Those who think that inequality is the most important problem should be cheering this news.
The share of income received by the top 1 percent — that potent symbol of inequality — dropped to 17 percent in 2009 from 23 percent in 2007, according to federal tax data.
[I]ncome inequality tends to widen in times of prosperity, and narrow in times of recession. Thus, short-term drops in the income share of the top 5 percent occurred in the recession years of 1949, 1957-58, 1973-74, 1980-81, and 1990.
Upon reflection, this should not be surprising. In times of prosperity, more people are earning more money, and it takes a higher income to qualify for the top 1 percent, 5 percent, or any other statistical yardstick. Nearer the bottom of the income spectrum, incomes tend to be more fixed. So it should be expected that in boom periods, income inequality may increase somewhat, while in times of recession, income inequality will tend to narrow. And, in fact, the table above shows that this is exactly what has happened throughout the post-war era. “Increasing income inequality” is a statistical construct that, in practice, is likely to be synonymous with prosperity.
The crux in our economic debate is between those who think the gap is more important than the absolute benefit. They believe it is more important for the rich to earn less than for the poor to earn more. Everyone benefits from a vibrant growing economy even if some benefit more. With the notable decline in the number of millionaires, are the poor any better off because of it?