Please Do Your Job

by Russ Roberts on January 27, 2006

in Inequality, Media

The headline:

Study Finds Rich-Poor Income Gap Growing

The story by Mark Johnson of the Associated Press begins:

The disparity between rich and poor is growing in America as the
federal minimum wage has remained flat for years, union membership has
declined and industries have faced global competition, according to a
study released Thursday.

Interesting.  Let me try a different first sentence:

The disparity between rich and poor is growing in America as the Red Sox won their first World Series in 86 years, Mars came very close to the earth and the global frog population plummeted. 

I don’t actually believe that the disparity between rich and poor is growing.  At least I don’t believe the numbers that supposedly tell us so.  Or more accurately, I don’t believe that the interpretation of the numbers is the right one.   But even if the interpretation is the right one,  how can an Associated Press story list the supposed causes of that growing disparity as if they were facts rather than the pet agenda items of the groups that put out the study?

The story continues:

The report by the Center on Budget and Policy Priorities and the
Economic Policy Institute, both liberal-leaning think tanks, found the
incomes of the poorest 20 percent of families nationally grew by an
average of $2,660, or 19 percent, over the past 20 years. Meanwhile,
the incomes of the richest fifth of families grew by $45,100, or nearly
59 percent, the study by the Washington-based groups said.

Families in the middle fifth saw their incomes rise 28 percent, or $10,218.

The figures, based on U.S. Census data, compare the average growth from 1980-82 to 2001-03, after adjusting for inflation.

The poorest one-fifth of families, the report said, had an average
income of $16,780 from 2000-03, while the top fifth of families had an
average income of $122,150 — more than seven times as much.
Middle-income families’ average income was $46,875.

This is fake analysis.  It’s comparing two snapshots over time and pretending that the people in the snapshots are the same people.  The implication is that if you were a poor family in 1980, you barely got ahead while the rich families, turbo-charged ahead of everyone else and left them in the dust.  The rich get richer and the poor basically stay poor.

But they’re not the same people in the two snapshots.  The comparison of the two snapshots is close to meaningless.  The bottom quintile of families today includes a bunch of people who weren’t there in 1980.  Some of the families are recent immigrants to the United States seeking opportunity.  Some of the families are young and just starting out.  Some are the result of a divorce that has dumped one or both partners into poverty and it will take time for them to recover. 

And most importantly, some of those rich families today that have allegedly zoomed ahead were poor in 1980 but have become rich in the meanwhile, an experience that is the exact opposite of what the headline would have you believe.

In short, the people who did the study are lazy.  But I expect them to be.  They’re from the  Center on Budget and Policy Priorities and the
Economic Policy Institute.  That’s their job—to produce pessimistic analyses that make people think the rich are getting richer and the poor are getting poorer and to claim a causal connection between bad times and weakened unions.

But that isn’t Mark Johnson’s job.  Mark, your job is to inform.  Or maybe to help sell newspapers.  But either way, it doesn’t speak well of you or your job to simply run the press release from the  Center on Budget and Policy Priorities and the
Economic Policy Institute under your byline.  If your job is to inform, you might want to interview a few people who don’t think about the world in the same way as the CBPP and EPI.  If your job is to sell newspapers, a little tension and counterpoint make more interesting reading.

To be fair to Mr. Johnson, he did call someone who didn’t work for the people who did the study to add some "balance" to the story.  So who did he call?   Another pro-union activist:

Trudi Renwick, an economist with the union-backed Fiscal Policy
Institute in New York, said globalization, the decline of manufacturing
jobs, the expansion of low-wage service jobs, immigration and the
weakening of unions have hurt those on the lower end of the economic
scale.

After some data on state-level inequality, Mark Johnson finally quotes someone "on the other side," someone from the business community:

Matthew Maguire, a spokesman for the Business Council of New York
state, said the money earned by the state’s wealthiest residents is
"something that everybody who cares about New York should be pleased
about."

"New York’s wealthy pay huge sums in taxes and those wealthy people
and their taxes make it possible for New York to provide the nation’s
most generous social service programs to less fortunate New Yorkers,"
he said. "It also reflects the fact the state is a magnet for
immigrants who come from the four corners of the globe to a state they
see as symbol of economic activity."

Isn’t this rich?  (Aren’t we a pair?)  The voice from "the other side" accepts the analysis as true but disputes the implication that rich people getting richer is bad.  It’s good!  What a loveable counterpoint.

And then Johnson closes the piece giving more space for Trudi Renwick’s agenda, the same agenda of the Economic Policy Institute:

Renwick said the government "needs to continue its commitment to
correcting the natural outcomes of the marketplace" by raising the
minimum wage with inflation and by tax policies like the earned income
tax credit.

Renwick also suggested that governments, when giving tax breaks to
companies, insist those companies provide jobs that pay higher wages.

That’s it.  Not one quote from someone who is skeptical of the analysis.  Not one quote from someone without an ax to grind.

Mark, call someone else other than union-backed economists or business lobbyists.  Call someone at a university.  Or if you want to stick with think tanks, call Robert Rector at Heritage.  He can explain why the numbers you swallowed are silly.  Do your job.

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{ 49 comments }

Christopher Meisenzahl January 27, 2006 at 8:13 am

That was great Russell. I was also miffed by the implied cause/effect relationship assumed in the first paragraph. Well done.

josh January 27, 2006 at 8:53 am

You should write a letter to the editor. I would do it, but you're a better writer and have a nice title so they'll take you seriously.

spencer January 27, 2006 at 10:07 am

If this analysis and data is so bad or fake it should be an easy job for a PhD. economist like you to construct data that shows how it is wrong.

Numerous analysis and sources show growing income inequality.

So what do you expect to prove by running around claiming they are fake without any work to support your argument.

SHOW ME THE DATA.

Ivan Kirigin January 27, 2006 at 10:25 am

Reminds me of discussion here:
http://www.samizdata.net/blog/archives/008517.html

Don't take surveys, because your leaders will become planners.

Slocum January 27, 2006 at 10:30 am

Even if they're not the same people now in the bottom quintile as they were in 1980 (and I'm sure that's true–people do tend to move up and then down over the course of their working lives), it is still true that the ratio of income between those at the top and those at the bottom has increased — is it not? One might reasonably ask, why this is happening, whether or not it is a problem, and what, if anything, should be done.

rea January 27, 2006 at 10:43 am

I talked to a reporter on the Chicago Tribune about it and was rather pleased with the way she used my quotes/take.

Very quickly:

Income inequality is increasing but that's to be expecting during an economic expansion.

A more important factor is demographics which the CBPP barely touched. Families in the lower quintile are usually single parent families with less than a full time earner. Families in the top quintiles often have at least 2 earners, so part of what the CBPP finds is a disparity in work. Work more, earn more.

The rise of dual earner families have contributed a bit due to assorted-mating, although the CBPP says it has worked to Lessen income inequality.

I do believe there are some macroeconomic trends such as shift from manufacturing to service, etc. In short, the return on education has increased over the last few decades. I believe that is an important contributor.

Still, demographics gets very short shift in the CBPP report, which isn't surprising.

Keith January 27, 2006 at 10:47 am

The point that "low income" is not increasing as fast as "high income" is inceasing is that when you're starting at the bottom today, you're still pretty close to the same bottom we had 20 years ago, but how high you can climb from the bottom is much higher than it was twenty years ago.

Is the goal to have everybody start out their lives as millionaires with this level of opulence just handed to them?

Don Boudreaux January 27, 2006 at 10:50 am

Spencer,

While it's fair to request data contradicting those reported in this AP news story, it's also perfectly acceptable for Russ to point out that the data reported there are themselves supported inadequately. At the end of Russ's post, he suggests alternative sources of data, or sources of alternative interpretation. Russ's criticism of the report is justified because that report is written as if there are no serious objections to its worldview.

John P. January 27, 2006 at 10:54 am

Even if the poor/rich rates of increase really are growing apart, why is that a problem as long as both are still positive? Everyone is still getting richer. The only downside I see is a possible increase in the risk of political unrest.

Steve Miller January 27, 2006 at 10:59 am

"So what do you expect to prove by running around claiming they are fake without any work to support your argument."

"SHOW ME THE DATA."

First, he is not saying the data is fake. He's saying the analysis is fake. It's shallow and intellectually dishonest.

As for offering a more honest analysis, with more and better data to address the arguments along this line, he wrote a six-part series last May on inequality of wealth and incomes. I would give you the benefit of the doubt, think maybe you missed it, but clearly you were around for it, since part 6 was apparently a response to concerns *you* voiced, no?

Maybe you just have a bad memory.

http://cafehayek.com/2005/05/inequality_vi.html

Jeff January 27, 2006 at 11:21 am

Even if the analysis is true (and that's a big if) have we forgotten the lesson from the 1975 Sears catalog already?

Even if your income increases by inflation alone, you are still better off because new products exist today and old products are cheaper than they were in prior years. Who cares if the rich are getting richer faster? After all, they drive the push for newer and cheaper products as much or more than the rest of us. Even with little or no growth, today's poor are better off than those in 1980.

Randy January 27, 2006 at 11:43 am

I agree with Russell that the snapshot approach gives an incomplete picture at best.

But I also have to take issue directly with the idea that income inequality is a bad thing. It seems to me that wealth grows at the top first and then expands downward. The politics of envy, by putting the brakes on growth at the top, puts the brakes on growth at the bottom as well.

Also, if wages at the bottom are stagnating (and it wouldn't surprise me in the least), then it is primarily because these workers are being paid in government services rather than dollars. They are being paid in the form of Social Security and Medicare, unemployment insurance, national defense, highway maintenance, environmental protection, subsidies to farmers and manufacturers, foreign aid, etc., etc., etc. The problem really is that these workers have voted for politicians that promised them both dollars and government services. And unfortunately, they can't have both.

Andy January 27, 2006 at 12:09 pm

I think the bigger point about the CBPP was missed here; they're just socialists in liberal clothing:
The Center conducts research and analysis to inform public debates over proposed budget and tax policies and to help ensure that the needs of low-income families and individuals are considered in these debates. We also develop policy options to alleviate poverty, particularly among working families.

In other words, a group that says the only way to fix the problem with poverty is with more government produced a report that says we need more government.

And note that they started their review in 1980, 1 year before Reagan took office. They didn't start in 1960 or 1976.

Noah Yetter January 27, 2006 at 12:17 pm

You can't "prove" that income inequality is growing or shrinking or large or small becuase it all depends on how you define the terms. Income inequality isn't some physical fact like mass or distance, or even a socio-economic fact like absolute income or the nominal interest rate. It is a derivative metric designed to proxy for abstract concepts of "social justice" (which are also subject to creative definition).

Which leads me to my real point, which is that I would like to counter by disputing the notion that income inequality is bad. Just think about it for a second: if inequality is bad, then equality is good right? So society would be best off if gardeners and CEOs earned the same income? Not even a card-carrying socialist would make that claim today. So clearly SOME amount of inequality is good. How much? How could we possibly know, especially since we can't measure it? And if we can't know how much is best, how do we know whether we have too little or too much, and therefore whether we ought to have more or less?

save_the_rustbelt January 27, 2006 at 12:19 pm

Conservatives have given up on reality in an effort to protect George Bush, who is not even a conservative but a crony capitalist who takes orders from his daddy's rich friends.

Many of my Republican colleagues like a good stock of poor people, so they have someone to mow their grass, clean their houses and raise their children.

If you believe in dog-eat-dog capitalism that is fine, just be honest about it.

JABBER January 27, 2006 at 12:21 pm

I'm not pointing this comment at anyone in particular, just commenting/asking: What is a "stagnant" income? Presumably, it means an income that isn't moving, that is sitting still. I think we can all agree that that may well be true for some workers. However, I think the data is also very clear that REAL wages have at least stayed even (ie, "stagnant"). But is that so surprising? Is a burger flipper today worth more than a burger flipper yesterday? I say "no," and, as such, why should we expect that the burger flipper would be paid more in real terms? The chief benefits of economic growth will ALWAYS (in a market economy, at least) accrue to the most productive persons in that economy; that's as it should be, from a "meritocratic" point of view.

The problem, of course, is that the relative gap between classes (to the extent that it's growing) is a POLITICAL problem. Taken to excess, such a gap could lead to serious political repercussions. THAT is a subject worthy of debate as to how to handle it. For those of us who believe in Markets (as I do), the economics are clear, but it is naive to ignore the political realities, as distasteful as they may be.

Randy January 27, 2006 at 12:36 pm

Jabber,

I absolutely agree. In my words, inequality is a socio-political problem. Not a free market problem.

JABBER January 27, 2006 at 12:42 pm

Yes, indeed, Randy. Of course, the question becomes, as Noah Yetter nicely put it, "How much inequality is too much?" You can't ever (nor should ever!) eliminate it entirely, but what is a "healthy" level of inequality that both provides sufficient incentive to innovation, but which is not so large as to cause political turmoil? An age-old, and probably endless, debate topic…

Randy January 27, 2006 at 12:43 pm

Save th rustbelt,

There is no such thing as dog-eat-dog capitalism. There is only dog-trades-with-dog capitalism. The problem is that there are some dogs who haven't the ability or inclination to create something to trade. This problem is not created by the free market, nor is it the responsibility of the free market to solve. It is a problem for socio-political sytems to solve. And no matter how they choose to solve it, they must remember that they are dependant on the wealth created by the free market – i.e., the trader dogs.

Ammonium January 27, 2006 at 1:09 pm

In my research, I've come across similar types of research that tries to show that different parts of the country are getting wealthier at the expense of others (e.g. rural/urban). But it's pretty easy to keep track of individual counties and show that the rich getting richer, poor getting poorer is a result of the richest counties changing classification.

Some other points:
–This country has a net increase of jobs, and those new workers have lower wages because they are just starting out. This depresses average incomes near the bottom of the income distribution.

–Income growth is due to increased productivity. People at the lower end of the income distribution are less likely to be affected by new technology, and if they are, they'll probably move out of the bottom of the distribution.

–I don't know much about the data on two earner households. But if it's true that they are becoming a lot more numerous, it's likely that the increase favors the wealthier part of the distribution — households with a high earning parent can better afford to have one parent stay at home with the children.

Ivan Kirigin January 27, 2006 at 1:40 pm

Poverty matters. Income inequality doesn't.

People that are starving or without basic health care are in trouble. I hope they get helped by charities in their community to turn their lives around. Some would like the government to act.

The fact is that discounting immigrants, there is a far smaller proportion of destitute people today than anytime in America's history. Immigrants start at the bottom, and very often do very well for themselves.

Note that I've only addressed what is important: the minimum needed to stay alive and healthy.

Anything beyond that in relative measures is based on jealousy or socialism.

Also, another good point about stats & planning.
http://www.globalisationinstitute.org/blog/0601_sir_john_cowperthwaite_19152.php
'I met Cowperthwaite in 1963 on my next visit to Hong Kong. I remember asking him about the paucity of statistics. He answered, "If I let them compute those statistics, they'll want to use them for planning." How wise!' – Milton Friedman

John P. January 27, 2006 at 2:02 pm

Randy wrote, "There is no such thing as dog-eat-dog capitalism. There is only dog-trades-with-dog capitalism."

That's excellent.

Swimmy January 27, 2006 at 2:13 pm

save_the_rustbelt:

Your point seems to be that people with few employable skills should not be allowed to work because Republicans benefit from it. Am I reading that right?

NotI January 27, 2006 at 2:35 pm

Maybe they should have called you doc.

You certainly don't have an axe to grind.

LOLBBQHOLYCRAP

Econ-in-AK January 27, 2006 at 4:22 pm

Dr. Roberts makes a good point about this not being a longitudinal study. I'm not sure I like using household numbers for these types of analysis. The disparity between 2 earner and 1 earner households is too great.

Also, inequality might be a bad word. I'd prefer distribution. That's really what we're talking about here – income distribution.

The data is available to compute gini coefficients or even good 'ol Standard Deviations of individual incomes for each state. In most states they can compute those stats for specific counties/regions. Each state collects UI wage records for all wage/salary workers. It's not perfect, but it encompass the majority of earnings for the majority of people. It's also possible to get these same stats for a longitudinal study, but nationwide demographic data isn't very good from what I understand. Here in Alaska we're lucky to have secondary sources we can match too, in order to pin down age, gender, and place of residence.

I think the true disparity in cost of living is becoming much greater today than it was 10 years ago. Therefore, the 'poor' quintile has much great purhasing power if they live in a more affordable region. Making $80,000 a year in New York doesn't make you rich at all. Move to rural Minnesota though, and you'd be doing pretty well.

Unfortunately, people their analysis to be summed up with cliches like, "the rich are getting richer and the poor are getting poorer." Russel is correct in claiming that this study doesn't confirm that. Only a longitudinal study could do that. The sad fact is the data exists, it just has to be employed the correct way. As usual, the devil is in the details (or methodology, if you will).

liberty January 27, 2006 at 4:35 pm

No reporter is ever good when it comes to economics.

The point that it isn't the same people in the income quintiles between 1980 and today is a very important one. If the bottom quintile is doing the same today as then, while the top quintile is much better off, then one analysis might say that there is a larger gap, but in truth it just means that today wages of the least productive remain the same, while the more productive members of society are better off. If the people in the bottom quintile are primarily students, immigrants and young workers (which they are) then this should not be a disturbing statistic.

Economic mobility does need to have increased recently (it can even have slightly decreased) for this to be true – so long as most people in the bottom quintile are able to work their way out.

Many studies of economic mobility also use a strange definition. They define economic mobility as those movements which occur not because of age and experience but because of some ephemeral notion of social mobility; so that the quintile one starts out in at youth is noted and then when you are 45 years old and have moved up three quin tiles your income is compared only against other 45 year olds – so though you may be in the 4th quintile not the first in society, if all other 45 year olds are also rich and many richer, you are considered to still be in the bottom quintile for the purposes of the economic mobility study. So the American Dream itself of working your way out of poverty is ignored and we are told that economic mobility is falling in the United States (and the Americna Dream is dead) and mobility can not be used to "justify" income inequality.

liberty January 27, 2006 at 4:52 pm

>Russel is correct in claiming that this study doesn't confirm that. Only a longitudinal study could do that. The sad fact is the data exists, it just has to be employed the correct way. As usual, the devil is in the details (or methodology, if you will).

But the longitudinal data is there and the evidence is clear. Most of the poor are students and young workers – for example, the BLS tells us that the majority of those earning the minimum wage or less are under 25 and most are in service jobs (eg some may be getting tips that are not counted) and this is true of most under the poverty line as well; household survey show that most under the poverty line actually have cable tv and other luxuries, presumably because they have other sources of income or wealth that allow them to purchase such things.
http://stats.bls.gov/cps/minwage2004.htm

We also know from longitudinal studies that most people in the bottom quintile quickly move out of it and so long as the definition of mobility does not allow economists to dismiss the findings, almost nobody remains below the poverty line for long.

http://www.urban.org/publications/406722.html
http://www.dallasfed.org/fed/annual/1999p/ar95.html

John Pertz January 27, 2006 at 5:37 pm

I just wanted to offer a though expirement to the socialists on this board. Lets say that you are in charge of moving a group of 50 million sub saharan Africans from the continent, what country would you send them to. Think in terms of labor market regulation and what countries have sufficient capital to be able to create jobs that could handle such a massive influx of people. What country would you chose? BTW, what exactly is the difference between American liberalism and socialism. Certainly it is more moderate than Bolshevism but I do not think it is too many steps away from European social democracy.

Econ-in-AK January 27, 2006 at 5:48 pm

Shoot, I had a whole response typed out, then I clicked on one of your links and it disappeared.

Ironically, I'm just finishing up a paper on economic mobility for young workers in Alaska.

It's true that people can and do often move above the poverty line over time. However, people don't want to be just above the poverty line. Also, the poverty line is just a number, but the cost of living varies widely enough that what constitutes a living wage in one city/ara may not be true in another.

To measure mobility, we're looking at how a worker can do compared to workers their own age or experience level. Some of the links you pointed out had selection biases, or matched up their cohort with a cross-section of that year's earnings data.

As you said, yes, the American dream is alive and well. I can verify it's being fulfilled by many thirtysomething workers here in Alaska. You have to be very careful about how you deal with students and part-time workers in these studies. Throwing them into the mix, against older, full-time workers will pollute that lower quintile and make it easier to move up. My study took steps to avoid this and other issues as well.

I read through the links you provided, and I think they just back up the issues you point out. Longitudinal studies have to foll

Econ-in-AK January 27, 2006 at 6:00 pm

"Lets say that you are in charge of moving a group of 50 million sub saharan Africans from the continent, what country would you send them to."

That's kind of loaded question. You wouldn't send them to the U.S. because we already have many workers here willing to work for low wages, and potentially a lot more if we continue to do a poor job of border control.

You'd send them to a developing country where they could build infrastructure and make ag or capital improvements funded by U.S. multi-nationals. The only problem is there aren't many places in the world where such a labor pool is needed and can't be found locally, and even less countries where the government is unobtrusive enough to make it profitable.

Plus the labor would probably have to be fairly unskilled. Where would you put them? I'd probably put them to work building railroad roads, ports and sugar cane farms. I hear some companies in Brazil can produce Ethanol for $0.80 per gallon. Perhaps that number could be reduced to $0.60 even, then you'd be looking at a substantial way to reduce dependence on oil.

Econ-in-AK January 27, 2006 at 6:03 pm

Plus the labor would probably have to be fairly unskilled. Where would you put them? I'd probably put them to work building railroad roads, ports and sugar cane farms (or soybean farms). I hear some companies in Brazil can produce Ethanol for $0.80 per gallon. Perhaps that number could be reduced to $0.60 even; then you'd be looking at a substantial way to reduce dependence on oil. In Brazil I think it's federal mandate that you have to offer ethanol as a fuel and gasoline has to be 25% ethanol. Of course, this wouldn't necessarily have to be done in Brazil.

liberty January 27, 2006 at 6:05 pm

>To measure mobility, we're looking at how a worker can do compared to workers their own age or experience level.

Why? That was my point. Think about it. Most people in the bottom quintile are young or are part time workers (eg mothers who work part time as kindergarten teachers, etc). And most young people begin in the bottom quintile (think high school and college students, young workers in their twenties, internships, etc)

This doesn't "bias" the study, making it seem easier to get out of the bottom quintile – that *is* the bottom quintile.

Most of those young workers or immigrants move out of the bottom quintile – not to just on the other side of the line, most move two or three quintiles in their lifetime.

Then if you compare only against older workers it may not look like they moved very far, but that is because *all* the older workers have been able to do well and move out of the bottom quintile over their lifetimes. That is because the American Dream works, but the data makes it look like we have low mobility!

Its bizarre to say the least.

John Pertz January 27, 2006 at 6:23 pm

The answer to my question is the United States. Its the only nation in the world that could handle such a massive influx of population and not feel too many negative shocks from it. I dont think its a loaded question either. Its just that many times you will often hear people say that the U.S is bad for the poor and that Western Europe is good for the poor. So I tried to think deeply about that comment and I thought to myself if that were so then Western Europe would be the answer to the though expirement. However, it obviously isnt in comparison to America. America is the only nation in the world that could handle the influx and I submit that enmployment probably would not rise too much.

Econ-in-AK January 27, 2006 at 6:56 pm

RE: Sub-saharan Africans in the US

I see your logic, and I could see where you were going with the excerise. My point was more from an investment standpoint. I don't think there's that much demand for that many unskilled laborers in the U.S., besides, we already have a steady flow of immigrants vying for those jobs.

To make the move beneficial, to all parties, you'd have to put them where they could generate the best return on investment. I don't think that place is the U.S. right now. Furthermore, I think that's why you see many companies holding back investment. We've heard lot's about the amount of cash American companies are holding but not investing. Where do you invest it in the U.S.?

If you abolished minimum wage laws, then I'd agree with you. It doesn't make much sense otherwise and you'd really do everyone a disservice. China, India, SE Asian countries, and South America all have tremendous comparative advantages in terms of cheap labor, the new African labor would not be worth (on average) our minimum wage.

save_the_rustbelt January 27, 2006 at 10:32 pm

"Your point seems to be that people with few employable skills should not be allowed to work because Republicans benefit from it. Am I reading that right?"

Actually, people with plenty of employable skills and long track records are unemployed or more likely underemployed while we do every thing possible to boost China's economy and make Wall Street more prosperous.

My fellow conservatives are constantly complaining about redistribution, but they seem quite comfortable with the current upward distribution.

The Bush administrative is not in any real sense conservative, they are crony capitalists stacking the deck for their friends.

Russell Nelson January 28, 2006 at 2:45 am

save_the_rustbelt: I don't see your point. Economies change over time. Are you saying that everyone who has ever had a job is entitled to keep that job until they die? The skills needed for jobs, the inventions needed for products, the capital needs for production is never in equilibrium. Sometimes the rich get richer. Sometimes the rich get poorer. Sometimes the poor get richer. Sometimes the poor get poorer. It's simple economic nonsense to imply that the rich are getting richer off the backs of the poor, or that the poor get rich off the backs of the rich. You should spend more time reading and less time writing.
-russ

Russell Nelson January 28, 2006 at 3:08 am

Spencer: you're coming to a gunfight armed with only a knife. Let me try to explain it to you in small words:

The proportion of rich to poor used to have one value. Now it has another value. Everyone agrees that that's true. It's complete, total, and absolute nonsense to say anything, given only those two proportions, about the people involved. Maybe the people who used to be poor are now rich, thus the rich now are richer than the poor then, because the poor then are now the rich now.

Swimmy January 28, 2006 at 12:20 pm

"The Bush administrative is not in any real sense conservative, they are crony capitalists stacking the deck for their friends."

This is actually a valid point, though I don't think in the way you intended it to be. The Bush administration is not in any real sense conservative, and they are undoubtedly, like most politicians, guilty of handing out favors for their friends.

This hardly makes them capitalists, though. Capitalism is that thing where the government doesn't regulate / help businesses in the market. "Outsourcing" to India is not a government initiative and can not be blamed on a nebulous "we"; it is individuals and businesses voluntarily cooperating with each other for mutual gain. Were the Bush administration to support legislation to prevent this, *that* would be placating their friends, much like they did with the steel tariff.

Cris Sullivan January 28, 2006 at 1:32 pm

How many people/households are in the bottom quintile? How many in the top quintile?

Thomas Sowell, on BookTV a few years back, pointed out that these quintiles are rarely based on population (This 60 million makes X while this 60 million makes Y), but based on WAGES EARNED. In other words, if there were a spread in salaries across America where the poorest people made 1 dollar/year and the richest made 100 dollars/year, even if there were 10 million people who made between 1-20 dollars and 100 million between 80-100 dollars, these same groups would be barking about the income inequality based on the quintiles.

I believe Sowell said that about 16 million households were in the bottom quintile and about 37 million were in the top.

liberty January 28, 2006 at 2:05 pm

>I believe Sowell said that about 16 million households were in the bottom quintile and about 37 million were in the top.

That is frightening. You can make your own quintiles though, if you have household level data. A great source for cross-crountries comparisons of household level data, where you can make your own quintiles that are truly 20% of households in each is the Luxembourg Income Study – where data from most Western European countries and the US, Canada, etc (OECD countries) are comparable.
http://www.lisproject.org/

medusa January 28, 2006 at 7:26 pm

Ok, I get it that some folks make more than others. But how do expenses figure in? Being a small-time bookkeeper, what I'm asking is: who cares if you make a lot of money if you also spend a lot of money? Where does that money go? Into other folks' pockets. What's the problem?

Rather than show the disparity in income between the bottom whatever and the top whatever, show me the disparity between the self-employed and the wage earner. That would be a telling number.

Kevin January 29, 2006 at 12:30 am

Wow, peoples' reaction to the "disparity" never ceases to amaze me. I'm confident that there IS a growing disparity between the statistical high-end and low-end classes (not necessarily among the actual people who were in those classes at any time, they move) — and furthermore I think that's HEALTHY, and I can't imagine a free economy that is growing in size and productiviy where this DOESN'T happen as a long-term trend.

As society becomes richer and moves up Mazlow's hierarchy, there is ever more money sloshing around to richly award those with the most valuable, desireable skill sets: NFL quarterbacks, brain surgeons, movie stars, best-selling authors become the locus of huge surges of demand at the margins, as people can better afford the luxuries of life — football tickets, brain surgery, DVDs. And so yes these scarce people make 10 or 20 times what their predecessors did thirty years ago. (So what?)

That'll damn sure skew the upper quintile's averages.

Ditto, but to a lesser magnitude, for the skilled engineers, corporate VPs, consultants in the top 25% or 30% of the income scale.

But you don't seriously expect the burger flippers to make 20 times as much do you? An unskilled high school-dropout fry cook doesn't have much to offer the economy, so he's not going to make $30 an hour. If he did, what the hell incentive would there be for him to pick up skills that are actually needed? It's a profoundly good thing that a free economy guides people to maximize their own skill sets (whether or not they answer the call).

My analysis doesn't call on union membership or global competition as causal factors. BTW Look at Ford and GM right now to see the "benefits" of union membership evading economic reality just a bit too long.

Mike January 29, 2006 at 1:45 pm

The income gap has been noted throughout history as a strong factor in the rapid decline or overthrow of a society. Plutarch wrote almost 2000 years ago, "An imbalance between rich and poor is the oldest and most fatal ailment of all republics." You see this playing out a lot in South America today.

The numbers can be manipulated to support a wide degree of pre-conceived positions. But what seems to have the largest impact, in the end, is the perception of how wide – or unfair – the income gap is.

Steven M. Warshawsky January 29, 2006 at 5:39 pm

When I first read the headline to this entry — "Please do your job" — I thought it referred to the studies that show that wealthier people are wealthy in substantial part because they work more than those who are less well off. Any professional or entrepreneur knows that you are unlikely to be successful simply clocking in at 9 and clocking out at 5. It takes time and effort to develop skills and then apply those skills effectively to the economic tasks at hand. For the vast majority, success comes only through sustained hard work.

liberty January 29, 2006 at 5:45 pm

>The income gap has been noted throughout history as a strong factor in the rapid decline or overthrow of a society.

But weren't those societies ones with very low income mobility? The rich were nobles and the poor serfs or something to that effect. Yes, then the poor will revolt; but if the poor one day *are* the rich the next there is little reason to overthrow the government which allows this ascension, wouldn't you agree?

There may be politicians that see the gap as unfair, but most Americans think it is quite fair that hard work allows people to climb out of poverty and become the self-made wealthy.

averagejoe January 29, 2006 at 9:26 pm

The whole idea is to create more rich people who can invest their free capital in risky ventures that will benefit everyone and create returns that encourage more of the same activity.

The investments are like rains that continually raise the water level in the lakes. As the water rises it covers some of the rocks and lifts all seaworthy craft.

xteve January 29, 2006 at 9:54 pm

Someone should compile a chart using all the age statistics of the population & divide them into quintiles. If my assumptions on population growth are correct — birthrates, life expectancies, etc — then the data would show that old people keep getting older while the youngest people keep getting younger.

That'll show how absurd their analysis is.

James January 29, 2006 at 11:43 pm

Making demands like "SHOW ME THE DATA" is nothing like bringing a knife to a gunfight. It's like bringing a bunker. By demanding more descriptive statistics, one can bypass uncomfortable issues like inference, coding, causation and interpretation entirely, all the while insisting that the other side is substituting faith for facts.

triticale February 5, 2006 at 10:52 pm

Income, income distribution, and changes in income tell only part of the story. Since 1980 I'd estimate that I've moved from the bottom to the top of the second quintile, but that doesn't describe how much better off I am. I'm not working anywhere near as hard for my money; instead of a hot, dangerous (I could show you scars) Rust Belt job I have an easy fun one in an industry which barely existed then. Thanks to the passage of time I no longer need to support a son out of that income; he's off in the bottom quintile himself now. Also thanks to the passage of time, I own two homes free and clear, and thanks to the Gingrich-era "tax cuts for the rich" I'm going to keep the couple hundred thousand I'm about to sell one of them for.

Maybe I'm missing something, but I fail to comprehend how I'm hurt by other people earning more as long as I'm living large on what I'm earning.

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