Chairman Brady, Vice Chair Klobuchar, and Members of the Committee, thank you for inviting me to appear today to discuss the topic of income inequality in America. With long-term unemployment historically high and still-pervasive economic insecurity in the wake of the Great Recession, it is understandable that many Americans have grown more concerned about the nation’s levels of inequality. Too many families struggle in poverty, too many workers have given up on finding fulltime work, and too many young adults have graduated into a weak economy that will lower their lifetime earnings.
At the same time, it is important to note that it is the fragility of the economy that lies behind concerns over inequality. Inequality was high and rising during the late 1990s, but because the growing economy was largely benefitting everyone, few people were worried about income concentration at the top. As the economy continues to recover and unemployment continues to fall, concern about inequality will recede.
As I will show, in long-run perspective, living standards have improved for the poor and middle class even as income inequality has grown. In part, that is because inequality has increased less than most analysts suggest. Furthermore, there is little compelling evidence that the gains at the top have reduced income growth lower down. And contrary to claims that rising income inequality has hurt inequality of opportunity, the evidence of a link between the two is weak. In part, that is because intergenerational mobility has not declined much—if at all—as income inequality has grown.
However, if intergenerational mobility is no worse today than it was decades ago, nor is it any better. We should not be satisfied as a nation with the limited upward mobility facing poor children today, and fifty years after Lyndon Johnson’s declaration of war on poverty, we should establish a second front against immobility. Attacking income inequality, however, is unlikely to reduce poverty or to promote equal opportunity; emphasizing it is, in fact, a distraction from the task at hand.