000 of the difference, less income inequality only $9,000 and higher labor-force participation $3,000. Synergy among the three trends makes up the remaining $8,000.

http://www.newsmax.com/Finance/StreetTalk/Winship-income-inequality-shrinking/2015/02/26/id/627014