I cannot speak to the actual content of pedagogy in schools; my comments therefore focus on general perceptions and useful precepts. General perceptions appear to result in a handful of slogans and statistics, propagated largely in good faith on the basis of a few famous works and some oft-repeated measures. These perceptions show that economic inequality is rising, apparently as high as it was in the late 1920s, before the Great Crash and the Great Depression. A certain percentage of people (usually the top 1%) earns a certain percentage of all income and controls a certain percentage of all wealth; this is widely supposed to be a bad thing. Median wages fail to keep up with productivity and, therefore, it is inferred that living standards are stagnant.

In short, the general perception is that matters are dire and getting worse. Certain scholars—notably, Piketty (2014)—argue that it is in the nature of capitalism that economic inequality should always get worse. Except for the accident of world war in the twentieth century, Piketty argues, inequality would never have gotten better—as for a time it surely did—and a return to the standards of the nineteenth century, to the era of Jane Austen and Charles Dickens, is underway.

The truth known to careful scholars is more subtle. A proper respect for the topic requires, above all, careful attention to the quirks and the qualities of measures employed. Without that, practically everything we may be tempted to say runs the risk of being shown as wrong.

Income inequality in the United States rose from the mid-1970s through 2000. However, the major effect was in the initial shocks to the industrial structure, to wages, and to unions and family structure in the industrial recessions from the mid-1970s through the early 1980s. After the mid-1980s, the rise in income inequality—as measured in tax records and surveys—closely tracks capital-asset prices; it is a function of market valuations and the reporting of incomes derived from capital-asset markets. These include dividends, bonuses, stock-option realizations, and venture-capital payouts that are recorded for income tax purposes as salary rather than as capital gains. The rise in inequality reflects, in short, a reorganization of capital markets and capital ownership—away from manufacturing centered on large industrial corporations and toward smaller, much richer firms in finance and technology. Their capital ownership was concentrated in a few people whose high salaries, often drawn from venture capital, were shared among relatively few staff. Confirming this—after the information-technology and stock-market peak in 2000—is a saw-tooth pattern in US income-inequality measures, with secondary peaks in 2007 before the great financial crisis and following the recovery of the stock market in 2011.

This pattern has been obscured to casual observers of the published survey records largely because of a large increase in inequality that appeared around 1993. However, that increase is an artifact of two aspects of data collection: (1) improved tracking of the highest incomes, beginning around 1991; and (2) a change in the thresholds for “top coding” the highest income categories, somewhat later. For that reason, the higher measures that appear after the change cannot be compared directly with the previous measures; the increase is artificial and must be removed from the data to achieve a continuous series. Also, efforts to compare the United States with other countries must consider the fact that a country with better measures—the United States, in this case—tends to show more inequality, for a given “true” distribution. This has no bearing on whether that country is actually more unequal.

With respect to tax files—the other favored source of income records—a different distortion arises. In 1986, Congress enacted the Tax Reform Act (TRA86), which set out to oblige the highest earners to report income previously excluded and then taxed these larger sums at a much reduced top marginal rate. The result in the data is that they show a significant increase in the “top income share” at the time the TRA86 took effect as those larger Adjusted Gross Income measures first had to be reported. This increase, which often is misattributed to the policies of the Reagan administration, is also entirely artificial. Nothing happened in the economy in 1987 or 1988 that could possibly explain the largest two-year increase in measured income inequality on record.

Further, whereas gross and market income inequality measured in both surveys and tax data show an increase in the United States through 2000, it is not clear that US household income after tax—known as net or disposable income—has become more unequal since the early 1990s. Galbraith et al. (Reference Galbraith, Halbach, Malinowska, Shams, Zhang, Basu, Hon and Stiglitz2016) report the entire panoply of inequality measures that have been published for the United States and demonstrate that numerous surveys reveal essentially no change in the inequality of net or disposable income from around 1992 through the mid-2000s. The apparent reason is the effect of full employment in the late 1990s on household earnings, combined with a modest increase in the progressivity of the income tax, as well as an increasingly effective Earned Income Tax Credit and other measures that work to stabilize income at the bottom of the earnings scale.

Inequality measured by the share of top incomes as reported in the income-tax records (World Wealth and Income Database 2016) reached 1929 levels by around 2000, with later peaks in 2007 and following the stock-market recovery from the great financial crisis. But what does that mean? It cannot mean much and, specifically, it cannot mean that the social and economic inequalities of American society in 2000 or 2012—vast though they are—can be treated as similar to those of the Roaring Twenties. Coverage of the income tax was much less; the definition of income was different; and basics of the modern living standard such as Social Security, Medicare, Medicaid, Supplemental Nutrition Assistance Program, unemployment insurance, deposit insurance, and 30-year mortgages did not exist. Life expectancies for the working population were decades shorter than they currently are, in no small measure precisely because of Social Security, Medicare, and other forms of social insurance and income stabilization. To compare the present to the era before the New Deal on the basis of a single tax statistic is to airbrush away the entire social accomplishment of the twentieth century.

The social meaning of measured quantile shares of wealth also must be set in relevant context: a mixed capitalist economy. Of course, under capitalism, capital is controlled by capitalists; that is the nature of capitalism. The proportions held by top quantiles—the top 5%, 1%, one tenth of 1%, and so forth—are largely a measure of the concentration of financial capital in private hands. These proportions reflect industrial and intersectoral structure, the distribution of ownership of physical capital assets, and market valuations. They are heavily affected by fads and bubbles (i.e., booms and busts in the credit and capital markets), which bear directly on market valuations of the equity holdings of the very rich.

What about the pension rights of ordinary workers and middle-class professionals? What about Social Security and other public guarantees, such as Medicare and Medicaid? What about public assets such as parks, libraries, and roads? What about environmental and working conditions and elementary public services, such as water and sewer and education? These are nonvalued forms of wealth that are widely shared. Although their quantity and quality have come under stress in recent decades, they remain far more abundant than was the case a century or even three or four decades ago. If we add them into the measure of wealth attributed to households, we can change the proportions held by top quantiles by essentially arbitrary amounts.

Wages and productivity typically are compared as the changing ratio of a median wage to the average labor productivity. Again, this is a too-simple approach can run into trouble. What is a median wage? It is the wage or earnings of an employee in the 50th percentile. There is, of course, no such person—she is a shifting statistical abstraction, which has become dramatically more female, more minority, and younger over the decades as the labor force grew relative to the total population. All of these factors depress the median simply because new workers are cheaper at first, even though they are better off than they were before and even if no one among the older, whiter workforce is made worse off. In times of crisis and stagnation, notably after 2007, this condition does not hold: many people are worse off, and a sagging median may accurately reflect the underlying distress. Nevertheless, it is a slippery statistic.

For similar reasons, the increasing median wage reported for 2015 may prove to be less than meets the eye, for two reasons. First, improved survey methods once again have resulted in increased income reports since 2013—an artifact of progress in the statistical agencies rather than in the economy. Second, an increase in weekly earnings in the lower half of the distribution, which drives up the median, may be due mainly to increased hours worked (including overtime) rather than increases in hourly wage rates. An increase in hours worked for existing employees may be chosen by employers as an alternative to new hires. As such, it may signal an expectation that the demand supporting increased employment is temporary because the business-expansion period may be coming to an end.

The declining share of money wages—that is, cash payouts—in total compensation is another tale of woe. However, this is offset in part by a rising share of deferred compensation—including deductions for pension contributions and health insurance—an artifact of the shift from defined benefit to defined contributions in the pension world. The question that arises is: To what extent are deferred benefits realized in due course? Do pension contributions lead to pensions? Or are they a scam for fund managers? The answer is: Probably some of both, with the proportions undetermined until the time comes. Even more metaphysical questions can be posed: Is health insurance a benefit for the healthy? Or does it matter only when they get sick and therefore has no value for those who make it all the way to Medicare unscathed? Or is health insurance mainly a transfer to doctors, hospitals, and insurance companies? The answers to these questions are well over the pay grade of ordinary economists; to pose them is to appreciate the value of humility in analysis.

Finally, there is the deep and basic issue of living standards. Are they really stagnant, as many observers maintain? Certain goods and services (e.g., electronics, communications, and associated entertainment) have become unfathomably cheap. Smart phones convey services—such as weather radar; GPS; and instant and free written, spoken, and visual communications—to which previous generations had no access. Cars are safer, cleaner, and more efficient as a result of regulation. Homes are bigger as a result of low interest rates and cheaper construction methods. Almost without question, these goods and services have raised living standards in the past half-century or so.

Yet, other types of consumption—prestige goods, leisure time, skiing, and red meat, as well as drugs for the heavily prescribed elderly and infirm—have become very expensive. The two types of goods blend into the “living standard,” affecting different parts of the population according to their needs, their preferences, and their place in the life cycle. This is an index-number problem: it cannot be made to go away and the answer as to whether things are getting better or worse depends on who is asked and how the data are interpreted. What we can state, for sure, is that public services in this country do not keep up; the old question of “private affluence and public squalor” (Galbraith Reference Galbraith1958) has not been resolved. However, public services—vital though they are—do not count in economic measures of income, living standards, or inequality.

What should be taught? Inequality and power would be a good place to begin, with Adam Smith’s (1776) terse remark that “Wealth is power, as Mr. Hobbes says.” We have the Koch Brothers, the Murdochs, the corporate media, and the political world as brought to us by Citizens United; the business and foundation worlds of Gates, Buffett, Soros, and the rest; the banks dominated by JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo; and the investment banks ruled over by Morgan Stanley and Goldman Sachs. These are the great features of wealth and power in our time. Education should pose the question: Is this structure of income and wealth justified? Can it be justified? Is it consistent with democratic self-government and social justice? Students should know and think about these issues so that, perhaps someday—if they deem it necessary—they may work out how to abolish injustice, end the egregious maldistribution of extreme wealth and the concentration of political power, overthrow the oligarchs, and restore a semblance of democracy to our republic.

This is a lot to ask. Perhaps more realistically, public education should foster curiosity, appreciation for nuance, skepticism, and critical thinking. Perhaps even that is asking too much.