Kat's Catches -- Timothy Noah at Slate

By John and Kat

The United States of Inequality by Timothy Noah

Timothy Noah kicked off this series by looking at whether race, gender, or the breakdown of the nuclear family affected income inequality, and then he examined immigration, the technology boom, federal government policy, the decline of labor unions, international trade, whether the ultra wealthy are to blame, and what role the decline of K-12 education has played. In conclusion, Noah explained why we can't ignore income inequality.

Income inequality in the United States has not worsened steadily since 1915. It dropped a bit in the late teens, then started climbing again in the 1920s, reaching its peak just before the 1929 crash. The trend then reversed itself. Incomes started to become more equal in the 1930s and then became dramatically more equal in the 1940s. Income distribution remained roughly stable through the postwar economic boom of the 1950s and 1960s. Economic historians Claudia Goldin and Robert Margo have termed this midcentury era the "Great Compression." The deep nostalgia for that period felt by the World War II generation�the era of Life magazine and the bowling league�reflects something more than mere sentimentality. Assuming you were white, not of draft age, and Christian, there probably was no better time to belong to America's middle class.

The Great Compression ended in the 1970s. Wages stagnated, inflation raged, and by the decade's end, income inequality had started to rise. Income inequality grew through the 1980s, slackened briefly at the end of the 1990s, and then resumed with a vengeance in the aughts. In his 2007 book The Conscience of a Liberal, the Nobel laureate, Princeton economist and New York Times columnist Paul Krugman labeled the post-1979 epoch the "Great Divergence."

It's generally understood that we live in a time of growing income inequality, but "the ordinary person is not really aware of how big it is," Krugman told me. During the late 1980s and the late 1990s, the United States experienced two unprecedentedly long periods of sustained economic growth�the "seven fat years" and the " long boom." Yet from 1980 to 2005, more than 80 percent of total increase in Americans' income went to the top 1 percent. Economic growth was more sluggish in the aughts, but the decade saw productivity increase by about 20 percent. Yet virtually none of the increase translated into wage growth at middle and lower incomes, an outcome that left many economists scratching their heads.

• The Usual Suspects Are Innocent  Neither race nor gender nor the breakdown of the American family created the Great Divergence.

• Did Immigration Create the Great Divergence?  Why we can't blame income inequality on the post-1965 immigration surge.

• Did Computers Create Inequality? No. The tech boom's impact was no greater than that of previous technological upheavals during the 20th century.

• Can We Blame Income Inequality on Republicans? Yes, but for the very richest beneficiaries the trend has been bipartisan.

• The Great Divergence and the Death of Organized Labor How has the decline of the union contributed to income inequality?

• Trade Didn't Create Inequality, and Then It Did

• The Stinking Rich and the Great Divergence  Executive compensation took off in the 1980s and 1990s. Is it to blame?

• How the Decline in K-12 Education Enriches College Graduates When the workforce needed to be smarter, Americans got dumber.

• Why We Can't Ignore Growing Income Inequality It undermines the ideal of e pluribus unum.

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Notice how capital gains look on paper.  Capital gains are by definition "paper profits," over and above other income, and do not fluctuate wildly apart from ordinary income. A relatively small number of wealthy people escape the income tax by living exclusively on capital gains, but capital gains are by definition a reflection of investment activity, without which the economy stagnates.

This "Top Decile" charts softens an obscene reality of how badly income inequality is really skewed. When it comes to digging for gold, wealthy people always seem to have shovels -- really big shovels --  while everyone else is working with tablespoons. That is reason for highlighting at the top of this post.

I, for one, am not "scratching my head." It is clear to me that as long as newly produced wealth is grabbed by the rich and powerful in proportionally greater amounts than others, there is little hope that income inequality will ever shift in favor of those with nothing. I don't have as much problem with lower capital gains taxes as with income taxes that enable those with vast assets to add to already mammoth nest eggs.

Timothy Noah gets the last word.

Heightened partisanship in Washington and declining trust in government have many causes (and the latter slide predates the Great Divergence). But surely the growing income chasm between the poor and middle class and the rich, between the Sort of Rich and the Rich, and even between the Rich and the Stinking Rich, make it especially difficult to reestablish any spirit of e pluribus unum. Republicans and Democrats compete to show which party more fervently opposes the elite, with each side battling to define what "elite" means. In a more equal society, the elite would still be resented. But I doubt that opposing it would be an organizing principle of politics to the same extent that it is today.

I find myself returning to the gut-level feeling expressed at the start of this series: I do not wish to live in a banana republic. There is a reason why, in years past, Americans scorned societies starkly divided into the privileged and the destitute. They were repellent. Is it my imagination, or do we hear less criticism of such societies today in the United States? Might it be harder for Americans to sustain in such discussions the necessary sense of moral superiority?

What is the ideal distribution of income in society? I couldn't tell you, and historically much mischief has been accomplished by addressing this question too precisely. But I can tell you this: We've been headed in the wrong direction for far too long.