Economic Inequality: Facts, Theory and Significance

Policy Reports | Economy | Government | Social

No. 312
Tuesday, June 10, 2008
by David R. Henderson


  1. A version of this study was presented at a meeting of the Association of Private Enterprise Education in Las Vegas, Nevada, April 7, 2008.
  2. Milton Friedman and George J. Stigler, “Roofs or Ceilings? The Current Housing Problem,” in Rent Control: A Popular Paradox (Vancouver: Fraser Institute, 1975), pages 90-91.
  3. U.S. Census Bureau, Housing and Household Economic Statistics Division, December 20, 2005.  Available at  Access verified on March 27, 2008.  (As an aside, the Census Bureau seems incredibly interested in income data of various races.  Its emphasis on race seems more appropriate to South Africa under Apartheid than to the United States.  We are a long way from Martin Luther King’s dream of a society where someone is judged, not by the color of his skin but by the content of his character.)
  4. In 2004, the mean net worth of families headed by someone age 65 to 74 was $690,900, while the mean net worth of the families headed by someone age 55 to 64 was $843,800.  See Federal Reserve Board, Survey of Consumer Finances, 1998-2004.
  5. U.S. Census Bureau, Current Population Survey, 2007 Annual Social and Economic Supplement.
  6. Alan Blinder in Martin Feldstein, The American Economy in Transition (Chicago: University of Chicago Press, 1980).
  7. U.S. Census Bureau, Current Population Survey.
  8. Isabel Sawhill, “Poverty in America,” in David R. Henderson, ed., The Concise Encyclopedia of Economics (Indianapolis: Liberty Fund, 2008).
  9. Paul Krugman, “The Death of Horatio Alger,” Nation, January 5, 2004.
  10. For the full argument see: Alan Reynolds, Income and Wealth (Westport, Connecticut: Greenwood Press, 2006), pages 37-39.
  11. Note that this is households, not families.  There is a strong overlap but they are not the same.
  12. Thomas Piketty and Emmanuel Saez, “Income Inequality in the United States, 1913-1998,” National Bureau of Economic Analysis, Working Paper 8467, September 2001; published in Quarterly Journal of Economics, February 2003.
  13. Paul Krugman, “The Rich, the Right, and the Facts,” American Prospect, November 30, 2002.
  14. Reynolds, Income and Wealth, page 28.
  15. Michael J. Boskin, “Consumer Price Indexes,” in David R. Henderson, ed., The Concise Encyclopedia of Economics (Indianapolis: Liberty Fund, 2008), pages 77-81.
  16. Michael Cox and Richard Alm, Myths of Rich and Poor (New York: Basic Books, 1999).
  17. The next few paragraphs on the Wall Street Journal and New York Times articles draw heavily on David R. Henderson, “Income Mobility: Alive and Well,” Freeman, October 2005.
  18. David Wessel, “As Rich-Poor Gap Widens in the U.S., Class Mobility Stalls” Wall Street Journal, May 13, 2005.
  19. Note something else interesting in the Wessel quote above.  He writes, “Despite the spread of affirmative action, the expansion of community colleges and the other social change designed to give people of all classes a shot at success.”  In other words, Wessel assumes that affirmative action and higher subsidies to colleges would increase income mobility but implicitly concludes that they don’t.  But nowhere in his lengthy article does this lead him to question the need for, or desirability of, these two government interventions.
  20. Janny Scott and David Leonhardt, “Class in America: Shadowy Lines that Still Divide.” New York Times, May 15, 2005.
  21. Sylvia Nasar, “One Study’s Riches, Another’s Rags,” New York Times, June 17, 1992.
  22. Finis Welch, “In Defense of Inequality,” American Economic Review, Vol. 89, No. 2, May 1999, page  1.
  23. In order, they were Fairfax County, Virginia, Loudoun County, Virginia, and Howard County, Maryland.  Montgomery County, Maryland and Arlington County, Virginia ranked 8 and 9.  The median income in Fairfax County was $100,318.  Census Bureau, U.S. Department of Commerce,  Income, Earnings, and Poverty Data from the 2006 Community Survey, August 2007, Table 3, page  8.
  24. This section on fairness draws heavily on David R. Henderson, The Joy of Freedom: An Economist’s Odyssey (Upper Saddle River, N.J.:  Financial Times Prentice Hall, 2002), pages 157-161.
  25. Joseph E. Stiglitz, Economics of the Public Sector, 3rd ed. (New York: W.W. Norton, 2000), page 94.
  26. Stiglitz, Public Sector, page 60.
  27. The following is my version of a story originally told about Wilt Chamberlain by Robert Nozick in Anarchy, State, and Utopia  (New York: Basic Books, 1974).
  28. Kurt Vonnegut, Welcome to the Monkey House (New York: Dell, 1968).

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