Does Economic Inequality Really Harm the Middle Class?

Member Group : Jerry Shenk

The American left claims to care a great deal about economic inequality, but most Americans don’t.

Polls have shown Americans’ concern about income inequality to be as low as one percent, indifference likely due to the historically-greater social and economic mobility in the United States compared to the rest of the developed world.

In order to use income inequality as a political tool, left-wing politicians and media have attempted to conflate income inequality with problems that Americans do care about, especially weak economic growth and stagnant middle class incomes – while obscuring that the weak recovery and decline in middle class income are bitter fruits of President Barack Obama’s fiscal, monetary, health care and regulatory policies.

In a new paper, Scott Winship, Harvard PhD, confirms the sensibility of Americans’ apathy to income inequality.

Currently Senior Fellow at the Manhattan Institute, Winship has also worked for the left-wing Brookings Institution and The Third Way, a centrist organization.

Winship’s report examines the relationship between income inequality and living standards among the middle class and poor worldwide. His conclusions refute claims that high and rising inequality levels have worsened living standards among the poor and the middle class, a central theme of French economist Thomas Piketty’s best-selling (but seldom read) book, Capital in the Twenty-First Century.

Disregarding totalitarian states and autocracies, key findings suggest that, inequality increases in advanced economies — that more inequality produces higher living standards for everyone.

Winship writes: "[W]hen changes in income concentration and living standards are considered across countries — a more rigorous approach to assessing causality — larger increases in inequality correspond with sharper rises in living standards for the middle class and the poor alike."

"In developed nations, greater inequality tends to accompany stronger economic growth. This stronger growth may explain how it is that when the top gets a bigger share of the economic pie, the amount of pie received by the middle class and the poor is nevertheless greater than it otherwise would have been. Greater inequality can increase the size of the pie."
Winship continues: "Below the top 1 percent of households — and prior to government redistribution — developed nations display levels of inequality squarely in the middle ranks of nations globally. American income inequality below the top 1 percent is of the same magnitude as that of our rich-country peers in continental Europe and the Anglosphere."

With the exception of small, oil-rich countries or international financial centers, the living standards of America’s middle class are as high as, or higher than any other nation, and America’s poor have higher living standards than the poor across most of Europe and the English-speaking countries.

Winship’s conclusions dispute claims that rising inequality is responsible for America’s stagnant economy. In fact, Winship posits that attempts to reduce income inequality in America and elsewhere may hurt efforts to create higher living standards for the poor and middle class.

Ideologically-invested liberals will reflexively dispute his findings, but Winship’s academic resume, his evidence and the political spectrum of his professional affiliations renders them persuasive.