| What Should Be Done About Growing Inequality?

America is becoming more unequal economically, and most people find that disturbing. Indeed, the trend toward greater inequality has been one of the consistent themes of the election campaign. Some believe that inequality is necessary to reward hard work, achievement and entrepreneurship but think that the current level is too extreme. Others blame unfair tax policies and see the extent of today’s inequality as a sign that the government has abandoned the goal of equal opportunity.

In fact, whenever inequality increases in a society, there are both good reasons for the trend — that is, reasons we should not discourage — as well as bad ones. To best address the genuine problems caused by inequality today, it’s essential to identify the bad reasons and focus on reducing those.

First, though, let’s be clear: there’s no doubt that the very richest in the U.S. have been getting richer. One of the often quoted indicators, albeit a simplistic one, is the share of pretax income going to the top 1% of the population. These data suggest that the U.S. was most equal right before the oil crisis hit in the early 1970s, and that it has since returned to levels of inequality not seen since the Great Depression.

More sophisticated indicators, like the Gini coefficient, also show the U.S. becoming notably more unequal. As a generality, countries such as Brazil and South Africa rate high on this scale, while most European countries have lower levels of inequality. The U.S. is in between – at almost the same level as China. Prior to 1980, the U.S. was much closer to the European level, and some countries — such as France and Italy — actually had higher levels of inequality at that time.

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