We've talked before about the long-term problems of income inequality in the United States, and how they played into the dynamics of the financial crisis. (It is hard to have a bubble, after all, without a lot of investment funds to pump into it.) From the right, though, people have argued that income inequality is less important than consumption inequality, since standards of living have risen for the poor -- they've got TVs and stuff now, right? Well, Jon Chait demolished that argument on moral grounds a while ago, but now there is new empirical evidence that indicates consumption inequality has actually been increasing, too.
Zubin Jelveh points us to this new working paper [PDF] that suggests erroneous data collection has left us with the wrong impression: In fact, it seems likely that consumption inequality has been increasing at about the same rate as income inequality.
What is to be done? Well, we can certainly start by not eliminating the minimum wage, Chuck Lane. In fact, current Assistant Secretary for Economic Policy Alan Krueger co-wrote a whole book disproving the myth that minimum wages hurt employment rates (summary here). Policy-wise, health care is actually going to put some money in people's pockets. But over the long term, the key to dealing with income inequality comes from education, tax reform and increased unionization.
-- Tim Fernholz
