In the early 1990s, after Soviet communism collapsed, many Western pundits argued that a market economy wouldn't work in Russia because hostility toward wealth was so entrenched most people would rather be poor but equal.
On my trips to Moscow back then, I met many Russians who disagreed. The problem, a middle-aged cabdriver told me, was that the average person had no chance to make a decent living: if he and his family were doing well, what did he care if some other guy was super-rich.
Twenty years later, inequality is the focus of debate in the United States. The war on inequality was the centerpiece of Bill de Blasio's campaign for mayor of New York -- and of his inauguration speech on New Year's Day. President Barack Obama, too, has embraced the cause. In a speech last month, he deplored "a dangerous and growing inequality and lack of upward mobility" jeopardizing the American idea that "if you work hard, you have a chance to get ahead."
But is inequality the problem -- and is the American dream really in decline?
Part of the debate focuses on how to measure inequality. Analysts on the left, such as economist and New York Times columnist Paul Krugman, cite data showing that incomes for the very rich have skyrocketed while those of other Americans have stagnated or even dropped. Those on the right, such as John C. Goodman, an economist with the National Center for Policy Analysis, counter with other figures -- taking into account taxes, government programs, noncash benefits such as health insurance, and changes in household composition -- suggesting that inflation-adjusted income gains over the past 35 years have taken place across the board.
Still, even the estimates preferred by conservatives, such as Congressional Budget Office numbers, show a dramatic growth in income disparities. From 1979 to 2007, incomes for the top 1 percent have nearly tripled, while increasing by 65 percent for the rest of the top one-fifth of the population, by less than 20 percent for the bottom fifth, and by 40 percent for those in the middle. Is this a problem if everyone's fortunes improve -- and if people have a chance to move up the ladder?
That brings us to the second part of Obama's claim: that America is lagging in upward mobility. Indeed, the classic rags-to-riches story is relatively rare: Fewer than 10 percent of Americans raised in families in the bottom fifth of incomes end up moving into the top fifth. Almost 60 percent, however, do at least move up from the bottom fifth. And since the studies track mobility across generations, they leave out immigrants -- for whom the American dream remains very much alive.
While the situation is not as dire as many liberals claim, conservative arguments often understate the problem. If low-income Americans are only kept from falling further behind by government programs, that's not something to cheer for if you deplore welfare dependency. Indeed, growing numbers of conservatives recognize the need to address the social, cultural and economic forces keeping the very poor trapped at the bottom -- as well as the bane of long-term unemployment. But the solutions have to include, above all, job creation and economic growth.
Much of Obama's speech focused on the need for more opportunity and fewer barriers to advancement. Yet naming inequality itself a key issue was a rhetorical bow to a segment of the left that sees large income disparities themselves as morally offensive. It is a divisive rhetoric that plays not only to left-wing grievances but also to right-wing stereotypes of liberals as socialists. Enhancing opportunity, not battling inequality, should be our goal.
Cathy Young is a regular contributor to Reason magazine and the website RealClearPolitics.