Afternoon Must-Read: Mark Thoma: Sharing the Gains from Economic Growth

Mark Thoma: Sharing the Gains from Economic Growth: “President Obama will make reducing inequality a major part of his State of the Union Address according to several reports.

But to avoid being accused of waging class warfare, he will talk about creating “ladders of opportunity” instead of focusing directly on the inequality problem.

This shift in emphasis is a mistake because it misses a key part of the inequality problem. It’s true that opportunity is unequal, and creating “ladders of opportunity” should be part of any attempt to address the inequality problem. But it’s also true that the distribution mechanism is broken, the gains from economic growth have not been widely shared, and a focus solely on opportunity does nothing to solve the problem of income being misdirected to the upper end of the income distribution.

Suppose, back before you were born, the Archangel Michael and offered you a deal: “There’s a 1% chance you will be in the top 1%, with about $1.5 million a year. There’s an 80% chance you will be in the bottom 80%, with less than $50,000 a year. How about we reduce your income if you happen to be in the top 1% by $75 thousand, and raise it if you happen to be in the bottom 80% by $900?”

The only argument against taking that deal is: “But I already chose the right parents! And I’m very likely to be in the top 1%!”

And I do not think that is a particularly good argument…