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GrowingIncome InequalitiesinAmerica? AReview Essay

HUGHHECLO

Americanshave generallyloved talking about economicinequalityandhateddoinganything aboutit.Asthethirteen colonies werebecominganewnation, therewasmuchtalkof"sumptuarylaws"toprotectrepublicanvirtueagainst"luxury"andextravagant consumption.Althoughthatmood soonpassed,economicinequalityhas been abeloved,recurring themeinpublic debate.

Sinceroughlythemid-1980s,theissueofeconomicinequalityhasagainbeeninchingitswayontothe publicagenda.Ithasbeen aninchingprocessbecausethosepushing"fairness"angsthavefeltvulnerabletocountercharges thattheywerereviving1960sradicalismandfomentingclasswarfare(achargethatgives1960sreformersfarmorecreditasegalitariansthantheydeserve).Nevertheless,economicdatadohaveawayofaccumulatingandgettingreported.In1990,Kevin Phillips (ThePoliticsofRichandPoor)did muchtolegitimateinequalitytalk,andbymid-decade,asthethreebooksunderreviewindicate, thesubjecthadgatherednoticeablemomentum.

SincetheGreat Society'sallegedWaronPoverty, SheldonDanzigerandPeterGottschalkhavebeenprominentcontributorstothestudyofincomeinequalityandpovertypolicy. Thankstosuchscholars,theUnitedStates nowhasthebestdataandeconomic analysesofincomepovertyintheworld(though italsohasjustabouttheworst statisticsofallindustrializednations intermsofreducingpoverty).Boththeirtechnical proficiencywiththeeconomicdataandheart-feltconcernforanantipovertyagenda areondisplay inAmericaUnequal.1Instraightforwardifantiseptic language,theco-authorslay outthebasicpost-1960trendsinsocial policy,povertyrates, andincomedistribution.Theythenweighcompetingexplanationsforwhathas happenedand explainwhat theyregard as desirablepolicies tofightpoverty.

Accordingtothebook's analysis,whathashappenedgoeslikethis.Inthetwo decadesafterWorldWarII,realfamily incomesdoubled,income inequalitynarrowedslightly, andpovertyratesdeclineddramatically.After1973thereweretenyears ofstagnationandback-to-backrecessions,whichproducedfallingaverageincomes, greaterinequality,andhigherlevels of poverty.Sofarsogood;thedatawereplaying bytheconventionallyunderstoodrules.However,after1983,thenationexperiencedsustainedeconomicrecovery,modestgrowthinaverageincomes (largelyfromincreased workhours,nothigherwages), andcontinuinghighpovertyrates.The povertytrendnolongertrackedwithaggregate income improvements because income distributionwasbecomingmoreunequal.

AmericaUnequaldescribesanationwheretherising tideofeconomic growthnolongerliftsallboats,becausestructuraleconomic changes(technologicaladvances,internationalizedmarkets)generate greaterdemandsforhigher-skilledrelative tolower-skilledworkers and thusgreaterearnings inequality.Theargument isthatgovernment social programshavesometimeshelped offsetthebasiceconomicforces(the1970s), and sometimesmadetheirimpactworse(the1980s), butatthecore,itisstructural economicchangesthathavecreated therisingearnings andincomeinequalityaswellasthepersistentlyhighpovertyrateofthepasttwodecades.Theauthorsproposeoffsettingpoliciestoimproveemploymentprospectsandearningsofallworkersadverselyaffectedbystructuraleconomicchanges.Theirproposalswould altertheEarned IncomeTaxCredit,taxcodes,andemploymentprogramssoastoensurethatanyfamilywithatleast onefull-timeworkerwillhave anafter-taxincomeabovethepovertyline.Whiletheproposedreformsmayappear"NewDemocrat"innature,theyechomuchofwhatwassaidbypeoplelikeSarLevitanandother advocatesofactivistlabormarketpolicyinthe1960s and1970s,voicesthengenerallydismissedbyantipovertymoversandshakers. Inessence,therenewedattackonpoverty proposedinAmericaUnequalisaworkers'antipovertyagenda.Bytheauthors'calculation,thisisanagendaencompassingalittlelessthanhalfoftheofficiallycounted31millionpoor.²Still,thereisenoughofthe"old"GreatSociety Democrat leftinDanzigerandGottschalktotakethepostwardecades prior to1973asthebenchmark forexpectedprogress. Thisobviouslyrunsafoulofrecentcriticisms (RobertJ.Samuelson, TheGoodLifeandItsDiscontents,1995) thatseetheexpectationsofendlesseconomic growthandsocial betterment ofthosefirstpostwar decadesasadangerousillusion ofentitlement. Onthewhole,AmericaUnequaldealswithquitefamiliar measuresofincomepovertyandinequality.Bycontrast,inBlackWealth/WhiteWealth,we areintroduced tothemuchmoreneglectedsubjectofwealth distributionandAmericans' capacitiesforassetformation.³Making extensiveuseoflongitudinaldataintheSurveyofIncomeandProgramParticipation(SIPP)andinterweavingcolorfulinterviewswithordinarypeople, MelvinOliverandThomasShapiro offeroneofthemostthoroughandthoughtfulstudies todateonraceandthedistributionofwealth,perceivingwealthtobethesupreme indicatorofhistoricalprocessesundergirdingracialequality. Theauthorsbeginbydemonstratinghowimportantitistounderstandthe variousdimensionsofwealth,wealth's centralitytogenuine economicwell-being,anditsvastlymoreunequal distributionthanincome. Notsurprisingly,sinceblacksranklowon socioeconomiccharacteristics thatareassociatedwithhighlevels ofincomeandwealth (thatis,education, occupation,intact marriagewithtwoearners,etc.),blacksare disproportionatelyamongthosewithlittleornowealth. Theirsituationis evenmorebleakifoneomitshousingandconsiders onlynetfinancial assetsinthewealthcalculation. Onemightpauseheretotakeinthelargerpicture,whichtheauthorsmustpushtotheperipherybyconcentratingonrace.Onequarterofallwhitehouseholds(and 61percent of black)havezeroor negativefinancialassets; and38percentofwhites(79percentofblacks) lackfinancialreservestosurviveat thepovertyleveleven threemonthswithout outsideincome.Mostrevealingofall,overhalfofallmarriedcoupleswithchildren(54percent) haveinsufficientfinancial assetstosupportthemselvesatapovertylinelevelof livingforthreemonths.Ifeconomicprecariousnessisdefinedroughlyashavinginsufficientfinancialassetsto liveforthreemonthsatthepoverty line,then56percentofallwhitechildrenand89percentofblackchildrenlivein suchhouseholds.⁴ This more general subject of Americans on the economic edge is important inanydebateoneconomicwell-beingandpublicpolicy, butunderstandablyenough, itisnotthebookOliverandShapiroarewriting.Thecenterpointoftheir analysisliesindemonstratingthatevenafter blacksand whitesarematchedonallthekeyfactors associatedwith assetaccumulation(education,occupation,age,socialmobility, etc.),the differencesinwealthremainvast,withapproximatelythree-fourthsoftheracialwealthdifferencesremainingunexplainedbythose conventionalvariables.Theauthorsgoontoexplaininconvincingdetailhowatriadofforces-particularpublicpolicies,discriminationineconomicmarkets, andthehistoricalaccumulationofdisadvantagesinassetformationhavecombinedto"sediment"blackassetpovertyintothesocialstructure.Thefinalrecommendationsareboldandcontroversial,rangingfromgovernment-subsidizededucation andhousingasset accountstoracialreparations.Nonetheless,thebookhasclearlyaccomplisheditsgoalofpresenting a"newperspectiveonracialinequality."Byilluminatingthesocialandpolicycontextthatshapes possibilitiesforaccumulatingassets,OliverandShapiroshowthevalueofa

sociologicalperspectivethatpushesbeyondstandardeconomic descriptionsof povertyandincomedistributions.

TheWinner-Take-AllSocietydealswiththoseatthetop,wheremassive incomerewardsmostreadilytranslateinto massivewealthpossibilities.⁵However, thisisnotabookabouttherichandfamous.Itisabouttheprocess ofwinningeconomicallyinAmericaandtherewardsthatentails. Asthetitlerightlyavows,thisprocessesincreasinglypervasive soastoimplicatethewholesociety.

By now,manyreaderswillbefamiliarwiththe "winner-take-all"languagethathasbeenpickedupinsomeofthepopularmedia. However,withinthebook'slively, popularwritingstyle isasolidcoreofideasdeployedbytwowellinformedsocialscientists,RobertFrankandPhilipCook.Thebasicnotionisthattherearemarketsthatproffer topsiderewardsvastlyoutoflinewithanymarginal differencesinactual performance.Intransmittingthisidea,thepopularmediahasfocusedonsuperstar athleticorentertainmentfigures,butthebookclearlyshowstheissuetobeabroaderone concerningmarketthatdistribute disproportionatesharestomanypeople inarangenearthetop("winner-take-all,"however, isa moresaleable slogan).Astheauthorsacknowledge,muchof thisisafollow-on fromthelateFred Hirsh'stragicallyforeshortenedworkonSocialLimitstoGrowth(1976),whichhighlightedamodern

society's dispositiontobaserewardsnotonabsolute performance buton performancerelative toothers.Itis inthehugedisproportionbetween thebestornearbestandeveryoneelsethatthelottery qualityoftoday'sAmericatakeshold.

ThemainthrustofFrankandCook'sanalysis istoshowthatsuchtopsidebiasedmarketshavespread(largely Heysuggestbecause oftechnology)to evermoreareasofAmericanlifewithevermorespectacularrewardsto thoseabove.Thenatural resultofsuchmarketsfavoring first-classpassengersisaspreading inequalityofincomeandwealth asthosebelowincabinandsteerage classfallbehind. However,theauthors extendthediscussionofinequalitytonolessimportantconcerns formassiveinefficiencyinresourceuse(suchmarketsattractfartoomanycontestantsforfartoouselessextremes inconsumptionandinvestment)anddegradationofimportantcultural values(acelebrationoffluffyquicksuccessoverenduringqualitativemerit).

In the end,the authors declarethe good newsthatthe economisthard-heads'

"Big trade-offs' between equality and efficiency do notfaceusatevery turn.Inourworldofexpandingandwastefulwinner-take-allmarkets,thereisagreatdealofleewaywhereby policychoicescanpromotebothmoreequality andmoreefficiency.Theauthors 'majorproposalis aprogressiveconsumptiontaxtohelpbringsocial andeconomicrelationshipsbackintoatrueralignment.Shadesofsumptuary laws.Itseems thatwithinthejadedveneerofpostmodernAmerica,theoldyearningforrepublicanvirtuecanstilltwitchwithlife.

Isthereanythingtyingallthistogether?Perhaps so.Wemaybewitnessing,invariousguises, areturntoa concern fortheordinary(darewestillusethe

term?)bourgeoisqualities ofdemocraticlife.Letusthinkagainabout thethreebooksunderreview incombination: anti-povertyconcerns focusedonthosewhoworkorwillwork;racialequalityconcerns looking,nottogreat

fortunes orradicalsocial transformation,but tomiddle-classwealthprospectsforthosewhoplaybytherulesofdemocraticcapitalism;pro-marketconcerns disparagingtheperverse outcomesofcorrupted marketprocesses.Anyone whocanpulltogether suchpetty-bourgeoisforcesmaywellcatchthenextwaveofascendanceinAmericanpolicyandpolitics.