57.4 Percent of 1996’s Privileged 1% Are Now Among the Beleaguered 99%

by Don Boudreaux on November 4, 2011

in Data, Hubris and humility, Inequality

Here’s a letter to the New York Times:

Paul Krugman labels those who interpret data on income distribution differently than he does “obfuscators” (“Oligarchy, American Style,” Nov. 4).  Mr. Krugman is surely aware, however, that people can legitimately disagree over how best to construe the vast quantities of data gathered on so complex a topic as the varied and changing income-earning profiles of 150 million workers living in 121 million households, all in an economy as dynamic as America’s.

For example, is Mr. Krugman warranted in dismissing the claim that “the rich are an ever-changing group” with a simple and parenthesized “not so”?  Who are the “rich”?  And how much income mobility is necessary for well-meaning observers to justifiably claim that “the rich are an ever-changing group”?

Is the following description, from the IRS, of data on individual households merely obfuscatory – something that no reasonable person can possibly interpret as evidence of substantial income mobility – or might it describe a plausible reason for well-meaning people to disagree with Mr. Krugman’s insistence that the rich are NOT an ever-changing group?: “More than half (57.4 percent = 100 – 42.6) of the top 1 percent of households in 1996 had dropped to a lower income group by 2005.  This statistic illustrates that the top income groups as measured by a single year of income (i.e., cross-sectional analysis) often include a large share of individuals or households whose income is only temporarily high.  Put differently, more than half of the households in the top 1 percent in 2005 were not there nine years earlier.  Thus, while the share of income of the top 1 percent is higher than in prior years, it is not a fixed group of households receiving this larger share of income.”*

Donald J. Boudreaux

* “Income Mobility in the U.S. from 1996 to 2005,” U.S. Department of the Treasury (Nov. 2007).  The passage quoted in the letter is found on page 8.

See also Mark Perry and Jarrett Skorup.


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