Robert Samuelson is back pushing the case for inequality. He tells Newsweek readers that "the economy that produces these growing inequalities outperforms the one that created more statistical equality." He must be using some new math in this claim, because the old math doesn't support his claim. While the period 1973-1980 does look very bad, it is ridiculous to take this period as representative of the larger period of equality, 1947-80. There were two major oil shocks in this seven year period. In addition, the country was adjusting to the correction from an over-valued dollar (we'll see how our unequal economy deals with this adjustment in the years ahead), and there was a quirk in the consumer price index that likely added to inflationary pressures. (The CPI used what is generally viewed now as a mistaken measure of housing costs, leading to a large overstatement of inflation. I did a paper almost a decade ago showing that this mis-measured inflation seemed to feed into actual inflation. Alan Blinder and Janet Yellen made a similar case about the impact of far more modest changes in measurement in the 90s.) Anyhow, serious people would compare the larger 1947-80 period with the 1980-2006 period. This comparison is unambiguous. Productivity, as conventionally measured, was around 0.6 percentage points higher in the first period. A measure of "usable productivity" growth, that measures the extent to which gains in productivity growth translate into gains in living standards, was about 1.3 percentage points higher in the period of equality. So, the facts on this one are pretty straightforward, the economy that produces these growing inequalities underperforms the economy that created more statistical [sic?] equality. Had something in the world changed in 1980 so that we had to live with greater inequality? Perhaps, but Samuelson does not present any evidence that this is the case.
--Dean Baker