Inequality Is Real and Romney Would Make It Worse

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Slashing taxes for the rich and benefits for the poor will only widen the already large gap between the have-a-lots and the have-nots

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(Reuters)

Do you have a microwave? Maybe a cell phone? Or even--gasp!--air conditioning? Congratulations, you're not really poor, at least according to Romney adviser Kevin Hassett. And that's why we shouldn't worry about inequality -- or so the story goes.


The Occupy movement made inequality a political football the past year, but it's been a policy football for at least a few years. The debate between inequality skeptics and worriers has gone something like this. Income inequality hasn't gotten worse. Yes, it has. Well, what really matters is consumption inequality, and it hasn't gotten worse. Yes, it has. Well, what really, really matters is social mobility, and it hasn't gotten worse. Yes, it has. Well, social mobility might be overrated because rich people have better genes. Really

That sound you hear is the goalposts getting moved again and again. And now it's Kevin Hassett's turn to try moving them. He starts by denying that income inequality is quite as bad as economists Thomas Picketty and Emmanuel Saez have measured, because they didn't include transfer payments. That might be damning, if the Congressional Budget Office (CBO) hadn't corroborated Picketty and Saez's results even after taxes and transfers. According to the CBO, incomes for the top 1 percent increased 275 percent since 1979, while incomes for the middle 60 percent only increased 40 percent. 

Next up in the inequality denial two-step is the claim that consumption inequality hasn't increased as much as income inequality -- not that Hassett thinks income inequality has increased! In other words, the rich getting richer hasn't translated into them buying more stuff than middle and low-income households. There were actually a few studies arguing this back in the mid-aughts -- see this Dirk Krueger and Fabrizio Perri paper -- but recent research has challenged this. A 2012 paper by Orazio Attanasio, Erik Hurst and Luigi Pistaferri corrected for measurement problems in the consumption survey economists use, and found that consumption and income inequality have more or less tracked each other, as the charts below show. 


ConsumptionInequality.png
Okay, here's the big question -- so what? So what both if consumption and income inequality have shot up the past few decades? What does it matter for Romney's economic agenda? Nothing, except for the fact that Romney's tax plan is a huge tax cut for the rich and Romney's budget is a huge cut for the poor. The latter gets less attention, but Romney would cut Medicaid by about $1.7 trillion, and his spending cap couldn't help but cut programs like food stamps, unemployment insurance and education by roughly 30 percent. In other words, it would pour some gasoline on inequality, and then shoot a rocket at it. 

Even if you think inequality isn't an economic problem -- which it very well may be -- it's certainly a political and social one. An even wider chasm between the have-a-lots, the haves, and the have-nots risks a backlash against all sorts of policies, like free trade, that politicians and economists from both sides of the aisle agree on. 

Inequality is real, and it has real consequences. Romney's agenda would make inequality bad enough that even he and his advisers could no longer deny it. And that's saying something.
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Matthew O'Brien

Matthew O'Brien is a former senior associate editor at The Atlantic.

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