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Measured Inequality: Fallacies and Overstatements

issue brief

Measured Inequality: Fallacies and Overstatements

Christopher Papagianis April 8, 2012

2012 is an election year, so it shouldn’t be surprising that opinion-editorial pages are increasingly publishing pieces about the rise of income inequality in America. The baton that John Edwards carried with his “two Americas” theme in 2004 has been passed on to others, who, like Steven Rattner in the New York Times, are arguing that “new statistics show an ever-more-startling divergence between the fortunes of the wealthy and everybody else.”

Just as it was back in 2004, many of today’s commentators are overstating the conclusions that can be drawn from the underlying data. For some, the details about what we know and don’t know about income and wealth trends are secondary to President Obama’s populist campaign push for more wealth redistribution. But the details in measuring and understanding what’s going on around the country regarding income trends and economic mobility do matter. This is especially true today because many policymakers are accepting the unqualified narrative that income inequality is becoming a bigger issue, one that is linked to economic mobility and opportunity, and for which there is but only one solution—higher taxes and more wealth redistribution.

The central problem facing the economy is that income growth over the past few years has been modest to nonexistent, as a result of the financial crisis, the subsequent recession, and an extremely modest recovery. Moreover, policies that aim only to redistribute wealth—rather than generate real economic growth and opportunity—are unlikely to solve, or even meaningfully address, the slow growth trajectory for wages.