"The Inequality Myth"

We've heard a lot about the growing income gap between rich and poor - a common theme around election time. In the Wall Street Journal today, economist Brad Schiller breaks down the details. He says the idea of inequality rests on two facts, but many other facts mitigate those two.
The two facts in favor

• The top 20% earners have increased their share of the pie from 43% in 1970 to 50% today while the bottom 20% have decreased their share from 4.1% to 3.4%.


• The middle 60%, meanwhile, have seen wage stagnation. The median household income is at $48,200, only $200 more than 1998 totals.

The mitigating facts

• First, the pie is much bigger. GDP is three times larger than it was in 1970, so that 3.4% slice actually represents a 36% increase in income. It's a nearly indisputable fact that the poor have significantly higher purchasing power than in 1970, even if they are farther away from the rich in income.


• Second, the population has grown by 20 million since 1970, most of it through immigration, legal and illegal. Which means that the newest Americans are poorer. Schiller gives the metaphor of a line of people moving forward...the line keeps moving, but new people keep getting on the end of the line, so that the line in fact gets longer - the people in front are even farther away from the people in back.


• And finally, and this was very interesting...all of the data is based on household income. But the combination of divorce and people marrying later has dramatically changed households. The average "population" of a household has decreased from 3.14 to 2.57, so that even if wages stagnated, the actual income has increased, because it is supporting fewer people.

My one complaint about the piece is that he uses 1998-2006 for some comparisons, and 1970-2006 for others. Clearly when Democrats talk about income inequality, they are talking about the Bush Tax Cuts. I wish Schiller had used 1998-2006 as the comparative period for all of the data points.

A point of annoyance with both parties...the Democrats hammer away at the first two points, never mentioning the latter three. And Republicans generally stay mute on the subject, instead of engaging in debate. Perhaps it's because they realize that true populist campaigns, like that of John Edwards, tend to flame out. A majority of voting Americans, it appears, don't like being told how poor they are.

Note: WSJ is a paid subscription, but I believe the opinion page is accessible for free.