Different Data

by Don Boudreaux on November 27, 2007

in Data, Inequality, Myths and Fallacies, Standard of Living

Here’s a letter that I sent today to the New York Times:

Paul Krugman continues his drumbeat message that ordinary Americans are stagnating economically (“Winter of Our Discontent,” November 26).  But data that he frequently cites to support his claim (especially from economists Thomas Piketty and Emmanuel Saez) are not of real flesh-and-blood persons through time; they are of statistical categories such as deciles or quintiles of income earners. Changing demographics and movements of persons from quintile to quintile mask potentially huge changes in the underlying reality.

Sure enough, recent data from the IRS that are of real-life persons reveal that ordinary Americans are prospering.  Economist Thomas Sowell summarizes some germane revelations of these data: “People in the bottom fifth of income-tax filers in 1996 saw their incomes rise 91 percent by 2005. The top 1 percent … saw their incomes decline a whopping 26 percent.  Meanwhile, the average taxpayers’ real income rose 24 percent between 1996 and 2005.”

Donald J. Boudreaux

A caveat: I briefly looked for these IRS data on line and couldn’t find them (a fact, I’m certain, due to my being pressed today for time).  Sowell doesn’t say if these data are adjusted for inflation or not.  My guess is that they are so adjusted.  But even if the reported percentage changes are in nominal dollars, then (1) the growth by 2005 in the real incomes of 1996’s bottom fifth of income-tax filers would still be an impressively large 73 percent, and (2) the fall by 2005 in the incomes of 1996’s top one percent of income-tax filers would be even larger than what the nominal figures (if nominal they be) suggest.

UPDATE: Tom Armstrong sent to me the pdf containing the IRS data.


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