On Wilson’s muddled defense of the top 1%
Last week, the Washington Post published an essay by James Q. Wilson that’s bound to generate controversy. While Wilson acknowledges rising income inequality, his analysis of the factors driving the trend is seriously flawed. Furthermore, he belittles the need to tax the rich more in order to help the poor or to address overall inequality.
Wilson rightly acknowledges the growth of income inequality and correctly notes:
“The mere existence of income inequality tells us little about what, if anything, should be done about it. First, we must answer some key questions. Who constitutes the prosperous and the poor? Why has inequality increased?”
It is after this point that his argument goes off track. While there is much to comment on, I will only address a few issues, starting with Wilson’s explanation of rising inequality. He writes, “Affluent people, compared with poor ones, tend to have greater education and spouses who work full time.” Wilson then suggests that if these are the drivers of inequality, then it is best not to do anything about the problem, since, in his words, “We could reduce income inequality by trying to curtail the financial returns of education and the number of women in the workforce—but who would want to do that?”
It is true that those at the top have more education and are more likely to have a working spouse, but this hardly explains the large increase in inequality over the last 30 years. Let’s start with the role education plays in growing wage inequality. Wilson points out that those with at least a college degree saw wage growth far greater than those lacking a high school degree. While Wilson cites the data incorrectly (he cites Bureau of Labor Statistics data on “hourly” wages when they are actually median weekly earnings of full-time workers, and he flips the genders for college-educated wages), his point holds true: Wages have risen more for the college-educated (increasing 20 percent for men and 33 percent for women) over the last three decades than for those lacking high school degrees (with the wages of these workers falling 31 percent for men and 9 percent for women).
However, these data essentially compare the top 30 percent or so to the bottom 10 percent. In terms of explaining the surge in wages for the top, his analysis mostly misses the mark. After all, what we really need to explain is why the top 1 percent of wage earners saw their annual wages rise by 131 percent from 1979 to 2010—and why the top tenth of the top 1 percent saw their wages grow 278 percent—while wages for the bottom 90 percent increased just 15 percent (see the graph below).
Moreover, noting someone’s education does not explain why their wages rose or fell. After all, the reason why CEO pay has exploded in the last few decades is not because most CEOs happen to have college degrees. Rather, it’s due to a self-serving system that ensures CEOs reap the fruits of their company’s rewards.
As for Wilson’s point on working spouses, I’ll leave it to him to prove that this is a major driving factor behind the trends starkly depicted in the graph above.
Another serious flaw in Wilson’s argument is his contention that the existence of some economic mobility somehow negates the need to be concerned about high and rising income inequality. He illustrates mobility by pointing out that within nine years one can rise from being a business school student to earning a big Wall Street salary and a hefty yearly bonus. While this is true enough, Wilson misses the point yet again; business school students have traditionally been upwardly mobile. Instead, what is useful to know is whether someone from a poor or lower-middle-income family has the same or better chance of attaining such a position than in an earlier generation. The answer is quite clear that mobility within one’s lifetime (the chance of becoming that Wall Street banker) is no greater now than in the past. Moreover, the earning potential of today’s young workers is more tightly linked to their parents’ income than before. The existence of some mobility (and some variability from year to year) does not lessen the concern about inequality. (Also, see Dean Baker’s critique of the mobility data Wilson uses.)
In short, Wilson’s dismissal of inequality based on who the rich are, and why inequality has grown, is not very persuasive. However, the most curious part of Wilson’s piece is his contention that taxation is not relevant to income inequality:
“Making the poor more economically mobile has nothing to do with taxing the rich and everything to do with finding and implementing ways to encourage parental marriage, teach the poor marketable skills and induce them to join the legitimate workforce. It is easy to suppose that raising taxes on the rich would provide more money to help the poor. But the problem facing the poor is not too little money, but too few skills and opportunities to advance themselves.”
I disagree. The exact problem the poor have is “too little money.” Isn’t that obvious? That’s why we would want to enable low-income workers to have more skills so they can earn more money. What’s more, the level of taxation is directly related to all this. Without more revenues for the federal, state, and local governments, it seems that funding for education, job training, English language skills, housing support, Pell grants, the Earned Income Tax Credit, and so on will diminish. That will erode opportunity and mobility. Taxing the rich is not the answer to lessening inequality, but it is certainly part of the overall answer.
Finally, it is odd that Wilson is comforted by so many things that in reality are not so comforting. He notes, “Between 1970 and 2010, the net worth of American households more than doubled, as did the number of television sets and air-conditioning units per home.” These data are averages, which can be very misleading. Take wealth, for instance. As research has shown, between 1983 (the closest year to 1979 for which there are data) and 2009, all of the gains in wealth accrued to the upper fifth, with 40.2 percent of the gains going to the upper 1 percent and 41.5 percent going to the next-wealthiest 4 percent of households. In other words, the richest 5 percent of households obtained roughly 82 percent of all the nation’s gains in wealth between 1983 and 2009. The bottom 60 percent of households actually had less wealth in 2009 than in 1983, meaning they did not participate at all in the growth of wealth over this period.
Wilson is also comforted by such progress over the 1970-2010 period as fewer low-income children being underweight and more low-income households having complete plumbing. Plus, he notes, “The fraction of poor households with a telephone, a television set and a clothes dryer has risen sharply.” Isn’t this a low bar though? Over the 1970-2010 period, the output of goods and services per hour worked rose 119 percent and per capita disposable income grew 114 percent. In other words, is the only disappointing outcome for Wilson a situation where poor households were materially worse off in absolute consumption terms in a 40-year period in which average incomes more than doubled?