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The Inequality Myth

By BRAD SCHILLER
March 10, 2008; Page A15

Class warfare is once again a campaign theme. The Democratic candidates are railing against the "tax cuts for the rich," lamenting the stagnation of middle-class incomes, and decrying the deepening woes of the poor. In her January response to President Bush's State of the Union address, Hillary Clinton cited "seven years of stagnant wages, declining incomes and increasing inequality." Barack Obama echoes this theme by referring repeatedly to the "middle-class squeeze."

Both candidates portray America as a nation where the fruits of economic progress have been usurped by corporate CEOs, equity-fund managers, inside traders and international speculators. Main Street has floundered, while Wall Street has flourished.

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When you look at the really big picture, it's apparent that living standards are rising across the entire spectrum of incomes. Just since 2000, GDP has risen by 18% while the population has grown by 6%. So per capita incomes have clearly been rising. The growth of per capita income since 1980 or 1970 has simply been spectacular.

Some people would have you believe that all of this added income was funneled to the rich. But the math doesn't work out.

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The average American household is doing pretty well. The evident gap between income realities and political rhetoric may help explain why the "two Americas" theme, first asserted by John Edwards and since echoed by Mrs. Clinton and Mr. Obama, may ultimately fail to resonate with voters. On Election Day, voters may well turn to the candidate with the greater focus on a strong economy that increases everyone's income.

Mr. Schiller is a professor of economics at American University and the University of Nevada, Reno.