Top Incomes Decline, Wealth Inequality Persists

There are many ways to measure inequality. You can compare those at the very top and to those in the middle or the very bottom. You can look at the overall distribution of resources among the total population. Or you can look at the degrees of concentration among segments of the population. Each of these measures tells you something different. But it’s more consequential in what you choose to measure.

Jason Deparle writes in the New York Times of new data that shows how income inequality declined during the recession. He sprinkles in some quotes from a professor of entrepreurship, Steven Kaplan, implying inequality is a thing of the past and we shouldn’t be worrying about it anyway since economic growth is the problem. Likely, there are some debates over the data Deparle is citing. Is it best to use Social Security data or tax returns? Should we include earnings with wages? 

Regardless, I don’t find it hard to believe incomes at the very, very top have come down off their pre-recession highs (although I would still like to see more data). But this does not mean inequality is lessening or a problem of the past. We need to look at both income and wealth. Just because it is harder to shine a light on wealth but doesn’t mean we should not look for its impact.

As I wrote previously, inequality in America is still ascendant but the dynamics have changed. The bursting of the housing and stock market bubbles momentarily stemmed the wealth inequality tide. Yet by 2010, stock market losses were largely recouped. This wasn’t the case for housing equity, which is the largest item on the family balance sheet.

The divergence between housing values and security prices will be the main driver of wealth inequality for the foreseeable future.

Without major changes to the housing market and policy efforts designed to help families de-leverage, such as large-scale loan modifications and principle reduction, wealth holding for the majority of American households will remain depressed. Wealth at the very top will be determined by a combination of executive pay, tax rates, and returns to capital. Interestingly, it seems like the recession has ended for those at the very top but continues for the majority.