Sunday, April 15, 2012

Busting the "Growing Income Inequality" Myth

One could myth bust all day, and I've done some of it around here.  The myths about taxation and how little the "rich" pay is one of my frequent topics (here, for 'zample).  Today, I want to take on one of things you'll hear every day.

Myth: the gap between rich and poor is growing in America.

This idea shows up all the time, and you can bet you'll hear it as the smear campaign against capitalism that's going on now accelerates into attacks on Romney*. The guys at the Political Calculations blog took advantage of the Census Bureau data to show just how much it has changed.  The calculation is called the Gini Coefficient or Gini Index, and the value for the US since 1994 looks like this:
Although this data set only goes back to 1994, it seems that if there was a big change, it would be visible in the data.  The Gini Coefficient is a measure of how much distribution there is in a variable.  If one person (or a tiny group) had all of the income in the US, the value would be 1.0.  If everyone had exactly the same income (socialist paradise), the Gini value would be 0.  The tiny change (I don't know if it's really statistically significant) is in the direction opposite of what we hear all the time; toward more equal incomes.  What about before 1994?  Ivan Kitof has done a similar analysis that goes back to 1947 (rather dense and chunky pdf here) that shows very similar trends.  His conclusion:
In fact, the Gini curve associated with the fine PIDs is a constant near 0.51 between 1960 and 2005 despite a significant increase in the GPI/GDP ratio and the portion of people with income during this period (see Figure 1). This is a crucial observation because of the famous discussion on the increasing inequality in the USA as presented by the Gini coefficient for households (US CB, 2000). Obviously, the increasing G for households reflects some changes in their composition, i.e. social processes, but not economic processes as defined by distribution of personal incomes.
Taking his lead in the last sentences, if you do the same calculations to look at Gini Coefficient for families and households, you see a slight difference:
The Gini Index for families or households does show a small movement toward more concentration of income in a smaller number of people - but is "income inequality" the only explanation?  Since the Gini Index for individuals has not shown that change, you ask how can individuals have the same (or more) of a share of the wealth, while families have less?  It implies that the difference is due to lower income households, and a very reasonable explanation is the increase in single parent households.  For an example, consider a two parent household with each making $50,000.  If they divorce, the two household or family income go down, while individual income stays the same (notice that if one became unemployed, the individual incomes and family incomes would both go down).

So the policies that cause the destruction of the family - policies the left adores - lead to what little evidence there is for the income inequality they complain about.  I have a better idea: stop trying to destroy the family. 

* Obligatory disclaimer about Romney.  The other day I wrote
The difference between Romney and Obama is pretty much like the difference between getting run through the abdomen with a machete and left to bleed out, or a double tap through the aorta.  The end result is pretty much going to be the same, it's just a matter of speed.  In a way, your choice of candidate may be determined by whether you're the kind of person who likes to pull the band-aid off all at once, or prolong the pain at lower levels. 
 While I tend to rip the bandaid off all at once, as Tam said here;
Hey, Sparky, go do a Google image search for "Civilian taking a dump in a frozen shell crater in Sarajevo, 1995." Does he look like he's having fun? 'Cause that was frickin' Yugoslavia; they had to go steal guns from the army to get their civil war on. If the lid ever comes off this pressure cooker for realz, it's gonna make Yugoslavia look like a Sunday school picnic.
What appears to be coming may be worth taking the machete to gut and hoping against hope to survive.  


Quizikle said...

True story - maybe 10-15 years back:
A 45 mph drive through a twisty narrow canyon outside Denver. Canyon wall, road, river, canyon wall. Not even room for a shoulder.

A 250-pound boulder fell maybe 200 feet from the cliff above and hit directly on the roof of the driver's side of the vehicle, killing the driver. 1/10 second is 6.6 feet...

"Survival" depends on luck, timing, and the will of God. Hope for the best, prepare for the worst. And hope "the worst" you prepared for is what happens.

I tend to agree with your conclusion.
Why does it feel this summer will be the flash point?

Graybeard said...

Why does it feel this summer will be the flash point? Could it be the dozen or so indicators? Occupy Whatever threatening a "Chicago 1968" recreation, Ahmadinejad provoking everyone, the (Kim Jung) Il-conceived saber rattling by the NORKs, the Russians massing troops along their southern border to defend Iran....

Anonymous said...

Any idea what caused the up/down jiggles @ 1997/2007?

And, it seems that welfare of whatever sort is not considered income, whether it is a single @ $11k/yr or a welfare queen w/11 offspring @ $65k/yr - w/ special payments for watching her half sisters' progeny. So, income not considered as income, why yes there Could Be A Disparity.