Promoters of the income inequality meme—Occupy Wall Street, the Obama White House, liberal think tanks, “progressive” bloggers—typically point to data showing how “rich” households and families have been getting even richer vs. those in the middle class. But yet there’s no evidence of any significant change in income inequality among individuals as this gobsmacking chart from the must-follow Political Calculations blog shows:
An explanation from PC:
The chart [above] shows what we find for each grouping of Americans according to their Gini Coefficient, where a value of 0 indicates perfect equality (everyone has the same income) and a value of 1 indicates perfect inequality (one person has all the income, while everyone else has none). … But here’s the thing. We have already confirmed that there has been absolutely no meaningful change in the inequality of individual income earners in the years from 1994 through 2010. If income inequality in the United States was really driven by economic factors, this is where we would see it, because paychecks (or dividend checks, or checks for capital gains, etc.) are made out to individuals, not to families and not to households.
It would seem then that the real complaint of such people isn’t about rising income inequality, but rather, how people choose to group themselves together into their families and households.
This is another version of The Big Sort, the supposed red state/blue-state trend of like-minded people clustering with each other.
The reason that the income inequality levels recorded for families and households are lower than those for individuals are because most families and households may have one high income earner, who is balanced out by individuals within the families or households who have low or no incomes. But, if people with very high income earning potential join together to form families and households, and increasingly do so over time, perhaps because such people might have things in common that make forming themselves into families and households an attractive proposition, then income inequality among families and households will increase.
The same holds true for the opposite end of the income earning spectrum. If people with really low income earning potential join together to form families and households, or perhaps if they choose to split apart, and increasingly do so over time, then the resulting low income family and household will also make income inequality among families and households rise, even though there has been no real change in the amount of actual income inequality among individuals.
So what we have here, as always in America it seems, is culture trumping economics (though the data don’t take into account how different income groups have different inflation rates, another equalizer). AEI’s Charles Murray has a new book coming out that will expand on how values and culture influence inequality. In any event, it is hard to see what of any of this has to do with forcing more equality through higher taxes and more government spending—or class warfare politics.