Global Policy Forum

By Jodie T. Allen

If a rising tide really does lift all boats, why should it matter if yachts float higher than dinghies? That question, asked by Martin Feldstein, president of the National Bureau of Economic Research, has torqued the already heated debate over whether America's booming economy has widened the gap between rich and poor.

Feldstein, a former top adviser to President Reagan, acknowledges that the distribution of income and wealth grew markedly less equal in the 1980s and '90s, reversing the trend toward greater equality begun after World War II. But, he contends, the lucre amassed at the top of the pile has not come at the expense of the bottom. Thus the situation fits the economist's definition of "Pareto Optimality," which says "a change is good if it makes someone better off without making anyone else worse off." Since every group (if not every individual) is better off, says Feldstein, only a "spiteful egalitarian" would complain.

Blue-collar hell. But every group isn't better off, others argue. Starting in the 1980s, trade and technology have produced a "blue-collar disaster," says MIT's Frank Levy. Families have maintained living standards only by having fewer children, putting more members to work, and running up debt. Brookings Institution economist Gary Burtless agrees that the lowest-income Americans are worse off in absolute and relative terms than 20 years ago.

Not if you take immigration into account, responds economist Robert Lerman of the Urban Institute. Most unskilled workers who have flocked to the United States in recent decades earn far more here than they would have if they hadn't migrated, so it's hard to argue they are worse off. Yet because their wages tend to be low, they weigh down the averages. Nor do individual workers have fewer opportunities than in the past. Scholars find that upward mobility among workers has stayed remarkably constant over the past two decades. Meanwhile, even the poorest Americans are now far more likely to own big TVs, washers, microwaves, and VCRs than the average European. Last year's tight labor markets also gave low-wage workers a substantial boost. A recent Harris poll found the number of Americans complaining that "the rich get richer and the poor get poorer" fell to 72 percent, the lowest proportion in more than 20 years. As for the "hollowing out" of the middle class, William Galston of the University of Maryland School of Public Affairs says that is occurring "not because poverty is on the march" but because more Americans are moving up to rich and near-rich status.

So should we worry about growing inequality? "It's very hard to have a strong democracy in a very unequal system," says Levy. But others point out that Japan and Europe, with their equal-income citizens, remain stagnant, while the U.S. economy roars ahead.

Growing together ...

Family incomes increased fairly evenly across all income levels from 1947 to 1979. 1947-1979
Lowest quintile: 2.5 percent
Lower middle quintile: 2.2 percent
Middle quintile: 2.3 percent
Upper middle quintile: 2.4 percent
Highest quintile: 2.1 percent

... growing apart

But from 1980 to 1997, income growth rates were much less evenly distributed. 1980-1997
Lowest quintile: -0.4 percent
Lower middle quintile: 0.0 percent
Middle quintile: 0.3 percent
Upper middle quintile: 0.6 percent
Highest quintile: 1.6 percent Source: The State of Working America

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