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  • Blame Income Inequality?

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    Scott Winship’s recent piece in National Affairs, “Overstating the Costs of Inequality,” elevates the national debate over the role that income inequality plays in economic mobility and growth. Winship, an economist at the Brookings Institution, finds “simply very little evidence to suggest that…income disparities between the rich, middle class, and poor merit the intense attention lavished upon them by the left.” Instead, he suggests that the evidence for the strongest claims is weak, and public policy should await solid empirics.

    Winship recognizes that some might accuse him of “muddy[ing] the waters by raising doubt about necessarily imperfect, but nevertheless serious research.” The current state of inequality research is messy, detailed, and occasionally contradictory. Simplistic assertions can obscure the facts, so readers who care about inequality should read his article carefully.

    Many of the more casual claims about the effects of income inequality are based on correlations, not rigorous analysis or experiments. The fact that “things got worse over the same period in which inequality rose” does not illustrate cause and effect. Too often, people “mistake correlation for causation,” and blame income inequality for a host of ills.

    “Finding statistical relationships between economic and social problems is easy,” Winship elaborates, but “it is the failure to rigorously test hypotheses about the meaning of these relationships, as well as the inclination to selectively cite research friendly to one’s position that muddies the waters.” Clarity, in Winship’s epistemology, is in the details, not in generalizations.

    Winship explains that

    a careful examination of the evidence does not establish that inequality is harmless, or that it has nothing to do with our other economic problems. Economic data cannot prove a negative. But they can fail to prove a positive, and they do fail to prove the claims that underlie the left’s basic economic narrative. They reveal little basis for thinking that inequality is at the root of our economic challenges, and therefore for believing that reducing inequality would meaningfully address our lagging growth, enable greater mobility, avert future financial crises, or secure America’s democratic institutions.

    None of this means that greater prosperity and opportunity are not desirable. But, as Heritage Foundation scholar Stuart Butler argues in “Can the American Dream Be Saved?” economic well-being is not simply a matter of gross income:

    The research on economic mobility underscores the importance of culture in providing the essential infrastructure for economic growth. The problem in many communities in the United States—and particularly in what were, until quite recently, modest-income working-class neighborhoods—is that this infrastructure has been rapidly eroding.

    Considering the complexity of the evidence, policymakers and voters should resist making hasty conclusions about income inequality—an all-too-common scapegoat for economic woes.

    Posted in Economics [slideshow_deploy]

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