Income Inequality

(Updated October 31, 2011) There has been an increasing amount of news lately, particularly surrounding the Occupy Wall Street movement, fussing that the gap between the rich and the poor is growing, bemoaning the declining lot of the poor and middle class, and condemning the rapaciousness of the very rich, grabbing all they can while the rest of us fight over scraps. Fortunately if one is inclined to look for solid studies examining the issue there are some thought-provoking studies that present a more comforting view of the progress of civilization over the past 50 years or so. Below I’ll link to some of the ones I have run across lately.

  • Russ Roberts interviewed Bruce Meyer October 3rd at Bruce makes the case pretty persuasively that after properly correcting for inflation the poor and middle class are doing better than commonly portrayed and the gap between the rich and poor is greatly overstated. He finds that the gap between the poor and the middle class has shrunk of late and the gap between the richest 10% and the poorest 10% has grown, but by a fairly small amount.
  • The Minneapolis Federal Reserve Bank ran an article in 2008 pointing to consumption data as support to the point that the middle class is doing quite well. (thanks to Don Boudreaux for pointing this out and quoting the article in his post on Cafe Hayek)
  • James Pethokouki discusses several studies on the topic in a blog post titled “5 reasons why income inequality is a myth — and Occupy Wall Street is wrong”.
  • Cafe Hayek post by Don Boudreaux on the purchasing power of an hour of labor over time.
  • Sheldon Richman at The Freeman Online makes the point that in an economy so tightly bound by regulations and laws, the rich have the upper hand in forming policy and will lobby for changes that enhance their wealth. However, expecting government to solve a problem it largely created is unrealistic. The best solution is not to ask for the government to redistribute wealth but for the government to back out of trying to micromanage the economy.
  • Ivan Pongracic in The Freeman Online exposes several fallacies contained in arguments that the current income distribution is a problem. He argues that some amount of variance in income is good for society as it reflects dynamism as people try new things. He also argues that static pictures of income disparity do not tell the whole story. People move from one income strata to another as they develop expertise. The richest people vary from year to year. Finally, he points out that the richest 10 percent paid 71 percent of total federal income tax in 2009.

Here are some links for the other side:

  • Associated Press article by Andrew Taylor picked up by the Wisconsin State Journal, the Arizona Republic and others on October 27, 2011 titled “Study: Rich are getting much richer” discussing material from a Congressional Budget Office study and the CBO Director’s blog.
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