Opinion Forum

The Lie of Income Distribution

July 1st, 2010

Mark Twain used to say that there were three types of falsehoods: lies, damned lies, and statistics. One of those statistics which are typically hurled at conservatives, libertarians, and classical liberals by the various demagogues of the Left is the lie of income distribution. The amount of wealth belonging to the top 10% has risen dramatically over the last 30 years, we are told. Doesn’t this obvious trampling of the working class and the poor ever make us rethink our evil, free-market policies?

Short answer? No, not really. So how do I square this with my insistence that I do not hate the poor? I’ll explain.

Let’s say that in year X:

30% of the population was making $200
25% of the population was making $400
20% of the population was making $600
15% of the population was making $800
10% of the population was making $1000

Under this scenario, the top 10% of the income earners would possess 20% of the wealth. The bottom 30% would possess 12%.

Now let’s say that 10 years later, we have a new scenario:

30% of the population was making $400
25% of the population was making $1200
20% of the population was making $1800
15% of the population was making $2400
10% of the population was making $4000

When you run the numbers this time, the top 10% of the income earners would possess 25% of the wealth, and the bottom 30% would possess 8%. Everybody’s richer in real terms, but it doesn’t look that way when you start with the theory that wealth is a finite pie divided up amongst statistically static groups. Hence the erroneous assumptions and misleading statistics.

Now here’s the other side of the coin. As Thomas Sowell repeatedly points out in his various works exposing the misleading statistics which contribute to The Vision of the Anointed, those who are in income bracket A in year X are not necessarily in that same income bracket 10 years later. Some move up. Some move down. New people enter the work force, start at the bottom, and work their way up. People lose their jobs or get fired, and fall down. The detailed numbers to support this claim can be found in Sowell’s works, including the one linked to above.

So in conclusion, even if everybody stayed in the same income bracket over time, just because the distribution of wealth has gotten more lopsided does not necessarily mean that anybody has gotten poorer. And since people do not stay in the same income bracket over time, it wouldn’t necessarily mean that there was a permanent class stuck in poverty even if the poorest income bracket was getting poorer in real terms. In short, I hereby declare this statistic debunked.

Articles written by Brianna Aubin
Tags: distribution of income, income, OMB, poverty, Sowell, statistics, wealth
Categories: Economics, Politics | Comments (6) | Home

6 Responses to “The Lie of Income Distribution”

Tom Carter | July 1st, 2010 at 5:13 am

Not so fast with that-thar debunking, Podnuh! You only presented part of the information in the OMB post you linked to in the first paragraph. I’d encourage everyone to read the whole page and look at the second graph.

A big part of your argument, and Sowell’s, deals with the mobility of people across income brackets. If you were in the bottom quintile in year X, you might be in the middle quintile in year Y and the top in year Z. That’s OK, as far as it goes, but a very important piece of data has been ignored. By far the most dramatic disproportionate growth in income has been among the top one percent of people since the late 1970s, and, according to OMB,

…this dramatic increase in incomes at the very top has not been mitigated by an increase in income mobility, which can be seen in the relatively stable probability of staying in the top 1 percent of earners from one year to the next since the early 1970s.)

Moreover, these folks captured about 75 percent of total income growth during the period 2002-2006, with the remaining 99 percent of earners sharing the 25 percent that was left.

I’m very sympathetic to your aversion to government-directed income redistribution. However, I don’t think it’s enough to say that even though people at the very top get a disproportional share of income growth, those at the bottom still see at least a little growth and don’t live worse lives, so they should just be told to “get what you get and don’t get upset” (sorry, Jim). It’s not reasonable to say that working families don’t have any less meat and bread than they had 20 years ago so they shouldn’t complain, while corporate fatcats have ever more luxury private jets and yachts and more mansions in various parts of the world, despite the failure of so many of them to do their jobs very well.

There really is a problem here, and it can’t be debunked out-of-hand (if you’ll pardon the mangled metaphor). Seems to be there are reasonable means of addressing the problem, but that’s another detailed discussion.

Brian Bagent | July 1st, 2010 at 11:09 am

Tom, if the poor are worse off today than they were 30 years ago, A) it isn’t the fault of the wealthy and B) while their (the “poor”) incomes may have increased in real terms, their purchasing power has either remained static due to INFLATION, another thing for which the wealthy are not responsible.

I see it frequently in my job. I have a patient in my service that has bladder/prostate cancer. As a result of the bladder CA, he has nephrostomy tubes (urine drains directly from his kidneys through these tubes into collection bags) because he cannot collect and relieve urine through his bladder. He has frequent urinary tract infections. While his family sits around watching cable on their giant flat screen TV, they cannot afford to go buy this man generic Tylenol at $3/50 pills.

My point is not that these people are apathetic about their dying family member, it is that what we know of as poor in this country just really isn’t so poor.

You see real and rampant poverty where you live. You’ve seen it all over the world, as have I. We have very little poverty here.

In terms of physical possessions, I have very little myself. I don’t have cable/satellite, but I do have a cell phone and high speed internet. I don’t have a house full of things, either. I have mostly the things that I want, and a place to live that’s dry, warm in the winter and cool in the summer. My freezer is full, and by this fall I imagine I’ll be giving away more food than I actually eat.

Security cannot be measured (should not be, anyway) by what we have, but rather by what we realize we can live without, by understanding the difference between necessities and luxuries. Many, particularly on the left, may not understand the difference, but that does not mean that the difference ceases to exist.

Brianna Aubin | July 1st, 2010 at 1:25 pm

My main focus was in pointing out that an increase in income inequality does not mean that anyone has been harmed, stolen from, or cheated out of “their fair share.” My focus was on on debunking the entire article, but the idea that a single graph which demonstrated this could be taken as proof that somebody has been cheated or has suffered injustice. I admit that I should have realized that the rest of the article, which I actually paid very little attention to, would have been construed to be part of what I was debunking. I should have paid more attention to it.

That said, nothing you’ve said or the article says has demonstrated that a) anyone has been deprived of something to which they have a right, b) anyone, including the poor, has gotten poorer in real terms, or c) government must step in to make things more equitable.

Brianna Aubin | July 1st, 2010 at 1:26 pm

Where I said

“My focus was on on debunking the entire article”

I meant to say

“My focus was NOT on debunking the entire article”

Sorry.

Tom Carter | July 1st, 2010 at 1:30 pm

Brian, I pretty much agree. Poverty in America doesn’t compare to real poverty as it afflicts many millions of people elsewhere in the world. I’ve seen it in many places, particularly in Africa, and it’s terrible. (By the way, this part of Europe doesn’t have “rampant poverty” in that sense.)

I also agree that poverty is a relative thing — like you, I’m not rich, but I have what I need plus most of what I want, and that’s enough.

As I indicated earlier, I don’t like the concept of government-forced redistribution of income. Nevertheless, I’m appalled by the degree to which wealth has been amassed in the hands of a very, very few people during the recent past. And, as the OMB document points out, there’s not very much mobility in that small group of people. I don’t object to smart, ambitious, creative people getting rich; that’s the engine that makes free markets work. Having said that, I’m not sure what should be done, if anything, about the increasingly gross concentration of national wealth in the hands of a very few people.

Brian Bagent | July 1st, 2010 at 4:29 pm

Tom, as you might guess, for me it depends on how the wealth was obtained. I look at people like T.J. Rogers and am excited that he could make an absolute fortune. I look at people like Al Gore and it makes me want to vomit to think that he has accumulated as much wealth as he has and has never produced anything.

It isn’t the businessmen and women that are the issue, it is the leeches, ticks, fleas and lice like Gore that are the issue. To be fair, there are plenty in the business world that are parasites, too, but unless they can get a suckle at the government dugs, their businesses usually founder, which is exactly what should happen to them.