A conservative scholar questions whether the US really has an inequality problem

What’s the problem?
What’s the problem?
Image: Reuters/Jessica Rinaldi
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Scott Winship started his career as a moderate Democrat, believing in progressive solutions to the US’s economic issues. After college, he worked at the liberal community organizing-group ACORN on a campaign to increase the minimum wage.

But over time, Winship switched camps. The poverty and inequality researcher now identifies as a “reform conservative,” and acts as project director for the Social Capital Project, which was set up by Republican US senator Mike Lee. Winship says the key moment came for him after the US Welfare Reform Act of 1996, when the federal government began requiring people work, volunteer, or participate in skills training in order to receive certain government support. He figured the reform would be disastrous for the poor, but has since come to think it was “the best anti-poverty program we have ever implemented.” (Debates about the impact of the policy are still ongoing.)

Winship, formerly a fellow at the Brookings Institution and Manhattan Institute, is now one of the most prominent academic skeptics of the idea that rising inequality is harming the US. Quartz spoke with him about the state of the debate on inequality in the US, and how liberals and conservatives often see the issue very differently.

The conversation has been edited and condensed. It reflects Winship’s personal beliefs, and do not represent those of the Social Capital Project.

Quartz: So let’s start really broadly. Is increasing income inequality in the United States a problem?

Winship: Maybe? There are some empirical questions in the social sciences that are very hard to answer convincingly, and this is one of them. I wouldn’t make strong claims that inequality is not a problem, but I’ve spent quite a bit of time arguing that there isn’t really good evidence that it is.

Scott Winship.
Scott Winship.

Certainly, inequality has grown. But it’s not the case that the rich are getting richer and the poor are getting poorer, which is a concern many people express. The middle class and the poor have actually seen their incomes go up quite a bit over the last 40 years. Median household income is at an all-time high. Overall poverty, child poverty, and poverty among the kids of single mothers are at all-time lows. The story for the middle and the bottom is a lot better than most folks believe.

It certainly is the case that we are not getting richer at the same rate as we used to get richer. That’s a problem, but it’s not the same problem as if we were actually getting poorer. It is also true that the top 20%, and especially the top 1%, have gotten a lot richer than middle-class families and poor families.

So why can’t more of the money going to the top instead flow to the middle or the bottom? Or do lower and middle-income households benefit from growth at the very top in some way?

That’s an important question. Conservatives tend to believe that if you allow for more inequality than it increases economic growth and that benefits the middle and the bottom. You can call it “trickle down” if you want to be uncharitable. The liberal position is often that every dollar that goes to the top is a dollar that is taken away from the middle and the bottom.

I think neither is exactly right. When you look at the research that has been done on the impact of inequality on growth, it is all over the map. Even [liberal economist and New York Times writer] Paul Krugman has acknowledged this.

There are studies which show that countries with more inequality have higher economic growth, and some that show it causes less. There are some that find that inequality is bad for growth in Europe, but good in English-speaking countries. There is even a study that finds any change in inequality, either a fall or an increase, hurts economic growth.

My contribution was that I looked at the incomes of middle-class households and those at the bottom. I found that countries that have higher inequality between those groups tend to have higher living standards for the middle class and the poor. I would not assert strongly that that is a causal relationship. But it is not what you would expect to find if inequality was bad for growth.

So why do you think inequality has become such an important part of mainstream conversation about the economy?

I think the great recession and the financial crisis put a spotlight on inequality. It seemed to get a lot more attention at that point. People were looking for an explanation.

What’s interesting is that the recession was not kind to the top. A lot of people have noted that during expansions a disproportionate share of gains go to the top, which is absolutely true, but in recessions it is the top that really gets hammered. So right at the time when the top was losing, and seeing its share of income go down by quite a bit, was when people started pointing to inequality as a problem.

I think that a lot of the narrative around inequality has been driven by center-left researchers in academia and think tanks, and center-left journalists. For example, there has been a lot of attention given to the work of the economists Thomas Piketty and Emmanuel Saez showing an increase in inequality. Again, rising inequality is certainly something that has happened, and it feels like an important issue, but in the data, you don’t see a lot of the bad stuff happening that people think inequality should cause.

What about the idea that people at the bottom feel worse because the rich are getting richer?

I think it is possible. The most convincing study I ever saw on that was one that never got published by the economist Marianne Betrand. She found that in places where the rich were getting richer, the middle class was more likely to spend beyond their means.

But it is not at all clear to me that regular people actually see that kind of extreme inequality. In part because we have a lot of economic segregation in terms of where people live. Very few of us live with the top 1%.

An interesting possibility is that to the extent that people are worried about inequality or believe that it is making their lives worse, it is based on information that they get from cable news, or from print media, or websites. What if we are forming these beliefs about inequality that don’t reflect our real-world circumstances?

Where should we turn for reliable data, then?

I think people’s ideas may be formed by data that is under debate. For example, Piketty and Saez estimate that from 1979 to 2015, the share of pre-tax income of the top 1% grew from around 9% of all income to about 20%. Other researchers have found it was significantly less. For example, using different assumptions, Jerry Auten of the US Treasury Department found the change was only from 9% to 12.6%, and that the share of post-tax income grew from 8.4% to 10.1%.

I think the increase has been bigger than Auten finds, but if he is right then it is not clear that anyone would be able to perceive that over a 40-year period. So it is possible that we are wringing our hands over a modest trend.

Let’s move from inequality to economic mobility—the possibility of growing up poor and becoming becoming wealthy or vice-versa. Is decreasing economic mobility in the US a problem?

There I would say that the premise is probably wrong. Most of the research doesn’t indicate that economic mobility in the United States has fallen. For example, Raj Chetty recently released a study showing mobility has been flat since the early 1970s. Dozens of papers have found the same thing.

If mobility stayed flat as the share of the top 1% share rose, then this is a big sign that it is not obvious that inequality is a problem for economic mobility—the issue that many people care most about.

Even if mobility is not changing, is that itself a problem?

So here I think I tend to win more fans on the left, because I do think even though it hasn’t gotten worse we still have mobility levels that are too low. In particular, we have extraordinary low mobility levels for African Americans, which is structured by the terrible history of racial discrimination in the United States for hundreds of years.

I recently did a study with Richard Reeves at the Brookings Institution and we found that, in particular, black men have really bad earnings mobility. If they start in the bottom fifth of parental income, about half will remain in the bottom fifth of male earnings when they are adults. Apart from African Americans, levels of mobility in the United States actually don’t look that much worse than in Europe.

So what sorts of policies could promote more mobility?

Along with Richard Reeves, I have argued for an Office of Opportunity in the White House to make mobility a national priority. In my version of this office, it would spend about $20 billion a year on local experiments to promote school readiness among young kids. I think we really have to focus on younger kids because of the vast test score gaps by income and by race when kids start school. These investments might mean we have fewer “lost Einsteins”—kids that are in poor communities that never get the shot that they deserve.

I have also proposed reforming our safety net programs along the lines of what the US did with cash welfare in 1996. That turns out to be a very heated topic right now because the White House Council of Economic Advisors just put out a report promoting work requirements for Medicaid and other government benefits. I think the evidence from welfare reform is that a lot of people that aren’t working can work, and that it would actually reduce their poverty and increase their income if they could be encouraged to do so. I don’t look at work requirements being punitive, I look at it as being better for a lot of people receiving those benefits.

Many conservatives are also starting to get on board with tying to get rid of inequality that is a result of a lack of competition due to rents. There is a book by Brink Lindsey and Steven Teles called The Captured Economy, in which they argue that things like occupational licensing and local land-use regulations are all creating unfair rents. In these cases, a more free market approach would reduce inequality.

Do you find that people in conservative policy circles are concerned about inequality and intergenerational mobility? Is the dialogue about it similar on both sides of the political aisle?

I think they are pretty separate. My main criticism of conservatives would probably be that not enough have faced up to the extent to which you can’t choose your parents, and the extent to which a lot of subsequent inequalities are the result of experiences that kids were born into. People on the right are always looking for the reasons that rising inequality is a myth.

Liberals I think get that. But I think they are wrong to connect it to income inequality, and their views are too strong and confident that income inequality is bad for economic mobility. The policies they pursue to try to expand mobility too often revolve around just spending more money. They tend to think if you are cutting programs that is bad for mobility, and if you are expanding programs that is good for it.

On the left, there just isn’t enough of an appreciation of unintended consequences. Many people think that you could reinstate 80% top tax rates today and it would have no downsides and it would reduce inequality a lot. I believe the reality is that you would be removing the incentives to take the big risk that might create the next Google. By doing that, we run the risk of reducing economic growth, which helps help the people further down that liberals tend to care most about.

Conservatives are much more attuned to the fact that a lot of what government tries to do to increase upward mobility doesn’t work. That shouldn’t be an excuse for not trying, but I think the left tends to not really face up to the fact that we don’t actually have obvious ways to expand upward mobility, and we probably need to do a lot more experimentation to figure it out.