Income Inequality

I stand surprised.

The two major economic reports of the past few weeks are the exact opposite of what I expected. My anticipation was for strong general economic growth and a poor report on income equality, albeit I still oppose government action to rectify the latter. GDP growth was existent, but lower than expected, with a strong unemployment report. Most economists forecast a stronger second quarter.

The most startling report over the past few weeks comes from the CBO regarding income inequality. We previously discussed the CBO's conclusions regarding income volatility, but an even more impressive aspect of the report involves the Krugman Democratic "income inequality" slogan. The left of center Brookings Institution concedes the following:

“According to a Congressional Budget Office (CBO) study released this month, the bottom fifth of families with children, whose average income in 2005 was $16,800, enjoyed a larger percentage increase in income from 1991 to 2005 than all other groups except the top fifth... Even more impressive, the CBO found that households in the bottom fifth increased their incomes so much because they worked longer and earned more money in 2005 than in 1991—not because they received higher welfare payments... Low-income families with children increased their work effort, many of them in response to the 1996 welfare reform law that was designed to produce exactly this effect. These families not only increased their earnings but also slashed their dependency on cash welfare. Earnings up, welfare down—that’s the definition of reducing welfare dependency in America.” —Brookings Institution Senior Fellow Ron Haskins