Income Inequality Revisited

Recently a longtime friend sent me an invitation to an Online 14-week UC Berkeley course about income inequality in America.  The course is taught by former Clinton administration Labor Secretary, Robert Reich.  After watching the first class (and the last I might add) I responded to my friend by sending him a commentary I had written for the Vail Daily a few years back, and asked if would reconcile Mr. Reich’s philosophy regarding income inequality with my commentary below.  I have not heard back from my friend.

I’ll begin this post by quoting former British Prime Minister Benjamin Disraeli: “There are three types of lies; lies, damned lies and statistics.”  Meanwhile, no one can manipulate statistical information better than the media and left-wing professors who live to compare “the rich” and “the poor.”  But their comparisons are seldom what they appear because the government statistics they use are simply snapshots taken at a given point in time, a situation that fails to reveal how “the rich” and “the poor” are in many cases the same people at different stages of their lives.

I originally wrote the commentary in response to MSNBC’s Ali Velshi and Stephanie Ruhle who had done a story about wealth inequality in America.  The cable co-hosts self-righteously described how the wealth of the upper 1% of Americans had increased by $16.8 trillion during last thirty years while the bottom 50% saw a $900 billion decrease.  If one accepted those figures at face value one might conclude that, ‘yes, there is a problem.’  However, these two left-wing faux economists conveniently omitted the fact that Americans in the lower echelons of income and net worth do not stay there because we live in a dynamic society where people move within economic brackets, and the upper and bottom quintiles don’t comprise the same people from year to year.

https://www.dallasfed.org/~/media/documents/fed/annual/1999/ar95.pdf

Velshi and Ruhle are educated people and surely understand when referring to people in particular income brackets as “the rich” or “the poor” they are implicitly assuming these are enduring conditions and the residents in these brackets remain the same from one year to the next when nothing could be further from the truth.  As the American Enterprise Institute points out, we live in a society where the vast majority of people move from one set of economic circumstances to better ones and few Americans remain in the same quintiles over time.  Lest we forget, the founders of Microsoft, Google and Apple didn’t start off as billionaires; each of these iconic corporations began in a garage and through diligence and innovation Bill Gates and his fellow hi-tech entrepreneurs moved up through the economic quintiles.  http://www.aei.org/publication/upwardly-mobile-america/  https://pakwired.com/7-startups-that-started-in-garage/

During my working years I took part in a study conducted by the University of Michigan illustrating that very point.  The study followed the economic fortunes of a given set of working Americans over a 20-year period and revealed that 29% of the people initially in the bottom 20% rose to the top 20% during the study period, while just 5% remained in the bottom 20% throughout the study.

https://www.amazon.com/Discrimination-Disparities-Thomas-Sowell-ebook/dp/B07JLS7P8D/ref=zg_bs_8493791011_1?_encoding=UTF8&psc=1

But it’s this second statistic that’s so revealing to wit: high school algebra teaches us that 5% of 20% is 1%, which means that as an economic matter, only 1% of the people in the study never moved out of the bottom quintile.  Another misleading yet “accurate” statistic occurs when using household income as a barometer of income inequality.  By definition we know the number of households in each of the five quintiles must be identical (if that weren’t’ the case it wouldn’t be a quintile.)  However, according to the 2017 census, nearly 40 million more Americans were living in the top quintile of households than the bottom quintile; and even more telling, four times as many people were working in that quintile than in the bottom quintile, so it shouldn’t surprise anyone that the average household income was far greater in top quintile than in the bottom quintile.

https://www.census.gov/library/publications/2016/acs/acsbr15-02.html

https://www.census.gov/data/tables/time-series/demo/income-poverty/cps-hinc/hinc-05.html

http://www.aei.org/publication/explaining-us-income-inequality-by-household-demographics-2017-edition-2/

While the aforementioned illustrations bear out Disraeli’s oft-repeated quip about statistics, the truly troubling aspect of this matter is the common theme, i.e., each distortion is designed to create the illusion that there’s a problem when in reality the issue is being purposely distorted for political purposes.  And of course, by extension, the remedy to this “problem” is always the same—more government intervention in the economy.

Yes, income inequality does exist in America, but much of it is self-inflicted, something the left is loath to talk about.  Nonetheless, class warfare rhetoric would have us resenting the top 10% in income.  But that would be a farce, because statistically speaking, more than half of all Americans are in the top 10% at some stage of their lives.

Quote of the day: “When looking at the biggest study of the American dream, the number-one correlate for upward mobility is having two parents in a home.”—Stephen Marche