Why inequality is worse for your wallet than a weak economy

By Jim Tankersley

from Washington Post

Two trends have socked American workers over the past three decades. The economy has grown more slowly than it did in the decades after World War II, and the growth we’ve seen has disproportionately boosted the incomes of the very rich. Both trends are important, but in a new paper, a liberal economist argues that one of them was far more consequential for the vast majority of Americans.

The economist, Joshua Bivens, is the research and policy director at the Economic Policy Institute. In his paper, he builds two alternate realities of the American economy from 1979 to 2007 (the eve of the Great Recession) to tease out whether slowing growth or widening inequality did more to depress incomes for the bottom 90 percent of U.S. workers.

In one model, growth changes but inequality stays the same. In the other, growth stays the same but inequality changes.

Bivens finds that incomes for that broad group of workers would be 20 percent higher in 2007 if inequality had simply stayed at its average level for the three decades after the war. That’s double the increase you get from holding growth constant at higher, postwar levels but allowing inequality to rise as it did.

That result drives Bivens to two conclusions, which we discussed in an interview this week, both of them related to how policymakers should think about inequality and growth. “This is not a call for equal incomes going forward,” he said. “It’s a call for equal distribution of growth going forward.”

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