Economics, U.S. Economy

Sorry, liberal media, income inequality really is way overblown

Over at the Columbia Journalism Review blog, Ryan Chittum takes issue with everything I wrote about income inequality in a recent post. (I don’t think he cared much for the font, either.) My piece merely pointed to several studies — ones rarely mentioned by the mainstream media — that suggest a) income inequality is hardly “exploding,” and b) the past 30 years have hardly been a lost three decades for the American middle class. My response:

1. Chittum thinks I have misused a study by Northwestern University economist Robert Gordon. Does Gordon believe inequality has increased? He does, indeed. The first sentence of the study, which Chittum highlights in his post: “The evidence is incontrovertible that American income inequality has increased in the United States since the 1970s.”

But lots of studies make that claim. It is the next part that I found interesting:

This paper shows that the rise in American inequality has been exaggerated in at least three senses.  First, the conventional measure showing a large gap between growth of median real household income and of productivity greatly overstates the increase compared to a conceptually consistent alternative gap concept, which increases at only one‐tenth the rate of the conventional gap between 1979 and 2007. … Second, the increase of inequality is not a steady ongoing process; after widening most rapidly between 1981 and 1993, the growth of inequality reversed itself and became negative during 2000‐2007.   

Chittum, nor other liberal economic pundits such as Ezra Klein, Jonathan Chait, Kevin Drum, Ryan Avent, have made an effort to dispute Gordon, hardly a conservative economist. Liberals don’t even like quoting that above bit.

2. Chittum really likes studies from the union-backed EPI. But when I looked at the issue of middle-class stagnation, I went with analysis from the Federal Reserve, more likely free of political influence. And here is what a Minneapolis Fed researcher found:

 I calculate that median Census income per person rose by 50 percent. … The claim that the standard of living of middle Americans has stagnated over the past generation is common. An accompanying assertion is that virtually all income growth over the past three decades bypassed middle America and accrued almost entirely to the rich. The findings reported here … refute those claims. Careful analysis shows that the incomes of most types of middle American households have increased substantially over the past three decades.

Maybe Gordon and the Fed and many other academics are just “deniers,” unworthy of serious debate. But to me that sound like a clumsy effort to silence debate rather than encourage a competitive marketplace of ideas.

25 thoughts on “Sorry, liberal media, income inequality really is way overblown

  1. So the analysis of the Fed, able advocate of all American one-percenters, says, “No, no, you middle class guys have been doing fine! Trust me!”

  2. direct quote from Gordon:

    “The evidence is incontrovertible that American income inequality has increased in the United States since the 1970s”

    • Wow, you really read the article, didn’t you?

      Pethokoukis quoted that exact line in the second paragraph and then, gasp, added some context and further discussion from Gordon.

    • My dear total, it also says “the increase of inequality is not a steady ongoing process; after widening most rapidly between 1981 and 1993, the growth of inequality reversed itself and became negative during 2000‐2007. ”

      Please read, you can’t pick and choose as you want. But to put it simple, depending on the market and the expenditures done by household, your income will rise or lower. And in most cases, it will correct itself. That’s normal.

  3. Nope, Snorty, that’s not what the Fed said. The Fed simply said that middle class income has risen. Whether people in the middle class feel they’re OK or not really depends on how they’ve used -or misused- that rise in income. Of course, as income rises, so has the cost of living. But it’s also true that a lot of people buy into advertising’s siren song that we must consume to be happy, and end up living beyond their means, in debt -and unhappy.

    • “The Fed simply said that middle class income has risen. Whether people in the middle class feel they’re OK or not really depends on how they’ve used -or misused- that rise in income. Of course, as income rises, so has the cost of living.”

      Every income stat in this study is inflation-adjusted. So your “cost of living” point isn’t a point.

      And it “depends on how they’ve used – or misused – that rise in income?” Well, what business is that of the federal government’s?? All the govt can reasonably be charged with doing is putting in place a system to promote economic growth and income growth. Once it’s done that, it is not their further role to babysit people to insure they don’t waste their money, is it?

  4. James Pethokoukis, the house goy of the American Enterprise Institiute, a Jewish organisation, is clearly advocating for a Jewish point of view. a point of view by and large at odds with the views of the American people.

  5. “Chittum, nor other liberal economic pundits such as Ezra Klein, Jonathan Chait, Kevin Drum, Ryan Avent, have made an effort to dispute Gordon, hardly a conservative economist.

    Is this a typo? Should it read: “Neither Chittum, nor other liberal…pundits…, have made an effort to dispute Gordon…”?

    In any event, thanks to James for a his continued efforts on this topic, though I think he and other conservative/libertarians still miss the point sometimes: the whole income gap question is a gigantic red herring based upon the zero sum fallacy. We should be concerned with the absolute level of standard of living of the poor–not how much it differs from the wealthy. Focusing on the gap is a sure sign of fomenting class envy, which of course is stock in trade for the progressive left.

    • Jeffrey, with all due respect, I think the focus is not necessarily on the gap itself, but on the self-perpetuating cycle of moneyed interest buying favorable economic/political policies, thereby accruing more money to buy yet more favorable economic/political policies.

      It’s about the revolving door between Corporate Board Rooms and the top levels of government.

      It’s about corporate chieftans literally sitting in on regulatory policy committees and influencing, if not downright writing, regulatory policy over their own industries.

      It’s about politically connected, well-heeled individuals at the very top of the economic spectrum getting favorable tax code. I mean, is there really any justifiable reason that passive income (capital gains) should be taxed at a much lower rate than income paid for actual work? I’m all for passive income… own investments myself… but I don’t really buy into any argument that it should be taxed less than wage/salary income.

      It’s about taxpayer bailouts being given to a few very large banks, which then turn around and give out very large bonuses to the very same executives who had a lot to do with creating this disaster in the first place.

      … in short, the problem isn’t that some people are getting fabulously wealthy, it’s that fabulously wealthy people are working hand-in-hand with a government that’s SUPPOSED to work for all of us to make it spend a disproportionate amount of time and resources working for the very, very wealthy, while the rest of us essentially get “let them eat cake”.

  6. Robert Gordon himself, in response to this article, is not happy about the misuse of his work:

    Matt O’Brien tweets: “I talked to Robert Gordon here. He was flabbergasted his work was being used to argue inequality is a myth.”

    (Quote from Robert Gordon himself in response to Pethokoukis’ work)…. “what stands out like a searchlight is the unprecedented and increasing inequality between the bottom 99 percent and the top 1 percent,”

    So for all of you running in here to jump on the “head in sand” bandwagon, please be aware that you are a usefull idiot for Mr. Pehokoukis’s intentinally manipulative twisting of Mr. Gordon’t work.

    • Do you really care how your income stacks up against the top 1% if you’re reasonably compensated for what you do? I would like someone to show me a single example of how their income and livelihood is affected by “inequality”. Yes, having a soceity where ONLY the top achieve gains would be bad, but that’s not the situation, what we’re talking about is how the top is outpacing the rest. And from what I can tell, that is driven by quite a few external factors and have yet to see a specific example of how my CEO’s income affects mine? This is clearly a natural result of the class warfare we see coming from the left.

      • The only class warfare is being waged against the middle class. Why does it matter how your income stacks up against the top 1%? First, studies have shown that economies that produce greater wealth and income inequality tend to under perform economies that have a more level playing field. Second, who determines whether someone is reasonably compensated? If the vast majority of income gains go to a small number of people it is highly unlikely that those not reaping as much of a benefit will believe they are fairly compensated. It’s human nature, which by the way is the reason capitalism works in the first place. As people lose faith in the fairness in the system, the system dies. In addition, income inequality may not matter quite as much where there is a great deal of mobility between income classes, but the US has lower income mobility than most developed countries.

  7. Just curious, and forgive me for my ignorance, but do any of these studies take into account the growth of the lower income bracket due to the influx of unskilled low wage workers? If the population of that bracket grows at a faster rate than the upper brackets, won’t the wage disparity always increase over time?

  8. The argument offered that the ‘rightwing-rich’ are in cahoots with government to provide themselves advantages not available to the little guy is bogus. That is actually a more apt description of what the ultra-liberal government service employee union groups do.

  9. This entire discussion irritates me, because the only significant statistic that matters is income mobility – does the middle and lower rungs have the ability to rasie their income levels in a reasonable fashion and is this a zero sum game? Pegging my income levels to any strata is irrelevant to me, I do not care how my income compares to CEO’s, nor do I care how it compares to Hollywood Actors, or Left Tackles in the NFL – because Lady Gaga has no bearing on my earning potential. Crony capitalism is a different issue, but I can assure you it wont be solved by centralizing even more power in Washington!

  10. These studies that James cites are basically distortions and self-serving lies from groups tied to Wall Street, like the Minneapolis Fed.

    These claims are also refuted by direct data from the CBO and the Census Bureau:

    http://acivilamericandebate.files.wordpress.com/2011/04/income-gains-per-quintile1.gif
    http://www.cbo.gov/publication/42729

    http://www.politifact.com/truth-o-meter/statements/2011/jul/05/united-fair-economy/liberal-group-says-family-incomes-grew-equally-pri/

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