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Home Publications Blogs Beat the Press Differences in Inequality by City Are Worse Than Brookings Says

Differences in Inequality by City Are Worse Than Brookings Says

Thursday, 20 February 2014 06:05

The NYT reported on a Brookings study that examined inequality by city. The study showed that the largest and fastest growing cities tended to have the most inequality. In fact, the study understated the differences in inequality for two reasons.

First its focus was on the 95th percentile of the income distribution compared to the 20th percentile. While the 95th percentile had gotten at least an even share of the country's income growth over the last three decades, the big gains have been concentrated in the one percent. For this reason, the analysis would be missing most of the impact of rising inequality since 1979.

The other factor, which is likely more important, is that it doesn't take account of differences in housing costs by area. While the price of food doesn't differ much from city to city, housing prices vary enormously. And housing will almost certainly take up a much larger share of a lower income household's budget in an expensive city than in a cheaper one. For example, the median rent in San Francisco is $2,146 a month. By comparison, the median rent in Wichita, Kansas, one of them equal cities in the study, was just $793 a month. While a moderate income household can reasonably expect to afford housing in Wichita, there is no way that a moderate income household in San Francisco would be able to afford a housing unit there. An analysis that accurately measured differences in income would have to factor in the differences in housing costs by city. 

Comments (7)Add Comment
Let's Hear It for Growth Inspired by More Inequality, Shall We?
written by Last Mover, February 20, 2014 7:57

It's good to know that growth inspired by underestimated inequality from mature cities like San Francisco wasn't from rich "liberal takers" sitting on their entitlement bounty after all, just exploiting growth by collecting increasing house prices from land rent - rather than causing more growth itself with risk taking, innovation and all the rest of it.

It was obviously no different than say, Witchita Kansas where overestimated inquality was still able to drive growth directly by "conservative makers" wasn't it, despite the obvious absence of sharp inequality in house prices to justify it.

What's next America, a study from the ultra liberal think tank Brookings that reverses itself in a mea culpa and admits that in its heyday, America provided maximum growth rates from '46-'76?

You know, when inequality was lowest, and since then has been the very increase in inequality celebrated by sock puppets of the 1% that has killed trillions in potential growth combined with unearned productivity gains taken from the rest.
written by Kat, February 20, 2014 8:02
This is article no. 1528 in the Times' long running series "Inequality is the price we pay for dynamism."
I've read enough in their pages to learn that inequality is dynamism (or "vibrancy"!)so I think their argument is a tautology.

written by skeptonomist, February 20, 2014 10:07
For the lower 20%, or the lower 40 or 50%, it doesn't make any difference whether the gains are going to the upper 5% or the upper 1% or the upper 0.1%; they would be having the same difficulties. Although the numbers make the changes look more extreme if you take the upper 0.1%, as far as any actual hardship is concerned we don't really need to worry about the people in the lower part of the 95th percentile, much less those in the lower nine-tenths of the upper 99th percentile.

Where this presumably has an effect is in political power and determining common interest. The more money the upper 0.1% have, the more they can exert influence unilaterally by contributions and lobbying, without consulting anybody else. It is rational for those people to invest their money to consolidate their own wealth and power politically, rather than in ideal free-market operations. Disproportionate wealth leads to suppression of free markets.

Does the "poorer" part of the upper 5% have more in common with the upper 0.1% or the lower 20%?
BEST - Basic Economic Security Tables
written by lenert, February 20, 2014 11:33
Where Inequality Matters
written by Hugh Sansom, February 20, 2014 12:39
Dean Baker's observation is right on, and directly addresses the predictable problem in a 'study' coming out of an institution that is little more than a mouthpiece for powerbrokers in Washington.

My own view is that the relevant inequality is that between the average (or more accurately, median) American and those who have real power. The catch is (and political scientists grind their teeth over this) the notion of power. How do you "operationalize" the notion of power? ...Doesn't mean power doesn't exist! We know when we see it! The average American knows she has little to none. Corporate executives, major campaign donors, the people who call politicians and get their calls answered (directly) have real power. That's the 0.1 percent, or higher. They are the ones dictating to the rest of us how we will live our lives and, importantly, how we will pay to allow them to live off us.
silly relationships....
written by pete, February 20, 2014 2:15
First off should look at SMSAs at least. Fort Worth is booming, with low inequality...hardly? A huge number of the poorest in Fort Worth are not on the books, they are the underground economy, undocumented. Also, take in the bigger area and the picture changes, I am sure. Second, housing costs are endogenous, i.e., reflective of wealth. So if SF is high, it's because it is a fabulous 49 square miles with strict building restrictions, leading to massive rents for landholders. The lower 20% live in rather poorer neighborhoods, where housing is much cheaper, in line with the disparate crime likelihood.
forgot....FW one of them equal cities like Witchita...
written by pete, February 20, 2014 2:53
very very funny Dean...Freudian?

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.