Rough Draft to Good Copy: Video Intrigue: Wealth in America

What is income inequality?

Broadly speaking, income inequality refers to the fact that different people earn different amounts of money. The wider those earnings are dispersed, the more unequal they are.

How do you measure inequality?

Inequality can be defined or measured in a number of different ways.

One traditional approach was to compare the income of a relatively broad swath of affluent people — the top ten percent of the income distribution (the top decile) or the top twenty percent (the top quintile) — to the national median or average.

A newer line of research pioneered by Emmanuel Saez, Thomas Piketty, and their collaborators at the World Top Incomes Database has been to use tax records to focus on the incomes of the very top of the distribution.

Is inequality bad?

My opinion: no. While inequality is not bad, it's not good. Inequality is an accepted reality of capitalism.

However, inequality can be distorted. I submit income inequality is vastly distorted and needs to be checked using taxes, and self moderation.

For example, a CEO should not make 354 times or even 100 times more than the average executive and worker. Apple is hot, and has been hot for a while. I applaud their success and the company's leadership. At the same time, Tim Cook made $376mil in 2011, yet Apple claims it can't afford and it would not be a competitive move to have its iPhones assembled in the US due to US manufacturing wages.

States and cities should not have to race to the bottom to see which can afford to provide the most tax incentives or tax holidays to attract businesses.

We as a people need to evaluate what kind of a society we want. I stand on the side of strengthening labor laws, increasing taxes, and reforming tax laws to ensure everyone pays - even those receiving assistance (progressively, not the flat tax, and no tax refunds) into the system which will establish a sense of ownership and engagement among everyone about how their tax dollars are used. And we must establish transparency with regard to how tax dollars are spent.

We don't have to "punish" success, and we don't have to "punish" the poor or "squeeze" the middle class. We don't have to engage in class warfare. We don't have to continue tired dogma or recite lame talking points, e.g. tax cuts create jobs and boosts the economy, Kansas disproves that, and it's clear that over-taxation will drive people from your state. It's up to us, we can produce policy that creates opportunity, inspires work, and levels the playing field.

Why is inequality rising?

There is some disagreement about this and also some nuance as to exactly which aspect of inequality we're talking about and what kind. Some of the most prominent accounts:

Skill-biased technological change. Technological improvements raise incomes, but they do so unevenly. Rewards disproportionately go to highly educated workers. On this view, rising inequality reflects slowing educational progress and better schooling is the key solution. This has been the traditionally dominant view in economics, but it doesn't explain the specific rise of the top 1 percent very well.
Immigration. Importing low-skilled workers to do low-paid jobs tends to raise measured income inequality. David Card estimates immigration to be the cause of about 5 percent of the total rise in inequality.
Decline of labor unions. Labor unions reduce inequality both by raising wages at the low end and constraining them at the high end. Bruce Western and Jake Rosenfeld estimate that the decline of labor unions as a force in the American economy is responsible for 20 to 33 percent of the overall rise in inequality.
Trade. Growing international trade with lower-wage countries such as China seems to have reduced the wage share of overall national income, boosting the incomes of people with large stock holdings.
Superstar effects. Because the world is bigger and richer in 2014 than it was in 1964, being a "star" performer — the most popular athlete, author, or singer — is more lucrative than it used to be.
Executives and Wall Street. Increased incomes for CEOs and financial sector professionals account for 58 percent of the top 1 percent of the income distribution and 67 percent of the top 0.1 percent. So the specific dynamics of compensation in those areas are wielding a big influence.
Minimum wage. David Autor, Alan Manning, and Christopher Smith find that about a third (or possibly as much as half) of the growth in inequality between the median and the bottom ten percent is due to the declining real value of the minimum wage. This is different from the issues about the top end pulling away that normally dominate political discussions of inequality, but it's a noteworthy finding nonetheless.
The fundamental nature of capitalism. Thomas Piketty has made waves lately with his new book Capital in the 21st Century, which argues that very high levels of inequality are the natural state of market economies. In his view, it's the economic equality of the mid-twentieth century that needs explaining, not today's inequality.