Little If Any Evidence That Income Inequality Hurts The Poor, The Middle Class Or Economic Growth

From Brookings, "Has Rising Inequality Actually Hurt Anyone?" by Scott Winship:

Too many accounts of inequality today simply assume that it must be bad — that gains at the top have come at the expense of the middle class and bottom, ... But there is scant evidence for each of these propositions.

Note, first, that the CBO data indicates that median household income — the income of the person in the middle of all households — rose by 46 percent from 1979 to 2007, and the income of the average household in the bottom fifth has risen by a similar amount. To be sure, that’s a smaller increase than Americans saw in the 1950s and 1960s and a much smaller increase than the top has seen. But it’s not the case that the middle class and poor have been doing worse over time.***The poor and middle class are doing far better today than their counterparts in Pittsburgh during the Gilded Age, evoked by Freeland, and far better than their counterparts in most of the rest of the world.***Cross-national comparisons are tricky, but the evidence we have (from the Luxembourg Income Study) suggests that if you could line people up from richest to poorest in the United States, in Europe and in other English-speaking nations, Americans at every point in the richest 80 percent of households are better off than their counterparts occupying the same place in line in nearly every peer nation. Among the poorest fifth of households, this pattern breaks down, but it is hardly obvious that our inequality levels are to blame.

For one, inequality between, say, the poor and the middle to upper-middle class has not increased meaningfully since the 1980s. Second, to the extent inequality between the bottom and middle rose during the 1970s and 1980s, increasing single parenthood and rising out-of-wedlock births were a big part of the story. Third, it’s unclear that intergenerational mobility has declined over time — there is at least as much evidence that it has been unchanged as there is that it has fallen.***Studies on whether inequality hurts economic growth typically focus on developing countries, and research by, for instance, Christopher Jencks suggests that inequality across rich countries does not go hand in hand with lower growth. The latest research on whether inequality leads to financial crises concludes that it does not — rising inequality tends to co-occur with expansions in credit, but it is the latter that appears to lead to crises.