Occupy Wall Street supporters are claiming credit for at least one political accomplishment: elevating the issue of income inequality to the top of the national conversation.
The Occupiers are right about American incomes: They’ve definitely grown more unequal. But this fact presents three inconvenient truths for the Occupy Wall Street movement.
First, let’s look at the top end of the income ladder. It’s true that the rich — especially the top 1% — are getting richer, widening the gap between the top earners and everyone else.
So why are earners at the top doing so well lately? Two forces — globalization and advanced technology — have combined to heap enormous rewards on the top of the income distribution.
We can see the effect most clearly on display in the bluest parts of the country: in the financial corridor that runs from Boston through New York and Philadelphia to Washington and includes outposts like Chicago and Santa Monica; in the technology clusters of deep blue Seattle, San Francisco and the Silicon Valley; and in the entertainment hubs of Hollywood, Nashville and Manhattan.
Expanding global markets for financial services mean the rewards for those at the top of the Wall Street heap are much larger than they were a generation or two ago. The same goes for gigantic worldwide markets for technology products such as software and computers, and entertainment goods such as music and movies.
The phenomena driving this wealth explosion go by various names — “winner-take-all markets,” “superstar economies” and the like. Spend time in Greenwich or Chevy Chase or Portola Valley or Malibu and it is impossible to deny that thanks to these effects, the top 1% is doing spectacularly well.
What makes this truth inconvenient is that the proposed remedy — tax these haves and redistribute that income to the have-nots — has an upper boundary. Indeed, blue states such as California and New York, where these superstar effects are most pronounced, are already trying to remedy inequality with some of the highest state income taxes in the country, and they have bumped up against the limits of economic reality.
It’s telling that New York Gov. Andrew Cuomo has been a staunch critic of new tax increases, including on the wealthy, saying recently that “you are kidding yourself if you think you can be one of the highest-taxed states in the nation, have a reputation for being anti-business — and have a rosy economic future.”
What about at the lower end of the income distribution? Here too, some hard truths complicate matters for liberal supporters of the Occupy movement.
Consider immigration. There is little doubt that adding lots of unskilled immigrants to the labor pool depresses the wages of the native born at the low end of the income distribution.
Reasonable people can disagree about how many immigrants the country should welcome (I’m in the pro-immigration camp). But liberal supporters of Occupy Wall Street, many of whom have expressed solidarity with undocumented workers, must reconcile the fact that their embrace of large-scale immigration of unskilled workers is a driver of the inequality they denounce.
A third dynamic widening income disparities is in some ways the most inconvenient of all: the collapse of intact families. The explosion of out-of-wedlock births and of children living outside of two-parent households has widened economic disparities of all kinds, including income.
The reason is straightforward. The role that human and social capital plays in helping a person generate income in an advanced economy has increased over the last half a century. And over that same time, the primary institution for inculcating human and social capital has badly weakened.
Social scientists routinely find that individuals raised in intact families are generally better equipped to thrive in the economy. Today’s 99% is teeming with tens of millions of Americans who were not raised in a stable home environment, and their earnings potential is compromised as a result.
The problem of family breakdown doesn’t lend itself to easy fixes. And its cultural roots run quite deep at this point. But it’s a safe bet that in the several months they occupied Zuccotti Park and other public spaces, not one new idea was raised by Occupiers that would help arrest this driver of increasing income inequality.
Nick Schulz is a fellow at the American Enterprise Institute.