Most economic fallacies derive from the tendency to assume that there is a fixed pie.

Milton Friedmans quote applies perfectly to the subject of income inequality, a subject Democratic candidates and other columnists tell me I should be concerned about. It seems that because standards of living are rising, a way for critics to alter this allegedly good news is to say that inequality is increasing. They are focusing on a non-issue, and their facts are misleading. I am not financially rich now (I am a lowly grad student), but I expect to have more money in the future. Most Americans do toonot just young ones. A Gallup poll last January found that 65% of people expected to be better off next year. Only 19% expected to be worse off. There is always hope that with hard work, wealth materializes. This optimism is crucial to understanding why we dont feel cheated when we see others becoming rich around uswe expect the same for ourselves. And, in the same poll, when asked how well off they were in comparison to a year ago, only 30% said worse off. So Americans expect to be better off in the future and, for the most part, are. As many people point out, income of the poor has not grown nearly as much as it has for those at the top, but these statistics are slightly misleading. First of all, the United States absorbed 1.3 million immigrants just last year. This influx of poorer people drags down the income levels at the bottom. A more revealing statistic is to watch incomes of the same people over time, revealing that most people are better off than their parents were. Focusing on aggregate inequality statistics is almost pointless. Finally, forgetting about statistics, I am told that inequality causes jealousy and resentment. I may be slightly jealous of others wealth, but I am not angry at them for getting more, in part because of their generosity. Relatives gave my family gifts that we needed, alumni I have never met subsidized my Carleton College tuition, season-ticket holders occasionally offered me their seats, etc. Since we all have a diverse group of friends and family, we like the fact that some are rich and getting richer, sharing with us opportunities that we cannot afford personally. This is also a reason why those at the top that curry favors with government draw such ire from people like mewe dont mind if honest work is rewarded, but to hell with corporate welfare of any kindstadium subsidies, sugar subsidies, business location subsidies, etc. I therefore am offended that educated liberals claim there are classes of people at odds with each other in this country. John Edwards especially made inequality an issue in his famous Two Americas speech, pointing out this very fact and claiming one class works, while the other is rewarded. Would he claim that he didnt work really hard to earn his money? A little luck may help, but regardless, we believe that we have the same chance toooverlooking this is a gross misperception. Paul Krugman, in his introduction to his blog for the New York Times, mentions that you might have expected rising inequality to produce a populist backlash, implying that there has been no such thing. Precisely. Look at the polls, talk to your friends, ignore the medias incessant focus on a recessionwe are optimistic about our plight, and are not really concerned that honest rich people are getting so rich. When 80% of us expect to be at least as well off a year from now, that seems like fairly good evidence of progress. Gallup Poll. Jan. 15-18, 2007. N=1,018 adults nationwide. MoE 3. "Next, we are interested in how people's financial situation may have changed. Would you say that you are financially better off now than you were a year ago, or are you financially worse off now?"
Better Worse Same (vol.) Unsure % % % %

1/15-18/07 2/9-12/06 7/22-24/05 .

50 30 19 1 37 39 24 42 40 17 1

"Looking ahead, do you expect that at this time next year you will be financially better off than now, or worse off than now?"
Better Worse Same (vol.) Unsure % % % %

1/15-18/07 7/22-24/05

65 19 12 4 59 25 14 2

The following is from Krugmans into to his NYT blog The great divergence: Since the late 1970s the America I knew has unraveled. Were no longer a middle-class society, in which the benefits of economic growth are widely shared: between 1979 and 2005 the real income of the median household rose only 13 percent, but the income of the richest 0.1% of Americans rose 296 percent. Most people assume that this rise in inequality was the result of impersonal forces, like technological change and globalization. But the great reduction of inequality that created middle-class America between 1935 and 1945 was driven by political change; I believe that politics has also played an important role in rising inequality since the 1970s. Its important to know that no other advanced economy has seen a comparable surge in inequality even the rising inequality of Thatcherite Britain was a faint echo of trends here. On the political side, you might have expected rising inequality to produce a populist backlash. Instead, however, the era of rising inequality has also been the era of movement conservatism, the term both supporters and opponents use for the highly cohesive set of interlocking institutions that brought Ronald Reagan and Newt Gingrich to power, and reached its culmination, taking control of all three branches of the federal government, under George W. Bush. (Yes, Virginia, there is a vast rightwing conspiracy.)