Enlightenment Now: The Case for Reason, Science, Humanism, and Progress

A third reason that rising inequality has not made the lower classes worse off is that low incomes have been mitigated by social transfers. For all its individualist ideology, the United States has a lot of redistribution. The income tax is still graduated, and low incomes are buffered by a “hidden welfare state” that includes unemployment insurance, Social Security, Medicare, Medicaid, Temporary Assistance for Needy Families, food stamps, and the Earned Income Tax Credit, a kind of negative income tax in which the government boosts the income of low earners. Put them together and America becomes far less unequal. In 2013 the Gini index for American market income (before taxes and transfers) was a high .53; for disposable income (after taxes and transfers) it was a moderate .38.⁴⁹ The United States has not gone as far as countries like Germany and Finland, which start off with a similar market income distribution but level it more aggressively, pushing their Ginis down into the high .2s and sidestepping most of the post-1980s inequality rise. Whether or not the generous European welfare state is sustainable over the long run and transplantable to the United States, some kind of welfare state may be found in all developed countries, and it reduces inequality even when it is hidden.⁵⁰

These transfers have not just reduced income inequality (in itself a dubious accomplishment) but boosted the incomes of the nonrich (a real one). An analysis by the economist Gary Burtless has shown that between 1979 and 2010 the disposable incomes of the lowest four income quintiles grew by 49, 37, 36, and 45 percent, respectively.⁵¹ And that was before the long-delayed recovery from the Great Recession: between 2014 and 2016, median wages leapt to an all-time high.⁵²

Even more significant is what has happened at the bottom of the scale. Both the left and the right have long expressed cynicism about antipoverty programs, as in Ronald Reagan’s famous quip, “Some years ago, the federal government declared war on poverty, and poverty won.” In reality, poverty is losing. The sociologist Christopher Jencks has calculated that when the benefits from the hidden welfare state are added up, and the cost of living is estimated in a way that takes into account the improving quality and falling price of consumer goods, the poverty rate has fallen in the past fifty years by more than three-quarters, and in 2013 stood at 4.8 percent.⁵³ Three other analyses have come to the same conclusion; data from one of them, by the economists Bruce Meyer and James Sullivan, are shown in the upper line in figure 9-6. The progress stagnated around the time of the Great Recession, but it picked up in 2015 and 2016 (not shown in the graph), when middle-class income reached a record high and the poverty rate showed its largest drop since 1999.⁵⁴ And in yet another unsung accomplishment, the poorest of the poor—the unsheltered homeless—fell in number between 2007 and 2015 by almost a third, despite the Great Recession.⁵⁵

Figure 9-6: Poverty, US, 1960–2016

Sources: Meyer & Sullivan 2017. “Disposable income” refers to their “After-tax money income,” including credits, adjusted for inflation using the bias-corrected CPI-U-RS, and representing a family with two adults and two children. “Consumption” refers to data from the BLS Consumer Expenditure Survey on food, housing, vehicles, appliances, furnishings, clothing, jewelry, insurance, and other expenses. “Poverty” corresponds to the US Census definition for 1980, adjusted for inflation; anchoring the poverty line in other years would result in different absolute numbers but the same trends. See Meyer & Sullivan 2011, 2012, and 2016 for details.