In a speech yesterday, Federal Reserve Chairman Ben Bernanke worried that rising income inequality may make Joe and Joanne Lunchbox “less willing to accept the dynamism … so essential to economic progress,” which would be bad. ”Bernanke Warns of Economic Inequality,” Forbes’ headline tolls.
Bernanke is evidently sold on what economists call the ”skill based technical change” hypothesis, which basically says that new technology has increased the productivity, and thus the wages, of high-skilled workers faster than it has for low-skilled workers. Bernanke sagely advises us not to look to globalization as the source of increasing inequality, and urges a broader diffusion of the kinds of skills that really pay off in today’s economy.
But is there actually something to be worried about? Is income inequality really widening at all? Are the incomes of the wealthiest increasing faster than those of the rest of us?
It turns out these questions are a lot harder than they seem, and the answers turn on which set of government statistics — each with its own special biases — one consults. In this month’s lead essay, “Income Distribution Heresies,” Cato’s own Alan Reynolds — who set off a firestorm of controversy with a Wall Street Journal op-ed last month disputing the received wisdom about growing inequality — clarifies and refines his argument that massively increasing income inequality is an illusion. Replying to Reynolds, we’ll have the Brookings Institution’s Gary Burtless, University of Oregon economist and econ-blogger Mark Thoma, Cornell University inequality specialist Richard Burkhauser, and the Germano-Italian econo-duo Dirk Krueger and Fabrizio Perri, of the Universities of Pennsylvania and Minnesota (and the Minneapolis Fed), respectively.
So … is the specter of rising income inequality a statistical quirk or not? What’s really going on, income distribution-wise? Why not pay more attention to the wealth and consumption numbers, in any case? Only Cato Unbound readers will really be in the know.