How Unequal Should Our Incomes Be?

I think the top one-tenth of U.S. households should get about one-third of all income.  I may be unduly influenced by living in a household that is part of that top tenth, but here’s my reasoning.

Absolute income equality would be great, but it won’t work.  Per capita income in the U.S. is about $47,000, so if income were shared equally, every person would receive that amount, regardless of their age, whether they worked, and whether they are talented or hard-working.  Thus, a single parent with two children would have $141,000 to live on, while a couple with two children would have $188,000, and an empty-nester married couple like my wife and me would have $94,000.  These are not averages.  Every three-person household, for example, would get exactly the same amount, $141,000 — and that amount happens to be enough for everybody to live pretty well and for the vast majority of people to live much, much better than they do now.  And, as productivity increased and the economy grew, everybody would get more.

Most economists will tell you, however, that the economy would not grow under those conditions because incentives to work and innovate would disappear.  Though I suspect they’re probably right, these economists’ wisdom is based on a speculative assumption about a fixed human nature that a lot of world-class philosophers have contested.  And that would be a great discussion to rekindle if only somebody could figure out a workable, sustainable, and just mechanism for completely equalizing income without giving the government totalitarian powers.  So far as I know, nobody has figured out such a mechanism, and those who were trying to find a way have given up trying.

So, anything like absolute equality of income is impossible – or at least not practical enough to be worth thinking about for now.  Nor is it necessary.  During the period in American history when economic growth was strongest and when real wages, family incomes, and the general standard of living improved the most – from the 1940s into the 1970s – the top ten percent received one-third of all income in the U.S.  Historians refer to this era as “postwar prosperity.”  One-third was our share of the pie when the pie was growing at its best, and almost everybody benefited from that distribution.

Degrees of income inequality matter.  In a recent study, The Spirit Level: Why Greater Equality Makes Societies Stronger, two British social scientists have assembled data from nearly two dozen of the richest countries in the world.  The data shows how strongly levels of income inequality correlate with a variety of indicators of social well-being.  As a rule, more unequal societies have more homicides, violent crime, and prisoners; more mental illness (including drug and alcohol addiction), obesity, teenage births, and infant mortality; lower levels of trust, child well-being, children’s educational performance, and social mobility; and lower life expectancies.

The U.S. is by far the most unequal of these societies (with Portugal and the United Kingdom coming in second and third), and Japan, Finland, Norway, and Sweden have the most equal incomes.  In chapter after chapter, with only a few exceptions here and there and some nuances on some of the indicators, the U.S. is Number 1 in negative social indicators, followed by Portugal and the UK, and near the bottom in positive ones (including social mobility!).  Likewise, Japan and the Nordic countries uniformly have the most positive outcomes.

The Spirit Level authors, Richard Wilkinson and Kate Pickett, make the argument that we now know “how to make substantial improvements in the quality of life for the vast majority of the population” (p. xi): move toward greater equality of income.  For a variety of sometimes complicated but often simple reasons, greater equality of income improves social well-being across a society – including for the top fourth and probably even for our top tenth (though the data they are working with does not allow a firm conclusion by tenths).

So where does this leave my thesis that the top tenth should get one-third of all income?  It actually strengthens it, because right now we’re getting about half of all adjusted gross income in the United States, with the other 90 percent of people sharing the other half.  Our share used to be about one-third, from the 1940s to the 1970s during the most prosperous period in American history, but it has been increasing pretty steadily since about 1980.

My guess is that most people in the top tenth, like my wife and me, did not intend to grab such an outsized share.  We didn’t even know we were doing that, and we certainly didn’t intend for our share to correlate with increased violence, lower rates of child well-being, and lower life expectancies.  But guilt, like blame, looks back, not ahead.

If we top-tenners got one-third instead of one-half of all income, we’d still be doing very well, and there would be about $1.5 trillion more for the other 90 percent.  That’s a lot of money, and it means that we could live in a society where no one would be poor, especially not the nearly one-half of people who work full time for less than a livable wage.

What’s more, as a society we probably know a lot about how a substantial redistribution of income could be accomplished over time.   We can look at how we did it during the period of postwar prosperity, when there were strong labor, then civil rights, then women’s and other social movements; much more progressive income taxes; a growing social wage; actual enforcement of fair labor standards; and a steadily increasing minimum wage.

How to do that again in very different circumstances, both political and economic, is undoubtedly more difficult than I imagine.  But it is valuable to know just how unequal our incomes have become and how big a price in social well being all of us pay for that, some more than others.  It’s also good to have a clear goal for just how unequal our incomes should be.  I think that goal should be that old-fashioned postwar prosperity share of one-third for the top tenth.

Jack Metzgar