INEQUALITY DENIAL

Trump’s new chief economist is known for arguing that US inequality isn’t an issue

According to multiple reports, the economist Kevin Hassett will be appointed as US President Donald Trump’s chair of the White House Council of Economic Advisors. Hassett has been a professor at New York’s Columbia University, an advisor to former US President George W. Bush and Republican presidential candidate Mitt Romney, and is currently a senior researcher at the conservative think tank the American Enterprise Institute (AEI).

He is also an inequality skeptic.

“Today we hear that the gains from economic growth accrue to the highest-income earners while the standard of living of the poor and middle America stagnates and the gap between the richest and the poorest grows ever wider,” wrote Hassett in the Wall Street Journal in 2012, “That portrait of the country is wrong.”

Hassett’s belief that rising inequality in the US is a myth is based on analysis he conducted with fellow AEI economist Aparna Mathur in 2012. Their research was a response to mounting literature demonstrating that income and wealth inequality has been growing rapidly in the US since around 1970. Economists Thomas Piketty and Emmanuel Saez showed that the share of the top 10% of income earners rose from less than 35% in 1970 to nearly 50% in 2010.

Hassett has three primary criticisms of typical inequality research. Criticisms he has reiterated in multiple papers and presentations since 2012.

First, he points out that measures used to demonstrate income inequality usually ignore benefits. As healthcare costs rise, an increasing portion of compensation for low income workers comes in the form of health insurance. Only evaluating income, not benefits, tips the scales towards higher earners.

Second, inequality research generally focuses on pretax incomes. Hassett believes economists shouldn’t ignore the large transfer payments developed in the US over the last century like unemployment insurance and Medicaid. Including income from government programs substantially reduces the magnitude of inequality.

Third, Hassett suggests that looking at income inequality misses the point. It is consumption inequality we should be worried about. Hassett argues consumption inequality is a better measure because, in a given year, consumption is more reflective of a person’s beliefs about their lifetime income—for example, a law student in their mid 20s will consume more than their income because they believe they are in for windfall once they graduate. Income equality could increase just because people stay in school longer, and their lifetime income is more concentrated in later years of their life.

Hassett finds that consumption inequality has been “remarkably stable.” His 2012 research showed that the share of consumption by the bottom 20% of households barely changed from 2000 to 2010. More recent research finds that consumption inequality has increased.

Finally, he disputes the general notion that inequality is itself bad if living standards are rising for all. Hassett shows that though wages are not rising for the poor, their access to products has been. Specifically, he points to increasing access to household appliances among poor households, defined as those making less than $20,000 in 2009 dollars, from 1987 to 2009.

Hassett is a respected researcher, and his criticisms are taken seriously among economists. Those who disagree with Hassett argue that his work is reliant self-reported data that misses a lot of the consumption of high income workers. Critics of his work also think he incorrectly ignores the importance of how wealth inequality can disrupt democracies, and lead to power concentrated in the hands of a wealthy few.

Unlike former presidential candidates Hillary Clinton and Bernie Sanders, Donald Trump talked little about economic inequality during his campaign. The appointment of Hassett suggests Trump won’t be talking a lot about inequality in the White House either.

home our picks popular latest obsessions search