America’s inequality debate

William Tucker argues in an article in the American Spectator that Paul Krugman’s contention that inequality is widening in America – a view that has influenced Barack Obama – is wrong. Tucker starts by pointing out that absolute living standards in America are rising:

“One out of every twelve Americans annually visits Disney World, making Orlando the nation’s 9th busiest airport. With children in tow, the trip easily costs several thousand dollars yet the place is always packed. Eighty percent of American homes now have air conditioning. Almost everyone owns a television set. Seventy-five percent have a cell phone. The poorest in America — the people in the bottom ‘quintile’ – live as well as the average American did in 1970. Calorie intake is now perfectly level across all classes in America – meaning we have reached the millennial dream where everyone has enough to eat” (original emphasis).

Tucker then goes on to examine the methodology favoured by Krugman to show it is wrong. He claims that Krugman’s argument is based on a 2001 paper (PDF) by Thomas Piketty and Emmanuel Saez published by the National Bureau of Economic Research. Tucker argues this paper distorts the true picture because it is based on individual tax returns. This means, for example, that teenagers on holiday jobs and babies with a college fund are counted towards the average. Average household incomes rose from $44,000 in 1980 to $57,000 in 2006, a 30 percent increase. The compound the effect the size of an average household fell over the same period.

I am not sure who is right in this debate but it is a topic worth examining.