Should Americans be
concerned about current levels of wealth inequality? Are living standards still
rising in the US? And what has happened to poverty in America since the 1960s? I
discussed these questions and more with Scott Winship on a recent episode of
Scott is a
resident scholar and the director of poverty studies at AEI, where he
researches social mobility and the causes and effects of poverty. Previously,
he served as the executive director of the Joint Economic Committee, where he
spearheaded the Social Capital Project.
It seems like we’re talking more about wealth inequality than income inequality these days. When I hear numbers like, “In the United States, the top 1 percent owns 40 percent of the wealth and the bottom half owns only 2 percent,” I think I’m supposed to be alarmed. How do you think we should react to these numbers?
There is a lot of inequality in the United States. Last year, there was a huge debate that took place surrounding three well-known French economists — Piketty, Saez, and Zucman — who argued that we had massive levels of income concentration and wealth concentration. Those claims got pushed back against strongly — a lot of their methods were questionable and magically all went in the direction of overstating how much inequality there really was. And when you shift from income to wealth, you get this problem of interpretation in terms of what gets counted as wealth. If you don’t think Social Security or even Medicare should be counted as wealth, then you ignore a resource that folks at the bottom disproportionately can rely on for retirement security. It makes the shares look a lot bigger at the top, making the inequality look bigger.
More broadly, there was a ton of wealth inequality during the golden days of 1979 before Reagan took office and inequality started rising. And there’s a ton of inequality in other countries like Sweden. It’s just hard to know what the “just” share of wealth for the top 1 percent is.
I think the dominant economic narrative that I hear is that, in addition to rising inequality, the middle-class has stagnated and upward mobility is in decline. How accurate is this story?
Michael Strain has a great book out where he focuses on earnings trends. And the story is good, with wages increasing by over a quarter at the median since the bottom of the 1990s recession. Now, there was a period where men’s pay really did stagnate, but it was from roughly 1973 to roughly 1994, and the narrative just has never been updated.
For the economic mobility story, you can make a more plausible case for disappointment. Relative mobility — starting at the bottom and ending up at the middle or the top, regardless of what’s happening to everybody else — hasn’t gotten worse or better. As for absolute mobility — which measures if people are better off than their parents — Raj Chetty’s research famously has shown that fewer people over time are ending up better off than their parents. Although, by both my own and Michael’s estimates, something like 70 percent of the population does still end up better off.
As AEI’s new director of poverty studies, what do you want people to know about poverty? What should we be doing about it?
People don’t appreciate how we really have dramatically lowered poverty in the United States. There was a great paper put out by Richard Burkhauser, Kevin Corinth, and some others that took the 1963 poverty line and showed that the share of the US population living under that line has been reduced from 20 percent to 2 percent over the past 60 years, driven first and foremost by economic growth and supported by social security expansions and aid for families with kids. So we’ve made fantastic progress in terms of reducing poverty.
However, it’s easy to push people above some arbitrary income
line that you draw by giving them cash. But this can create perverse incentives
for folks that might mean incentives not to work, not to get married, not to
save, and not to invest in your own human capital. And so it may be that our
safety net, which has expanded greatly over the last 50 years, has
simultaneously reduced poverty but prevented upward mobility from increasing. That’s
the next frontier for people who care about the poor.
It seems that folks on the left maybe don’t care about the importance of work like they used to, given the talk about universal basic incomes and the idea of income as a human right. What are your thoughts on that?
I think the left doesn’t seriously consider the possibility that giving people cash without any strings attached to it could have negative repercussions. Many on the left view things like UBI or expansions to the safety net as unambiguously good, with no trade-offs to being more generous. That may be the main line that divides conservatives from liberals on poverty policy.
Now, I wouldn’t say the right necessarily can point to an overwhelming body of research that shores their side up. However, you can look at welfare reform: after it was enacted, employment among single mothers increased dramatically and never went back down to the levels that it was before. Poverty fell and never rose to the level that it was before welfare reform as well. So I think welfare reform gives us the best evidence that we’ve got in favor of some of the pre-reform assumptions of conservatives about how welfare was creating a poverty trap.
Does too much churn, too much dynamism in the American economy ruin families, communities, and all these social capital networks that you value?
My view is that most of the declines in social capital that have happened over time relate very strongly to the increase in affluence that the United States has experienced. When we don’t need our neighbors as much, we tend to make purchases from the market for things like childcare, rather than relying on each other. As we get rich as a society, we can afford a more generous safety net, which has been damaging to family stability.
For instance, as more women have (thankfully) had the opportunity to enter the workforce over the past 60 years, that has depleted the number of homemakers and community-makers out there, because men chose to not work less and invest more in communities. The result was much weaker community life over time. So these declines really reflect affluence rather than the ravages of capitalism. These are trade-offs that we’ve chosen.