The following graph means absolutely nothing; yet it means a lot:
The latest addition of “income inequality is bad” in economics comes from the Washington Post, which adds that the long term unemployed are basically getting screwed. There’s a couple of problems with this – no one has asked who and why? Who are the long term unemployed? And why is income inequality bad?
There is no doubt that income inequality is bad; on a lot of levels. But it’s not bad for economic reasons. As the graph shows, there is no relationship between the growth of the economy (GDP), Unemployment (U3) and consumption (CPI). In fact, let’s look at the formula for GDP again:
In other words, Government spending and investment can grow while consumption drops, and the economy will still grow overall. This is the whole Keynesian idea – increase government spending during down times to make the economy grow.
So income inequality doesn’t have to be bad for the economy. Sure, increasing income boosts aggregate demand, increasing CPI, and all that. But in the end, as the graph shows, there were plenty of periods of income inequality where the economy grew. So what’s the big deal?
Which leads to WHO are the long-term unemployed.
According to this 2013 study by the AARP (PDF), there’s evidence to suggest that the long term unemployed are largely people over 40. It’s not conclusive by any means, but it should give both sociologists and economists a moment of pause – and look into it further.
According to the AARP survey, 64% of respondents (n=1502) said that they have experienced age discrimination. And 92% said that age discrimination in the workplace is common. Age discrimination, according to the EEOC is basically defined as being treated differently when one is over 40.
So the “who,” is likely to be people over 40. Why is income inequality bad has more to do with sociology than economics. It sets up a group of people, who are discriminated against because of class and (job) status. It stigmatizes people for ascribed characteristics. In other words, it’s exactly the same as racism, except based on class and status.
That is why income inequality is bad. And that is why economists generally don’t answer that question.