Take a look at the figure below, which displays comprehensive household income data from the Congressional Budget Office (a fantastic data set).1

The bottom line charts actual household income for the middle income fifth—it’s the average income of households between the 40^th and 60^th income percentiles. So, it’s households that are richer than forty percent of households as well as poorer than 40 percent of households. Think of it as a representative, if narrow, slice of the middle class.

This income rose by 19.1 percent in the 28 years before the Great Recession (1979-2007), or 0.6 percent per year. Better than zero growth for sure, but, could it have been higher?

The top line shows household incomes that start with middle-fifth incomes in 1979, but then are allowed to grow as fast as the overall average growth rate of household incomes. And since the very rich saw extraordinarily fast growth over this period (241 percent cumulative growth for the top 1 percent over this period!), this made overall average growth run much faster than growth for the middle-fifth—which is why that top line pulls progressively farther and farther away from the bottom line over time.

By 2007, if middle-fifth incomes had grown simply as fast as overall average incomes, then they would be 27 percent higher (about $19,000). This is big money for moderate-income families.

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Ezra Klein’s recent piece arguing that inequality is not the defining challenge of our time has attracted plenty of attention by now, so this might be getting old for people, but a couple of more thoughts.

First, I actually think he has a fair point in worrying that inequality could displace failure to fully recover from the Great Recession as a focal point for policymakers (I’ve actually worried a bit about that myself in the past—see here). And while there are plenty of ways that these issues are entangled, there are plenty of ways they’re not, and caring about acting aggressively on inequality is not actually a precondition to agreeing that we should push the U.S. economy back to full-employment (see pieces by economists like Ken Rogoff and Martin Feldstein, who have not shown any real interest in the inequality problem but who argue for boosting demand to complete the recovery).

On the other hand, it’s not like engineering a full recovery from the Great Recession has actually been a pressing focal point for policymakers (outside of the Fed) for a long time now. They really gave up focusing on this around 2011, and rising concerns about inequality are not why they gave up (for the record, the reason they did is simple: Republicans, especially in the House, have been determined to throttle government spending, and the resulting austerity is why the economy is nowhere near full recovery). Another reason to not worry too much about the alleged distraction of inequality is that acting to stem its rise often dovetails pretty nicely with boosting demand and helping recovery. For example, a substantial increase in the minimum wage would actually provide a moderate demand boost. Not a game-changing one, but it moves in the right direction, for sure. And if arguments to return more quickly to full employment are buttressed by invoking issues of inequality rather than “stimulus versus austerity” (a debate that has not borne fruit in the policy realm), that’d be great.

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Ezra Klein has kicked off an expansive and useful conversation about whether reducing inequality or increasing growth (meaning a stronger recovery and driving down unemployment, not longer-term growth, as Matt Yglesias usefully points out), should be the top priority of policymakers. Klein uses my good buddy and former colleague Jared Bernstein’s recent WCEG paper as the starting point. This is good conversation to have, and is no doubt spurred by the founding of CAP’s new WCEG, headed by another former EPI colleague, Heather Boushey. Props also to Paul Krugman, Brad Delong, Matt Yglesias, Dean Baker, Ezra Klein, Jared Bernstein, Tim Noah, Steve Waldman for their thoughts.

I’d like to add a few thoughts to this discussion.

1. There’s a danger to dwelling on the question of ‘does inequality hurt growth?’ if it establishes a litmus test that means addressing inequality requires a firm yes. Some lesser lights from the Manhattan Institute are already using this logic. If inequality has no effect on growth it is certainly still worth working towards more equitable growth because it would mean the vast majority—the 99 percent, you might say—would do far better. My colleague Josh Bivens (in the State of Working America) used the CBO’s comprehensive income data to calculate the middle fifth’s income was lower in 2007 by roughly $19,000 compared to a scenario where there had been equitable growth from 1979 to 2007. Josh refers to this as the inequality tax. I think this is the type of calculation that Krugman was looking for in his most recent post, when he illustrates that inequality matters.Read more

Beginning in 2011, policymakers—particularly Republicans in the House of Representatives— embraced the idea that austerity somehow fosters economic growth. They used the leverage provided by the need to raise the statutory debt ceiling to force steep cuts in spending under the Budget Control Act (BCA). Since then, discretionary spending has been falling, even before inflation adjustments. This austerity has been the primary drag on economic recovery, and has also squeezed spending on education, infrastructure investment, scientific research, and the federal workforce, which will lead to slower future growth and less efficient government. And there appears to be no end in sight even though it has been shown that austerity does not increase economic growth.

The Budget Conference agreement announced earlier this week by Sen. Patty Murray (D-Wash.) and Rep. Paul Ryan (R-Wis.), which the House overwhelmingly passed last night, sets discretionary budget authority limits for fiscal years 2014 and 2015. In the press release announcing the deal, the two co-chairs pointed out that the bipartisan deal for fiscal year 2014—at $1.012 trillion—is midway between the House budget level of $967 billion and the Senate budget level of $1.058 trillion. The agreed upon level is 8 percent less than the fiscal year 2010 discretionary budget authority and 5 percent less than the fiscal year 2011 level (all in nominal terms).

One key question is just how much relief this deal actually provides from austerity’s grip, and what could have happened if there was bipartisan support for active policies to get the economy and labor market back on track? I examine three scenarios.

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The Murray-Ryan budget deal is marginally better than nothing; it prevents another federal government shutdown in January and provides a slight boost to discretionary spending over the next two years, relative to where we’d be absent this deal.

However, the deal demonstrates yet again that U.S. fiscal policy is a mess. Instead of dealing with the economic challenges of today—a sputtering economy, a jobs gap of nearly 8 million separating us from a pre-Great Recession labor market, long-term unemployment still at crisis levels, and nearly three job seekers for every job opening—policymakers are still acting as if future deficits are the single greatest threat to American living standards. No single fact exemplifies Congress’s preoccupation with deficit reduction than this: The Murray-Ryan deal will cut the ten-year deficit by about $23 billion—roughly the same amount as it would cost to extend federal emergency unemployment insurance for another year, a policy that would save 310,000 jobs in 2014.

It has indeed come to this. Given a clear choice, Congress would rather make symbolic gestures toward reducing the medium-term deficit—which is by no means a dire concern—than take on today’s economic challenges and help the most vulnerable among us.

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The third and final verification assessment by the Fair Labor Association (FLA) of remediation steps at three Foxconn factories making Apple products led to a raft of stories with headlines touting the progress on worker rights at Apple’s largest supplier Foxconn. While some reforms reported – such as reducing work weeks somewhat (though not to levels in accordance with Chinese law) and certain safety and health improvements – do represent steps forward, progress has been scant in fundamental areas and critical promises have apparently gone unfulfilled. Unfortunately, it is still accurate to describe Apple’s supply chain as rife with labor rights abuses.

The FLA ignores crucial reforms promised by Apple and Foxconn, including increasing wages enough to offset reductions in work hours, providing back pay for uncompensated work time, and making progress towards a livable wage standard.  On March 29, 2012, the FLA described the basic remedial actions to be undertaken by Foxconn and Apple, including the promises that compensation at Foxconn factories would increase enough to offset any reduction in overtime hours; that Foxconn and Apple would provide retroactive pay for the many circumstances in which workers had not been compensated for all their overtime hours; and that a study would be undertaken to determine the amount of compensation necessary to provide for basic needs (according to the FLA’s own survey, nearly two-thirds of workers said their compensation did not provide them enough to meet their basic needs).

The FLA has not reported progress regarding any of these critical promises; indeed, the final report does not mention them at all.

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Farmworker Justice, the tiny but tireless organization that advocates for migrant and seasonal farmworkers, held a briefing on Capitol Hill yesterday to celebrate the 30^th anniversary of the Migrant and Seasonal Agricultural Protection Act (AWPA), a federal law designed to help farmworkers get paid and obtain safe transportation to the fields without fear of retaliation. I worked on the legislation and the implementing regulations 30 years ago as a staffer for Rep. Bill Ford, so I listened with mixed emotions as lawyers familiar with the Act outlined both how the law has helped and where it has fallen short.

AWPA did not change the basic powerlessness of migrant farmworkers, especially the undocumented workers from Mexico and Central America who do most of the farm work in the West and Southwest.  As Hector Sanchez of the Labor Council for Latin American Advancement and Mary Bauer, a legal aid attorney from Virginia, put it, farmworkers still live and work in Third World conditions here in the U.S., the richest country on earth. They are often housed in shacks, trailers, cars, or even chicken coops with no plumbing.

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In the last week, we’ve paid great attention to Nelson Mandela’s call for forgiveness and reconciliation between South Africa’s former white rulers and its exploited black majority. But we’ve paid less attention to the condition that Mandela insisted must underlie reconciliation—truth. The Truth and Reconciliation Commission that Mandela established, and that Bishop Desmond Tutu chaired, was designed to contribute to cleansing wounds of the country’s racist history by exposing it to a disinfecting bright light. As for those Afrikaners who committed even the worst acts of violence against blacks, they could be forgiven and move on only if they acknowledged the full details of their crimes.

In the current issue of the School Administrator, I write that we do a much worse job of facing up to our racial history in the United States, leading us to make less progress than necessary in remedying racial inequality. We have many celebrations of the civil rights movement and its heroes, but we do very little to explain to young people why that movement was so necessary. Earlier this week, the New York Times described how the Alabama Historical Association has placed many commemorative markers around Montgomery to commemorate civil rights heroes like Martin Luther King, Jr., and Rosa Parks, but declined—because of “the potential for controversy”—to call attention to the city’s slave markets and their role in the spread of slavery before the Civil War. Throughout our nation, this fear of confronting the past makes it more difficult to address and remedy the ongoing existence of urban ghettos, the persistence of the black-white achievement gap, and the continued under-representation of African Americans in higher education and better-paying jobs.

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Tax increases were considered a dead issue in the discussions leading up to the recent budget deal negotiated by Sen. Murray and Rep. Ryan. The main justification for this position was that tax reform is imminent, and changes to the tax system could be better handled by the experts on the Ways and Means Committee. This argument has been repeated over and over, but it is meaningless. To begin with, the House GOP leadership has made it clear that tax reform will have to be revenue neutral—that is, no revenue increases—so waiting for a tax reform bill in the context of a budget deal makes no sense. Second, the House GOP leadership has made it clear that tax reform will not be considered, let alone introduced, this year. The prospects for tax reform in the next year or the next Congress are, at best, dim. So there was no serious excuse for not increasing tax revenues in the budget deal.

Wholesale tax reform, however, is not needed to increase tax revenues; just a few tweaks to the tax system could raise enough revenue to extend unemployment insurance benefits for the long-term unemployed and provide substantial relief from the sequester over the next 10 years. The table below lists six tax changes, with revenue estimates, courtesy of the Congressional Budget Office and the Joint Committee on Taxation. The six changes, which would increase taxes on those taxpayers most able to pay, are:

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Reactions to last night’s budget deal epitomize what’s wrong with American tax and budget policy these days. On the one hand, policymakers are given a pat on the back for simply keeping the government from grinding to a shuddering halt. This is a low bar indeed. On the other hand, the criticisms lobbed against the deal are completely backwards—claiming that the deal is insufficiently ambitious in closing long-run budget deficits.

The deal is indeed insufficiently ambitious, especially when held up against all of the ways intelligent fiscal policy could help American living standards. I recently tried to provide some detail on what fiscal policy would look like if the living standards of low- and moderate-income families actually entered into policymakers’ calculations. For anybody interested in seeing just how far short the deal brokered yesterday was in meeting the economic needs of American families, take a look at that paper, Taking “Middle-Out” Economics Seriously in this Fall’s Fiscal Debates.

The very short version of how yesterday’s deal fell short is as follows:

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