America's Second Gilded Age

The richest Congressional district in the US is the so-called "silk-stocking" district of New York City's Upper East Side, with a per-capita income of $41,151 per year. The poorest Congressional district is a largely Hispanic-immigrant district in Los Angeles, with a per-capita income of $6,997 a year. In 1973 the poorest fifth of America's families had incomes that averaged $13,240 a year (in today's dollars); in 2000 the average incomes of the poorest fifth were the same: $13,320. By contrast, the richest 5% of America's families in 1973 had an average income of $149,150, and in 2000 the richest 5% had an average income of $254,840. The increase in inequality was large enough to give a 2/3 income boost to the well-off over a time when incomes in the middle grew by only 10% and incomes at the bottom not at all.

To outsiders, the most peculiar thing about America's rising inequality is that so few Americans object. Surely a society with a skewed income distribution is worse off than one in which incomes are more equal. An extra $10,000 a year does little to raise the well-being of a multi-millionaire, while a deficiency of $10,000 a year makes a huge impact on how a middle-class family lives.

If you follow Nobel Prize-winner James Buchanan's utilitarian principle that you should evaluate a society's social welfare by imagining that you have an equal chance of being poor and rich, it is easy to judge that the more equal society has a better set of social and economic arrangements. From there it is easy to make the leap to the position that - so long as redistributive taxes don't slow economic growth - when inequality rises, it is the government's duty to tax the rich and transfer money to the poor to offset the rise.