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Five Myths About Inequality ^ | January 4, 2014 | John C. Goodman

Posted on 01/04/2014 12:28:54 PM PST by Kaslin

"Inequality is the defining challenge of our time," according to President Obama. It's certainly the topic of the day for Paul Krugman, Joe Stiglitz and a whole raft of liberal pundits.

But have you noticed that hardly anyone else is talking about it? When is the last time you heard a shoeshine person or a taxi cab driver complain about inequality? For most people, having a lot of rich people around is good for business. But if average folks are not complaining should they be?

Unfortunately, a lot of what passes as serious commentary is actually myth. What follows are five examples.

Myth No 1: Income for the average family has stagnated over the past 30 years.

Here is an oft-quoted statistic: From 1979 to 2007, taxpayers' median real income, before taxes and before government transfers, rose by only 3.2 percent. Cornell University economist Richard Burkhauser, via Greg Mankiw, shows why that statistic is misleading:

· If we combine the income of all the taxpayers within each household to get household median income, that meager 3.2 percent rises to a bit more respectable 12.5 percent.

· If we add in government transfer payments, that 12.5 percent number becomes an even better 15.2 percent.

· Factoring in middle class tax cuts over the period, the 15.2 percent figure rises to 20.2 percent.

· But not all households are the same size, and the size of households has fallen over time. Adjusting for household size increases that 20.2 percent to 29.3 percent.

· Finally, if we add the value of employer-provided health insurance, the 29.3 percent figure rises to 36.7 percent.

So there you have it: real income for the average household actually increased by more than a third over the past 30 years.

This conclusion is consistent with other studies. A CBO study of family income over the same period of time found an increase almost twice that size: the average family experienced a 62 percent increase in real income.

Economists have a way of measuring inequality that includes the entire population, not just the average family or the top 1 percent. It's by means of a Gini coefficient, which varies between 0 (complete equality) and 1 (complete inequality). One study found that between 1993 and 2009, the Gini value actually fell from .395 to .388 — meaning that inequality has actually declined in recent years.

Myth No. 2: People at the bottom of the income ladder are there through no fault of their own.

In a study for the National Center for Policy Analysis, David Henderson found that there is a big difference between families in the top 20 percent and bottom 20 percent of the income distribution: Families at the top tend to be married and both partners work. Families at the bottom often have only one adult in the household and that person either works part-time or not at all:

· In 2006, a whopping 81.4 percent of families in the top income quintile had two or more people working, and only 2.2 percent had no one working.

· By contrast, only 12.6 percent of families in the bottom quintile had two or more people working; 39.2 percent had no one working.

The average number of earners per family for the top group was 2.16, almost three times the 0.76 average for the bottom.

Henderson concludes:

…average families in the top group have many more weeks of work than those in the bottom and, in the late 1970s, the 12-to-1 total income ratio shrunk to only 2-to-1 per week of work, according to one analysis.

Having children without a husband tends to make you poor. Not working makes you even poorer. And there is nothing new about that. These are age old truths. They were true 50 years ago, a hundred years ago and even 1,000 year ago. Lifestyle choices have always mattered.

Myth No. 3: Government transfer programs, like unemployment insurance, are an effective remedy.

Government transfers can ameliorate the discomfort of having a low income and few assets. But at the same time they tend to encourage people to remain dependent, rather than achieving self-sufficiency. And the loss of benefits as wage income rises acts as an additional "marginal tax" on labor.

University of Chicago economist Casey Mulligan is the leading authority on welfare programs and how they affect employment. At The New York Times economics blog, he wrote:

As a result of more than a dozen significant changes in subsidy program rules, the average middle-class non-elderly household head or spouse saw her or his marginal tax rate increase from about 40 percent in 2007 to 48 percent only two years later. Marginal tax rates came down in late 2010 and 2011 as provisions of the American Recovery and Reinvestment Act expired, but still remain elevated — at least 44 percent…A few households even saw their marginal tax rates jump beyond 100 percent — meaning they would have more disposable income by working less…work incentives were eroded about 20 percent for unmarried household heads…in the middle of the skill distribution, while they were eroded about 12 percent among married heads and spouses…with the same level of skill.

Overall, Mulligan estimates that up to half of the excess unemployment we have been experiencing is because of the generosity of food stamps, unemployment compensation and other transfer benefits.

Myth No 4: Raising the minimum wage is an effective remedy.

One of the few policy ideas President Obama has for dealing with inequality is raising the minimum wage. He thinks this will lift people out of poverty. Paul Krugman says the same thing. The difference is that Krugman is an economist who must surely know that the economic literature shows that raising the minimum wage does almost nothing to lift people out of poverty.

Richard Burkhauser and San Diego State University economist Joseph J. Sabia examined 28 states that increased their minimum wages between 2003 and 2007. Their study, published in the Southern Economic Journal, found "no evidence that minimum wage increases…lowered state poverty rates." Part of the reason is that very few people earning the minimum wage are actually poor. Most are young people who live in middle income households. For example, the economists estimate that if the federal minimum wage were increased to $9.50 per hour:

· Only 11.3 percent of workers who would gain from the increase live in households officially defined as poor.

· A whopping 63.2 percent of workers who would gain are second or even third earners living in households with incomes equal to twice the poverty line or more.

· Some 42.3 percent of workers who would gain are second or even third earners who live in households that have incomes equal to three times the poverty line or more.

Myth No. 5: Income is the best measure of wellbeing.

Why are we talking about income? The implicit assumption is that income limits our ability to enjoy life. But that turns out not to be true. One study found that consumption by those in the lower fourth of the income distribution was almost twice their money income. Moreover, consumption inequality is much less than income inequality. A Bureau of Labor Statistics study found that

…in 2001, the Gini coefficient for consumption was only .280 (almost 30 percent lower than the Gini for comprehensive income, and about 40 percent lower than the Gini for money income), indicating that inequality with respect to this most meaningful measure of living standards is relatively modest. Moreover, according to the BLS, during the fifteen-year period between 1986 and 2001, consumption inequality went down slightly; from a Gini of .283 to a Gini of .280.

Bottom line: the next time you hear someone complain about inequality, make sure they are not repeating these five myths.

TOPICS: Culture/Society; Editorial; Government; Politics/Elections
KEYWORDS: inequality; obama

1 posted on 01/04/2014 12:28:54 PM PST by Kaslin
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To: Kaslin

(Zer0) >> (everyone else)

2 posted on 01/04/2014 12:32:40 PM PST by Paladin2
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To: Kaslin

Socialism will make everyone equally poor. Except for the elite, of course.

3 posted on 01/04/2014 12:39:05 PM PST by beethovenfan (If Islam is the solution, the "problem" must be freedom.)
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To: Kaslin
NO Pity for the LAZY!!!
4 posted on 01/04/2014 12:42:44 PM PST by Chode (Stand UP and Be Counted, or line up and be numbered - *DTOM* -vvv- NO Pity for the LAZY - 86-44)
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To: Kaslin

“Inequality is the defining challenge of our time,” according to President Obama.”

The defining challenge of our time is how to overcome the damage to our Nation that you have caused. Shut up and go away....

5 posted on 01/04/2014 12:55:06 PM PST by SECURE AMERICA (Where can I go to sign up for the American Revolution 2014 and the Crusades 2014?)
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Excellent point and so true

6 posted on 01/04/2014 12:57:53 PM PST by Kaslin (He needed the ignorant to reelect him, and he got them. Now we all have to pay the consequenses)
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To: Kaslin

What inequality?!

Everyone has the same 24 hours, EQUAL opportunity, it’s their choice what they do with it.

Of course different people have different talents, strengths and weaknesses — so I guess to achieve “equality”, we need to “manufacture” all humans to be exactly the same — but then how are you going to fill the various needs in society, that we need people who are neurosurgeons, but also need plumbers and electricians. And plumbers and electricians may make almost as much money as neurosurgeons — what more do they want?

The point is equal opportunity, which is what exist in the capitalist system — the late Steve Jobs and Bill Gates are just a couple of examples.

7 posted on 01/04/2014 12:57:54 PM PST by Innovative ("Winning isn't everything, it's the only thing." -- Vince Lombardi)
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To: Innovative

Some spend all and some save some. That makes everyone “unequal” after day one.

8 posted on 01/04/2014 1:00:25 PM PST by Paladin2
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To: Kaslin
Some people are born stupid. Some people are born lazy. Some people are born stupid and lazy.

They are never going to earn as much as someone who is smart and works hard.

Now are the people that are smart and hard working obligated to give up the product of their smarts and work to people that didn't earn it?

Should the stupid and lazy be able to vote to extract the product of the smart and work through force?

9 posted on 01/04/2014 1:14:14 PM PST by Count of Monte Fisto (The foundation of modern society is the denial of reality.)
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To: Kaslin

Memo to Mayor DeBlasio (cc: President Obama):

Yes, we do have a lot of “income inequality”, as you noted in your speech. We are also a society with one of the highest standards of living and among the greatest economic mobility. That’s because we were decades late boarding your “progressive” train. Instead, we’ve always been a society in which people are freer to create and innovate — and thus improve the lives of others, as well as their own — than they have been in other societies. We are a society whose poor people, on average, have more living space than the average middle-class European — along with big TVs, Internet connections, cars, and other trappings of life.

In America, people are free to go as far as talent, skills, education, and effort will carry them. Your redistributionist schemes simply reduce, eventually to nothingness, the incentive to create, invent, and produce, to use that talent, skill, education, and effort to improve the lot of all of us.

When you take away that incentive, you take away the very thing that lifts the standard of living for the people. As a well-known member of your party once said, “A rising tide lifts all boats.” Are we better off with a higher, but unequal, standard of living, or with an equal, but lower, standard of living (and I’m not just talking financially)?

I’d rather not have trickle-up poverty, thank you. But that’s where redistribution leads us.

10 posted on 01/04/2014 1:16:29 PM PST by TBP (Obama lies, Granny dies.)
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To: Kaslin

Irony 1

We are told NOT TO judge ALL Muslims by the actions of a few lunatics.”

BUT on the other hand . “We are also encouraged TO judge ALL Gun Owners by the actions of a few lunatics.”
How is that supposed to work?

Irony 2

The Food Stamp Program, administered by the U.S. Department of Agriculture, is proud to be distributing this year the greatest amount of free Meals and Food Stamps ever, to 47 million people as of the most recent figures available in 2013.

Meanwhile, the National Park Service, administered by the U.S. Department of the Interior, asks us “Please Do Not Feed the Animals.”

Their stated reason for the policy is because:
“The animals will grow dependent on handouts and will not learn to take care of themselves.”

11 posted on 01/04/2014 1:25:48 PM PST by HippyLoggerBiker (Always carry a flagon of whiskey in case of snakebite and furthermore always carry a small snake.)
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To: Kaslin

People who believe government should remedy inequality always assume they’ll get to be among the people defining it and managing it.

They don’t realize, maybe some do, the evil ones do, but the dumb ones don’t realize that intervening to remedy inequality will establish a permanent class structure. But instead of being based on talent and hard work and luck, it will be based on fealty to the regime.

12 posted on 01/04/2014 1:34:17 PM PST by marron
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To: Kaslin

Inequality is here to stay.

As an example, half the population by definition is above average.

The Obama-dork-cretin is six sigma to the left.

He is screwed. Nothing will help.

Problem is, we’re screwed also.

13 posted on 01/04/2014 2:17:26 PM PST by Da Coyote
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To: Kaslin

Affirmative action a magnifying glass on inequality. It’s conception was and still is a big mistake. Everybody can’t be beautiful or there is no beauty. Affirmative action tries to fit square pegs into round holes. Thats how it doesn’t work. All government agencies are hamstrung by feel good laws, a road map to mediocrity at best. Small government is the solution. The private sector works if left alone and no not everyone will be beatyful but that’s how it works.

14 posted on 01/04/2014 4:30:22 PM PST by Recompennation (Constitutional protection for all not just selectively for Democrats.)
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To: Innovative
"Everyone has the same 24 hours, EQUAL opportunity, it’s their choice what they do with it."

I once had a boss who said, "If you could collect all the money there is and pass it around evenly, the people who are rich today would have it all back in a few short years and the people who are poor today would be just as poor, but quicker."

15 posted on 01/04/2014 5:46:26 PM PST by Baynative (Got bulbs? Check my profile page.)
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To: Kaslin

Myth 6: Inequality is a moral crime.

I love inequality. I love the fact that there are people out there smarter and more skilled than I (doctors, scientists, farmers, etc) who can create the things I need to live my life. I couldn’t imagine nor stand everyone being a simple-minded guy like myself.

16 posted on 01/04/2014 5:48:47 PM PST by RWB Patriot ("My ability is a value that must be earned and I don't recognize anyone's need as a claim on me.")
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To: RWB Patriot

Dittos. If a billionaire wants to buy a tablet computer. To the best of my knowledge who can do no better than an iPad Air. I know people on SS disability and EBT who have one

Bill Gates works his ass off and is a genius. But all he did was close the the technology gap between rich and poor.

Bill got billions but if each consumer is a little richer because of him than as a whole society made more off of Bill than Bill did.

I a

17 posted on 01/04/2014 7:40:40 PM PST by FreedomNotSafety
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To: Kaslin


18 posted on 01/04/2014 10:44:50 PM PST by AllAmericanGirl44 (Wishing all a very Merry Christmas)
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To: FreedomNotSafety; Kaslin
Bill got billions but if each consumer is a little richer because of him than as a whole society made more off of Bill than Bill did.

Yes. The dollars he collects are markers. They are not the wealth; the company he built, the products he makes, and the changes to the world he has caused are the wealth. The wealth is already out there in everyone's hands.

And the markers he is collecting by the billions? He uses them to create more wealth which he then distributes to the world. He doesn't sit on any of it.

19 posted on 01/04/2014 10:51:03 PM PST by marron
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To: Kaslin

New report debunks narrative on income inequality

The Latest News on Tax Fairness [top 20%’s share up, everyone else’s share down over last 30 years]

CBO: By the way, the rich already pay more than a fair share in taxes

If fairness in paying taxes means the amount you pay is based on the amount you make, then the only group in America paying at least a “fair share” is the top 20%—people who make more than $74,000. For everyone else, the tax code is a bargain.

You wouldn’t know this from President Obama’s rhetoric, but our tax system, according to a recent report by the Congressional Budget Office (CBO), is incredibly progressive. Consider: The top 1% of income earners pay an average federal tax rate of 28.9%. (See the nearby table.) The average federal tax rate on the top 20% is 23.2%. The 20% of taxpayers earning between $50,100 and $73,999 pay an average 15.1%, and so on down the line. The CBO report includes payroll as well as income taxes paid.

There’s also another way of looking at fairness, and that’s the tax burden. Here, consider the top 20% of income earners (over $74,000). They make 50% of the nation’s income but pay nearly 70% of all federal taxes.

The remaining 30% of the tax burden is borne by 80% of the taxpayers, those who make less than $74,000. In short, this group’s share of taxes paid, 30%, is lower than the share of income they earn, 50%.

Yet President Obama says that “for some time now, when compared to the middle class,” the wealthy “haven’t been asked to do their fair share.”

He’s right that the system isn’t fair, but not because the top 1% pay too little. It is because they pay too much.

20 posted on 01/05/2014 7:43:15 AM PST by TurboZamboni (Marx smelled bad and lived with his parents .)
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To: marron
He uses them to create more wealth which he then distributes to the world. He doesn't sit on any of it.

A common rhetorical question asked by leftists is "why does XXX need more than $YYY; he could buy everything anyone could ever want with half that". The proper response was "So he can build more companies, and employ more people, than he would be able to do with a lesser amount".

21 posted on 01/09/2014 4:21:21 PM PST by supercat (Renounce Covetousness.)
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