Guest Column
Income inequality may not be quite what it seems | Column
And if that’s true, then what is really dividing the country right now?
The Gini index
The Gini index [ Provided ]
Published Jul. 30

An American plumber earns far more than an Asian one. Why? Perhaps some of it can be explained by better skills and productivity. But most of it is explained by geography and limits on the flow of labor. Asian plumbers might want to come to the United States to earn more, but stringent immigration rules prevent them from doing so.

Murad Antia is a finance instructor in the Muma College of Business at USF
Murad Antia is a finance instructor in the Muma College of Business at USF [ USF ]

Not so when it comes to consumer goods. Companies can import goods from other countries where labor is a lot cheaper, eliminating many well-paying manufacturing jobs in America. One sees images of manufacturing facilities in ruin and abandoned in communities across the country. So, one could imagine that with the loss of manufacturing jobs, many former workers are doing with a lot less and others are mired in poverty.

Yet, on balance, the economy continues to grow, meaning that many — such as the owners of these companies, including stockholders like some of us — are prospering at the expense of those who lost their well-paying jobs. We hear about citizens and politicians bemoaning the rise in income inequality. But is it really the case?

Not so, according to former Sen. Phil Gramm, who once chaired the Senate Banking Committee, and John Early, who was assistant commissioner at the Bureau of Labor Statistics. In a column in the Wall Street Journal, they showed that if you count all government transfers such as welfare and Medicaid as income and reduce household income by taxes paid at the federal, state and local level, the claim that income inequality is growing is false.

They calculated the Gini coefficient, which is a measure of income inequality. The coefficient can vary between 0 and 1. 0 denotes absolutely zero income inequality. And 1 denotes extreme income inequality. (A country in which every resident has the same income would have an income Gini coefficient of 0; a country in which one person earned all the income, while everyone else earned nothing, would have an income Gini coefficient of 1.)

This table shows their data over time. As you can see, the Gini coefficient increased from 0.39 in 1970 to 0.48 in 2017 when measured using income before taxes and transfer payments. But if you include taxes and transfer payments, the Gini coefficient — and therefore, income inequality — has remained relatively stable at around 0.34.

So what gives? If income inequality isn’t really worse, why the anger and discord in the country now that did not exist in the past?

The Economist opines that economic privation is not the reason for the discord in the country. The primary reason is the polarization, which is far more pronounced on the right than the left. The right is unified in its distaste of the left. Swathes of white Americans are resentful of diversity, believing that the country is losing its culture and identity and are blaming the left for letting it happen.

Of course, there is no such thing as one culture and identity. People wrongly tend to assume that their community’s culture pervades the entire country. For example, the two L.A.s — Los Angeles and “Lower Alabama” — cannot be more different in culture and identity.

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So, what differentiates the left from the right? According to academics from the University of Nebraska, conservatives lean toward supporting tradition and the status quo and view outsiders with suspicion; conversely, liberals lean toward experimentation, untested experiences and view outsiders with curiosity.

While many of us are afraid of change, the paranoia is more pronounced on the right. The change that many are afraid of is losing privilege, power and control that the majority has enjoyed since the birth of the nation.

The working class — Donald Trump’s base — are particularly fearful of outsiders, thinking that the more they make, the less is available for them. What they don’t comprehend is that outsiders are not taking from them. Instead they are making the pie bigger. Or sometimes they may simply be uncomfortable around people who don’t look like them.

The GOP and their cohorts on social media and radio know this too well and are dealing from the bottom of the deck. They are not offering policy prescriptions. Instead, they are legitimizing and blaming outsiders for their perceived shortcomings.

So, the country is at a critical juncture. End or severely curtail immigration and let economic growth slow to a crawl because of anemic population growth, thus falling further behind China. Or allow a sensible number of immigrants to enter the country with needed skill sets needed to maintain healthy economic growth. You decide.

Murad Antia, now retired, taught finance at the Muma College of Business, University of South Florida.


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