The Inequality Myth

Class warfare is once again a campaign theme. The Democratic candidates are railing against the "tax cuts for the rich," lamenting the stagnation of middle-class incomes, and decrying the deepening woes of the poor. In her January response to President Bush's State of the Union address, Hillary Clinton cited "seven years of stagnant wages, declining incomes and increasing inequality." Barack Obama echoes this theme by referring repeatedly to the "middle-class squeeze."

First, we can easily dismiss the notion that the poor are getting poorer. All the Census Bureau tells us is that the share of the pie consumed by the poor has been shrinking (to 3.4% in 2006 from 4.1% in 1970). But the "pie" has grown enormously. This year's real GDP of $14 trillion is three times that of 1970. So the absolute size of the slice received by the bottom 20% has increased to $476 billion from $181 billion. Allowing for population growth shows that the average income of people at the bottom of the income distribution has risen 36%. They're not rich, but they're certainly not poorer. In reality, economic growth has raised incomes across the board.

Since 1970 there has been a dramatic rise in divorced, never-married and single-person households. Back in 1970, the married Ozzie and Harriet family was the norm: 71% of all U.S. households were two-parent families. Now the ratio is only 51%. In the process of this social revolution, the average household size has shrunk to 2.57 persons from 3.14 -- a drop of 18%. The meaning? Even a "stagnant" average household income implies a higher standard of living for the average household member. Last year, the Census Bureau published a new set of income statistics that adjusted for changing household size and composition. In a single year (2006), this "equivalence-adjusted" computation increased the income share of the poor by 8% and reduced the standard measure of inequality (Gini coefficient) by 4%. Such "equivalency" adjustments would mute unadjusted inequality trends even more.

The supposed decline of the poor and middle class is exaggerated even more by the dynamics of population growth. When people look at the "poor" in any two years, they think they're looking at the same people. That's rarely true, especially over longer periods of time. Since 1998, the U.S. population has increased by over 20 million. Nearly half of that growth has come from immigration, legal and illegal. Overwhelmingly, these immigrants enter at the lowest rungs on the income ladder. Statistically, this immigrant surge not only reduces the income of the "average" household, but also changes the occupants of the lowest income classes.

To understand what's happening here, envision a line of people queued up for March Madness tickets. Individuals move up the line as tickets are purchased. But new people keep coming. So the line never gets shorter, even though individuals are advancing. Something similar happens with the distribution of income. People keep entering the distribution line from the bottom. Even though individuals are moving up the line, the middle of the line never seems to move. Hence, an unchanged -- or even receding -- median marker could co-exist with individual advancement. The people who were at the middle marker before have moved up the distribution line. This is the kind of income mobility that has long characterized U.S. income dynamics.

When you look at the really big picture, it's apparent that living standards are rising across the entire spectrum of incomes. Just since 2000, GDP has risen by 18% while the population has grown by 6%. So per capita incomes have clearly been rising. The growth of per capita income since 1980 or 1970 has simply been spectacular.

Some people would have you believe that all of this added income was funneled to the rich. But the math doesn't work out. The increase in nominal GDP since 2000 amounts to over $4 trillion annually. If you assume that all that money went to the wealthiest 10% of U.S. households, that bonanza would come to a whopping $350,000 per household. Yet according to the Census Bureau, the top 10% of households has an average income of $200,000 or so. The implied bonanza is so absurd that the notion that only the rich have gained from the economic growth can be dismissed out of hand.

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I suspect that Spitzer's "girlfriend" (above) had assets that Silda didn't. Maybe he should have married a sexy gal instead of a career gal.

The Democrat Federal budget proposals: "We have a Democratic majority in Congress seeking to enact the largest tax hike in history in an apparent monument to fiscal irresponsibility. Their proposal would raise taxes by a whopping $683 billion over the next five years. Put in perspective, this amounts to a tax hike of nearly $2,500 for the average West Virginia family. Incredibly, their plan would put 6 million low-income Americans - who currently pay no income tax at all - back on the tax rolls at a time when they can least afford it. Overall the majority's budget would increase marginal tax rates, re-implement the 10-percent tax bracket, increase taxes on small business, raise taxes on families with children, and increase tax rates on investments. Not only would it place additional strain on hard-working families, but it would also seriously jeopardize job creation by our state's small businesses, many of whom file taxes as individuals and would see serious spikes in their tax rates".

Time To Repeal McCain-Feingold : "Congress should repeal the Bipartisan Campaign Reform Act of 2002, which should never have become law in the first place. The BCRA, known as the McCain-Feingold law, gained momentum because politicians acquiesced to a public that demanded changes in the way political campaigns are financed. Money was singled out as the problem and those who opposed McCain-Feingold were labeled shady individuals who refused to reform a system that had become polluted by the almighty dollar. If only there were a way to bridle the influence that money plays in politics, many thought, we could free the system from corruption and level the playing field between incumbents and challengers. The current cycle of political primaries demonstrates money plays no less a role than it ever did.... Far from limiting money in campaigns, the law permits King Cash to run berserk. On February 20, the New York Times reported Senator Barack Obama, D-Ill., "has broken all political fund-raising records in this election; he has taken in more than $150 million so far, $36 million in January alone."

Airbus failed to hedge its currency bets: "Airbus, the European aircraft manufacturer, slumped to a record loss last year as weakness in the US dollar wiped more than 1 billion euros from the company's earnings. Airbus has been among the companies hardest hit by the declining value of the dollar and it may be forced to move work out of the eurozone to limit future damage. Aircraft are priced in dollars but Airbus's costs are nearly all in euros, which makes the company highly sensitive to exchange-rate movements. A boom in the aerospace market did enable Airbus, which employes 12,000 people in the UK, to increase revenues to 25.2 billion euros last year and its order book stands at 284 billion but despite the positive trading environment, the company still lost money. Two weeks ago EADS won a $40 billion order from the US Department of Defence for 179 air-refuelling tankers, which will be based on its successful A330 airframe. These aircraft will be built in Mobile, Alabama, and EADS is understood to be assessing whether commercial production of the A330 could also go there. Such a move would be controversial in Europe, where Airbus is regarded as an industrial icon and an important employer."

For more postings from me, see OBAMA WATCH, TONGUE-TIED, EDUCATION WATCH INTERNATIONAL, GREENIE WATCH, POLITICAL CORRECTNESS WATCH, GUN WATCH, SOCIALIZED MEDICINE, FOOD & HEALTH SKEPTIC, AUSTRALIAN POLITICS, IMMIGRATION WATCH INTERNATIONAL and EYE ON BRITAIN.

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"Why should the German be interested in the liberation of the Jew, if the Jew is not interested in the liberation of the German?... We recognize in Judaism, therefore, a general anti-social element of the present time... In the final analysis, the emancipation of the Jews is the emancipation of mankind from Judaism.... Indeed, in North America, the practical domination of Judaism over the Christian world has achieved as its unambiguous and normal expression that the preaching of the Gospel itself and the Christian ministry have become articles of trade... Money is the jealous god of Israel, in face of which no other god may exist". Who said that? Hitler? No. It was Karl Marx. See also here and here and here.

The Big Lie of the late 20th century was that Nazism was Rightist. It was in fact typical of the Leftism of its day. It was only to the Right of Stalin's Communism. The very word "Nazi" is a German abbreviation for "National Socialist" (Nationalsozialist) and the full name of Hitler's political party (translated) was "The National Socialist German Workers' Party" (In German: Nationalsozialistische Deutsche Arbeiterpartei)

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