Pethokoukis explores inconvenient facts for the income inequality brigade

James Pethokoukis of the American Enterprise Institute documents some recent data that contradict claims from those who focus on income inequality as the major cause of America’s sluggish economy.

The case that income inequality is currently harming the US economy is not a strong one. A recent blockbuster study from the Equality of Opportunity Project found “little or no correlation” between the share of income going to the 1% and upward mobility. And new data analyzed by e21 has seriously undermined the White House’s “Great Gatsby Curve,” which supposedly suggested that diminished mobility was the logical consequence of higher income inequality: ”When we plot the inequality levels of the U.S., Canada, and Sweden against their relative mobility levels, the Great Gatsby Curve indicates that higher inequality corresponds with less immobility, not more.” Finally, CBO data find that real incomes for the broad middle-class were 40% higher in 2010 than in 1979, hardly stagnant.

Lots of inconvenient facts for die-hard, inequality worriers. Of course the impact of upper-tail income inequality could change in the future. A lack of GDP growth and good jobs would seem to be the bigger problem right now, though. To focus on inequality is to distract from improving mobility and raising living standards. …

… The reform conservative movement seeks to strengthen the middle class, reform the safety net, and increase the rewards for low-income work. At the same, it rejects crony capitalist policies that enable vast wealth through government favor rather than innovation. Lots of interesting economic policy ideas are being generated and discussed: wage subsidies, expanded child tax credit, copyright and patent reform, a college completion agenda — just to name a few.

Be sure to follow the link above to read Pethokoukis’ dissection of the latest flawed analysis from Capt. Keynesian, otherwise known as Paul Krugman.

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