Sunday, February 18, 2007

Relative inequality and absolute poverty

The Milwaukee Journal Sentinel addresses the subject of income inequality in an editorial today. Interestingly, the Milwaukee Journal Sentinel does not engage in rank populism in their editorial, pointing out the middle class has benefited from the Bush economy, too.

But just because the rich get richer - just because top executives pull in their millions - is the middle class under siege?

Again, some facts. Median household income of those in their prime working years was more than $61,000 in 2005, according to Census Bureau figures. Married couples did even better; if both worked, their median incomes topped $81,000. If the middle class is shrinking, it may just be because some of its former members have moved up. Between 1979 and 2005, the percentage of these prime wage-earners earning more than $100,000 in inflation-adjusted dollars grew by nearly 13 percentage points.

There is no doubt that many people feel under stress because of smaller wage gains in recent years and rising costs. But the middle class is holding its own.

And globalization, in particular, is not the boogeyman that unions or some in Congress make it out to be.
Unfortunately, the editors still have a misguided interventionist view of the economy.
The challenge is more one of raising up those in the middle and bottom of the income scale than of bringing down those at the top.
The Milwaukee Journal Sentinel's editors then prescribe a number of public policy initiatives they would like, among them more spending on college and pre-kindergarten education, more federal involvement in the health economy, more federal money for training programs for the unemployed, a mandatory savings plan, and more research and development credits for business.

Missing from the policy discussion is any understanding of how the federal government's and the state government's heavy taxation of the upper and middle classes directly impacts the quality of life for individuals at these levels as well as discourages investment and economic innovation. The punitive levels of taxation are those that have been endorsed in every other editorial on the economy.

Also missing from the discussion is any look at the real issue of absolute poverty versus income inequality. Yes, the editors are correct that an entire body of economics is now devoted to the study of income inequality, but that study is only in response to the larger gains made in terms of raising people from real poverty and is often used for false justifications of larger interventions into the economy. Years ago the late Mike Royko, in writing about who was considered poor, commented that had his grandfather been told that "poor" would be considered to someone who had two televisions and a car, he would've considered that a pretty good deal.

We still have the poor among us, and we always will. But none of the policy prescriptions by the Milwaukee Journal Sentinel's editors address real poverty. They are the wish list of a baby boom generation wishing the government would take care of it without a care to how it gets paid for and little understanding of the economy that generates the wealth to make their wish list even possible.