Myth and Facts: Economic Inequality

Conservative media figures have sharply criticized the recent push by Democratic politicians to alleviate poverty and reduce economic inequality. However, most of this criticism is grounded in a number of myths about the causes, effects, and importance of growing economic inequality in the United States.

Don't the poor need economic growth more than reduced inequality?

Are poverty and inequality even related?

Is single parenthood to blame for inequality?

Can the government do anything to reduce inequality?

Doesn't the push to reduce inequality hurt the economy?

Isn't this all just Obama's fault?

Isn't this all just a political distraction?

MYTH: The Economically Disadvantaged Need Growth, Not Equality

Larry Kudlow: “The Challenge Is Growth, Not Inequality.” In a December 5 column titled “The Challenge is Growth, Not Inequality,” National Review economics editor and CNBC host Larry Kudlow attacked President Obama's policy focus on economic inequality as “tired, banal, and boring.” Kudlow denied the existence of “higher income inequality” during the past three decades as “a falsehood” and compelled the president to focus on policies that would boost growth, such as “lower tax and regulatory barriers:”

He never speaks the language of growth, such as a rising tide would lift all boats. That's the basic economic truth of the remarkable prosperity of the '80s and '90s, a period during which tax, regulatory, trade, and monetary barriers were reduced, and the door opened to innovation, entrepreneurship, capital formation, and job creation. [National Review Online, 12/5/13]

Forbes' Ferrara: Economic Growth, Not Reducing Income Inequality, Best For The Poor. In an article for Forbes, contributor Peter Ferrera argued that focusing on reducing inequality as a strategy to improve the economic condition of low-income Americans was misguided, and that simply focusing on boosting economic growth would greatly reduce poverty:

Sustained, rapid economic growth is also the ultimate solution to poverty, as after a couple of decades or so of such growth, the poor would climb to the same living standards as the middle class of today. [Forbes, 1/14/14]

Wall Street Journal: Push To Reduce Inequality A “Misguided Obsession.” In a December 22 op-ed, conservative investment banker Robert Grady argued that President Obama's push to highlight income inequality was a “misguided obsession.” Grady claimed that studies of economic mobility in previous decades showed that it closely tracked economic growth and that, as such, growing the economy should be the policy focus in Washington:

Here is the bottom line: In periods of high economic growth, such as the 1980s and 1990s, the vast majority of Americans gain, and have the opportunity to gain. In periods of slow growth, such as the past four and a half years since the recession officially ended, poor people and the middle class are hurt the most, and opportunity is curbed.


The point is this: If the goal is to deliver higher incomes and a better standard of living for the majority of Americans, then generating economic growth--not income inequality or the redistribution of wealth--is the defining challenge of our time. [The Wall Street Journal, 12/22/13]

FACT: Growth Cannot Reduce Inequality On Its Own

EPI: If Economic Growth Was The Solution, Poverty Would Have Ended Years Ago. In a January 15 post on the Economic Policy Institute's Working Economics blog, economist Elise Gould argued that poverty would be far lower today “if economic growth were more broadly shared.” By her calculations, the official poverty rate could have been reduced to zero in the mid-1990s “had economic growth been as broadly shared as it had been in the years leading up to the late 1970s.” [Economic Policy Institute, 1/15/14]

MYTH: Economic Inequality Doesn't Cause Poverty

Fox's McKelway: Income Inequality Not A “Predictor Of Poverty.” On the January 14 edition of Fox News' Special Report, correspondent Doug McKelway dismissed concerns over rising inequality and its relationship with poverty levels, claiming that “numerous studies show the greatest predictor of poverty is not income inequality.” [Fox News, Special Report, 1/14/14, via Media Matters]

Cato's Tanner: Income Inequality Has Nothing To Do With Poverty. Writing in National Review Online, Michael Tanner, a senior fellow at the Cato Institute, claimed that income inequality has no relationship with poverty, suggesting that mitigating inequality would not improve the position of the poor:

Some might suggest that inequality has something to do with poverty. Certainly, too many Americans still live in poverty (despite nearly $1 trillion per year in government spending on anti-poverty programs). But there is no evidence that anyone is poor simply because someone else is rich.

In fact, if we were to double everyone's income tomorrow, millions of Americans would be lifted out of poverty. Yet inequality would actually increase. Would this be a bad thing? The flip side of the equation is equally true: During the nadir of the recession, declining stock-market returns resulted in a 39 percent decline in the number of American millionaires. But it's hard to find anyone who would suggest that somehow this made the poor better off. [National Review Online, 1/15/14]

FACT: Economic Inequality Is A Major Driver Of Poverty

Jared Bernstein: Growing Inequality Increases Poverty. In a January 13 post on The New York Times' Economix blog, economist Jared Bernstein noted that economic growth alone had been enough to reduce poverty “from the late 1950s to the mid-'60s.” Using data provided by University of Michigan economist Sheldon Danziger, Bernstein showed that predicted poverty rates could have reached zero in the mid-1980s if not for growing economic inequality:

If less of the economy's market-generated growth -- i.e., before taxes and transfers kick in -- ends up in the lower reaches of the income scale, either there will be more poverty for any given level of G.D.P. growth, or there will have to be a lot more transfers to offset inequality's poverty-inducing impact.


Inequality serves as a wedge or a funnel in this model, redirecting growth from a broad swath of households across the income scale to a narrow slice at the top. [The New York Times, Economix Blog, 1/13/14]

CBPP: Rising Income Inequality Expanded Poverty. In a January 7 statement commemorating the 50th anniversary of the War on Poverty, the Center on Budget and Policy Priorities noted that poverty rates have declined thanks to government “safety net improvements.” However, the statement also noted the impact growing inequality has had in artificially inflating poverty rates in an otherwise wealthy and growing economy:

Rising income inequality resulted in less of the benefits of economic growth going to those at the bottom. Between 1964 and 2012, the share of national income going to the top 1 percent of households doubled, from 11 percent to 22 percent. The share of income going to the poorest fifth of households fell between 1979 (the earliest year for which comprehensive data are available) and 2012. If the benefits of economic growth had been more widely shared, poverty would be lower. [Center on Budget and Policy Priorities, 1/7/14]

MYTH: Single Parenthood Is To Blame For Inequality

NYT's Brooks: Single Mothers Are The Reason For Inequality. In his January 16 column in The New York Times, David Brooks argued that the real problem behind poverty, inequality, and low social mobility was the prevalence of single mother households, ultimately claiming, “Low income is the outcome of these interrelated problems, but it is not the problem.” From The New York Times:

There is a very strong correlation between single motherhood and low social mobility. There is a very strong correlation between high school dropout rates and low mobility. There is a strong correlation between the fraying of social fabric and low economic mobility. There is a strong correlation between de-industrialization and low social mobility. It is also true that many men, especially young men, are engaging in behaviors that damage their long-term earning prospects; much more than comparable women.

Low income is the outcome of these interrelated problems, but it is not the problem. To say it is the problem is to confuse cause and effect. To say it is the problem is to give yourself a pass from exploring the complex and morally fraught social and cultural roots of the problem. It is to give yourself permission to ignore the parts that are uncomfortable to talk about but that are really the inescapable core of the thing. [The New York Times, 1/16/14]

Fox's Jonah Goldberg: Non-Economic Factors Like “Family Structure” Are More Effective Than Economic Policy In Preventing Income Inequality. In a January 6 USA Today column, Fox News contributor Jonah Goldberg claimed that non-economic issues like family structure can do more to combat poverty and income inequality than economic policy. Goldberg cited the story of Dasani Coates, a 12-year-old girl who was recently profiled in a New York Times article on child homelessness, blaming her poverty on the absence of her father and attacking the Times for citing an economic “system that tolerates so much economic inequality”:

One has to wonder whether [New York City public advocate Letitia] James missed the irony. According to liberals like James and The Times (to the extent that's a distinction with a difference), Dasani is a victim of a system that tolerates so much economic inequality.

Dasani is certainly a victim, but is the system really to blame? Dasani's biological father is utterly absent. Her mother, Chanel, a drug addict and daughter of a drug addict, has a long criminal record and has children from three men. It doesn't appear that she has ever had a job, and often ignores her parental chores because she's strung out on methadone. As Kay Hymowitz notes in a brilliant (New York) City Journal examination of Dasani's story, The Times can't distinguish between the plight of hard-working New Yorkers like James' late parents and people like Dasani's parents. “The reason for this confusion is clear: In the progressive mind, there is only one kind of poverty. It is always an impersonal force wrought by capitalism, with no way out that doesn't involve massive government help.”

The data say something else. Family structure and the values that go into successful child rearing have a stronger correlation with economic mobility than income inequality. America's system is hardly flawless. But if Dasani were born to the same parents in a socialist country, she'd still be a victim -- of bad parents. [USA Today, 1/6/14]

FACT: Inequality Not Related To Family Structure

Paul Krugman: Income Inequality Is Caused By A Lack Of Economic Opportunity, Not A “Collapse Of The Family.” In a January 8 New York Times op-ed, economist and Nobel laureate Paul Krugman argued that income inequality today is caused by a lack of economic opportunity, rather than social disintegration or the “collapse of the family”:

These days crime is way down, so is teenage pregnancy, and so on; society did not collapse. What collapsed instead is economic opportunity. If progress against poverty has been disappointing over the past half century, the reason is not the decline of the family but the rise of extreme inequality. We're a much richer nation than we were in 1964, but little if any of that increased wealth has trickled down to workers in the bottom half of the income distribution. [The New York Times, 1/8/14]

Council On Contemporary Families: “Promoting Marriage” Is An “Ineffective Weapon In the War On Poverty.” Kristie Williams, Ph.D., an expert with the Council on Contemporary Families, released a January 6 report showing that a “growing body of evidence” demonstrates that “promoting marriage is not the answer to the problems facing single mothers and their children.” According to Williams, a major flaw in the argument that marriage can lead to more income equality is the “assumption that all marriages are equally beneficial”:

How can we improve the lives of the growing numbers of unmarried mothers and their children? So far, a dominant approach has been to encourage their mothers to marry. At first glance, the logic makes sense. If growing up in a two-parent home is best for children, then adding a second parent to a single-mother home should at least partially address the problem. The 1996 welfare reform legislation and its subsequent reauthorization institutionalized this focus on marriage by allowing states to spend welfare funds on a range of marriage promotion efforts.

The flaw in this argument is the assumption that all marriages are equally beneficial. In fact, however, the pool of potential marriage partners for single mothers in impoverished communities does not include many men with good prospects for becoming stable and helpful partners. Single mothers are especially likely to marry men who have children from other partnerships, who have few economic resources, who lack a high-school diploma, or who have been incarcerated or have substance abuse problems. The new unions that single mothers form tend to have low levels of relationship quality and high rates of instability. A nationally representative study of more than 7,000 women found that approximately 64 percent of the single mothers who married were divorced by the time they reached age 35-44. More importantly, single mothers who marry and later divorce are worse off economically than single mothers who never marry. Even marriages that endure appear to offer few health benefits to single mothers unless they are to the biological father of their first child.


Our recent research adds to the growing body of evidence that promoting marriage is not the answer to the problems facing single mothers and their children. Analyzing more than 30 years of data on a nationally representative cohort of women and their children, we found no physical or psychological advantages for the majority of adolescents born to a single mother whose mothers later married. We did find a modest physical health advantage among the minority of youth whose single mother later married and stayed married to their biological father, compared to those whose mothers remained unmarried. However, such unions are exceedingly rare. Only 16 percent of low income unwed mothers in the Fragile Families and Child Well Being study were married to the child's biological father five years after the child's birth. Marriage may matter, but only a little, and only in very specific and relatively rare circumstances. [Council On Contemporary Families, 1/6/14, emphasis original]

MYTH: The Government Is Powerless To Reduce Economic Inequality

Fox Contributor Rich Lowry: There Is No Way Government Can Stop Inequality. On the January 3 edition of Fox News' America's Newsroom, Fox contributor and National Review Online editor Rich Lowry cast doubt over President Obama and New York City Mayor Bill de Blasio's focus on reducing inequality, arguing that government action is futile (emphasis added):

LOWRY: The broader point, Bill, and this is something the president neglects when he talks about this, inequality is a trend across the decades, across all presidencies, across every developed advanced economy, it has to do with deep trends in our world - globalization, automation -- so there's no way it's going to be stopped. And when President Obama or Bill de Blasio says somehow they're going to end social and economic inequality, it's a pipe dream and they can only do damage by trying to do it. [Fox News, America's Newsroom, 1/3/14, via Media Matters]

FACT: Government Can Reduce Inequality Through Policy Decisions

Dean Baker: Inequality The Result Of Policy “Intended To Redistribute Income Upward.” In an op-ed for TruthOut, economist Dean Baker of the Center for Economic and Policy Research argued that current economic inequality is the result of concerted policy decisions “intended to redistribute income upward:”

And the macroeconomic policy run by the government has also worsened inequality. Budgets are crafted by politicians, not the gods or nature. The decision not to run a more stimulatory policy to reduce unemployment is every bit as much a conscious act as would be the decision to try to bring the economy to full employment with further stimulus.


[H]igh levels of unemployment put downward pressure on workers' wages, especially those in the bottom third of the labor force. This means we have a federal budget that limits growth and employment in a way that redistributes income upwards. [, 12/23/13]

Joseph Stiglitz: “Inequality Is A Choice.” In a post titled “Inequality Is a Choice” on The New York Times' Opinionator blog, Nobel Prize-winning economist Joseph Stigliz discussed how the growth of economic inequality is the result of economic policy choices that favor wealthy and corporate interests:

American inequality began its upswing 30 years ago, along with tax decreases for the rich and the easing of regulations on the financial sector. That's no coincidence. It has worsened as we have under-invested in our infrastructure, education and health care systems, and social safety nets. Rising inequality reinforces itself by corroding our political system and our democratic governance. [The New York Times, Opinionator Blog, 10/13/13]

Robert Reich: Six Ways To Boost Labor, Reduce Inequality. In a video commemorating Labor Day, economist Robert Reich highlighted six ways the United States could address and reduce inequality. Among the policies Reich espoused were increasing the minimum wage, larger tax credits for low-wage workers, government-subsidized childcare, renewed investment in schools, universal health insurance, and expanded union rights:

[, 8/29/13 via YouTube]

Institute For Research On Poverty: Government Programs Cut Poverty Rate “Nearly In Half.” According to research from the Institute for Research on Poverty, anti-poverty programs have lifted millions of Americans out of poverty since the 1960s. While reducing poverty is only one step toward reducing inequality, the effectiveness of anti-poverty programs shows the effect government policy could have on economic conditions (emphasis added):

The OPM shows the overall poverty rates to be nearly the same in 1967 and 2011--at 14 percent and 15 percent, respectively. But our counterfactual estimates using the anchored SPM show that without taxes and other government programs, poverty would have been roughly flat at 27 to 29 percent, while with government benefits poverty has fallen from 26 percent to 16 percent--a 40 percent reduction. Government programs today are cutting poverty nearly in half (from 29 percent to 16 percent) while in 1967 they only cut poverty by about a one percentage point one percentage point. [Institute for Research on Poverty, University of Winconsin-Madison, 12/11/13]

MYTH: Addressing Economic Inequality Is Bad For The Economy

Krauthammer: Reducing Inequality Will Result In “Chronic Unemployment.” On the November 18, 2013, edition of Fox News' The O'Reilly Factor, frequent Fox contributor Charles Krauthammer claimed that any attempts to reduce economic inequality would harm the economy, eventually stating that “If you're obsessed with equality, as they are in Europe, what you end up with is chronic unemployment.” [Fox News, The O'Reilly Factor, 11/18/13, via Media Matters]

FACT: Reduced Inequality Could Lead To Faster, More Stable Economic Growth

Robert Reich: “Inequality Is Bad For Everyone.” In an interview with PBS' Newshour, economist Robert Reich discussed his documentary Inequality for All and the impact of economic inequality on the health of the economy:

REICH: The argument is that inequality is bad for everyone, not just the middle class and the poor; 95 percent of the gains, the economic gains, since the recovery began in 2009 are going to the top 1 percent.

Meanwhile, median household income keeps dropping, adjusted for inflation. Well, where are people going to get the money they need to keep the economy going? [PBS, Newshour, 10/11/13]

CAP: Inequality Holds Back Economic Growth. According to a December 4 statement by the Center for American Progress, high levels of economic inequality “may actually hold back our economy.” Citing three related papers on the effect of public policy on economic growth, income distribution, and poverty, the statement concludes that growing inequality is not a side effect of economic growth, but a symptom of failed trickle-down theories:

Americans have seen income inequality rise over the past few decades, yet contrary to long-held trickle-down beliefs that rising inequality is not broadly benefiting society by bringing with it stronger economic growth. The research presented here demonstrates that inequality is not necessary for sustained economic growth and that inequality may actually dampen growth. This flies in the face of a core tenet of trickle-down theory, which erroneously vouches for the necessity of extreme inequality to generate growth. [Center for American Progress, 12/4/13]

Paul Krugman: Inequality Played A Role In Our “Weakness Of The Recovery.” In a December 15, 2013, op-ed in The New York Times, Nobel prize-winning economist Paul Krugman argued that rising inequality has played a role in prolonging sluggish economic growth:

Beyond that, when you try to understand both the Great Recession and the not-so-great recovery that followed, the economic and above all political impacts of inequality loom large.

It's now widely accepted that rising household debt helped set the stage for our economic crisis; this debt surge coincided with rising inequality, and the two are probably related (although the case isn't ironclad). After the crisis struck, the continuing shift of income away from the middle class toward a small elite was a drag on consumer demand, so that inequality is linked to both the economic crisis and the weakness of the recovery that followed. [The New York Times, 12/15/13]

MYTH: Economic Inequality Is Obama's Fault

Fox's Gasparino: Income Inequality Is A Result Of “Obamanomics.” On the January 16 edition of Fox News' America's Newsroom, Fox Business' Charlie Gasparino placed the blame for rising income inequality squarely on President Obama's policies, claiming that the president is a “big class warfare guy” and that “there is more inequality under Obamanomics.” [Fox News, America's Newsroom, 1/16/14, via Media Matters]

Krauthammer: Obama Is The Cause Of Inequality. On the January 2 edition of Fox News' Special Report, contributor Charles Krauthammer cast doubt over President Obama's focus on reducing inequality, claiming, “He is the cause and now he is going to redeem us from the misery that he has contributed to.” [Fox News, Special Report, 1/2/14, via National Review Online]

FACT: Income Inequality Has Been Rising For Decades

Mother Jones: Income Inequality Has Been Rising For 3 Decades. An article in Mother Jones showed that, despite the assertion that income inequality is a problem endemic to the Obama presidency, income inequality has been increasing steadily since the late 1970s.

[Mother Jones, March 2011]

MYTH: Economic Inequality Is Just A Political Distraction

Fox's Goldberg: Focus On “Populist Issues” Meant To Distract. On the January 2 edition of Fox News' Happening Now, contributor Jonah Goldberg claimed that Democratic focus on “populist issues such as the minimum wage” -- which economists argue would reduce income inequality - was only in order “to get people talking about anything other than Obamacare.” [Fox News, Happening Now, 1/2/14, via Media Matters]

WSJ's Noonan: Income Inequality Distracting From Obamacare. Appearing on the January 5 edition of CBS' Face the Nation, Wall Street Journal columnist Peggy Noonan lamented President Obama's focus on reducing income inequality, claiming that it only served to distract from alleged problems with health care reform:

NOONAN: [Obama] does not want to talk about Obamacare. It is widely assumed that in 2014 the bad news of Obamacare, the dislocations, the lost coverage, the price hikes, the premium hikes, et cetera, et cetera, that all of this will continue. It's not the website. The website is the old story. It is the program. It will unveil over the next two years and it's going to be problematic. The president does not want to talk about it. The Democrats do not want to talk about it. Therefore, income equality, minimum wage, et cetera, et cetera. They need to change the subject. [CBS, Face the Nation, 1/5/14, via Media Matters]

FACT: Economists See Economic Inequality As Dire Problem

Robert Shiller: Inequality The “Most Important Problem” Facing World Today. In an interview with the Associated Press, Nobel Prize-winning economist Robert Shiller pointed to “rising inequality in the United States and elsewhere in the world” as the “most important problem” faced by policymakers today. The comment was made hours after Shiller received the Nobel Prize for his work with economists Eugene Fama and Lars Peter Hansen. [Associated Press, 10/15/13]

Federal Reserve Chair Janet Yellen: Inequality “A Very Serious Problem.” During a November 2013 Senate confirmation hearing, then-Federal Reserve Chair nominee and economist Janet Yellen explained that income inequality was a systemic and growing problem in the U.S. economy:

This is a very serious problem, it's not a new problem, it's a problem that really goes back to the 1980s, in which we have seen a huge rise in income inequality... For many, many years the middle and those below the middle [have been] actually losing absolutely. And frankly a disproportionate share of the gains, it's not that we haven't had pretty strong productivity growth for much of this time in the country, but a disproportionate share of those gains have gone to the top ten percent and even the top one percent. So this is an extremely difficult and to my mind very worrisome problem. [ThinkProgress, 11/15/13]

Paul Krugman: Inequality Is “Indeed A Very Big Deal.” In a December 15, 2013, op-ed in The New York Times, Nobel Prize-winning economist Paul Krugman criticized pundits who claim that inequality is not important, explaining that it is a critical issue facing the economy:

We can argue about the significance of Bill de Blasio's victory in the New York mayoral race or of Elizabeth Warren's endorsement of Social Security expansion. And we have yet to see whether President Obama's declaration that inequality is “the defining challenge of our age” will translate into policy changes. Still, the discussion has shifted enough to produce a backlash from pundits arguing that inequality isn't that big a deal.

They're wrong.

The best argument for putting inequality on the back burner is the depressed state of the economy. Isn't it more important to restore economic growth than to worry about how the gains from growth are distributed?

Well, no. First of all, even if you look only at the direct impact of rising inequality on middle-class Americans, it is indeed a very big deal. Beyond that, inequality probably played an important role in creating our economic mess, and has played a crucial role in our failure to clean it up. [The New York Times, 12/15/13]