Pearlstein: The Growing Income Gap

Washington Post columnist Steven Pearlstein was online Wednesday, August 27 at noon ET to discuss how the presidential campaign is addressing growing income inequality and the stagnation of middle class income.

A transcript follows.

Read today's column: Our Inequality of Outcomes.

About Pearlstein: Steven Pearlstein writes about business and the economy for The Washington Post. His journalism career includes editing roles at The Post and Inc. magazine. He was founding publisher and editor of The Boston Observer, a monthly journal of liberal opinion. He got his start in journalism reporting for two New Hampshire newspapers -- the Concord Monitor and the Foster's Daily Democrat. Pearlstein has also worked as a television news reporter and a congressional staffer.

Pearlstein was honored with the Pulitzer Prize for commentary for his columns about mounting problems in the financial markets. His award was one of six Pulitzer Prizes won by The Washington Post this year.

Read Pearlstein's latest columns.

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Edgewater, Md.: Mr. Pearlstein,

I wonder if your analysis of income data for the middle and working class groups needs to be broadened to somehow adjust for "required" expenditures (oversimplified - but food, fuel, health related, etc. costs). Don't these items constitute a far greater percentage of those groups' expenditures than they do say, for the upper middle class?

If so, their residual purchasing power as it relates to "non-required" spending has plummeted way more than statistics would indicate. No wonder perceptions of the economy are so much poorer than indicated by economic statistics. A new statistic may be needed, one that reflects residual income (i.e income remaining after required expenditures).

Steven Pearlstein: You are right -- there are all sorts of income statistics and ways to massage them to get a better handle on the reality. Lots of analysts don't like the median household income statistics because they don't take into consideration changes in the composition of households. Others don't like the median annual earnings because they exclude the impact of stock options and also ignore changes in the composition of the workforce. You can look at income before taxes and government transfer payments or after taxes -- and in the after tax numbers you can make guesses about who pays the corporate tax and build that in as well, as CBO and the Tax Policy Institute do. The truth is there are no perfect numbers, and you have to look at them in totality and make your judgments. But when you do, you can't escape the conclusion that the distribution of income has been skewed heavily toward the top in recent years and that those in the middle haven't enjoyed the same share of productivity gains as they did in the past.

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Brevard, N.C.: It has been said that the Republicans are all ABOUT greed ("Greed, for want of a better word, is GOOD.") Barack Obama promises to reduce the obscene income disparity in this country by raising taxes on people making fat salaries and reducing (or eliminating entirely) taxes on lower incomes. Why, then, do millions of so-called "ordinary" people continue to vote for Republican candidates? Could it be because the GOP has long been so adroitly playing various groups of its victims off one another? "Divide and rule" is their unstated motto.

If the apparently sheep-like voters in the U.S. ever wake up to this fact, en masse, the Republican Party may finally be put out of business. No less an expert than Benito Mussolini once said, "You might as well call fascism Rule by Corporations, because that's what it is." According to that succinct definition, this country is firmly in the grip of right-wing Republican fascism.

Our supposed "democracy" and, soon, our cherished freedoms will be but memories if McCain wins this election.

Steven Pearlstein: I think it is always dangerous to assume that, over the long term, the American people are ignoramuses and don't understand their own self interest. The public came to realize in 1980 that the old Democratic model was broken, it was making the country non-competitive and they were willing to try something different. And the market model has been the reigning model ever since, with some good effects. But now it is clear that we need a new model, and right now only the Democrats are offering an alternative. There are the backward looking elements of the Democratic Party that just want to restore everything that was changed, to undo the trade agreements, to return labor unions to the same power they had before, probably that even want to bring back the old welfare programs. They have a lot of power within the party, but can't win general elections. That leaves it to the more forward looking wing of the Democratic Party to come up with something that builds on the market model rather than rejecting it. Obama is attempting to do that, as Bill Clinton did before him. We'll see how it goes.

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Columbia, S.C.: Posting early.

While I agree that income inequality is a problem, it must be put in proper context. There is interesting research out of the University of Chicago that helps provide this. Money's purpose is to allow transactions -- the purchase of goods. Income inequality would then be problematic if people couldn't purchase goods. The reason that income inequality is less of a problem now, than say 10, 20, 30 years ago is that the variability of pricing of goods has widened, without a reduction in quality. It is easy to spend $650 to $12,000 for a refrigerator. Each of fine quality. Thus, people can still purchase goods that are necessary for living.

What is interesting is what J.K. Galbraith posited: Income inequality will matter much less than income stability. Basically, the worry of losing it all is a much greater fear now than in the past. The idea that you could get swamped by health care costs. Or, that you could lose your job and health care, etc. (Economics in Perspective by Galbraith)

So, while income inequality may be a problem, I think you are seeing a bigger concern in the public over risks to income stability -- with good reason.

Steven Pearlstein: Agreed that stability is important -- and the evidence is that it is declining, which is the source of a lot of anxiety. You might be interested to know that the report yesterday had data showing that 30 percent of households fall into proverty at some point over a three year period. And there is a lot of falling in and out of the top brackets because so much of that depends on the success of investments.

You also raise another point that should be mentioned: that if you look at what people have, rather than just the total money they earn, the middle class has made progress in recent decades. The difference can be explained in measurement errors, particularly the cost of living deflator, which may overstate the amount of inflation and thus understate the effective gains in purchasing power.

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Arlington, Va.: Hi - a couple of questions on today's column; hopefully one will interest you. First, you mentioned that countries such as France and Sweden are having similar problems. Recently, I heard Germany characterized as the world's leading exporter. My understanding is that Germany has some of the highest labor costs in the world but they are a very successful manufacturer. What are they doing that we are not? Second, your colleague Robert Samuelson has written at least a couple of columns in the past year where he makes the point that it will be hard for workers on the lower end to make wage gains as long as we have lots of immigrants without skills coming into the country every year. To these immigrants we should probably add all of the teenagers who drop out of high school and even those who graduate from high school without vocational training and go into the work force without skills. Is it your view that raising the minimum wage several dollars per hour can solve this problem without having an overall negative effect on the economy?

Steven Pearlstein: Lot to deal with there.

Germany is a successful exporter because it has well run companies with skilled workers who have the best tecvhnology available to them and are able to produce somewhat unique products that the world wants to buy. We do that too, although it is a less significant part of our economy. We could do more, but it is very hard to start from scratch in an industry. You need the infrastructure and the experience and the competitive local industry to make it work. So you can't just wave a magic wand and make it happen, just because you understand how the high-wage export model works. It takes a lot of time and investment.

As for immigrants, they obviously have a downward impact on low-skilled wages. There is a lot of controversy about how much of an impact, but I'd say its more than traditional economists have been willing to acknowledge but less than the labor unions and anti-immigrant groups want us to believe.

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Reston, Va.: Mr. Pearlstein, I read your column often. I was surprised by your comment this morning about the lack of solutions presented in IOUSA. I have assumed, perhaps wrongly, that you are familiar with David Walker's analysis of America's debt dilemma. The solution is savings and more savings. As my 12-year-old said after the movie, "thank you Dad for leaving me and my peers this mess, what can we do? Is it really all about saving?" I responded that we in our family need to start saving and stop our we need it right now attitude and that the rest of the country needs to follow the same prescription. Neither of the candidates have bothered to pick up on this issue, probably due to its unpopularity, however it is just a matter of time before it won't matter. How about writing a column or 2 about the movie and maybe an interview with Mr. Walker?

Steven Pearlstein: Bob Samuelson did that today in his column. My colleague Frank Ahrens wrote about the movie in the business section last week. I think we've covered the base on that one. I tend to approach the issue from a different angle of view, by noting repeatedly that as a country we have been living beyond our means and that the markets will eventually correct for that and reduce our standard of living -- and we are in the process of that now. That is what the financial crisis and the housing crisis are really about. And one aspect of that is that, one way or another, we will be required to reduce the federal budget deficit and forced to take on less household debt and save more for the future, rather than relying on home equity appreciation. That's all happening now.

To put it a whole lot more personally and crassly, I don't think, as a columnist, you attract a lot of readers by constantly lecturing people about financial prudence every week. Its not my job to change the world. Its my job to inform, challenge, delight and even entertain readers. I think you are mixing up what journalism is about and making the mistake of assuming that if we could just write the same thing over and over and over and over, people will behave the way we tell them to, or the way you think they will when they finally "know the facts." That is a false assumption and one made a lot these days in the blogosphere, where the "mainstream media" is often the whipping boy for every evil in society.

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Lincoln Park: Health care sort of disappears in the Post's reporting on the Dem convention. It was Hillary's big issue last night, right after the unified Democratic Party support for Obama.

How much does health care represent in the inequality equation? If you don't get coverage through your employer's group plan you pay through the nose for poor coverage.

The Census reports that there was better health care coverage last year because more people were eligible for government provided health care. If you are really, really poor you can get health care provided by government programs. But if you are not old enough for Medicare you either get health care from your employer or you pay through the nose for coverage that may or may not show up when you get sick.

Steven Pearlstein: The reason there's not much health care in the Post's reporting of the convention is that there isn't much health care discussion going on there that is newsworthy. Kennedy mentioned it prominently, and we had that, as did Mrs. Clinton, and we had that. But neither said anything particularly new, which as you know is the root word for news.

I might also add that another reason is that we don't really have much of a health care reporting staff right now. That's a problem and one I've complained about internally here for years, to absolutely no effect. So much for the power of columnists.

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washingtonpost.com: Be sure to check out the Post's ongoing series on low-wage workers.

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Washington, D.C.: Census reports key statistics on income and how poorly the economy has performed under the GOP. It is regularly reported that "Presidents cannot do much about the economy." Two questions and an important item: Are the Census numbers in nominal or in real (inflation adjusted) dollars? While it is true that Presidents cannot do much for the economy overnight or even with a year lag, it is false to build an impression that they cannot make a BIG difference over time. Clinton in 8 years made huge improvements over the Reagan/Bush I economy and he did it incrementally, one good decision after another, fighting against GOP noise-machine/GOP orthodoxy the entire way.

In your opinion, how many years does it take to turn an economy around with good decisions by the executive branch? How long would it take Obama to improve the economy using the Presidential powers by making good decisions?

Key fact: "Between 2000 and 2007, median income for working age households fell by $2,176. When elderly households are included, median income declined by $324 over the same period. This is the first economic expansion on record where typical households have seen their incomes decline. Under the Clinton Administration, median household income increased by $6,200."

(from Brad DeLong)

And this year if trends continue it will go down another $700.

Steven Pearlstein: I am not a believer in political dating of economic statistics. It's too simple-minded and often wrong. That said, policy can have an impact on the economy in the short term (stimulus, etc) and the long term, and that effect can be on pre-tax income or how that income is distributed after taxes. Clinton did a lot of good things for the economy that helped both to grow the piece and distribute it more fairly. The Bush years, like the Clinton years, were marked by a recession followed by a recovery, an expansion and an asset boom. The expansion wasn't as good as the Clinton expansion in terms of job and GDP growth, but more significantly the benefits of the expansion were distributed even less fairly than during the Clinton years -- not primarily because of anything Bush did or the Bush tax cuts, as you suggest, but because the market economy on its own is generating less equal outcomes. Some of that is the result of trade and immigration policies set in place by Clinton, by the way. Some of it is the result of further erosion of worker bargaining power, which is the result of Bush policies (the National Labor Relations Board has become a wholely owned subsidiary of the National Right to Work Committee). But what is disappointing is for good economists like Brad DeLong to overstate the influence of one president's policies on the economic outcomes of the years he is in office.

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Freising, Germany: In a new book entitled, "The Race Between Technology and Education", Claudia Goldin and Lawrence Katz attribute growing income inequality to rapid technological change: A major driver of the growing gap between rich and poor. They propose that the cure for income inequality is improving mass education.

It strikes me as a sound hypothesis, but, not having read the book, I'm not sure what these improvements should be.

Steven Pearlstein: This is the traditional mainstream economic analysis and approach and there is a lot of validity to it. But I think Larry and Claudia tend too easily to dismiss other factors like trade and worker bargaining leverage and immigration and the winner-take-all nature of some labor markets and the oligopoly nature of some industries. It is true -- the best single thing we could do in this country is make sure that everyone gets a good college education, and increase the percentage of those college students who study science and engineering. But that is obviously a long-term project that begins with pre-school programs. In the meantime, there are other things that we could also do that at least generate some more equal outcomes while we wait for that blessed day to arrive.

You should also understand that "more education" has also been, for the last 30 years, the answer given by the business community whenever the inequality subject has been brought up, and it is largely a poltical ruse, because when it is actually time for people to put up or shut up and put the money into a dramatic incraese in the funding for education at all levels, the business community is largely a NO SHOW. Instead, they blame it all on the teachers unions, say that we already tax and spend too much on education, and that the only answer is No Child and charter schools. I think if you check with conservative but enlightened economists like Jim Heckman out in Chicago, he would tell you a very different story. And, by the way, Obama has spoken a lot of Heckman and incorporated some of his thoughts in his own program. Can't say the same about the Republicans, which continue to view early childhood education, for example, as just another plot of the teachers unions to increase the size of government, to increase the number orf public sector jobs and to increase taxes.

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Washington, D.C.: Doesn't the fact that income inequality is increasing even in Scandinavia suggest that large-scale income redistribution is not a solution?

Steven Pearlstein: No, but it does suggest that it can't be the only solution. I think that proposing, as Obama does, that the top marginal rate be raised to 40 percent and that the tax on capital gains be raised to 20 percent make sense. But when you get much beyond that, you get very close to those tipping points at which even more redistribution and even higher tax rates DOES have a negative impact, by driving activity offshore or underground, primarily, but also by reducing the entrepreneurial animal spirits that have always been a strong feature of the high-growth economic model. So that is why I wrote this morning that we have to start tinkering (and I use that word very carefully) with the market machinery to see if we can get it to generate more equal outcomes without too much of a sacrifice in economic efficiency and growth. And that is where I think we can learn a thing or two from the Scandanavians, by the way, who at various times have been able to find the right balance.

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Hyattsville, Md.: Your notion that support of free trade is a "centrist" position among Democrats is laughable. Support of free trade polls around 30-40% right now at best -- and that is among the general population, not Democrats. A true centrist position on trade -- both in the general population and among Democrats -- would be to regulate trade a lot more than we do right now. (Not to mention that this would be the smart thing to do.)

Also, I find it dubious that Democratic leaders have tempered their criticism of free trade due to their white collar supporters. More likely, all the multinational corporate money that flows into politicians' coffers for being free traders has something to do with that sell-out.

Even moreso, though, the Democrats have not abandoned their calls for more regulated trade, and have written it into their platform right now. So your entire premise is wrong anyway.

We will need to take strong action against our mercantilist trading "partners" if we expect to fix problems in our own economy. It's not the only thing we need to do, but it is a necessary part of the solution.

Steven Pearlstein: Despite the tone, I don't disagree with you about the need to manage trade a bit more cleverly than we've done -- not only to respond to unfair trading strategies, but also to just slow things down a bit so that people and companies and communities can better adjust to the new realities. If you check, you'll find that I'm the source of the "time out" idea for new trade treaties. And I think that represents the centrist Democratic approach. But organized labor does not take that approach, in my opinion, by continuing to peddle this nonsense about labor and environmental standards. Organized labor doesn't like anything that threatens American jobs, and increased trade, by its very nature, threatens existing jobs. They always find a way to explain away their opposition to imports, under the banner that the trade is "unfair." But if you scratch the surface, they are simply against the idea that a company in Manila that uses the same technology and the same capital and pays workers a fraction of the U.S. wage should be able to sell into the United States and take jobs away from dues-paying union members. The reasons they are opposed to that are pretty obvious. And they have never been able to embrace the benefits of that because the benefits are diffuse (all consumers) and the costs are concentrated in the livelihood of their members.

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Reno, Nev.: Hello Steve, I love your column and it is one I always read (you need to write more!). In your latest column, after I read it, I was left with a question. You said..."But there is no debating that markets are doing a lousy job of distributing the benefits of economic growth and that another decade of stagnant wages and runaway inequality is unacceptable."

Well, my question is...what if the USA does have another decade of stagnant wages and increasing inequality, which I believe is likely. What happens? What will the economy look like? What will the political landscape be like?

Also, we've had more than three decades of stagnant wages and rising inequality. What makes you think that the next decade will be pivotal in somehow solving things?

Thank you and keep up the great column.

Jim

Steven Pearlstein: We are reaching a point where, if we don't address this problem successfully, the politics will shift dramatically to the left and we'll start doing too much to tinker with the market and redistribute income after the fact. The status quo can't continue, in my opinion -- not in an economic sense, but in a political sense. And the longer we wait to address the issue (in effect, the more we let the pendulum swing in the direction of inequality), the more dramatic will be the political reaction (the farther the pendulum will swing back in the other direction).

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Taylorstown, Va.: Thanks for highlighting the stagnation of male earnings. Given that weakness, even the 15 percent rise in real household income since 1973 may not have reflected the return of productivity gains to labor. Increased female participation in the full-time workforce likely accounted for some of the rise, as households contributed more labor hours to the economy.

Steven Pearlstein: You are right -- I had to cut that paragraph out. Much of that 15 percent increase can be attributed to more hours worked by males as well as females in the household. But then again, the average size of the household has also declined, which cuts it the other direction.

I guess what I wanted to avoid was to suggest that there have been NO gains in the income of the typical household since 1973, which is what some liberals argue. I don't agree with that.

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Alexandria, Va.: I remember reading a simulation of a free market where trading outcomes were randomly determined. The wealth ended up being held by a very few. So wealth disparity may be an artifact of our system, not due to the acumen of some players - which means that education is not a solution.

Steven Pearlstein: You are right -- there is a tentency in social market systems generally for success to breed success and rewards to be highly concentrated. Remember that in some primitive societies, the leaders end up with all the wives. But over the years, the most thriving societies have come up with institutional mechanisms to have rewards distributed more equitably -- not perfectly equitably, but more equitably. Getting those institutions right is the trick to generating not only the highest overall output, but the greatest good to the greatest number. The genius of the U.S. economy is that we've been very good at devising those institutions and continuing to tinker with them as time goes on, since they need to be constantly reformed in response to changing conditions and the "moves" of "other players," as they say in game theory.

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they have never been able to embrace the benefits of that because the benefits are diffuse (all consumers) and the costs : You contradict yourself. Why do American's consume too much? Because of all the cheap crap that is imported from countries with no labor or environmental laws. This benefits the society?

Steven Pearlstein: That is not why the U.S. consumes too much. You've got that wrong. That's economic nonsense.

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Woodbridge, Va.:"Can't say the same about the Republicans, which continue to view early childhood education, for example, as just another plot of the teachers unions to increase the size of government, to increase the number of public sector jobs and to increase taxes."

Aside from being an overly simplistic misstatement, this is just plain mean spirited. I have been reading your columns for several years with respect and admiration for your general fairness even though your center left viewpoints often clash with my own center right beliefs. But I have noticed you changing in the last 3 to 4 months. You have become more bitter, snarky and less even handed. You are still one of the best economic columnists in print, one of the few who is an equal to Samuelson. I would not expect you to change your views to placate those who disagree with you; just recognize these are discussions on which intelligent well motivated people may reach different conclusions without being either stupid or unprincipled.

Steven Pearlstein: Thanks for the compliment. And you may be right in noticing a leftward drift. And the reason for that is that the Bush administration and the Republicans in Congress are being just ridiculously stubborn in responding to the obvious drawbacks of the current model. It's not just me that has noticed this -- so has David Brooks and a number of younger Republicans who are trying to come up with a more market-based response to the shortcomings of unfettered, unregulated, unbridled capitalism. My frustration is that the Republicans not only don't have any credible answers to these problems, they won't even acknowledge that they exist. Worse, the party leadership seems determined to drive out of the party structure anyone who does acknowledge the problems.

So, yes, I'm getting a bit snarky. I'll try to watch that in the future.

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Steven Pearlstein: Too many questions and comments to respond to today. I'm going to print all the rest, with minimal comment. See you all next week.

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Lefty from Princeton: Obviously, I agree with much of what you said in your column today, and I especially agree with the measures outside of tax policy you suggest, but I think tax policy is a more potent weapon than you think. You are correct that Obama's tax policy is putting a band aid on a brain tumor, but a more rigorous use of taxation would have a larger effect.

Let's break the post WWII period into 1946 - 1973 and 1973 to the present. While there were lots of differences besides taxes, the fact remains that marginal rates averaged 70% during the first period reaching 93% under Eisenhower. This is a lot more than Obama proposes. I believe that this not only had a beneficial economic effect, but it had a cultural effect that we would be well to recover. Here are some facts to support this claim. Real median wages grew 50% during the first period, but only 25% during the second longer one. I am looking at a graph of the national debt as a percentage of the GDP. It goes pretty much straight down in the first period, wiggles around in the '70's, and then shoots up with the onslaught of voodoo economics except for a downward wiggle under Clinton. During the first period CEOs got about 50 times what their workers did. Today it's 400 or 500 times. Corporations put some of their gains back into the community. David Leonhardt gives the example of Eastman Kodak building many of the schools and hospitals in Rochester.

Now I want to be a little mathematical here. It is true that the percent of the income AND wealth of the upper 10% has increased since 1973, but the same is true for the upper 1% and the upper 0.1%. Now here's the point, the increases of the upper 1% have exceeded those of the upper 10% and the increases of the upper 0.1% have exceeded those of the upper 1%. Further, the rates at which these percentages are increasing are also going up EXCEPT in the Clinton years. So at least the policies of Clinton (including taxes) began to slow down the rate at which the rich are getting richer. BTW these rates of increase are again higher for the 1% and still higher for the 0.1%.

Finally (applause), Kevin Phillips in "Wealth and Democracy" has pointed out that historically when the rich gain more and more of the wealth of a country, they soon begin to use that wealth to gain political power, and then use that power to get the country to take actions which benefit them, not the country as a whole. The result is the country goes down the tubes. In the past, one of the great virtues of America is that before we reached the point of no return, something happened to reverse the trend of money flowing upwards -- the rise of unions, FDR, etc. The question we must ask ourselves is what is going to stop this terrible trend today?

Steven Pearlstein: Thanks.

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Lefty from Princeton: Looking over my long comment, I realize I sounded somewhat negative about your column. I think it was a great column. You make the crucial point that we have to look more extensively at what I believe is the greatest economic problem we have. Hear! Hear!

Steven Pearlstein: Thanks.

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Falls Church, Va.: It's a bit misleading to cite 1973 male median worker earnings in isolation. Since that time, the labor pool has expanded sharply, as droves of middle-class women entered the work force. This has unquestionably been a positive development for society at large, but it is also almost inarguable that it had the effect of holding down men's wages. If you look at the same census report, you'll see that women's wages have not been stagnant but rather have increased steadily since 1973.

Steven Pearlstein: Thanks.

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Atlanta, Ga.: What we really need to do is to lower all tax rates to something like 15% (maybe a deduction of $25,000, so no taxes on the first $25k of income).

Then the states, that are flailing about can raise their taxes and do what needs to be done. It is ridiculous that we send so much to the feds, and they get to choose where money goes. Oh, let's have a new initiative so we can fix bridges! Or whatever the new flavor is today.

No, we need to allow those closer to the issues to figure out and spend as -they- see fit, not just be giving money to states that have the reps/senators who have been in federal government the longest.

Oh, and raise the age at which people receive social security benefits to something like 70 (as Mr. Samuelson recommends) or 75. Life expectancy used to be 65 (when social security legislation was passed) - not 85 like today.

Steven Pearlstein: Thanks.

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Annapolis, Md.: Thanks for making sense of this crazy financial mess we are in! You are far and away the most logical and sensible financial columnist in town...I am 34 yrs old, will I collect Social Security when I retire? And do you think Fannie and Freddie will survive on their own? Keep up the good work.

Steven Pearlstein: Thanks.

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Ottawa, Canada: Dear Steven,

I'd be very interested in citations of sources on the income gap you mention in Sweden and France. The issue of globalization's tendency to worsen economic inequalities is central to some current research on social determinants of health; see the report of a WHO Commission on the topic, to be released Thursday here.

Ted Schrecker Scientist/Associate Professor Institute of Population Health University of Ottawa

Steven Pearlstein: Thanks.

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Orange, Tex.: What is the White House's official position on this obvious problem, or are they in denial?

Steven Pearlstein: Thanks.

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Closter, N.J.: Who started the outgo of manufacturing from the U.S.? How have they survived the economic state of our nation?

Steven Pearlstein: Thanks.

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San Mateo, Calif.: I recently read that the Middle Class is growing in Asia, yet it appears to be in a steep decline in this country. We appear to be on track to have a Third World class structure --- a small, incredibly wealthy upper class, a huge lower class and nothing in between.

How do the two parties propose to address this problem?

Steven Pearlstein: Thanks.

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Alexandria, Va.: The social contract of work hard and you can get ahead has come to an end -- no longer can you work a basic job and even be able to provide for the basics -- food, housing, clothing. What are the candidates proposing to do about this?

Steven Pearlstein: Thanks.

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Alexandria, Va.: To me the most interesting part of your column was when you mentioned Sweden and France are seeing the same income distribution issues.

Unfortunately, having mentioned that, you then talk about encouraging unions and minimum wage increases as the solution. Surely France is doing those things far, far beyond anything possible here given the American political atmosphere.

If there is some sort of "bubble" in executive compensation, then that needs to be addressed by a solution if it's going to be successful. But how best to do that? I figure either you can somehow increase the supply of executives (probably slow and difficult) or make it more difficult for companies to compensate them...I'm thinking of some sort of progressive tax on stock options here. It's not like companies are shelling out cash to these guys most of the time, right?

Steven Pearlstein: Thanks.

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Rochester, Minn.: Dear Steve,

Cato Institute, Heritage Foundation, etc. frequently argue that there has been no particular increase in income equality over past decades. Why is your argument better than theirs and if, in fact, inequality is greater than in the past, what is driving it?

I look forward to your column and chat each week.

Steven Pearlstein: Thanks.

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West Coast: If the top 2% of Americans own 90% of the wealth, what is their fair share for defending their assets? Shouldn't they pay at least close to most of the defense budget? Thanks

Steven Pearlstein: Thanks.

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Austin, Texas: Education and Income Inequality: I currently make a 6 figure income and pay a 5 figure tax bill. 25 years ago there were PELL grants and other government programs that allowed this child of a single parent to go to college and I'm now happy to pay back so other kids can reap the same benefit, but that benefit is no longer there. Now Pell grants and government programs will pay maybe 30% of the cost of a College education and that poor kid will end up driving a truck instead of building a better future for their children. 30 years ago the American people were willing to make a commitment to the future by investing in America and its infrastructure. Not anymore. Until we start believing that its worth our money to invest in America's future through TAXES we might as well forget about a better life for our children and grandchildren.

Steven Pearlstein: Thanks.

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Henderson, Nev.: Why should it be a function of Government to ensure that middle class incomes rise or that incomes are more equal? I've never understood why it should be an issue.

Steven Pearlstein: Thanks.

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Herndon, Va.: So how much of this non-increase in wages can be attributed to India? Here in Herndon, it seems like any job that doesn't require a security clearance, U.S. citizenship, or political connections is being exported to India. All of the non-spooky skill jobs are being exported and so are many of the professional positions. Isn't India being a part of the supply/demand equation a big factor?

Steven Pearlstein: Thanks.

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Seattle, death to free trade: One of the key problems is that you present "Free" Trade as if it were that, free.

It's not. It has always depended on the armed might and power of the nation state to enforce it.

And yet the past eight years of incompetence have shown you can't have free trade -- which results in subsidies to firms that commit economic bads (pollution, imprisoned labor, political and economic repression) - without strong competent government.

Well?

Steven Pearlstein: Thanks.

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DC: Re: In a new book entitled, "The Race Between Technology and Education", Claudia Goldin and Lawrence Katz attribute growing income inequality to rapid technological change: A major driver of the growing gap between rich and poor.

Didn't Ned Ludd make the same observation some time ago? Hmm...

Steven Pearlstein: Thanks.

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Seattle, Wash.: Wouldn't a Bastille event be a wiser choice?

We could simply storm the walled battlements and lop off the heads of the 46,000 ultra-millionaires in the U.S. and then the remaining 99.9 percent of us would have a level playing field ...

And use the seized assets to pay off all the debt they got us into.

Steven Pearlstein: Thanks.

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Anonymous: It might be stupid of you to assume the American people will figure out their own self interests over time. We believe what we are told. Are corporate and national interests the same? Are wars to protect and promote the interests of 1% of our citizenry good for the country, and if not, why do we fall for supporting wars fought for economic purposes for the elite?

Steven Pearlstein: Thanks.

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Seattle, Wash.: On the subject of the sources of income inequality, what do you think of Krugman's notions that while political leadership doesn't matter directly, it does have an impact by letting executives know 'what way the wind is blowing'?

Steven Pearlstein: Thanks.

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Washington, D.C.: Hello,

Not to sound doom-and-gloom, but, it seems like the economy continues to get worse with no signs of improvement for the middle-middle class (I'm thinking 100,000 annual incomes or less).

Some early thirties types like us are postponing kids (or not having as many) because of long-term economy fears.

If you were president, what would be the first thing you'd do to improve the economy?

Thank you

Steven Pearlstein: Thanks.

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Vienna, Va.: Thanks for the great articles/chats. Always enjoy your comments whether or not I agree.

Question I had when reading your latest article, what comments do you have on the income inequality on a global scale?

Even though I do not think taxes are the best way to solve income inequality, without a world-wide tax lever to use, what solutions do we have?

Steven Pearlstein: Thanks.

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Long Beach, Calif.: RE: Why does the middle class vote GOP? Statistics prove that up to 30% of the population thinks they are in, or close to in the top 10%, and if not, will be soon. So may we blame it on blind optimism, the need to protect money you haven't made yet, and most likely won't, from taxation?

Steven Pearlstein: Thanks.

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Kensington, Md.: So if I build a machine that does the work of, say 100 workers, what happens? Productivity goes up, but at the same time the demand for labor goes up, which would drive wages down. It is no great mystery. The capital owner accrues more profits, but non-capital owning workers will have their wages fall. There is a more sophisticated framework this all falls into, but I don't want to get into that here.

I would not say there is anything wrong with owning capital. If, like an aristocratic Russian, you merely inherited your resources from ancestors who stole common property from the people, then yes. Maybe things are not perfectly fair here, but we already have a way to differentiate between inheritors and entrepreneurs who acquire capital "fairly" (e.g. the estate tax). Of course, this is not perfect, but even under the most perfect, equitable system, I think income inequality will grow regardless -- the unions recognize this clearly, and did their best to get a bigger share -- and I am not sure that is the sign that anything needs to be corrected.

Steven Pearlstein: Thanks.

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Millington, Md.: Is there any hope for reducing the deficit and stabilizing our middle class? Or do we have to make a choice?

An article from Bloomberg:"The shortfalls Obama would produce don't approach the size of the deficits John McCain's budget threatens to bring. The Republican candidate's tax cuts alone would increase the debt by $5 trillion by 2018, compared with $3.4 trillion for Obama, says the Tax Policy Center."

Steven Pearlstein: Thanks.

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RE: Its my job to inform, challenge, delight and even entertain readers.:...and how delightful you are!

Steven Pearlstein: Thanks.

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San Clemente, Calif.: Say what you like about income inequality but things are working out pretty good for the people who really matter. They have the ability now to use the political power great wealth buys to shape the economic environment to maximize their own comfort level. I don't see any real likelihood of too many changes.

Steven Pearlstein: Thanks.

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Ben B.: Can't we all just blame Greenspan?

Steven Pearlstein: Ha.

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Anonymous: Has anyone ever looked into how income inequality leads to war? After all, the Rockefeller empire invested in I.G. Farben, and co-owned the factories around Auschwitz, all to make ungodly amounts of money. Is income inequality a minus when it comes to national security?

Steven Pearlstein: Thanks.

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Anonymous: Don't tax policies affect economic outcomes during a President's term? Bush's supply side, trickle down economic tax policies ain't supplying or trickling. You break down his tax breaks to an individual level and your jaw drops when you see how very few at the very top got so much and the people in the middle and below got a half tank of gas.

Steven Pearlstein: Thanks.

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West Coast: Would closing tax loopholes for the rich provide the treasury with enough funds to help balance the budget? If we simply stopped allowing private yacht owners to have "charter services", using a pleasure boat as a business write-off, I'm sure we'd have billions of dollars. I live by a marina, and the boats never leave harbor, they just rot in the sun.

Steven Pearlstein: Thanks.

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16th and M: Every time you have a chat on this subject I plug the same book, so here we go again:

"The Winner-Take-All Society: Why the Few at the Top Get So Much More Than the Rest of Us" by Robert H. Frank and Philip J. Cook

Business school students are taught nowadays that if you can't be number one in any particular market segment, you get out. This leaves consumers often with one choice only ('Would you like red or red? Red it is!'). It has taken volunteer projects like OpenOffice to challenge de facto monopolies like Microsoft Office. Satellite radio is another example of one option only for consumers.

Combine that with documented examples of price fixing (music labels settling on lawsuit over CD prices) and market manipulation (oil speculators, Enron loophole), and you have prices rising faster than they otherwise would due to inflation alone. This eats into the stagnant wages of the last ten years.

The bottom line is that if the free market doctrinaires were right, competitors would spring up in market segments where profits were lavish and only one or two players existed. But the truth is that real competition on price -- on things that people really need like GAS and FOOD -- doesn't happen unless one company is temporarily taking losses to drive a competitor out of business. Once accomplished, it reverts back to unfettered predatory pricing.

Steven Pearlstein: Thanks.

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Woodbridge, Va.: Are you familiar with the research Goldman Sachs has done on inequality?

Rising Income Inequality in the G3 - Dirk Schumacher, Jan Hatzius and Tetsufumi - Goldman Sachs Global Economics Paper (GEP) No: 158 -- July 6, 2007

The Expanding Middle: the Exploding World Middle Class and Falling Global Inequality - Dominic Wilson and Raluca Dragusanu - Goldman Sachs GEP No: 170 -- July 7, 2008

Globally the rich are getting somewhat richer but the real challenge is the supply of labor, particularly at the low end, exceeds demand. International executives probably do not harbor any particular malice toward the middle class in developed nations. Nevertheless, they cannot ignore economic realities. Any major and most mid sized corporations desiring to remain in business and generate reasonable returns on investments must leverage automation, meritocracy and globalization or they will be cannibalized by their competitors. Unfortunately, automation decreases the value of skilled labor by transferring productive capability from the individual to the machine. Meritocracy generates intense competition and concurrent financial rewards for a relatively small group of high value add decision makers. And globalization pushes low skilled labor towards low-wage workers through either trade or immigration. The process is as natural and unavoidable as cold wet weather in the winter. Furthermore, it is highly desirable from a global perspective and may well end absolute poverty and starvation throughout the world within the next generation. All of which is little comfort to the laid off blue collar worker in Pennsylvania or the recent college graduate in Italy working as a swimming pool attendant.

Steven Pearlstein: Thanks.

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Rockville, Md.: Steve- I loved your column today. It was -- dare I say it? -- fair and balanced. I have read that globalization is much of the reason for increased inequalities in income -- because the profitability of a successful product that can be sold worldwide today is much greater than a successful product that might have been sold in a particular region. Do you think that might be part of the reason?

Steven Pearlstein: Thanks.

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Washington, D.C.: Mr. Pearlstein,

Well done in noting that MALE workers hope to regain their 1973 earning power. For female workers, the story is quite different. As Lilly Ledbetter recounted last night at the DNC, last year the Supreme Court permitted companies to pay women less than men if women failed to complain within 6 months of receiving their first paycheck. This year, the Court will hear a case where AT&T is arguing that it can pay female retirees lesser pensions than male retirees because discriminating against women was not illegal before 1978 (when some of these retiring women were employed).

Have you seen any data on how McCain or Obama's tax and business platforms will improve the equity of women's pay?

Thanks!

Steven Pearlstein: Thanks.

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