The ‘imaginary hobgoblin’ of rising income inequality

From Mark Perry.

"We hear all the time about “rising income inequality” in America (there are more than 200,000 Google search results for that term), about “the rich getting richer and the poor getting poorer,” the “stagnant or disappearing middle class,” all of recent income gains going to the rich,” the lack of income mobility and other narratives of pessimism. And yet, nobody seems to have shared those negative narratives with the Census Bureau, which released new data today on “Income and Poverty in the US: 2014,” because some of those data tell a much different story:

 

 


1. The top chart above shows the shares of total income earned by the top 20%, top 5% and bottom 20% of US households from 1993 to 2014 (from Table A-2). In 1993, 48.9% of total income went to the top quintile of US households, and 21 years later in 2014, the share of income going to the top 20% has increased to only 51.2%. Likewise, in 1993 the share of total income going to the top 5% of US households was 21.0%, and that share had increased to only 21.9% last year. Interestingly, the 21.9% share of income earned by the top 5% last year was lower than the share that group earned in 8 of the last 15 years. Over the last two decades, the income share of the top 20% (top 5%) has been remarkably stable at about 49-51% (21-22%) and there has been no statistical evidence of “rising income inequality” according to this measure.

2. The bottom chart above shows the annual Gini index of income inequality (a statistical measure of income dispersion that quantifies income inequality on a range from 0.0 for complete equality to 1.0 for complete inequality) for US households from 1993 to 2014 (also from Table A-2). Like the first two measures above, the Gini index measure of income dispersion reveals that there has been no significant trend of “rising income inequality” for US household incomes in recent decades. The Gini index in 1993 was 0.454 and last year it was 0.480, a slight decrease from 0.482 in 2013, and this statistical measure of income inequality has shown remarkable stability for the last several decades in a narrow range between 0.46 and 0.48.

MP: Whether we look at Census Bureau data on the share of total income going to the top fifth and top 5% of American households, or Census data on Gini coefficients for US household income, there is very little statistical support for the commonly held view by the public, academia, and the mainstream media that income inequality has been rising in recent years or decades. A more accurate description of income inequality over the last several decades in the US would be to say that it has been remarkably stable for more than two decades starting about 1993.

And yet, in a December 2013 speech, President Obama described rising income inequality as the “defining challenge of our time” and promised that for the rest of his presidency, he and his administration would focus all of their efforts to stop the increase in income inequality. But why are we even having a national debate about solutions to the “non-problem” of rising income inequality that doesn’t even exist according to several standard Census Bureau measures? Maybe it’s another example of what H.L. Mencken called an “imaginary hobgoblin”:

The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary."