Economics, U.S. Economy

5 reasons why income inequality is a myth—and Occupy Wall Street is wrong

Sorry, the story just doesn’t hold together. According to left-wing think tanks, columnist and bloggers—and, of course, the Occupy Wall Street radicals—the top 1 percent have been exploiting the 99 percent for decades. The rich have been getting richer at the expense of the middle class and poor.

Really? Just think for a second: If inequality had really exploded during the past 30 to 40 years, why did American politics simultaneously move rightward toward a greater embrace of free-market capitalism? Shouldn’t just the opposite have happened as beleaguered workers united and demanded a vastly expanded social safety net and sharply higher taxes on the rich? What happened to presidents Mondale, Dukakis, Gore, and Kerry? Even Barack Obama ran for president as a market friendly, third-way technocrat.

Nope, the story doesn’t hold together because the financial facts don’t support it. And here’s why:

1. In a 2009 paper, Northwestern University economist Robert Gordon found the supposed sharp rise in American inequality to be “exaggerated both in magnitude and timing.” Here is the conundrum: Family income is supposed to rise right along with productivity. But median real household income—as reported by the Census Bureau—grew just 0.49 percent per year between 1979 and 2007 even as worker productivity grew four times faster at 1.95 percent per year. The wide gap between the two measures, if accurate, would suggest wealthy households rather than middle-class families grabbed most of the income gains from faster productivity.

But Gordon explained that this “compares apples with oranges, and then oranges with bananas.” When various statistical quirks are harmonized between the two economic measures, Gordon found middle-class income growth to be much faster and the “conceptually consistent gap between income and productivity growth is only 0.16 percent per year.” That’s barely one‐tenth of the original gap of 1.46 percent. In other words, income gains were shared fairly equally.

2. A pair of studies from 2007 and 2008 conducted by the Federal Reserve Bank of Minneapolis supports Gordon. Researchers examined why the Census Bureau reported median household income stagnated from 1976 to 2006, growing by only 18 percent. In contrast, data from the Bureau of Economic Analysis showed income per person was up 80 percent. Like Gordon, they found apples-to-oranges issues such as different ways of measuring prices and household size. But in the end, they concluded that “after adjusting the Census data for these three issues, inflation-adjusted median household income for most household types is seen to have increased by 44 percent to 62 percent from 1976 to 2006.” In addition, research shows that median hourly wages (including fringe benefits) rose by 28 percent from 1975 to 2005.

3. A 2008 paper by Christian Broda and John Romalis from the University of Chicago documents how traditional measures of inequality ignore how inflation affects the rich and poor differently: “Inflation of the richest 10 percent of American households has been 6 percentage points higher than that of the poorest 10 percent over the period 1994–2005. This means that real inequality in America, if you measure it correctly, has been roughly unchanged.” And why is that? China and Wal-Mart. Lower-income families spend a larger share of income than wealthier families on goods whose prices are more directly affected by trade. Higher income folks, by contrast, spend more on services which are less subject to foreign competition.

4. A 2010 study by the University of Chicago’s Bruce Meyer and Notre Dame’s James Sullivan notes that official income inequality statistics indicate a sharp rise in inequality over the past four decades: “The ratio of the 90th to the 10th percentile of income, for example, grew by 23 percent between 1970 and 2008.” But Meyer and Sullivan point out that income statistics miss a lot, such as the value of government programs and the impact of taxes. The latter, especially, is a biggie. The researchers find that “accounting for taxes considerably reduces the rise in income inequality” over the past 45 years. In addition, “consumption inequality is less pronounced than income inequality.”

5. Set all the numbers aside for a moment. If you’ve lived through the past four decades, does it really seem like America is no better off today? It doesn’t to Jason Furman, the deputy director of Obama’s National Economic Council. Here is Furman back in 2006: “Remember when even upper-middle class families worried about staying on a long distance call for too long? When flying was an expensive luxury? When only a minority of the population had central air conditioning, dishwashers, and color televisions? When no one had DVD players, iPods, or digital cameras? And when most Americans owned a car that broke down frequently, guzzled fuel, spewed foul smelling pollution, and didn’t have any of the now virtually standard items like air conditioning or tape/CD players?”

No doubt the past few years have been terrible. But the past few decades have been pretty good—for everybody.

172 thoughts on “5 reasons why income inequality is a myth—and Occupy Wall Street is wrong

  1. Inequality is about to become a relic of the past. As anyone who has read Obama’s jobs bill knows, it mandates that everyone, male and female, will be exactly 6 feet tall. Everyone will weigh 180 pounds. They will all have a BA in Lesbian and Transgender literature. Everyone will have 2.3 children, a dog and two cats. All houses will be 3 bedroom, 2 baths, 2400 sq ft. The high temperature every day will be 74, and the low will be 64, everywhere year around. And eveyone will be 36 years old, now and forever….

    • Sarcasm Translation: You’re saying that some people are taller by nature, and it’s ridiculous to try to address height inequality with legislation. And by analogy, some people are wealthier than others by nature, and it’s ridiculous to try to address wealth inequality with legislation.

      Sorry, false analogy. In fact, the nations that had that sort of inflexible, plutocratic elitist attitude were the ones that fell to either Communism of Fascism in the early 20th Century; and it was Roosevelt, with his policies of nominal wealth redistribution that SAVED us from that.

  2. One thing some people can never wrap their heads around is that the baseline for poverty hasn’t changed in 100,000 years but the definition of wealth has been a moving target ever since humans first made the distinction.

    A naked guy on the savannah without even a good throwing rock at hand is as poor as it gets. What was once the condition of all is now fairly rare but it remains the bottom of how bad off you can be without some severe disability. Under the most natural conditions the less than able bodied aren’t poorer. They’re dead.

    Wealth has been spiraling upward in its potential for all of recorded history and beyond. At first it was primarily skills for interacting with the environment. What was good to eat. What kind of rocks lent themselves to being tools. And so on.

    I am by the definition of the US government below the poverty line. Yet I enjoy a far better life in most ways than the wealthiest humans of just a few centuries ago. Or even a mere century. My life is of a day to day quality that nobody could buy in 1911.

    The improvements just keep coming. If you look at poor and wealthy as terminal points on a line, the end representing poor is nailed down, while the end representing wealth keeps moving off into the distance and pulling more and more of us along with it.

  3. Not mentioned in most “income inequality” arguments is the fact that the census definition of a “household” has remained unchanged, while the adult composition of the “household” has decreased, as more and more women opt for “single mom” status.

    You think maybe having only one wage earner in a household brings down the household’s income and total wealth?

    Ya think? YA THINK?

  4. If person A makes enough money, through their hard work and thrift, to provide for himself and his family; if he has food, clothing, shelter, entertainment, and savings; does it really matter that somewhere else in the country there is a person B who has more of these things?

    If person C has only food, clothing, and shelter, but not entertainment or savings, should he then be able to hire person D to take things from person B? Is it morally right? Does it become more morally right if instead of hiring person D, he just elects him?

    • What if a substantial portion of Persons A and B’s wealth was acquired not through hard work and thrift, but through inheritance and favorable government regulations (or de-regulations), put into place by politicians whose campaigns (and jobs, after leaving government) are paid for by Person A and B’s wealthy families?

      What you have then is a plutocracy. If Person C perceives plutocracy as unfair and not in *his* family’s best interest, would it not be quite reasonable for him to vote for Person D, who promises to, for instance, keep the inheritance tax in place?

  5. It’s not about money. It’s about how many goods and services are available to buy with the money. Money has no intrinsic value. It is merely a medium of exchange.

    And, there isn’t a linear relationship. The goods and services the wealthy tend to want to buy do not necessarily, or even generally, increase at the same rate as the goods and services less well off folk want to buy.

    So, it is possible for wealthy people’s income expressed as a dollar amount to increase significantly, yet leave them little better off, because there’s still only just so much of the stuff they want to buy available, while less well-to-do people’s income can rise only incrementally, yet leave them much better off.

    This is the dynamic point #3 describes. It is a subtle point, but very dramatically real. All of these points are extremely valid. If you’ve actually lived longer than 20 years in this country, you cannot help but have witnessed how much better off the average Joe is today than he was a few decades ago. Young people are easy prey for the merchants of discontent.

    There is only one area in which I would say average folks are worse off today, and that is from the availability of easy credit. It is far easier to get yourself into a debt hole today than it was in my youth. And, debt accumulation opens up the express lane to the poorhouse. Tame your appetites and live within your means is my advice to young ones today. You really don’t just have to have the flashy car or latest electronic gadget this very instant. The longer you put it off, and the more you put away today, the more of that stuff you can indulge in later.

  6. What a great introduction, totally ignoring the fact that the economy is not the ONLY ISSUE that’s faced this country in the past FORTY YEARS. I can tell you very easily what happened to President Gore: due to a quirk in our electoral process, more Americans voted for him than for any other candidate in 2000, and he did not win. What a glowing endorsement from the American people for your theory.

    1. This does not address the argument that the rich have gotter richer at a faster rate than the middle class. You try to imply that it does: “Gordon found middle-class income growth to be much faster” — faster than what? There’s no comparison. You had, however, just conveniently mentioned the claim that the wealthy were taking a disproportionate percentage of income gains. Following this by saying that middle class growth is “faster,” a statement which actually relates to a different topic altogether (income vs productivity), implies that middle class growth has surpassed that of the wealthy. This is obviously deceitful.

    2. “…for most household income types…”? Most? Who aren’t we including here? If the poor are not included in this “most,” or if the wealthy ARE included, this isn’t a valid argument.

    Ahh, what happened to the good old days when you could use quotations out of context to support an otherwise unsubstantiated point, says I. Oh, right. They taught us not to do that in English class freshman year of high school, because it’s basically lying.

    Ahh, don’t you love these good old days when anybody can say anything they want and find a sympathetic audience online?

    Am I making a big deal about this? Sure. Because if you want to present an argument related to a subject that affects the lives of millions of people, you better damn well know how to back it up correctly.

    3. “I’m telling you, these weekly massages are really setting me back. Haven’t they figured out a way to use underage Asian children for our butlers and built caviar-producing sweatshops?

    4. Well, since half of all Americans are so poor that they pay no taxes at all, I would HOPE that income inequality is lessened by taxes.

    5. I CANNOT BELIEVE this is still an argument. IF AN ITEM THAT USED TO BE NOVEL HAS BECOME COMMON, OWNING THAT ITEM DOES NOT HAVE THE SAME MEANING IT DID WHEN IT WAS A RARE COMMODITY.

    I could go on proving scientifically and psychologically why these kinds of generalizations aren’t accurate (for one, if you don’t have any personal relationship with someone who lacks things like iPods or DVD players, it’s much harder to grasp that fact that not everyone has them), but if I keep going I’ll get too worked up to go to sleep. I’ll let someone else handle this.

    “You food-chilling motherf—–s…. I’m sure [the] 1% of people who don’t have refrigerators don’t have them not because they don’t have food, but because they’re always ordering room service.” -John Stewart, on refrigerator-owning poor.

    • “IF AN ITEM THAT USED TO BE NOVEL HAS BECOME COMMON, OWNING THAT ITEM DOES NOT HAVE THE SAME MEANING IT DID WHEN IT WAS A RARE COMMODITY.”

      So, equality isn’t such a great thing after all? You want everyone “equal”, but to be able to afford things others cannot. Anyone want a pretzel?

      • *Whoosh*… that was the point of his arguement flying over your head.

        Where did he say that he say that he wants everyone to be equal? Where did he say that he begrudges the wealthy owning rare commodities?

          • Not sure if you’re saying “I” want to be able to afford things others cannot or I want “everyone” to be able to afford things cannot. To be clear I hold neither of those views. Nor do I want or expect everyone to be “equal.”

            What I was trying to get across in all caps is that just because a person owns all or some of the items listed in the article as once-rare luxuries doesn’t necessarily mean that person is financially well off. There are other factors that motivate the purchase of electronics, like the fact that so much of our culture is delivered and consumed using them. But it’s also misleading to say, “Remember when a minority of Americans had air conditioning?” Not only does having AC indicate very little about your wealth, but there is a significant number of people who still cannot afford it. That’s another reason generalizing about how well off people are today is dangerous: it ignores a big section of the population who AREN’T better off.

  7. Fred B:

    What is there to explore about income inequality? Even if it is growing, what do you propose to do about it? Tax the bejeezus out of the rich until they quit making so much money? The thing is, it’s not a matter of “fairness” unless you think the rich are actually stealing money from the poor. And it’s certainly not true in the vast amount of cases. There’s no finite amount of money such that a rise in my income means a decrease in yours.

    And people get paid according to what the market dictates–for the most part. Why does your wife get paid so little? Because it’s a distorted market created by that same concern for income equality! The unions care about making all teachers paid about the same, and increases coming solely through seniority. Nobody gets fired for bad performance, nobody gets raises for a great job. Your wife may be a great teacher, but she’ll never get a performance-based bump or bonus–aren’t you happy about the income equality?!

    • When talking about “fairness,” I think it’s only reasonable to bring up the fact that it’s exponentially easier to make money when you already have money. A millionaire could easily invest $20,000 dollars of his yearly income, whereas a family of four making $20,000 a year could never do that. If you could hypothetically take away half of everything the top 1% owned through taxes (to be clear, I’m NOT advocating this actually happen), it wouldn’t be impossible for them to continue making a comfortable sum of money.

      If a person making minimum wage went more than $4 billion into combined personal and business debt, it would be laughable to assume they could get out of it. Donald Trump had that much debt in the late 80s and early 90s, and look where he is today.

    • There are a million proposals about what to do about it. Do a little Googling. the reasons for much of the inequality is systemic and can be changed by changing the system. First is to reduce the $$ in politics so our elected officials start working for us instead of their donors.

  8. Another factor might be the age demographics of the population. If everyone was identical in income at each age, but earned comparatively little in their late teens, rising gradually until their peak earning years in their 40s and early 50s, then declined thereafter, a snapshot at any one time would show inequality just based on people being of different ages. Now, if a population’s age distribution changed over time, for example as the baby boom aged, you would see changes in those snapshots over time, with apparently greatest inequality when that population bulge was in its peak earning years–in this case, roughly 1990-20 when the boomers are in their 40s and 50s.

    Just another factor for which one should normalize, in addition to household size, labor force participation, non-cash compensation, and taxes.

    “Class envy” sound bites are easy, actual analysis is a bit more difficult.

  9. The Left always cherry picks. They leave off government benefits (what is the cash value of Medicaid?) and total compensation when talking about income and they always fail to adjust for average household size.

    Some of the same problems occur in figuring household wealth. They leave out personal property including cars when figuring wealth (though when you’re talking 300 million people – the 99% it’s a lot). They also leave off the present value of private and public pensions and retiree health benefits. Considering that many households can easily collect more than $1meg of such in retirement (and bankrupt the Feds), they ought to be worth something. Doesn’t an entitlement imply title. Or is the Left saying that SS and Medicare are going away. All those $trillions in future federal deficits “belong” to the 99%. That’s a lot of wealth.

    • Household size has been cut nearly in half since 1900 (www.census.gov/statab/hist/HS-12.pdf). So the income inequality numbers need to be doubled then?

    • First of all, social security and medicare are not entitlements. If you work, you pay for them. I’ve been paying social security taxes for over 30 years. And when I retire in about 20 years and I start collecting social security and taking advantage of medicare, I will not consider it an entitlement since I paid for it for the better part of 50 years. And those “entitlements” don’t just belong to the 99%, they belong to everyone.

      Also, private pensions don’t just go to the “99%”. A CEO of a company that still pays a private pension also gets it, along with his/her “retirement package” that no doubt pays them out millions of dollars between stock options and cash, not to mention their medical benefits.

      Counting cars as personal wealth? How do you count something that is worth 1/2 of what you paid for it 2 years after you purchased it as wealth? Now if you’re a car collector, that’s a different story. But counting a 2004 Chevy Malibu with 100,000+ miles that you need to get back and forth to work every day as “wealth” is a stretch.

      And what is the actual figure of those “many households” collecting more than $1 million a year in retiree benefits? I am assuming that’s what you meant by “$ 1meg”. If you actually meant a $1000, then I am guessing that’s per month and that’s not a lot of money by any stretch. You try living on $1000 a month anywhere in this country. Good luck to you if you do.

  10. I read a great article recently, I believe it was Thomas Sowell, about movement within the income quintiles. Unfortunately, I can’t find it (if someone has it bookmarked or saved, I would be grateful). People complain about the income inequality but never do an examination of who the rich are now and who they were before. He took the census of 1990 and 2000 and found that less than half of those in the top quintile in 1990 were in the top quintile in 2000. There was similar upward movement from the bottom quintile. While the movement out of the bottom is to be expected as it contains a lot of younger people in their first jobs, who have had significant advancement by 10 years later, the movement out of the top was most surprising. Yes, the rich are richer now than they were 10 years ago, but only if you say that the 10th richest guy today is richer than the 10th richest guy 10 years ago – but its not necessarily the same guy!

    • Dear TomB,

      Not sure the exact article to which you make reference, but the general outline of the argument is found in one of the early chapters of his Economic Facts and Fallacies. You are right, though, that he points out the main failure of those who talk about income inequality: that economic cohorts are dynamic. I am surprised that those on the left have not embraced this, given that it might be used to argue for the legitimacy of a progressive income tax.

    • Sowell’s article can be found here:

      http://www.creators.com/opinion/thomas-sowell/income-confusion.html

      Sowell’s article shows a level of intellectual dishonesty that I’ve rarely seen. He calls out that there’s a lot of drift in income, but there is always drift in anything that is not perfectly correlated over time. Think about your high school graduating class. They all started at $0 income on graduation day. Some took part-time jobs and started college, others took full-time jobs, and some traveled for a year or whatever. 10 years later the ones who went to college and who likely earned less while in college are now earning more, but that says nothing about whether income disparity is growing or shrinking. Sowell is playing a trick — he’s saying that drift matters, and it does for some reasons, but not for any reason relevant to the issue of income disparity. If drift truly matters then you have to talk about why drift is lower in “socialist” countries with stronger social safety nets, and why drift is particularly high in the elderly wealthy in this country as they shift around assets to avoid estate taxes.

      Then there is this article, published 3 years ago, that thoroughly undermines Sowell’s assertion that the “wild cards” matter and that the IRS data would show anything different:

      http://www.irp.wisc.edu/publications/focus/pdfs/foc261e.pdf

      Basically, Sowell says “oh, people are lying with statistics, you have to think about drift, longitudinal data, the IRS has the answers” and then when you look at the research on the IRS data you find the same stark evidence for growing income disparity.

      Now, when you go back and look at Sowell’s article, read it carefully and see that he really doesn’t say that the IRS longitudinal data show anything different than the cross-sectional data — he just alludes to the possibility that it might show something different, and then didn’t provide a link to the study so you could decide for yourself.

      • OOPS! My bad, Sowell’s column (the one I linked to) was first published in 2007, but I do see that he’s continued to assert that the way you look at the data matters:

        http://perceptionasreality.blogspot.com/2011/07/thomas-sowell-intelligentsias-income.html

        Apparently he published a book in 2010, continuing to make this assertion:

        “According to the Treasury Department: “Among those with the very highest incomes in 1996 — the top 1/100 of 1 percent — only 25 percent remained in this group in 2005.” If these were genuinely super-rich people, it is hard to explain why three-quarters of them are no longer in that category a decade later.”

        However, anyone who knows basic statistics knows that regression to the mean explains a lot about how extreme outliers become less extreme over time. In other words, Sowell asserts that a persistent statistical artifact is evidence that income disparity is shrinking.

        He’s a clown.

  11. I’m late to this debate, and while I think there is nuance to statistics, for the sake of argument I’ll grant that income inequality is not a myth and further that it is at it’s highest level ever.

    My question are: So what? How does one person’s income vis a vis another’s matter, how is it harmful? To whom? In what specific way?

    • In this specific way: in a capitalist society (i.e., essentially the entire world today), money is power. If the gap between rich and poor gets wider, then the power differential gets wider as well. It becomes easier for the rich to influence public policy for their own gain, and this accumulation of power crowds out the ability of the poor to get their concerns addressed.

      • JohnS -

        Ok, so for example, the poor couldn’t get an expanded healthcare entitlement or extensions to unemployment benefits because the rich would deny it. Something like that?

        I just don’t buy the argument in a fluid free market economy.

        It’s not zero sum.

  12. I just think it’s crucial to acknowledge the dissolution of the American family, largely at the behest of liberal social crusaders, over the past 4 decades. James Q Wilson and others have shown that just about all someone has to do to stay out of poverty is to finish high school, marry before you have kids, and stay married instead of divorcing. One reason household incomes haven’t grown much is that households themselves have shrunk substantially. So, a leftist tells a young woman that single motherhood is as good as having children while married and strives tirelessly to make divorce as easy as possible, and then that same leftist complains that the single mom household isn’t as well off as the old days. What a mess.

    • What?

      Leftists tell women that single motherhood is as good as having children while married? Maybe just the fringe, but I guess that’s all you hear listening to Fox.

      BTW, divorce rates are lower in New England. You know, deep blue New England. Divorce rates are highest in the South, traditionally red states:

      The findings, based on data collected by the American Community Survey in 2009 and published in a new report titled Marital Events of Americans: 2009, indicate that men and women in the southern United States have the highest divorce rates in the country, while those in the Northeast have the lowest (2009 is the most recent year for which Census data on this topic is available).

      Regardless, we could go back and forth, but your analysis is overly simplistic, leading me to believe you’re stuck in your own microcosm.

      • The discrepancy you note is easily explained by the hypocrisy of the left. Those who have most strenuously worked to break down social norms and mores in order to make alternative family structures more acceptable are also the least likely to actually deny their own children the benefits of a traditional family structure. It’s much the same way that those who call most loudly for massive CO2 reductions to combat global warming tend to have the largest CO2 footprints.

      • BS Detector, you must have left your detector off today.

        Go back and read the Marital Events of Americans report (not just the headlines about it). You will find that they counted all citizens in the divorce rate, not just the married ones.

        It turns out that by that measure, “divorce rates” are highest in the South because the marriage rates are highest there. So, if every couple who is living together in a hypothetical New England town were unmarried, the divorce rate for that town would be zero! “Deep blue New England” has more single moms, babydaddies, and couples shacking up, and therefore their divorce rates are lower.

        Unfortunately the Marital Events report did not publicize the statistic that would be useful, which is the percentage of married people who get divorced.

        • Except for Virginia and West Wirginia, every state in the south and southwest has a higher percent of children living in single parent homes than the national average, led by Mississippi at around 45%.

    • Yep, you conservatives always get your panties in a bunch because you can’t control women and children like you used to. If only women were still chattel, things would be so much better. Just like they were in the middle ages.

  13. Let’s see – the lowest income is zero, the highest income … well it is kind of ever expanding. Therefore income equality should always grow, and that is a good thing.

    • I think you are confusing income with economy. If income is ever expanding, then what we’ll have is runaway inflation, and that is NOT a good thing.

  14. “Just think for a second: If inequality had really exploded during the past 30 to 40 years, why did American politics simultaneously move rightward toward a greater embrace of free-market capitalism? Shouldn’t just the opposite have happened as beleaguered workers united and demanded a vastly expanded social safety net and sharply higher taxes on the rich?”

    No, just one economic bubble after another. I’m telling you, we are about bubbled out, yet we still face economic bubbles in Education and “green” energy. We are well and truly f*ed.

    • because the folks that benefits from that had the money to spend to get others to believe just that message. If you repeat something often enough, it becomes true. It’s called the self-fulfilling prophecy.

    • Denver, correlation does not equal causation. Perhaps the rightward trend caused the inequality. Think about it. For maybe longer than a second.

      And the bubbles will be in the financial sector, watch for it.

  15. For the last 20 years people have bought their cars, computers, and ipods first with credit cards then with home equity loans. The growth in income among the middle class and poor was a debt fueled scam while the millionaire’s became billionaire’s. Now that the middle class can’t barrow any more. They have to live on the same income they were making 20 years ago. The country got richer in the last 20 years but the vast majority of people living in it didn’t. That’s what happens to people who work hard and follow the rules in 21st century America.

  16. It’s not that these people make this much and these people make this much more.

    It’s how companies pay the CEOs 350x the average worker, when the average worker in up to his neck in debt just trying to make ends meet.

    It’s about how the top earners have far greater political power in a country where all men were supposes to be equal in the eyes of the government.

    It’s about people who are losing there houses, unable to find a job that pays enough to even make rent, having to work until they die!

    I’m sick of this attitude that the rich made this country, the rich aren’t the production force, they aren’t the ones pushing this country forward, they only exploit anything they can.

    • “It’s about people who are losing there houses, unable to find a job that pays enough to even make rent, having to work until they die!”

      And, your solution presumably is: more of the same policies which led us to this pass?

    • 1> Did the CEO hold a gun to the head of that average worker, forcing him to go into debt to buy a big-screen, iThingy, and McMansion? Where is the responsibility of the “average worker” in all this? And I ask this from the perspective of someone who had to take a big check to closing when he sold his house, and dig himself out of credit-card debt time and time again … I know how I got here, and while business may have sweet-talked me into it, no compulsion was involved.

      2> Could it be that the reason top earners can buy political influence, is because we have expanded government and in the process created more influence for those in charge to peddle … with our leaders thinking they can collude with the buyers to help advance their Utopian ideals … “using” them to advance their political standing?

      3> The vast majority of the rich ARE the facilitators of production, both through direct operation of firms and through investment. I work for one of those rich guys … he built a very productive company that employs over 250 people, and he shares a good chunk of the profits with us at years’ end in addition to paying us competitively.

      Punish him, and you punish us.

      • 1. No, but the CEO did approve the multi-million dollar seductive ad campaign meant to stoke the right centers of the brain to maximize the probability of average worker incurring debt to buy that little iThingy.

        Look at the work of Dan Ariely in decision making. He asked regular 21-25 year old dudes a questions like “are you sexually attracted to 14 year old girls?” of course the dudes said “no way.” Then he had the same dudes look at porn, touch themselves and when they were good and aroused ask them the same questions. Guess what? They gave a different answer.

        We use the same principles to entice people into buying, and we are very good at it. In the end we are responsible for our actions, but overcoming a physilogical response encased within a well designed psychological presentation is very tough to do. What I did was got rid of my TV and stopped listening to radio, and redirected my computer’s host file to 127.0.0.1.

        2. the top earners can buy influence because the courts have made decisions allowing just that to happen. It’s not that government has increased, it is that we have removed the barriers between government and lobbyists. Actually the truth is a little bit of both.

        3. many “facilitators of wealth” do not share chunks of the profits back with the workers. It sounds like the company you work for is one you should (rightfully) be proud of. Many organizations do not do that, or give bonuses to the folks at the top.

      • 1. I acknowledge that many home buyers were greedy. They are scum who deserve to lose their homes, their jobs and any government assistance. There you go. Happy now?

        2. “We” didn’t expand government influence, the top earners did. They bought our government.

        3. My bet is that your honorable employer is not in the 1% and certainly not in the .1%. We aren’t talking about guys like that.

  17. I submit that income disparity is also related to how deeply people have bought into what I refer to as the Biggest Lie of All:

    All you need to do is show up for work or go to school; we have experts who have the answers to your housing needs, your health care needs, your financial needs … no need to plan for your future or actively manage your career, since we can do a better job than you can; just trust us to solve those problems FOR you.

    This is the message our “public servants” and their Ruling Class allies have been sending for decades … that you CAN’T get ahead without their “help”, so why bother?

    Those who bought into the Lie, and placed their trust in government leaders … or union leadership … or even their employer … to secure their economic future FOR them as they sought to stay in the same job with regular and automatic raises for a lifetime, or make a career out of their degree in Underwater Basketweaving because they find it “fulfilling”, now are feeling the consequences of believing that Lie and allowing themselves to be held back.

    Those who didn’t buy into it so much, exercised personal initiative to take charge of their future and did the hard things to better their lot, are now reaping the benefits of higher incomes.

    The conflict today, is between those who have bought into the Biggest Lie of All … and those who have seen it for the Lie it is.

    However, the former are in denial … looking for someone to blame, anyone BUT their Ruling Class overlords allies, whose advocacy for the expansion of government to “help” EVERYONE has, among other things, expanded the opportunities for the collusion of government and business that has corrupted otherwise-robust economic and political systems.

    What the OWS types do not understand, is that their proposals will create more of the very “greed” they are protesting against, via that collusion … and in forms that are much harder for a 99-percenter to overcome. They are on the road to serfdom.

  18. That first paragraph is some asinine reasoning. Tell me why my mother, a 60 year old working two jobs and making a total of $20K votes republican every election? Because they tell a better story and get these middle class people to believe that they are not being taken advantage of. She needs to be scared of gays and mexicans and communists. They are going to take her job and then she won’t even have the 20K! The people who put these horrible republicans in office for the past 30 years have done so against their own good. And the statistics back it up. You start with faulty logic and shape your statistics to match. Tell me how much wealth the top 1% of the country has now compared to 30 decades ago, as a percentage. And then tell me that inequality isn’t growing. It always amazes me how people such as yourself can actually believe that you are rational. I can’t imagine how your mind works.

    • How much of that wealth wouldn’t exist at all … let alone be creating jobs, as well as innovations with value that stretches our purchasing power … were it not for the initiative of that top 1% … and others down the ladder, who have taken the initiative to do something more than wait for their “betters” to solve their problems FOR them?

      It amazes me how some can’t look beyond simplistic conventional wisdom.

    • “Tell me how much wealth the top 1% of the country has now compared to 30 decades ago, as a percentage. And then tell me that inequality isn’t growing. “

      So, you’re saying the plight of the working man has been on a downward trajectory since the founding of the Republic? Ooh-kay.

      If you hadn’t noticed, in that time, we became the most powerful nation in the world with one of the highest overall standards of living of any nation. Something we did must have been right.

      • He made typo, Bart. He typed 30 instead of 3. It’s pretty obvious, since the article we are all arguing over says in the second paragraph “If inequality had really exploded during the past 30 to 40 years…” If you had been gracious enough to recognise the error, you would have to acknowledge the truth of his claim.

    • nice responses folks. What I see is someone thinking “I have no intelligent response so let me attack the typo.” So let me correct it: respond to Me’s comment except change the “30 decades” to “3 decades.”

      Begin your rationalizations…now.

  19. This is the strangest econometric analysis I have seen in a while. I don’t know how a professional economist would willingly and publicly make such statements, which are easily discussed in standard theory.

    1. Yes, the rich can buy more and better things. This doesn’t mean that don’t have access to the stuff poorer people buy and must “suffer” greater inflation. They _choose_ to buy higher quality products and additional goods/services. The fact that there is “higher inflation” in that class of goods is a _symptom_ of the faster growing wealth in that segment and a quality of that choice. The average inflation of products is the proper measure for them, because that represents accessible products for them.
    2. Those products represent a much lower percentage of the wealth spent by those income groups, by major proportions. Poorer classes spend over 90% of their income directly back into the economy. The richest classes spend much less than 10%, instead keeping their wealth in land and corporate ownership and other nonliquid assets. So any increase in inflation of products must be properly accounted by usage proportion, which makes the wealthiest much less affected by inflation.
    3. Those nonliquid assets are measured in “real value”, not currency value. If there is 10% inflation, it does not affect the value of a house. The house rises in currency value if the real value stays the same (excluding artificial value changes like seen in the past meltdown – which disproportionately moved wealth to the wealthiest at the expense of poorer classes). So there is even more of a separation of effect of inflation for the wealthiest income groups, in that they are generally unaffected except in performance of businesses they may own (inflation itself does not usually affect businesses directly – prices get raised with everything else and the effect is neutral – except for businesses that have a sensitivity to unequal inflationary events).

    It is obvious that this is a transparent attempt to pretend certain numbers that allow people with preexisting beliefs to feel less uncertain about the current situation.

    For those who may ask how one persons wealth affects another person, the answer is actually again very easily answered using standard economic theory. In a fiat currency system, such as the existing one, there is a limited set of monetary resource. Money is not simply created by work. So if one group has access to more of that resource, another group has access to less (and these are proportions here, so the argument is the same with fiat publishing).

    When you see greater efficiency in the work force, and still find their proportion dwindling, it is a clear indication that the mechanisms normally discussed in free-market theory are not working. Instead, it is the access to the monetary flow held by the owners of that flow that are forcing more and more people into tighter monetary constraints.

    Normally, you’d expect free-market theorists to be alarmed by these deviations in their theory, looking for the governmental and societal actors causing this distressing deviation. However, there are so many people these days who actively seek to be apologists for wealth inequality, that such is not being done.

    • 1. “This doesn’t mean that don’t have access to the stuff poorer people buy and must “suffer” greater inflation.”

      Greater access? Sure. But, they physically cannot consume that much more. How much food can one person eat? How many electronic gadgets does one need?

      2. Having money to invest in “corporate ownership” is what creates jobs and stimulates productivity. Consumption alone will never lead to greater wealth overall.

      3. Real value? What is the real value of a house today bought three years ago before the plunge? Nothing is constant in value. It is entirely a function of what others are willing to pay in the form of an exchange of their effort for what you have.

      You place entirely too much value in money as an absolute measure of wealth. Money is merely a medium of exchange. Wealth is an entirely different object.

      • @ Bart:

        1. Seriously? You didn’t get what ex0dus5 was saying there? Their point has absolutely nothing to do with the consumption RATES of the top 1%, they are simply saying that if the high end products and services have increased in cost at a higher rate, then the 1% can CHOOSE to spend their money on lower end purchases. The fact that they CHOOSE to spend higher amounts on things with higher inflation rates is just that, their choice.

        2. Greater wealth for whom? Consumption certainly creates greater wealth for the people producing consumables…

        3. lol….really? Again, you simply don’t get their point. They are explaining why inflation doesn’t matter to anyone who owns real property as long as they retain ownership of said property. Surely we all understand that the expected selling price is likely to be much lower for any real property purchased a few years ago, the point is that as long as you keep that property (which is where a lot of the wealthy keep a good chunk of their fortune) it is unaffected by inflation. This is a reason that inflation should hold a lesser affect on the wealthiest people, because they have a larger percentage of their income going into these investments.

        • 1. Seriously? Did you read what I wrote? There are physical limits to how much of the lower end stuff they can consume. And, since they are such a tiny group, it has virtually no effect on the availability of those items for the less well-off

          2. Consumption certainly creates greater wealth for the people producing consumables…” Only if those people, in turn, have a greater amount of goods and services available for which they can exchange their proceeds. This is key. It doesn’t create greater wealth, just more money. They are not the same thing.

          3. You are babbling incoherently here. Read mine again a few times, until you start to get a glimmer of understanding.

      • 1. Greater access? Sure. But, they physically cannot consume that much more. How much food can one person eat? How many electronic gadgets does one need?

        That is exactly my point. My point is that they can get there food and clothes from Walmart too, and have the same inflationary pressures as everyone else. That access is not restricted them. No legitimate economic analysis can say with a straight face that the rich “are affected by higher inflation” because the goods they end up buying are increasing in cost faster than the goods bought by poorer people. That completely inverts the causal relationship, and we know it inverts causes because they could choose to cheaper products. Instead, the cost is rising faster _because_ the economic segment purchasing them is growing faster than the lower segments.

        2. Having money to invest in “corporate ownership” is what creates jobs and stimulates productivity. Consumption alone will never lead to greater wealth overall.

        The second statement is obviously true, and appears to be a common talking point these days to avoid the glaring issue with the first statement: jobs are not created with investment alone, nor is investment the primary source of job growth in the economy. Product demand along with increased economic access grow job sectors in the economy. Investment only creates new jobs ephemerally unless the new product has new demand by those able to purchase the product.

        So, for instance, when the purchaser pool _decreases_ (as, say, it might if… I don’t know… a purchaser class’ resources were diminishing proportionally to past purchasing power), jobs will decrease no matter the investment. We see this in numerous observations – this is not just theoretical.

        Additionally, investment is not the primary form of that wealth held by the richer segments. Instead, the wealth spends most of it’s time nonliquid – in the ownership itself.

        And finally, for any given individual, moving to liquidity is merely a transfer of currency, so they give up something of approximately equal value in the process. This can mean loss of jobs in one form of asset ownership for gain in another. The transfer rarely increases the working population – it is the performance of business (again to the available demand) that always determines potential job growth. Anyone who would, for instance, take a tax break to hire more people is participating in horrible accounting practices as it is not sustainable unless based on business sales (and anyone who proposes such policy for the government – for instance tax breaks for the richer segments to “stimulate” the economy – are participating in a major fraud).

        3. Real value? What is the real value of a house today bought three years ago before the plunge? Nothing is constant in value. It is entirely a function of what others are willing to pay in the form of an exchange of their effort for what you have.

        Yes. I placed the term in scare quotes because, although a common enough term in the field, it’s real meaning is basically just “unaffected by inflation”, not unaffected by anything. Which is my point. All the analyses of the housing crisis, for example, show the median house prices tracking inflation until an anomalous bubble of prices. This deviation shows the manipulation of the market, and tracks directly with the increased use of fraudulent risk rating of derivatives by the banks in their new sales models. Of course, instead of blaming this actual use of fraud, I regularly see attempts to frame it as “people buying houses who couldn’t afford it” or “government stimulating low-income housing purchases”, neither of course which forced any company to take on risk and fraudulently mislabel it in a CDO, then sell for a profit increasing housing values artificially.

        You place entirely too much value in money as an absolute measure of wealth. Money is merely a medium of exchange. Wealth is an entirely different object.

        No. I don’t. That should be obvious from my quick analysis on proportions of fiat currency, where I even made the distinction.

        What I see, though, is common and sad. I see you using a bunch of the common “catch phrases” used in these arguments, to try to make it seem like there are legitimate counter arguments to the claims being made. There certainly is debate in economics about many things, but none of these catch phrases actually catch a legitimate argument here. Instead, I fear they only succeed in making the user of them feel less uncertain about the current situation, and therefore they do not need to think deeply about the arguments being presented. That, I think, is one of the saddest parts of the modern discourse. It’s devolved into sound bite barking, allowing things to stay the same and no one take notice to what is an extremely serious issue.

        • 1. You are missing the point. Class envy proceeds from the view that “the rich” are living proportionally better than the average Joe. They are not, because each increment in wealth generates a smaller and smaller increment in quality of life, often at the expense of far longer working hours and risk of financial ruin.

          2. The key to it all is productivity. If there is no increase in productivity, then it’s all just rearranging the deck chairs. Investment which results in increasing productivity naturally results in greater affordability. If you build it faster, cheaper, and in greater quantity, they will come.

          3. The banks were merely responding to the perverse incentives set up by the government. Blaming the banks for the debacle is not unlike blaming the prostitute for giving you the clap. Bankers are whores. Always have been. Always will be. But, in the end, this disaster required government enablement.

          “What I see, though, is common and sad. I see you using a bunch of the common “catch phrases” used in these arguments, to try to make it seem like there are legitimate counter arguments to the claims being made.”

          Pot, meet kettle. We’ve been doing things your way for three years now. Has the income gap decreased? Are the poor better off? Look around you, man!

          • But, in the end, this disaster required government enablement.

            That is true of almost every method/mechanism by which corporations can oppress/exploit us … and the irony is, expanding the size and reach of government to deal with the inequities of our socio-economic system only creates new and more intractable methods/mechanisms for corporations/unions/activist groups and the government itself to exploit and oppress us.

            Without the ability to collude with government, corporate power over us is VERY limited. That ability is what needs to be diminished, if we really wish to protect ourselves from the greedy among the wealthy and powerful … and the way to diminish it is to stop relying on the Federal government as a one-stop shop for solving all our problems FOR us, and come together OUTSIDE and AWAY from the Federal government to solve most of these problems between ourselves.

            As long as the OWS crowd insists upon ever-greater roles for government as the solution, their endgame is …

            Meet the new boss … same as the old boss …

            As for the rest of us … this is our endgame …

            … we won’t get fooled again.

    • This guy is doing what all Republicans do; letting the tail wag the dog. If believing in the Job Creator myth helps you sleep at night, fine. But save the fairy tales for the kids. The simply issue is a lack of demand in the economy. The largest determinant of demand is consumer demand. When wages are more equal demand is higher because the purhcasing power is more evenly distributed. Rich people do not create jobs but middle class people buying products from them does. The one cannot exist without the other. The GOP is shooting itself in the foot; eventually the curtain will be pulled back, their lies will be revealed and people are going to be pissed.

      • If the problem we were having right now were simply demand, then all of the stimuli applied would have had at least some effect. But, we have seen nothing but seesawing amongst the various sectors. At some point, you have to leave the ivory tower and the homilies behind and sink your teeth into the real meat of the problem, which is insufficient risk/reward.

        The only message cloistered guys like you keep spewing is that the beatings will continue until morale improves.

        • “then all of the stimuli applied would have had at least some effect”

          uuhhh…lmao…who’s stimuli you talkin about? Forget about the elites bailout, you know that would not have any effect. If you’re talkin about the pussy 2-3 hundred givin out at tax time for the 99%, then I don’t think a late Xmas turkey dinner nor a house payment (partial at that), would have ANY effect on the economy.

    • “In a fiat currency system, such as the existing one, there is a limited set of monetary resource.” Only at any particular moment in time. Standard Economic Theory (heh) does not imply a zero-sum economy, thanks.

      “It is obvious that this is a transparent attempt to pretend certain numbers that allow people with preexisting beliefs to feel less uncertain about the current situation.” Funny, that’s what I was thinking about your analysis. It’s pretty easy to say, isn’t it?

  20. “median real household income—as reported by the Census Bureau—grew just 0.49 percent per year between 1979 and 2007 even as worker productivity grew four times faster at 1.95 percent per year. ”

    That’s an 8.7% increase in household income versus 39% increase in productivity. Now, the question nobody asks: whose productivity? Did workers work 39% harder in 2007? Did 39% of them learn a foreign language or a new software program or a new skill set? Or did their employers invest in new infrastructure and methods that increased productivity? In the first case, employees have a right to complain, but expecting a share of productivity that’s due entirely to the employer is asking for a free ride.

    Here’s a test for anyone who thinks he’s entitled to a share of increased productivity. We’re increasingly a global economy. How well do you know the metric system? If I say “37 kilometers” or “61 kilograms,” can you picture those quantities as easily as “23 miles” or “134 pounds?” Show us how committed you are to personal productivity.

    • This is a rather antiamerican sentiment for this site! Also, it is wrong. All legitimate studies on the American worker productivity anomaly shows that we have far fewer vacations, far longer hours-per-week, and some of the highest productive-output-per-hour of any nation. Not always the highest in all categories, but in the top 5 of almost every study, with overall output often the highest total.

      And things like learning a new language or performing unit conversions are usually considered luxury activities if they are unrelated to your job.

  21. I took the author’s advice and harmonized the statistical quirks and disregarded the numbers and I realized that I had a million dollars and also my toyota is actually a porsche now. so thanks.

  22. This is pure genius! Recently, my wife has been vehemently protesting against my infidelities. So I applied your method of “harmonizing statistical quirks”, and patiently proved to her that, despite superficial appearances (lipstick on my collar, motel room charges on my credit card, etc.), my cheating is, in fact, a myth propagated by the ignorant and envious. Thank you, American Enterprise Institute!

  23. Excellent info that I will use in my “peaceful discussions” with liberals to impart the wisdom of facts into the fantasy land they live in. This will be extremely useful to get under their skin.

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