There is a viewpoint that asserts that income inequality and wealth inequality are necessary, that they are the differences that motivate people to work and get ahead. This viewpoint often implies that without wide income disparities that our economy’s growth would slow. Supporters of such a viewpoint seem to suggest that the only choices we have are either: a society of dramatic differences in income distribution or a society where everybody is equal but also poor. This viewpoint is wrong. Absolutely wrong. A simple review of U.S. history in the 20th century demonstrates the wrongness. US GDP real growth in the 3 decades of 1950′s, 1960′s and 1970′s was much stronger than the 3 decades since 1980. In the high-growth decades, income distribution was more equal and more fair. Income distribution since 1980 has gotten worse. But there’s more data to disprove the idea of “income inequality is good”.
As this graph from Max Roser and Our World In Data show, income inequality, as measured by the share of national income claimed by the top 1% of households is today back to the 18% to 20% levels last seen during the era of robber barons 100 years ago. Yet, as we discussed in earlier units, the “golden era” of economic growth was during the 1950’s through the 1970’s, when income inequality was relatively low.