Social Policy in Ontario

On Inequality Denial

Posted on June 1, 2014 in Equality Debates

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NYTimes.com – The Opinion Pages
JUNE 1, 2014.   Paul Krugman, Op-Ed Columnist

A while back I published an article titled “The Rich, the Right, and the Facts,” in which I described politically motivated efforts to deny the obvious — the sharp rise in U.S. inequality, especially at the very top of the income scale. It probably won’t surprise you to hear that I found a lot of statistical malpractice in high places.

Nor will it surprise you to learn that nothing much has changed. Not only do the usual suspects continue to deny the obvious, but they keep rolling out the same discredited arguments: Inequality isn’t really rising; O.K., it’s rising, but it doesn’t matter because we have so much social mobility; anyway, it’s a good thing, and anyone who suggests that it’s a problem is a Marxist.

What may surprise you is the year in which I published that article: 1992.

Which brings me to the latest intellectual scuffle, set off by an article by Chris Giles, the economics editor of The Financial Times, attacking the credibility of Thomas Piketty’s best-selling “Capital in the Twenty-First Century.” Mr. Giles claimed that Mr. Piketty’s work made “a series of errors that skew his findings,” and that there is in fact no clear evidence of rising concentration of wealth. And like just about everyone who has followed such controversies over the years, I thought, “Here we go again.”

Sure enough, the subsequent discussion has not gone well for Mr. Giles. The alleged errors were actually the kinds of data adjustments that are normal in any research that relies on a variety of sources. And the crucial assertion that there is no clear trend toward increased concentration of wealth rested on a known fallacy, an apples-to-oranges comparison that experts have long warned about — and that I identified in that 1992 article.

At the risk of giving too much information, here’s the issue. We have two sources of evidence on both income and wealth: surveys, in which people are asked about their finances, and tax data. Survey data, while useful for tracking the poor and the middle class, notoriously understate top incomes and wealth — loosely speaking, because it’s hard to interview enough billionaires. So studies of the 1 percent, the 0.1 percent, and so on rely mainly on tax data. The Financial Times critique, however, compared older estimates of wealth concentration based on tax data with more recent estimates based on surveys; this produced an automatic bias against finding an upward trend.

In short, this latest attempt to debunk the notion that we’ve become a vastly more unequal society has itself been debunked. And you should have expected that. There are so many independent indicators pointing to sharply rising inequality, from the soaring prices of high-end real estate to the booming markets for luxury goods, that any claim that inequality isn’t rising almost has to be based on faulty data analysis.

Yet inequality denial persists, for pretty much the same reasons that climate change denial persists: there are powerful groups with a strong interest in rejecting the facts, or at least creating a fog of doubt. Indeed, you can be sure that the claim “The Piketty numbers are all wrong” will be endlessly repeated even though that claim quickly collapsed under scrutiny.

By the way, I’m not accusing Mr. Giles of being a hired gun for the plutocracy, although there are some self-proclaimed experts who fit that description. And nobody’s work should be considered above criticism. But on politically charged issues, critics of the consensus need to be self-aware; they need to ask whether they’re really seeking intellectual honesty, or are effectively acting as concern trolls, professional debunkers of liberal pieties. (Strange to say, there are no trolls on the right debunking conservative pieties. Funny how that works.)

So here’s what you need to know: Yes, the concentration of both income and wealth in the hands of a few people has increased greatly over the past few decades. No, the people receiving that income and owning that wealth aren’t an ever-shifting group: People move fairly often from the bottom of the 1 percent to the top of the next percentile and vice versa, but both rags to riches and riches to rags stories are rare — inequality in average incomes over multiple years isn’t much less than inequality in a given year. No, taxes and benefits don’t greatly change the picture — in fact, since the 1970s big tax cuts at the top have caused after-tax inequality to rise faster than inequality before taxes.

This picture makes some people uncomfortable, because it plays into populist demands for higher taxes on the rich. But good ideas don’t need to be sold on false pretenses. If the argument against populism rests on bogus claims about inequality, you should consider the possibility that the populists are right.

Tags: economy, ideology, privatization, rights, standard of living, tax

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