Liberal economics writers Ryan Chittum, Kevin Drum, and Matt O’Brien continue to find fault with my posts (here, here and here) on income inequality. Let’s boil it down to two big issues:
1. Is income growth becoming more unequal? Chittum, Drum, and O’Brien (CDO) say I have misused the work of economist Robert Gordon. Hey, I report, you decide. Here’s Gordon in his own words from his own 2009 paper:
The rise of American inequality has been exaggerated in magnitude, and its impact is now largely in the past. … Not only has the increase of inequality been exaggerated, but it has ceased. The excess growth of mean relative to median income reversed itself after 2000. The income shares of the top one percent and of CEOs, which had exploded before 2000, went down and back up with stock market gyrations between 2000 and 2006 but did not rise on balance. … Other measures suggest that the rise of inequality ceased well before the year 2000.
So get a time machine, Occupy Wall Street! What’s more, there’s evidence that since 2007 the share of income grabbed by the top 1 percent and top 0.1 percent—using income inequality data that CDO prefer—has collapsed.
Are U.S. incomes more unequal today than they were a generation ago? Sure—as is true of advanced economies generally—but not to the extent CDO argue when you factor differing inflation rates between income groups and household composition.
2. Has the middle class stagnated during the past 30 years? I’ve pointed to a pair of Fed studies that show middle-class wages and incomes rising since the 1970s. But CDO disqualify those studies mainly because liberal economist Jared Bernstein says they’re no good. If only there was some economist CDO respected who could back up my claims. Wait, Robert Gordon does! Here is a bit from an email Gordon sent me in 2007:
The correct statement is that correcting the upward bias of the official [consumer price index] adds more than 1 percent per year to official estimates of the growth in median and mean wages. Cumulatively since 1977, my best estimate of the upward bias in the CPI cumulates to 38 percent between 1977 and 2006. Thus if someone came along and said the male median wage adjusted for CPI inflation has been stagnant since 1977, I would translate this into a true 38 percent increase.
And don’t forget brand-new research from University of Chicago’s Bruce Meyer and Notre Dame’s James Sullivan who find that “median income and consumption both rose by more than 50 percent in real terms between 1980 and 2009.”
Yes, exactly! All the stories about growing income inequality use 2007 as an endpoint, but that was the peak of the financial bubble. Using 2008 instead would have shown a sharp drop in income inequality from 2000, and only a modest growth since the mid 1980′s, if any.
Uhhh…. Economist Robert Gordon said you have misused the work of economist Robert Gordon, idiot.
And yes, the median income has increased by 50% by 1980 (a blistering annual rate of around 1% compounded… shut up and eat cake, middle class, indeed).
The income of those at the top 1% have increased by 270-something% since 1980 (pay no attention to the man behind the curtain!!!).
The income of those below the median (you know, like 150 million Americans or so?) have grown by somewhere closer to 0% (You mean there’s PEOPLE down there? Yech!).
Could somebody PLEASE teach this moron the definition of the term “income inequality” before he tries to write another article on income inequality?
Meanwhile, GDP (adjusted for inflation) has increased by over 200% since 1980…. but the median income has increased by only 50%, and those below the median by less than that still…
Where, oh where could all of that extra GDP growth be going, James?
It couldn’t be “income inequality” (meaning the very wealthiest are getting it), right?
Could it beeee…… Satan?
Honestly, I’m getting less offended and more entertained by James Pethokoukis’s blog posts… it’s like an SNL parody about a clueless blogging economist….
Please, James, may I have another?
“Since 1980, U.S. gross domestic product (GDP) per capita has increased 67%,[6] while median household income has only increased by 15%.”
Oh, I can keep going… it’s so easy, even on mr. Pethokoukis’s cherry-picked territory… You want to talk about median incomes? Sure… there’s income inequality there…
It’s like “there’s an app for that”… doesn’t matter on which statistical basis Mr. Pethokoukis would like to go “there’s income inequality for that”.
Sigh. Sure there’s income equality. If I choose to do a job that isn’t in demand, like say, selling my handmade scarfs, my income probably isn’t going to be equal to someone who sells cars. Or spends 8 years going to college to learn medicine or chiropractic. Or if I take work as a cashier my income will not be equal to someone who fixes computers. If I start my own business, but have a product that isn’t in demand, I won’t make as much as someone who starts a business making or providing products/services that ARE in demand. Of course there will be income equality.
Just like if I plant green beans. I don’t expect to grow filet mignon. Freedom says that I buy what I want and what I need. Therefore, if someone wants to make a lot of money they should serve their fellow person by providing one of those services. If fewer people need or want what you provide, or if other people will do it for cheapter, you’re not going to make as much money. It’s really pretty simple.
Logicalthinker.. With the exception of the snarky sigh (you tired or something?)that’s a great post… if it had anything to do with anything.
Nobody is saying that the kid working the french fries at McDonalds should make as much money as a brain surgeon. It would be mighty convenient for the inequality denier’s position if they were.
What people DO have a problem with is the very wealthy having outsized influence on government. Influence which serves to funnel wealth to the very wealthiest in the country. Wealth which is not necessarily connected to the work these individuals do… Maybe you should go take a look at the massive bonuses the same morons who bundled toxic securities have managed to pay themselves AFTER the economy blowed up.
There’s something about the 1) Create useless bundled securities in order to put a false patina of AAA risk rating on them, 2) Sell these securities to hedge funds which handle grandma’s 401k (profit), 3) When said securities implode due to the fraud (literally) you’ve perpetuated, claim your too important to fail and demand the government step in and bail you out, and 4) to top it off, pay yourself yet MORE huge bonuses after receiving said government bail out.
In short, people who have made massive amounts of money gaming the system (not creating anything of value… gaming the system), actually profited EVEN MORE from the process of cleaning up their toxic disaster. And they did so because they have bought influence in government. Or because last year’s board member and golfing buddy is this year’s congressman… or regulatory board head…
THAT’s what the problem is…
If you don’t understand this, and think the problem people have is that hippy scarf-sellers don’t make the same money as CEO’s, then you really shouldn’t be part of the conversation until you educate yourself further.
OK, I know I’m like a crazy person with the posts, but I just love this stats geek stuff and it’s just so FUN to mock Mr. Pethokoukis here…. So:
Question: What does “median income increase over time” as a stand alone statistic have to do with income inequality?
Answer: Not a damn thing.
Now median income CAN be used to show income inequality, and this is how it would be done.
Here’s an example of what income EQUALITY would look like, using “median income increase over time”:
Top 1% median income increase 1980-2010: 50%
Top 20% median income increase 1980-2010: 50%
All incomes median income increase 1980-2010: 50%
Bottom 20% median income increase 1980-2010: 50%
Bottom 1% median income increase 1980-2010: 50%
Here’s what has actually happened (roughly):
Top 1% median income increase 1980-2010: 270%
Top 20% median income increase 1980-2010: 100%
All incomes median income increase 1980-2010: 50%
Bottom 20% median income increase 1980-2010: 0%
Bottom 1% median income increase 1980-2010: -10%
Now that’s what’s called an example of income INEQUALITY over a period of time.
Now, with regards to Mr. Pethokoukis, there’s two reasons he might post this BS:
1) He understands that this is BS and he’s trying (poorly) to intentionally mislead his readers.
or.
2) He simply doesn’t understand this.
Either way, as an economist/blogger, we should all point and laugh derisively at Mr. Pethokoukis for posting this junk.
JP is not saying that inequality hasn’t increased since 1980. He’s saying (that Gordon is saying) it hasn’t increased since 2000. You don’t directly address that.
Crafty, have you ever considered that the income data is flawed because it comes from IRS and changes in tax code in 86 (reducing rates, eliminating tax shelters) my have caused income inequality?
Income inequality is babble. The IRS and University of Michigan studies have shown that the majority of people in the top 1% are only in it for about a year.
And the poor who “keep getting poorer”? By large numbers, they aren’t the same people from year to year either.
Lefty’s premise, implied, is that we live in society in which the poor are poor from birth to death, and the rich are rich from birth to death. The reality is that the poor get rich, and because of “income inequality”, they can get *really* rich.
This is why Americans do not now, and never have (save in the imaginations of Reich & Krugman), given a rat’s red ass about “income inequality.”
“The reality is that the poor get rich, and because of “income inequality”, they can get *really* rich.”
I don’t know what fantasy land you live in, but 99% of the poor in this country never get rich.
And if you think that Americans have never given a rat’s ass about “income inequality”, you need to brush up on your American History. Maybe you can start on Labor Day, by googling the term “robber barons”.
I think you mistake the simple fact that YOU don’t give a rat’s ass about income inequality (and why would you, given how ignorant you are about the realities of social mobility in this country) for some misinformed opinion that AMERICANS don’t give a rats ass about income inequality.
Regardless… none of your post changes the facts that 1) Income inequality has grown considerably since 1980, and 2) Mr. Pethokoukis’s multiple posts have not provided a single shred of evidence to the contrary, just a bunch of misapplied and intentionally misleading facts.