Nope, We Still Don't Have An Income Inequality Problem

A follow up piece to my original post on inequality is up at The Federalist. 

A slice regarding the myth of wage stagnation:

The myth of wage stagnation is commonly perpetrated by looking at average real wage statistics. But there are several problems with using average wages as a measure, which I’ve explained before, here, here and here. Briefly, one big problem is that average wage statistics are skewed downward due to the large wave of immigration we experienced in the 1980s and 1990s. Even though many immigrants were finding work and improving their lives, the influx of low-skilled work pulled wage averages downward, which makes it appear like there was stagnation when there really wasn’t.

Read the full piece here.

We Don't Have An Income Inequality Problem, We Have An Ego Problem

In my recent piece at the Federalist I argued that we don't have an income inequality problem, we have a culture of entitlement problem.

A snippet:

Despite what we routinely read in the news, we do not have an income inequality problem.

First, as I’ve previously argued, we don’t refer to height differences as “height inequality.” Nor should we speak of income differences as “income inequality.” Doing so implies the deck is stacked for the “haves” and against the “have nots” before scrutinizing the facts.

Second, the statistics are often misleading.

A common tactic is to paint a dire economic picture by looking at statistical units— “households,” “families,” “income quintiles,” etc.—instead of individuals. For example, a headline from The New York Times reads: “Household Incomes Have Remained Flat Despite Improving Economy.”

Another article claims that, “after adjusting for inflation, U.S. median household income is still 8 percent lower than it was before the recession, 9 percent lower than at its peak in 1999, and essentially unchanged since the end of the Reagan administration.” Moreover, we are repeatedly warned that increasing shares of income go to the “top one percent” of earners while the rest stagnate or worse.

For the full piece, click here. 

King for a Day

Over the past few months, David has posted several times on the topic of income inequality (for example, see here, here, and here), which he deems to be a non-issue. To support his case, a recurring point of his is that comparing percentiles of the income distribution—such as the ‘top one percent’ and the ‘bottom 99 percent’—is fallacious. In a recent column, David explains that

"The late economist Joseph Schumpeter compared income groups to hotel rooms: just as the former ranges from high to low, so the latter ranges from high-end to low-end. But the different categories fail to reflect who occupies them and whether occupants move to higher categories over time." 

In other words, if we have high income mobility—that is, lots of movement up and down the income distribution—then comparisons between different portions of the distribution are meaningless. But unfortunately, we don’t have high income mobility.

Income inequality: Households are not people

Distinguished Harvard economist Martin Feldstein penned a recent column in the Wall Street Journal making the point that economic differences are less drastic than advertised.

He writes:

The Federal Reserve recently estimated total household net worth in the U.S. to be about $80 trillion, including real estate and financial assets. And data from the Fed’s Survey of Consumer Finances imply that the top 10% of households by net worth hold about 75%—or $60 trillion—of this total. The bottom 90% of households therefore have a net worth of about $20 trillion.

But, as he notes, this picture “leaves out the large amount of wealth held in the form of future retirement benefits from Social Security and Medicare”:

Misinformation on economic inequality

A recent piece of mine titled "Bernie Sanders’ Inequality Fallacies" created confusion among readers. Typically, those who disregard an argument and reply with misinformation can be ignored. But given the pervasiveness of misinformation among the intelligentsia and general public, it merits a response.

My article pointed out that a widespread fallacy about economic inequality is drawing conclusions based on statistical categories rather than human beings. This point seemed to escape many commenters:

“So the fact that real wages have been flat or declining while GDP triples and productivity doubles in the past four decades are meaningless?”  

“Wages have been frozen since 1969, but actual physical productivity has increased approximately 90 % over that time period.” 

“The result of more than forty years of conservative driven economic policies is that wages have stagnated for forty years, not six. That is just a fact.”

America does not have an economic inequality problem

Language manipulation is nothing new in politics, but describing economic differences as “economic inequality” is a linguistic act we should reconsider. It not only falsely suggests unique unfairness in economic life, but the notion itself rests on an unfounded assumption.

No aspect of life—economic or otherwise—escapes unfairness. Height, strength, birth place and natural talents are all largely determined by the luck of the draw. More than that, chance is at least partly responsible for our discovering our talents. While luck first blessed Michael Jordan with basketball prowess, he was twice lucky for deciding to pick up a basketball in the first place (and thrice lucky for being born into an environment that allowed him to do so). Yet, we resist describing the unfairness in our natural height differences or in the talent gap between Michael Jordan and the rest of us as “inequality.”

Inequality Fallacies

My op-ed on economic inequality is up at the Daily Caller. Some snippets:

Fallacies abound about economic inequality, but one of the worst is confusing income categories with human beings.

Presidential candidate Bernie Sanders recently perpetrated this confusion: 

“Our economic goals have to be redistributing a significant amount of [wealth] back from the top 1 percent … Unchecked growth – especially when 99 percent of all new income goes to the top 1 percent – is absurd,” he fulminated. 

But the “top one percent” and the “bottom 99 percent” are statistical categories — not living and breathing human beings. Confusing the one with the other encourages fallacious thinking.