TPM’s Deep, Deep Dive into the Economics of Inequality

Understanding the growth of economic inequality in the United States is both simple and complex. The simple part, which is also the most important part, is that by virtually all the relevant metrics, types of income, and data sets, inequality has significantly increased since the 1970s. The complex part is that to understand this increasing trend in some depth, one needs to undertake some degree of immersion in all those different metrics, data sets, and income types. That means we’ll need to look at the growth of inequality by wages, incomes, and wealth; we’ll have to understand the strengths and limitations of the various data sets.

Though not all readers will share the same tolerance for digging around in the data weeds, the exposition can be relatively quick and painless, with lots of nice pictures. When you’re trying to understand the evolution of a big, important phenomenon like inequality, think of yourself as a navigator getting a fix on her position by looking at various points in the firmament, which in this branch of economics means surveys and tax records on incomes, wages, and wealth. Since no one survey is definitive, we must fix our position by looking at all of them.

Fortunately, at least in an analytic sense, when it comes to inequality, all the surveys point in the same direction: toward greater economic distance between people and households in their economic outcomes. Though there may be some economists and policy makers who deny that inequality has increased—you can always find (or pay) someone to take the other side of any position in economics—as a very active participant in this debate, I can tell you that we don’t hear much from them. It’s easier to find a denier of global warming than of rising inequality.

Of course, there is a robust debate as to the causes of inequality, whether it matters, and what, if anything, should be done about it. In fact, as we’ve largely agreed on the trends, these, in my view, are the compelling questions regarding inequality in America.

But one must eat one’s spinach before dessert, so let’s turn first to a rigorous look at the evidence and then discuss what it all means.

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