The inexorable rise of income inequality is also likely to encourage fraud, fostering resentment and undermining trust in capitalism’s institutions and rules. Economic research shows that participants in contests in which the winner takes all are much more likely to cheat. And the United States is becoming a winner-takes-all economy.Porter takes the results of a winner-take-all experiment, claims that the US is becoming a winner-take-all economy and then further extrapolates this into a warning against the dangers of income inequality. The problem with this claim is that its underlying premise -- that the US is becoming a winner-take-all economy -- is false. In fact, it's difficult to think of a single example within the economy where this is true.
- Median income in the bottom income quintile increased by 74 percent between the two generations.
- Thirty-six percent of those who start in the bottom experience absolute mobility gains but are still stuck in the bottom quintile as adults.
- 20 percent of Americans are “falling despite the rising tide”—they make more money than their parents did, but have actually fallen to a lower rung of the income ladder.
- Overall, 59 percent of sons earn more than their fathers did at the same age, and only in the top quintile do less than half of sons exceed their fathers’ earnings. Among sons raised in the bottom, 85 percent exceed their fathers’ earnings.
"From the time of Pericles until the end of the 18th century in London—2,300 years," notes Harvard Prof. Lawrence Summers, "standards of living on Earth increased perhaps 100%." In the U.S. since 1790, by contrast, real per capita gross domestic product has increased nearly 4,000%. Quality of life, in other words, increased 40 times more in 220 years of American history than it had globally over two millennia. In 2012, a typical American in the bottom fifth of the income distribution has a far higher quality of life—and life expectancy—than the average member of the top 1% in 1790.
Critics today often point to the 1950s as the last years before American society became so divided between haves and have-nots. At the end of that decade, America's "Gini coefficient"—the most common measure of income inequality, running from 0 (least unequal) to 1 (most unequal)—was 0.37. Today it is 0.45.
But in 1959, more than 20% of families fell below the poverty line. In 2010 that figure was just over 13%. Real per capita GDP today is 270% higher than it was in 1959. A family in the bottom fifth of the income distribution today makes the same amount in real terms as a family earning the median income in 1950. So inequality might have increased, but so too—dramatically—has quality of life.