This abstraction is actually more valuable than that abstraction

People talk energetically, emotionally and sincerely about things which they really don't understand. Inequality being one of those issues. Washington Monthly has a very good article, Wealth and Generations by Phillip Longman, which addresses one of the fundamental misconceptions in inequality discussions, the difference between individuals and abstract categories. Thomas Sowell has been banging this drum for years.

The fact that the top 20% earn X times more than the bottom 20% compared to a decade or two ago is purely an abstraction. It misses the central fact that those in the bottom 20% a decade ago are, generally, no longer in the bottom 20% today. Focusing on the abstract categories fails to capture what is happening to real people as they move across a career/life.

Longman goes some ways toward addressing this. He is still working in abstractions, but a much more meaningful one, generational cohorts rather than income quintiles.

We miss that those Americans who were middle-aged in 1979 have, as a whole, seen their standard of living rise sharply compared both to their own previous experience and to that of their counterparts in the previous generation. So, for example, when people who were forty something in the late 1970s became fiftysomething in the late 1980s, their income and net wealth were not only higher than they had been ten years before, they were also far better off than fiftysomethings had been in the 1970s. And as retired seventysomethings today, not only have most seen their personal income net worth hold even or even continue to rise, they are also way better off financially than were seventysomethings in the 1990s. For this birth cohort of Americans, dramatic upward mobility, not stagnation, has been the norm.

When focusing on and discussing generational cohorts, you begin to pick up on some the major issues such as path dependencies, productivity and savings behaviors.

For example, those coming onto the labor market in their early twenties at the height of the great recession will see dramatic reductions in their initial income owing to low employment rates and low wages (driven by the recession). Theoretically, these would bounce back after the recession ended but much research shows that is not the case. All those in that cohort entering during the recession will see a life time reduction in their income generation and wealth accumulation. That is a path dependent event.

What all this analysis does, from my perspective, is highlight the overwhelming criticality of focusing on productivity and savings. All the other issues flow as a consequence of low or declining productivity and low and declining savings.

You can see why people don't want to deal with these more nuanced issues as they tend to highlight the ineffectiveness of social tropes and government policies. In this article, while not dealt with directly, the following factors are mentioned or alluded to in terms of their impact on productivity and wealth accumulation.

Changes in marriage rates, ages and stability

Changes in natality rates and ages

Changes in work practices (part time work, contract work, contingent work, etc.)

Changes in family structure (size, sequencing, earner status, etc.)

Changes in relative market valuations of skills and abilities

Changes in technology infrastructure

Changes in regulations

Changes in relative market valuations of non-cognitive skills

Changes in contextual environment

Changes in individual productivity

Changes in education/skill acquisition

Changes in consumption preferences

Changes in demographic structures

Changes in mortality and morbidity profiles

Longman does a good job of shedding light on the topic of income inequality in a way that is critical and little acknowledged.

His diagnosis is very valuable but I think his recommended prescriptive treatment is badly lacking. None-the-less, he offers a much better diagnostic discussion than virtually everyone else spilling ink on income inequality.