US Inequality

ChatGPT a generative artificial intelligence model lists eight causes of increasing income inequality in the US (Wikipedia list twelve--see below). A GINI coefficient measures the level of income inequality as a percentage with 0=(complete equality) and 1=(complete inequality, one person owns all the wealth). Above 50% is considered high and the US (above 40% right before COVID-19) is considered a country in the middle range.

The history of income inequality after 1970 (in the graphic above) shows major deviations from the bootstrap 98% prediction intervals: (1) during the Ford and Carter administrations (low), (2) during the Bush I, Clinton and Bush II administrations (high) and (3) during the Trump I administration, low as a result of COVID-19. 

One commonly mentioned cause (regressive taxation) that I can test easily is displayed above. Effective taxation, over the period 1980-2024, is mostly steady with shocks during the Bush I, Trump (result of COVID-19) and Biden administrations.

What will happen in the future under the Trump II administration is speculative. Results from my four models (see below) are displayed above: (1) The RW and BAU models predict continuing high inequality and (2) the US and World System models show peaking and declining inequality, the greatest decline being as a result of World System forces. Clearly, the RW and BAU models would be favored by Trump and any future Republican administrations. As a practical matter, World System linkage would be similar to policies favored by the Obama Administration even though the effects were cyclical.

My tentative conclusion is that Income Inequality would stay high until the end of the Trump II administration and certainly not go down. After that, we would need policies driven by something other than Neoliberalism.

Causes of Income Inequality

Typical causes include: (1) Globalization, (2) Technological Change, (3) Decline in Unions, (4) Stagnant Wages, (5) Executive Compensation, (6) Education, (7) Skills mismatch, (8) Regressive Tax Policy, (9) Erosion of Social Safety Nets, (10) Inheritance, (11) Real Estate and Investment gains, (12) Racial and Gender Inequality, (13) The history of Segregation, (14) Rising Healthcare Costs, (15) Affordable Housing Shortage, (16) Lobbying by the wealthy and powerful, (17) Campaign Finance, and (18) Neoliberalism.

I have tested four models using the AIC: (1) A Random Walk (RW) Model, (2) A Business As Usual Model (BAU), (3) a US Economy Model and (4) a World System model. In the short run (year to year), the RW model is best. As an attractor path, the BAU model (no input variables) is best. From the discussion above, my conclusion is that, in addition to historical determinants, generating inequality is simply an output of the US Capitalist System.