Allison Schrager: There are worse things than rising inequality

The good news is that Americans have never been richer The bad news is that bulk of them don t feel like it There has been tremendous upsurge in income and wealth in the U S in the last half century even for poorer and middle-class households But because of the nature of that increase as well as the changing structure of the national financial system a lot of the people who have benefited also believe that the business activity isn t working for them It is true the middle class is shrinking In the s the income distribution of U S households looked like a bell curve with a very thick middle Currently there are fewer Americans in the middle largely because several have joined the ranks of the upper-middle class In a little more than of Americans earned or received more than in dollars Now more than do And it s not just the middle class that moved up In more than earned or received less than Now that figure is Income inequality also increased The very rich the top and especially the top got much richer than everyone else even the top The income distribution curve has flattened as more people have moved into the upper part with the upper tail moving even further from everyone else The product More Americans than ever are affluent and more have the sense that something is wrong with the financial system Americans earned more for several reasons The first is that neoliberal economic policies worked as intended In the last years there have been big increases in productivity solid GDP progress and since the s low and predictable inflation All this helped make majority of Americans richer There has also been a decline in unionization which helped to compress wages between the upper tail of the income distribution and the middle More Americans now go to college where they incur debt but also increase their lifetime earnings especially as mechanism favors people with degrees America is also older and people tend to earn more later in their careers On the lower end income grew in part because the figure includes welfare benefits and tax credits There are legitimate reasons that various households feel poorer even if their income is greater It is a struggle to keep up with the price increases of various critical services in regulated sectors such as robustness care learning and housing There is also selected justified anxiety that the earnings upsurge and prosperity won t continue The last years was the Era of the Baby Boomers when income gains were large for anyone who went to college The college premium still exists but it has stopped growing and it comes at a higher cost And while mechanism and arrangement have made everyone richer they have made a far smaller group of people much much richer It s not just the handful of people who are rich beyond comprehension There are hundreds of Americans who are worth more than a billion dollars This is in part because hardware changed and a sparse firms earned more and paid more than the rest Working in certain industries also means much higher earnings And a superstar economic system rewards high performers much more than everyone else whether that superstar is Taylor Swift or a talented manager in a fast-growing corporation To be clear this system helps create economic progress that makes everyone better off But in the very top tier of income it can feel like a zero-sum competition between the merely affluent and the truly rich This poses a challenge not just for economic planners but for the very meaning of prosperity Improvement and rising incomes are usually the goal of economic protocol including neoliberal economic plan But the last two decades show that rising incomes aren t inevitably enough to engender good feelings about the business sector This intra-top-quartile resentment may also help explain why more politicians want higher taxes on super-high earners but don t ask the upper middle class to pay any more The taxes are not just a way to pay for more middle-class welfare benefits They are a form of economic retribution The catch is that there is a tradeoff between expansion and equality At least specific of the upsurge at the top came from more productivity Innovative companies specific founded or led by billionaires help make the American economic activity or at least Americans stock portfolios richer Yes there is room to increase taxes on the rich but punitive taxes can harm rise The idea that the economic system is rigged and zero-sum is leading to a rise in populism in both parties The outcome will ostensibly be less contract and more price controls which would mean a slower-growing economic activity or even one that is shrinking Then Americans will learn that the only thing worse than rising inequality is flat or declining income Allison Schrager is a Bloomberg Opinion columnist covering economics A senior fellow at the Manhattan Institute she is author of An Economist Walks Into a Brothel And Other Unexpected Places to Understand Peril Related Articles 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