Policy Shop: The Trickiness of Measuring Inequality

New post at Policy Shop. Excerpt:

These two facts — decoupling and income growth divergence — are the only facts you need to make the case that our distributive institutions are failing. Growth is supposed to benefit everyone at relatively equal rates. That is the official story of why productivity growth is the greatest thing ever. For this story to be true, income shares should at least hold steady across income percentiles, but that is not what we have seen. According to the CBO data on this topic, pre-tax and post-tax income shares have declined for every group except the top 20%. If market institutions are not sufficient for keeping productivity growth and income growth coupled, then we need other distributive institutions to pick up the slack, e.g. tax-and-transfer systems.

Read the rest at Policy Shop.