Posted by Jack
“Inequality is the defining challenge of our time,” according to President Obama. It’s certainly the topic of the day for Paul Krugman, Joe Stiglitz and a whole raft of liberal pundits.
But have you noticed that hardly anyone else is talking about it? When is the last time you heard a shoeshine person or a taxi cab driver complain about inequality? For most people, having a lot of rich people around is good for business. But if average folks are not complaining should they be?
Unfortunately, a lot of what passes as serious commentary is actually myth. What follows are five examples.
Myth No 1: Income for the average family has stagnated over the past 30 years.
Here is an oft-quoted statistic: From 1979 to 2007, taxpayers’ median real income, before taxes and before government transfers, rose by only 3.2 percent. Cornell University economist Richard Burkhauser, via Greg Mankiw, shows why that statistic is misleading:
•If we combine the income of all the taxpayers within each household to get household median income, that meager 3.2 percent rises to a bit more respectable 12.5 percent.
•If we add in government transfer payments, that 12.5 percent number becomes an even better 15.2 percent.
•Factoring in middle class tax cuts over the period, the 15.2 percent figure rises to 20.2 percent.
•But not all households are the same size, and the size of households has fallen over time. Adjusting for household size increases that 20.2 percent to 29.3 percent.
•Finally, if we add the value of employer-provided health insurance, the 29.3 percent figure rises to 36.7 percent.
So there you have it: real income for the average household actually increased by more than a third over the past 30 years.
This conclusion is consistent with other studies. A CBO study of family income over the same period of time found an increase almost twice that size: the average family experienced a 62 percent increase in real income.
Economists have a way of measuring inequality that includes the entire population, not just the average family or the top 1 percent. It’s by means of a Gini coefficient, which varies between 0 (complete equality) and 1 (complete inequality). One study found that between 1993 and 2009, the Gini value actually fell from .395 to .388 — meaning that inequality has actually declined in recent years.
Myth No. 2: People at the bottom of the income ladder are there through no fault of their own.
In a study for the National Center for Policy Analysis, David Henderson found that there is a big difference between families in the top 20 percent and bottom 20 percent of the income distribution: Families at the top tend to be married and both partners work. Families at the bottom often have only one adult in the household and that person either works part-time or not at all:
•In 2006, a whopping 81.4 percent of families in the top income quintile had two or more people working, and only 2.2 percent had no one working.
•By contrast, only 12.6 percent of families in the bottom quintile had two or more people working; 39.2 percent had no one working.
The average number of earners per family for the top group was 2.16, almost three times the 0.76 average for the bottom.
Henderson concludes:
“”…average families in the top group have many more weeks of work than those in the bottom and, in the late 1970s, the 12-to-1 total income ratio shrunk to only 2-to-1 per week of work, according to one analysis.”
Having children without a husband tends to make you poor. Not working makes you even poorer. And there is nothing new about that. These are age old truths. They were true 50 years ago, a hundred years ago and even 1,000 year ago. Lifestyle choices have always mattered.
Myth No. 3: Government transfer programs, like unemployment insurance, are an effective remedy.
Government transfers can ameliorate the discomfort of having a low income and few assets. But at the same time they tend to encourage people to remain dependent, rather than achieving self-sufficiency. And the loss of benefits as wage income rises acts as an additional “marginal tax” on labor.
University of Chicago economist Casey Mulligan is the leading authority on welfare programs and how they affect employment. At The New York Times economics blog, he wrote:
“”As a result of more than a dozen significant changes in subsidy program rules, the average middle-class non-elderly household head or spouse saw her or his marginal tax rate increase from about 40 percent in 2007 to 48 percent only two years later. Marginal tax rates came down in late 2010 and 2011 as provisions of the American Recovery and Reinvestment Act expired, but still remain elevated — at least 44 percent…A few households even saw their marginal tax rates jump beyond 100 percent — meaning they would have more disposable income by working less…work incentives were eroded about 20 percent for unmarried household heads…in the middle of the skill distribution, while they were eroded about 12 percent among married heads and spouses…with the same level of skill.”
Overall, Mulligan estimates that up to half of the excess unemployment we have been experiencing is because of the generosity of food stamps, unemployment compensation and other transfer benefits.
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Fantastic article Jack. These myths are part of the redistribution politics that lefties have been waging for some time and are meant to gin up class envy and resentment. It makes me sick that the radicals are undermining the chances for newer generations of Americans to realize the American dream. by undermining the family and by telling young people that the wealthy are stealing and hoarding wealth they have trapped them in hopelessness.
Grrrrr! Is it possible to become any more frustrated and angry with the progressive garbage that promulgates this message? It is…just wait a minute.
I’d like to add Myth #6: “I am poor because someone else is rich”. This is absolutely ridiculous. It is not a zero-sum game. My financial situation has nothing to do with the fact someone else is wealthy. People like Bill Gates and Warren Buffet DO NOT have any negative effect on me at all. If it has any effect it is positive because of the number of jobs they have created.
Liberals are using this myth to divide this nation and pit American against American. They have vilified anyone that has wealth positioning them as an enemy of the common people. They create these pseudo-enemies to fabricate a threat to the common people and by doing so they create an issue that they can use to manipulate the people into supporting them.
Unfortunately there are many people in this world that are looking for excuses for why they are struggling. The fact they are poor isn’t because they quit school early. It isn’t because they had too many children, or children without a father. It isn’t because they have a poor work ethic. I isn’t because they have not taken control of their own lives and destinies. It isn’t because they are WAITING for something better drop in their lap. It’s because someone else has all the cash. And, here are the liberals, pointing this out and offering themselves as the saviors. “ Let’s take the cash from those rich people because, after all, it’s ours anyway! Let’s create more regulations because, obviously, anyone that has accumulated wealth had to have done it, if not illegally, unethically; because all wealthy people are bad!”
What is very interesting to me is the biggest liberal proponents to this “lie” are very wealthy by any standard. But of course, THEY are not bad. They are the good wealthy!
The liberals have pushed program after program to help the poor only find out they didn’t help anybody. So did their programs fail? “Well,….. um….. no. It would have been a whole lot worse if we hadn’t been involved.”
It makes me sick to see good successful people vilified instead of being used as examples of what can be accomplished with hard work and ingenuity.
“But have you noticed that hardly anyone else is talking about it? When is the last time you heard a shoeshine person or a taxi cab driver complain about inequality?”
My first response to this is, “When was the last time you even saw a shoeshine person? 😛
My second response is that this is a silly argument all around. Even if this writer’s anecdotal experience is common, it doesn’t tell us anything; there are a lot of important issues people should be talking about, but aren’t.
“For most people, having a lot of rich people around is good for business.”
But…there AREN’T a “lot of rich people around.” There are a very, very small number of rich people, and a lot of poor people. Does this writer even understand what income inequality means?
“Myth No 1: Income for the average family has stagnated over the past 30 years.
Here is an oft-quoted statistic: From 1979 to 2007, taxpayers’ median real income, before taxes and before government transfers, rose by only 3.2 percent. Cornell University economist Richard Burkhauser, via Greg Mankiw, shows why that statistic is misleading:
•If we combine the income of all the taxpayers within each household to get household median income, that meager 3.2 percent rises to a bit more respectable 12.5 percent.”
Doing this is actually more misleading than the original methodology. If the goal is to examine wealth distribution, it makes no sense to study “each household,” because the extreme wealth gains of the top 2% skew the results.
“•If we add in government transfer payments, that 12.5 percent number becomes an even better 15.2 percent.”
It also doesn’t make sense to factor in government transfer payments when examining wealth distribution, because the entire justification for government transfer payments is to make wealth distribution more equal. Transfer payments are not counted as income for any other purpose, so counting transfer payments as income for the sake of examining wealth distribution would be both nonsensical and redundant. It would make it harder to figure out if such programs are even needed, as well as to what extent.
“Economists have a way of measuring inequality that includes the entire population, not just the average family or the top 1 percent. It’s by means of a Gini coefficient, which varies between 0 (complete equality) and 1 (complete inequality). One study found that between 1993 and 2009, the Gini value actually fell from .395 to .388 — meaning that inequality has actually declined in recent years.”
I’m not sure what study Goodman is referring to here, since he didn’t cite it. According to this page, the Gini coefficient has actually been steadily rising during the period he names. It’s also important to note that by the same measurement, the U.S. has the fourth highest income inequality in the OECD countries.
http://en.wikipedia.org/wiki/Gini_coefficient#US_income_Gini_indices_over_time
“Myth No. 2: People at the bottom of the income ladder are there through no fault of their own.
In a study for the National Center for Policy Analysis, David Henderson found that there is a big difference between families in the top 20 percent and bottom 20 percent of the income distribution: Families at the top tend to be married and both partners work. Families at the bottom often have only one adult in the household and that person either works part-time or not at all:”
How does this prove that the statement “People at the bottom of the income ladder are there through no fault of their own?” Not all couples have the option for both parents to work. Not all single parents have the option to work either, due to inaffordability of child care, or disability. The writer would have a point if he said that this “myth” is an over-generalization, since certainly there are people in poverty who are there because of their own mistakes or lack of motivation. But by implying that poverty is always or almost always the “fault” of poor people, he is simply countering with his own overgeneralization.
“Myth No. 3: Government transfer programs, like unemployment insurance, are an effective remedy.”
Well, the author did just admit that by counting transfer payments as income, it makes wealth gains look bigger, so clearly they have at least some positive effect.
“My first response to this is, “When was the last time you even saw a shoeshine person? :P” Chris
Answer: Lets see, that would have been in Union Station, Chicago, 2013.
Myth #5 is hilarious. “Stop worrying so much about money, peons,” says the wealthy Forbes columnist who gets paid to express his low opinions of poor people.
Re: #2 MCS
Yup. Divide and conquer, the politics of greed and envy.
Money is NOT distributed.
Money is earned or realized through investment!
The ONLY people that have money distributed to them are people who get government handouts.
Some seniors STUCK in a stupid, inadequate SS system will eventually, if they live long enough, also become redistribution recipients. Had they been allowed to invest that money over the course of their lives instead of giving it to government fewer of the elderly would need assistance through distribution.
Redistribution is a fancy term for taking from one citizen to give to another…theft, on the streets.
The entire argument about the evils of wealth inequality is a Marxist fabrication.
Any American that whines about low pay or not having enough has been taught to be a victim…envious, covetous and helpless. In America we have the opportunity to get a high school education. There are countless junior colleges, and technical schools that with a little effort can be completed fairly easily. A good living is not that hard to do. Opportunity is sometimes a challenge when our government is sabotaging the economy as they are now, but that’s another issue.
Extreme wealth is a rare thing. But most wealthy Americans have earned their wealth. Some of the very rich inherited but most earned and built their wealth and almost to a man will tell you that money was not their goal. Most will tell you they just followed their passions and made good decisions.
Forbes should be commended for blowing giant holes in these myths, designed as MCS pointed out, to divide the nation and gain power. It is purely political from the radical elements that have taken control of the Democrat Party.
With all of the craziness going on these days created by this administration my frustration level grows to the breaking point daily. And then I see something that brings a ray of hope and proof there are sane people who are waking up and taking steps to tell others and educate them to the lies they’ve been told and ways to have a good like for themselves and their communities.
Black Leaders In Chicago Have a Comeuppance for Democrats Who Think They Can Take Them for Granted:
“Empower.org, a FreedomWorks project designed to take conservative values and ideas into the African-American community, held a recent town hall in Chicago at The New Zion Covenant Church on the South Side. The South Side of Chicago, like many urban areas, is plagued with poverty, crime, and terrible schools.
In the town hall, the attendees had many criticisms for President Barack Obama, Hillary Clinton, and Chicago Mayor Rahm Emanuel. One attendee even called Barack Obama the “deadbeat black president in our community.”
The attendees also called out the black political establishment for its devotion to the Democrat Party, with one panelist comparing the black community’s relationship to the party to that of a battered wife who won’t leave her husband.”
http://www.ijreview.com/2014/07/155771-watch-conservatives-reach-black-community-chicago/
Building bridges instead of walls is a much better way to live. No more them vs. us, the haves and the have nots, take from one to give to the other.
The insanity has to stop and at the top of the list is for the Democrat party to stop using minorities to gain their votes.
Do You Feel Poorer? A Quick Look at the REAL Cost of Inflation in This Chart Tells You Exactly Why:
“The two main measures of inflation that the media and government use show 39% and 32% increases over the last 14 years, respectively. That simply means that things that cost $1.00 in 2000 now cost around $1.35.
But is that true?
No, it isn’t. Take a look at this:”
http://www.ijreview.com/2014/07/155933-feel-poorer-chart-shows/
Re #4: Evidently Major Boob is not happy with his income. Time for the government to do something about that dadgummit!
Tina: “Money is NOT distributed.”
Ok, obviously the term “wealth distribution” offends you, so what term do you find more palatable for comparisons between the wealth of various groups in society?
If my neighbor has more money than I do and I decide that isn’t fair and I go and take some of his money what is it called. Theft!
If instead I bring along a few of my friends what is it called? Theft!
If instead I bring half the town with me what is it called. Well, …. it is still called theft.
If the liberal government comes and takes his money and gives it to me its called “wealth redistribution”. Just a fancy name for …… theft!
There is always going to be someone that has more money than you. You may think this is unfair and that you are justified in taking it to make things fair. Just remember one thing; there are always going to be people that have less money than you do. What will you call it when THEY come to take what you have?
#12 MCS
Great comment! You lived up to your name. Keep them coming.
What do you call subsidies of tax dollars to some of the record breaking profit business’s who have tax loophole’s?
What do you call banks borrowing money for less than 1% from the fed then charging students high interest on student loans and expecting the taxpayers to bail them out because they are too big to fail and this next rash will be a much worse global disaster?
Were the bailouts and war costs paid by just conservatives? or just Liberals? Or did all get the bill?
Why is it ok no matter which party is in office the white collar crimes are never prosecuted with jail time?
What do you call Congress using their building as a 24/7 scandal for fund raising?
Dewey, I believe they call it “Not my problem.”
Chris: “…what term do you find more palatable for comparisons between the wealth of various groups in society?”
I see no need to compare wealth or create groups of citizens. What another person has is actually none of my business. The only person I should be concerned with, as regards wealth, is myself and my family.
Wealth is the sum of a persons assets. How much we accumulate in assets over the course of our lives depends on how smart/wise we become at creating wealth for ourselves and how hard we are willing to work. Our decisions about occupation, training, lifestyle, savings, and investment will all help determine how much wealth we can accumulate over the course of our lives. Other factors are levels of tax burdens and regulations on our investments and property…and of course stupid regulation that facilitate crashes in the housing market or tax breaks that don’t benefit all Americans.
The government should be as remote and uninvolved as possible.
Dewey I call it massive interference by our government on many levels and I don’t like it.
I don’t know what you think Democrats have to do with that massive intrusion but I guarantee it’s been significant.
Somehow I don’t think you would agree.
Tina: “I see no need to compare wealth”
…Says a woman who frequently attempts to lecture others on economic principles.
Simply stunning.