Income Growth is Not Quite What Robert Samuelson Implies

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Monday, 02 June 2014 05:10

Robert Samuelson is correct to point out that income inequality in the United States at present is not anything like what it was back in the 1920s because of the social welfare state. We have programs like Social Security, Medicare, Medicaid, and food stamps that are a substantial source of income and security for the middle class and poor. So conservatives are correct to point out that inequality is not nearly as bad today as it was in the 1920s due to these programs.

However his column is somewhat misleading on the income gains over the last three decades for families at the middle and bottom of the income distribution. For those at the bottom, much of the 50 percent gain in income since 1979 is due to the increasing cost of Medicare and Medicaid. The measure being used refers to the amount the government pays for these programs. Using methodology, every time a heart surgeon raises her fees or Pfizer raises the price of its drugs the income of the poor rises. If we just treated health care as a service and priced it at its per person cost in the average wealthy country, the income gain for those at the bottom would be much smaller.

Much of the 40 percent gain in incomes for families in the middle is the result of an increase in the number of workers per family. In 1979 there were still many two parent families in which the women did not work outside the home. Such families are rare today. The additional number of workers is the main factor explaining the rise in income over this period since wages have increased little. It is also worth noting that these measures of income do not adjust for work related expenses like transportation or the cost of child care.