Some intriguing thoughts on income disparity

Don Boudreaux did an interesting post on income inequality. In the last two decades there has been an apparent shift in income distribution. The rich seem to be getting richer. But two editorial letters to the WSJ raise questions. In the 1980s two trends began to happen - first, more women went into the professional workforce. Based on marriage statistics those "yuppies" as they were quaintly called then, were more likely to marry each other. At the same time statistics on out of wedlock births began to rise. When you count income statistics based on household income - it would be expected that the apparent divergence would begin to grow.

In a column last week Dan Henninger of the WSJ looked at the President's proposed budget (which is called a New Era of Responsibility) that relies on some calculations by two French economists who make the assumption about income inequalities growing.
Henninger makes the point that this "New Era of Responsibility" should probably be based on some facts and that the "evidence" offered about changes in the economy may not be accurate. A couple of years ago, Elizabeth Warren and Amelia Warren Tyagi did a very provocative book on these challenges. The Two Income Trap looked at the changes wrought by changing work patterns. Many families in the book spend a lot of their income on costs that they might not have born had they stuck to traditional patterns. Neither Warren and her co-author would argue that it would be good to go back to limiting roles for women. But their excellent book raises issues that should be considered. (Warren by the way has some role in the new Administration.)

Ultimately, the point of all of this is to be very careful about the facts. If the perception about income inequality is wrong and we begin to impose significant new taxes on couples who work very hard for their two incomes, we could create some very negative and perverse incentives.