Personal Well-Being Overshadows Income Inequality

Consider one conundrum in American politics. Income inequality has been increasing, according to standard statistics. Yet most Americans do not seem very perturbed by it.

Barack Obama may have been elected president after telling Joe the Plumber that he wanted to spread the wealth around. But large majorities in polls approved when Obama and congressional Democrats abandoned oft-repeated campaign promises to raise taxes on high earners in the lame duck session.

Why don't voters care more?

One reason is that economic statistics can miss important things that affect people's lives. Wages may not have risen much since 1973, but that's partly because the tax code encourages increased compensation in the form of benefits, including health insurance. And it's partly because the Consumer Price Index overstated the effect of inflation in the 1970s, making 1973 wages look higher in "real dollars."

It's a widespread assumption in some affluent circles that ordinary Americans are seething with envy because they can't afford to shop regularly at Neiman Marcus or Saks Fifth Avenue. My sense is that most Americans just don't care.

Another is that inflation indexes can't fully account for product improvement and technological progress. I bought my first electronic calculator in 1970 for $110. Today you can buy the same gadget for $1.99 at your local drug store. The consumer electronics widely available today at declining prices simply didn't exist in the 1980s.

In addition, as George Mason University economist Tyler Cowen writes in the American Interest, "The inequality of personal well-being is sharply down over the past hundred years and perhaps over the past twenty years as well." Bill Gates may have a bigger house than you do. But you have about the same access to good food, medical care and even to the Internet as he does.

Or consider something as prosaic as food. The supermarkets of the 1960s and 1970s didn't come close to matching the amazing selection of produce, meats and exotic foods as you find in supermarkets today--and not just in high-income neighborhoods but in modest-income places all over the country.

Or clothing. Stores like Walmart, Target and Kohl's sell good quality clothes at astonishingly low prices; you can outfit a kid in school clothes for $100 or so a year. Presidential candidate John Edwards claimed to have seen a little girl shivering in the winter because her parents could not buy a coat; you can get one for $5 at the Salvation Army.

It's a widespread assumption in some affluent circles that ordinary Americans are seething with envy because they can't afford to shop regularly at Neiman Marcus or Saks Fifth Avenue. My sense is that most Americans just don't care. They're reasonably happy with what they've got, and would like a little more.

So I am inclined to agree with Cowen when he writes, "The broader change in income distribution, the one occurring beneath the very top earners, can be deconstructed in a manner that makes nearly all of it look harmless."

Cowen is worried that high earners in financial industries benefit hugely when they bet correctly but are sheltered from losses by government bailouts when they bet wrong. It's a problem that the financial regulation bill passed by the outgoing Congress addressed but, in his opinion and those of many others I respect, did not solve.

But there's little evidence that most Americans begrudge the exceedingly high earnings of the likes of Steve Jobs, Steven Spielberg or J. K. Rowling. We believe they have earned their success and don't see how taking money away from them will make the rest of us better off.

We already take quite a bit. Current tax rates mean that the top 1 percent of earners account for 40 percent of federal income tax revenue--a higher percentage than in many Western European countries. Higher tax rates would probably produce more tax avoidance--rich people can adjust their affairs--and lower revenues than forecast by static economic models.

Of course, not everyone is well off in a nation where unemployment has been 9.4 percent or higher for the past 19 months. And I suspect that most Americans would be thrilled to get a 13th month of pay. But they're not seething with envy at those who are better off.

So who does? One example is the cartoonist and author Garry Trudeau, a college classmate of George W. Bush, who has been spewing contempt for the Bushes for 40-some years. The strongest class envy in America, it turns out, may be the resentment of those who were one club above you at Yale.

Michael Barone is a resident fellow at AEI.

Photo credit: Flickr user Steve Wampler/Creative Commons

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