In the last 40 years, living standards have flat-lined for the poor and middle class, and wealth has skyrocketed for the rich. Some stats to make the case, briefly. In 1979, the pool of income in the top fifth was 8-times the bottom fifth. By 2007, the top quintile out-earned the bottom by a factor of 14. The top one percent of earners today take home a fourth of all the cash earned in America.
Few are seriously questioning that this phenomenon -- Tim Noah calls it the Great Divergence -- is happening. But I have a question about the phenomenon: Why should we care?
I'm not trying to be glib or senseless. Of course we should care that low- and median- income Americans are struggling to get by, or that poverty is rising. I'm asking why should we care that the rich are getting so much richer than the rest of the country.
Wages for the rich and poorer aren't in some sort of eternal tug-of-war. It's not as though when the rich get richer, the poor get poorer. Instead, when the rich get richer during economic expansions, median wages rise, too. When the rich get poorer during economic contractions, median wages suffer, too.
In the next few days, I'm going to be looking for answers to the question why should we care about economic inequality. What I'm looking for is evidence that income inequality really does lead to unproductive investment (as Steven Pearlstein charges), or senseless government policy (as Raghuram Rajan suggests), or financial bubbles, as many writers, including Robert Reich, have said.