A magnificent article in the New York Times on income inequality

Someone on Twitter shared a link to an arti­cle in the NY Times, “Income Inequality: Too Big to Ignore”.

Many thanks to him for that. I enjoyed it.

The thing is, I’m just fin­ish­ing Atlas Shrugged, and this arti­cle struck me as a page torn out of that book. Incredible!

The author is trying to con­vince us that unequal dis­tri­b­u­tion of income is bad and that some­thing needs to be done about it.

His argu­ment begins with how good things were after World War II, when the US econ­omy grew by 3% a year and infra­struc­ture devel­oped, and how opti­mistic all Americans were back then.

And now, he says, look how slowly the US econ­omy is grow­ing and how bad infra­struc­ture has become. And all that meager growth comes from the rising incomes of the richest.

Apparently the author con­sid­ers these facts con­nected enough to con­vince us of the danger of grow­ing income inequality. I don’t see the con­nec­tion yet. Oh well, moving on.

Next he blames econ­o­mists for having no clear posi­tion on income inequality. Let’s skip that, since it doesn’t matter.

Then he explains how so-called “expen­di­ture cas­cades” come about: the rich spend more because they simply have more money. Brilliant, isn’t it?

Their spend­ing so impresses other rich people with slightly lower incomes that they, in turn, start spend­ing more, and so on, all the way down to the poorest. And now, atten­tion, he draws his con­clu­sion: because of these cas­cades it’s get­ting harder and harder for the middle class to reach its finan­cial goals.

Next the author brings out the heavy artillery:

1. sta­tis­ti­cally, the regions where income inequal­ity is grow­ing fastest also show the most symp­toms of finan­cial dis­tress (bank­ruptcy rates, for example);
2. regions with greater income inequal­ity also have higher divorce rates (young cou­ples can’t make ends meet);
3. regions with greater income inequal­ity also see people spend­ing more time com­mut­ing, because they’re forced to move to cheaper areas far­ther from work.

Now please explain to me (I had prob­lems with sta­tis­tics at uni­ver­sity): since when does a cor­re­la­tion between two fac­tors indi­cate cause and effect?

Why does the author of an arti­cle pub­lished in such a respectable paper allow him­self such a, to put it diplo­mat­i­cally, “small inac­cu­racy” in his argument?

Wait, there’s one more gem ahead.

Nobody is saying that increased inequal­ity is nec­es­sary from the stand­point of fairness. So maybe we should agree that it’s a bad thing (increased inequal­ity, that is; note by Stas Parshin) and try to do some­thing about it.

Robert H. Frank is an eco­nom­ics pro­fes­sor at the Johnson Graduate School of Management at Cornell University.

That’s it!

P.S. Please for­give my clumsy retelling of the article. Maybe it’s my poor English, and I got it all wrong?