Thomas Sowell on perennial economic fallacies about income

From Mark Perry of "Carpe Diem."

"More insight from Thomas Sowell on income statistics, written in 2000, but a timeless message that is just as relevant today:

Every time some new income statistics come out, two predictable fallacies follow in their wake: 1) The rich are getting richer, while the poor are falling behind, and 2) the real income of American families has not risen significantly for years.

An absolute majority of the people who were in the bottom 20 percent in 1975 have also been in the top 20 percent at some time since then. Most Americans don’t stay put in any income bracket. At different times, they are both “rich” and “poor” — as these terms are recklessly thrown around in the media. Most of those who are called “the rich” are just middle-class people whose taxes the politicians avoid cutting by giving them that name.

There are of course some people who remain permanently in the bottom 20 percent. But such people constitute less than one percent of the American population, according to data published by the Federal Reserve Bank of Dallas in its 1995 annual report. Perhaps the intelligentsia and the politicians have been too busy waxing indignant to be bothered by anything so mundane as facts.

Alarmists are not talking about real flesh and blood people. They are talking about abstract categories like the top or bottom 10 percent or 20 percent of families or households. So long as all incomes are not identical, there will always be top and bottom 10 percents or 20 percents or any other percents. But these abstract categories do not contain the same people over time.

Behind both the statistics on inequality that are spotlighted and the statistics on ever-changing personal incomes that are ignored is the simple fact that people just starting out in their careers usually do not make as much money as they will later, after they have had years of experience.

Who should be surprised that 60-year-olds have higher incomes and more wealth than 30-year-olds? Moreover, that was also true 30 years ago, when today’s 60-year-olds were just 30. But these are not different classes of people. They are the same people at different stages of their lives.

At some times and places, there have been whole classes of people who lived permanently in poverty or in luxury. But, in the United States today, the percentage of Americans who fit either description does not reach beyond single digits.
It is one thing to be concerned about the fate of flesh and blood human beings. It is something very different to create alarms about statistical relationships between abstract categories.

HT: Warren Smith"