DOLLARS AND DREAMS The Changing American Income Distribution By Frank Levy Russell Sage Foundation/Basic Books 239 pp. $32.50; paperback, $13.95
THE DEBATE about whether income distribution in America is becoming more unequal and, if so, why, is the most ideologically charged of questions. Those who find evidence of increasing inequality tend to be on the left. If incomes and life prospects are indeed polarizing, the subtext of the story is that laissez-faire capitalism is not self-regulating and is socially explosive. In the opposite camp, there is a cottage industry of professional debunkers who insist that the "declining middle" is a mirage, and almost without exception they tend to be conservatives. For if the income distribution is stable, or at worst vulnerable only to random problems like the baby boom, then capitalism works just fine.
Economics is notorious for being a covertly ideological science, in which data can be displayed to "prove" almost any hypothesis. The income distribution debate in particular has been a debate about assumptions, methodologies, baseline years and the other arcana of economic forensics. In this ideological dissembling, Frank Levy stands out as among the most intellectually honest of the economists reading these entrails. Politically, Levy is a moderate conservative, but the story he tells is eclectic, appropriately complicated and not entirely comforting either to left or right. Levy doesn't neatly fit anybody's preconceived story about capitalism and the changing income distribution -- and he is very persuasive.
According to Levy, if you look at the income distribution as a whole, it has gotten a bit more unequal since the early 1970s, but not very much so. For example, the bottom fifth of American families had 4.7 percent of the total income in 1984, down from 5.6 percent in 1969, while the top fifth had 42.9 percent, up from 40.6 percent. That doesn't sound like a drastic shift; score one for the right. But as Levy notes, a group that only has 5.6 percent of the total to begin with loses about one-sixth of what it had when its share drops to 4.7 percent. Moreover, Levy quickly adds that the usual snapshot of the income distribution as a whole misses much of the phenomenon. Looking at the issue in terms of the life prospects of different generations, a dramatically different story emerges. One of Levy's most-quoted devices is to examine what happened to a young male starting out in the 1940s versus one who began his career in the 1970s. The older man enjoyed three decades of rising real income; the younger man actually experienced declining living standards during a period of life that normally signals rising ones.
This finding might seemingly give vindication to a different sort of conservative -- those people who blame the lower horizons of the young on the social costs of maintaining the comfortable retirement of the old. But Levy isn't in that camp either. His main culprit is the period of slow economic growth, compounded by the baby boom generation entering the work force, further compounded by the shift from a manufacturing economy to a service economy. His main message is that transitions which would have been moderately difficult in normal times were made extremely painful by the fact of generally poor economic performance.
On the issue of the influence of industrial transitions, Levy turns around to distance himself from the left. The problem, he insists, is not the shift to a lower-wage service economy per se, but the fact that the shift happened to occur during a period of economic stagnation. Presumably, in a high growth economy, service jobs would pay better wages. That may be so, but here I tend to place greater weight on the fact that service jobs are not only lower-paid jobs on average, but more polarized in their distribution of wages. Economists Bennett Harrison and Barry Bluestone, the leading protagonists of the Declining Middle school, calculate that of the new manufacturing jobs generated since 1979, only 6 percent paid low wages (under $7,400 a year). Of the new service jobs, fully 40 percent were low paid.
ONE CAN take issue with bits and pieces of Levy's analysis, depending on one's own prejudices, but the book as a whole is very well done, accessible to both specialist and lay reader, chock full of both statistics and insights, and just plain interesting to read. Levy looks at the issue of income distribution from multiple perspectives, as one must to capture the entire picture -- the changing status of blacks versus whites, women versus men, young versus old, as well as changes by region, occupation and family status. "When all these movements are taken together, they have not dramatically changed the inequality of current income," he concludes. "But they surely have increased the inequality of 'permanent income,' a family's average income over its lifetime."
This is a notable piece of writing, for its good humor, intellectual keenness and above all for its willingness to let the chips fall. Economics generally suffers from its tendency to make things impenetrably complicated but without quite capturing life's actual complexity. Levy not only offers useful insights about dollars and dreams; he points the way to a much more satisfying and recognizable economics.
Robert Kuttner is economics correspondent of The New Republic. His latest book, "The Life of the Party: Democratic Prospects in 1988 and Beyond," will appear later this fall.