Liberal Income Inequality Numbers are Nonsense

Liberal Income Inequality Numbers are Nonsense

avatarThe underlying data methodology is questionable to say the least

The liberal argument for wealth redistribution can be boiled down to one sentence: the United States has very rich people, very poor people and folks in the middle that can’t get a break.  The study relied on for this simplistic Democratic talking point was published in the Quarterly Journal of Economics in February 2003 by Piketty and Saez.  The underlying data methodology is questionable to say the least.  At this point in any discussion regarding economics (yikes!) and numbers (ack!) your humble blogger’s eyes have already started to glaze over.  Stay with me though, if I can get through this and come out the other side having learned something, it may be worth your while:

And now, thanks to a new study in the Southern Economic Journal [dated October 2014] , we know what the picture looks like when the missing data are filled in…

The result is dramatic. The bottom quintile of Americans experienced a 31% increase in income from 1979 to 2007 instead of a 33% decline that is found using a Piketty-Saez market-income measure alone. The income of the second quintile, often referred to as the working class, rose by 32%, not 0.7%. The income of the middle quintile, America’s middle class, increased by 37%, not 2.2%.

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An equally extraordinary distortion in the data used to measure inequality (the Gini Coefficient) has been discovered by Cornell’s Mr. Burkhauser. In 1992 the Census Bureau changed the Current Population Survey to collect more in-depth data on high-income individuals. This change in survey technique alone, causing a one-time upward shift in the measured income of high-income individuals, is the source of almost 30% of the total growth of inequality in the U.S. since 1979.

Simple statistical errors in the data account for roughly one third of what is now claimed to be a “frightening” increase in income inequality. But the weakness of the case for redistribution does not end there. America is the freest and most dynamic society in history, and freedom and equality of outcome have never coexisted anywhere at any time. Here the innovator, the first mover, the talented and the persistent win out—producing large income inequality. The prizes are unequal because in our system consumers reward people for the value they add. Some can and do add extraordinary value, others can’t or don’t.  How to Distort Income Inequality By PHIL GRAMM And MICHAEL SOLON Wall Street Journal 11/12/14

Go ahead and read the full Wall Street Journal article excerpted herein.  I readily admit I had to read it a few times to grasp its full meaning (due to my eyes glazing over and all).  Nevertheless, it will prepare you to intelligently debate the next person who dares parrot the Democratic talking point that income distribution in the United States is so darn unfair. – Grizzly Joe

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