Some Misunderstandings on Income Inequality

Tom Rogan, a Republican political blogger and columnist, was cordial enough to let me write a guest post about Income Inequality over at his blog. It’s a post with a more political flavor to it, but there are some economic topics in there. Anyway, if you are interested in reading about American politics from a Republican perspective, I highly recommend following Tom’s blog. Despite our political differences, he provides some pretty good analysis on political matters, better than most journalists on the right. He also specializes in geopolitics and foreign policy, and even though he is a neoconservative, he has great posts on those topics as well.

One of the things I’ve noticed in politics is the way Republicans misunderstand or ignore liberal arguments against inequality. And to to be fair, income inequality is a tricky subject to talk about. Even the very best of economists struggle to find the best way to measure inequality. There are different types of compensation, e.g. labor income (wages), benefits, and transfers. There are different ways to measure income inequality, e.g. at the individual, family, or household level. There are also things that we should consider like hours worked. And don’t forget that pesky thing called inflation. Trying to put all of these factors into an empirical paper can be a real mess, so on some level, I understand the lackluster debate over income inequality. But despite these complications, two things are clear when looking at the data, decoupling and income growth divergence are real and sizable (1). These are two incredibly important problems that show how income inequality has been growing the past few decades.

More often than not, most people can’t even get past step one. The conventional debate on the subject is rife with political rhetoric that obscures the issue and gets us nowhere. Don’t get me wrong, there are some right leaning economists and academics that cut right through the talking points and get straight to the heart of the problem. The points they bring up and issues they raise are good for the political debate and they help bridge both political parties to a sort of mutual understanding. But these people are often in the minority and there voices aren’t heard all that often. The people I’m primarily talking about are Republican politicians, members of the GOP, right leaning journalists, and plenty of others. Even many on the left are bad about this. So with this in mind, it would be beneficial to some clarity on the issue.

Read the whole thing here

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