THE INEQUALITY MYTH
March 10, 2008
While figures from the U.S. Census give some substance to the fears of widening inequality and middle-class stagnation, the situation is not nearly as clear-cut, says Brad Schiller, a professor of economics at American University and the University of Nevada, Reno.
In its latest report, the Census Bureau tracked changes in incomes all the way back to 1967. Two observations grabbed the headlines.
- The data indicate that the top-earning 20 percent of households get half of all the income generated in the country, while the lowest-earning 20 percent of households get a meager 3.4 percent.
- That disparity has widened over time; in 1970, their respective shares were 43.3 percent and 4.1 percent.
- These income-share numbers buttress the popular notion that the "rich are getting richer while the poor are getting poorer."
- The median household income in 2006 was $48,201, just a trifle ahead of its 1998 level ($48,034).
- That seems to confirm the Democrat candidate's claims of middle-class stagnation.
Demographic changes in the size and composition of U.S. households have distorted the statistics in important ways, explains Schiller:
- All the Census Bureau tells us is that the share of the pie consumed by the poor has been shrinking (to 3.4 percent in 2006 from 4.1 percent in 1970); but the "pie" has grown enormously.
- This year's real gross domestic product (GDP) of $14 trillion is three times that of 1970. So the absolute size of the slice received by the bottom 20 percent has increased to $476 billion from $181 billion.
- Allowing for population growth shows that the average income of people at the bottom of the income distribution has risen 36 percent.
They're not rich, but they're certainly not poorer. In reality, economic growth has raised incomes across the board, says Schiller.
Source: Brad Schiller, "The Inequality Myth," Wall Street Journal, March 10, 2008.
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