Crunch

The Income Gap Widens

The greatest challenge the U.S. faces today is finding a way to organize the economy so that it provides the goods and services that people both want and need. That noble goal is also political, since governments determine the distribution of wealth, power, opportunity, social mobility and health care coverage, as well as rectifying environmental problems. Analysts use three principles to understand how governments allocate power and resources:

1. While market forces generally determine resource allocations based on merit, people with political power can shape these allocations.
2. Economic relationships often take unexpected turns and may not be logical.
3. Economics often requires trade-offs among scarce resources. Policy makers all have their own interests, and their decisions are rarely unbiased.

Even when households include two wage-earners, many cannot save enough money for their health care premiums or their children’s college tuitions. One reason is that inflation-adjusted incomes have declined in recent years. Financial pundits who talk about gains in the overall economy often ignore...