US Income Inequality & Potrayal in Mainstream

Income inequality is considered a non-issue in the laize faire world. There are several arguments given against taking it seriously. One of the arguments which this article tries to make is - it does not matter. equality brings instability it seems. Also its a difficult thing to get hold of so lets not bother with it. (economic text/professors treat it that way mostly)

The first para shows the income & productivity divide (showing that capital owners are earning more % as compared to labor). But in next para this is sort of looked over by the author saying it doesnt matter because economy iss more stable now.

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Pay gains diverged. In early postwar decades, compensation increases crudely paralleled productivity gains -- improvements in efficiency. From 1950 to 1973, productivity rose 97 percent. Over the same period, median compensation of male high school graduates aged 35-44 rose 95 percent (after inflation); for college graduates 35-44, the increase was 106 percent. Those in the top one-half of 1 percent received only a 37 percent gain. From 1980 to 2005, productivity increased 71 percent. Median compensation for high school graduates dropped 4 percent, and compensation for college graduates rose only 24 percent. For those in the top one-half of 1 percent, it jumped 89 percent.

Comparisons such as these evoke images of greedy CEOs and hedge fund managers. But the story is more complicated. On the whole, the economy that produces these growing inequalities outperforms the one that created more statistical equality. The norms and practices highlighted by Levy and Temin collapsed mainly because they no longer worked. The idea that everyone's wages should reflect inflation plus a few percentage points worsened both inflation and stability. There were four recessions between 1969 and 1981; by then, inflation was 10 percent and mortgage rates 15 percent. Productivity growth had plunged.

Greater competition -- from imports, deregulation, new technologies -- also doomed pattern wage-setting. Companies with lax pay practices lost sales and profits. Consider GM, Ford and Chrysler as Exhibit A.

Economic inequality is an intellectual quagmire, because its origins and consequences are so murky. Contrary to popular belief, for example, it has not prevented most Americans from getting ahead. Consider families with children. A study by the Congressional Budget Office finds that from 1991 to 2005 income gains averaged 35 percent for the poorest fifth of these households, 19 percent for the middle three-fifths and 53 percent for the richest fifth. [ Put here the fact that now far more families have both parents working and longer than before ] But their gains have decreased slightly since 2000. Here's another twist to the discussion: Today's immigration aggravates inequality, because so many new immigrants are poor and unskilled.

http://www.washingtonpost.com/wp-dyn/content/article/2007/06/05/AR2007060501765.html