There is No Increased Inequality, Unless You Look at the Top 1%

November 3rd, 2011 at 12:30 pm | 40 Comments |

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Shikha Dalmia writes that “Greedy Capitalists Hogging Wealth Are Not Causing Income Inequality.” In her blog post she cites the lack of significant change in the Gini index of inequality among U.S. individuals in recent years:

I’m a bit confused, because there is another famous graph from Piketty and Saez which suggests that inequality is a real phenomenon. (The graph is all over the place on the web, here’s a link from John Schmitt that I found in a quick Google image search):

If you look at the top 1%, or the top 0.1%, you see huge increases in recent years. But maybe this isn’t really captured in the Gini coefficient, which averages equally over the entire distribution.

Dalmia’s discussion focuses on the difference between inequality trends among individuals, households, and families. Even while the Gini index for individuals has been stable, the indexes for households and families have gone up. As Dalmia points out, this difference can arise if high earners marry each other and if low earners are more likely to live alone.

To me, though, this is all pretty minor compared to the striking patterns in the upper 1% and 0.1%. Assuming we can trust both of the above graphs, Dalmia’s point seems oddly consistent with the Occupy Wall Street slogan of the 99% vs. the 1%—it is at the top end where the inequality is concentrated.

In any case, Dalmia’s discussion of the distinction between individual, family, and household statistics seems worth making. These points do not, however, particularly support the headline of the article. Nor to they support her claim that “If the left seriously wants to address inequality,” they should not focus on higher taxes on the rich.

If you want to oppose higher taxes on the rich, fine. But then you have to accept that inequality is OK. This sort confusion takes away from Dalmia’s more serious arguments.

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40 Comments so far ↓

  • Watusie

    Interesting. Just a few weeks ago FF was saying that OWS was a joke and had already failed.

    Now OWS is setting the agenda for what will be discussed at FF.

  • LauraNo

    I don’t know about that, Watusie. It looks to me as if each blogger chooses what to blog about, they sometimes even write about something in direct opposition to a position Frum has taken.

    • Graychin

      The FF writer who DID tell us that Occupy wouldn’t last for a week should at least have the cajones to come back and admit his mistake.

    • Watusie

      Consider it a comment on the massive changes being wrought by OWS on the hive mind of the chattering classes.

      • Graychin

        If nothing else, OWS has changed the terms of the discussion. This summer it was “all debt, all the time.” That’s over now.

      • armstp

        OWS has changed the discussion away from the Tea Bagger corporatist narrative to the inequality narrative.

        The battle now is what is causing the inequality. The “right” is saying it all has had to do with globalization, which certainly plays a part, but changes to the tax code clearly has played a role (example, 50% of the benefits of the Bush tax cuts went to the top 2%).

        • Hal Morris

          Where does the inequality come from? Could it be that the saying “The rich get richer, and the poor get poorer” is right? It has happened in virtually every age and every country. Obviously the dynamic has taken many different forms — the economy of the middle ages was not that of the “gilded Age” which was somewhat different from the (American) economy of the 1920s, which was somewhat different from that of today. The economies of 18th century France, of the Pharaohs, the Chinese Mandarins, the Aztec lords — all no doubt substantially different. When power of any sort (including that of money) reaches some critical mass, it will snowball unless there is some counteracting force (The “founding fathers” understood this well enough to implement three branches of government with checks and balances). The economic dynamic of recent decades (at least) is that if you have a large enough pot of money to invest with appropriate diversification, in periods when the market is rising 20-30% a year, it is obvious what can happen. If you are well enough connected, when the market crashes, you can be one of the early ones to pull out. Then, until the market starts to move again, you sit on your money, or invest in the least risky (and least growth-producing) sectors.

          These dynamics have not changed without some kind of intervention. We can look to Britain and the U.S. for cases of orderly intervention, as opposed to spasms of violence (which tend to produce something as bad or worse then the prior regimes).

          In the late middle ages, illiterate peasants lived in mud huts while barons lived in drafty stone castles, and were almost as likely as anyone to die of the plague or childbirth. I am no master of how we got from there to today’s world, but am pretty sure it involved the barons giving up some of their treasures in a way that lead to public roads and canals (in the early days), and widely available free or subsidized education, and postal systems (in the American case, these from the very beginning subsidized the spread of printed matter). In the nations that followed this policy, the rich were rewarded by having an educated healthy populace available for the development of more and more technologically brilliant and powerful enterprises. The rising tide of welfare of the “99%” lifted all boats, including those of the very rich. The nations that didn’t follow such policies, where the rich and powerful tried to hang onto everything, suffered a huge decline in relative strength and succumbed to colonization.

          Another saving grace, in the case of the U.S. – the U.S. was exceptional alright; it had a huge public domain — the vast preponderance of potential capital, consisting of public lands belonged to the government, and unlike Russia in the 1990s, a newly minted democracy in a similar position, we did not say “This is terrible — all this property in the hands of government — we have to get rid of it, putting huge chunks into private hands or something terrible will happen”; instead we calmly, or the course of 100 years or so, sold it mostly in small plots to individual farmers, and sometimes even give it free to homesteaders, and we also set aside portions as assets to pay for educational institutions. Why? Because our government had the “general welfare” of the people in mind.

          See http://therealtruthproject.blogspot.com/2011/02/hayne-webster-debate-experiment-in.html for a surprisingly modern debate on the subject from 1831.

          But omigod, that sounds like a welfare state! Well yes, the “welfare state” as conceived by people who see value in it, is not about “welfare”, which has curiously become another word for the dole. It is about a state which takes positive actions for the welfare of its citizens. Unfortunately, we have become so unimaginative as to think the only way to do that is to dole out money to those out of work. And the U.S., and even more so Europe, have suffered by creating a class of people with nothing to do and no sense of purpose, which is not in the interest of anyone’s welfare.

  • ottovbvs

    Like a lot of these analyses it depends which percentiles you choose to compare but broadly speaking the huge shifts haven’t been between the bottom 80 percentile and the 81st to 99th percentiles as people like Brooks were suggesting in his latest obfuscation in the NYT the other day (although shifts are starting to accelerate the higher up the 81-99 range you get) but between the 80% and the top 1% who were the folks who as that CBO report confirmed increased their income by 275% over the last 30 years.
    PS. I’ve now taken five minutes to look at this piece. Chateau bottled spin if I ever I saw it.

  • Graychin

    Lies, damned lies, and statistics.

    The spin from those who like income inequality and want more of it is dizzying.

    • ottovbvs

      “The spin from those who like income inequality and want more of it is dizzying.”

      The good news graychin is it’s so childlishly transparent. Apart from the conservative college students who seem to make up most of the posters there it’s not going to convince anyone.

      • Graychin

        Otto, you’re a hopeless pessimist.

        OWS may accomplish nothing in the long run, but I’d rather go down fighting than just give up. We might even accomplish something if we try.

        We sure won’t change anything by giving up.

        • ottovbvs

          “Otto, you’re a hopeless pessimist.”

          Graychin: I don’t want to be rude but but this was a positive comment at least from the Democratic point of view. Switch on the comprehension turbocharger.

  • Rob_654

    “There is No Increased Inequality, Unless You Look at the Top 1%”

    That’s why the OWS call themselves the 99% – because the point is that it is the Top 1% is seeing the inequality increasing from everyone else.

    • Volosopher

      “And other than that one little incident, Mrs. Lincoln, how was your evening at the theater?”

      (the headline had the same effect on me)

  • jdd_stl1

    I’m confused by this. I would like to see the data used to generate
    the graphs. I have the data from the IRS via taxfoundation.org
    http://www.taxfoundation.org/publications/show/23408.html
    that shows the top 1% share of the total AGI being this:
    1994: 13.8
    1995: 14.6
    1996: 16.04
    1997: 17.38
    1998: 18.47
    1999: 19.51
    2000: 20.81
    2001: 17.53
    2002: 16.12
    2003: 16.77
    2004: 19.00
    2005: 21.20
    2006: 22.06
    2007: 22.83
    2008: 20.00

    I’d be curious what data was used for this study. Perhaps something other
    than AGI?

    • jdd_stl1

      My point being that that shift seems like it should be large
      enough for a coefficient of income inequality to show
      a change.

  • jdd_stl1

    I have found this:
    http://www.federalreserve.gov/pubs/feds/2009/200913/200913pap.pdf
    If you look at the Table 3 on the page numbered 34 it has Gini coefficient
    numbers that are different then those sight here. It probably depends on
    what is used as income. Also interesting to see the coefficients for wealth
    in this report:
    Columns are year, wealth gini coefficient and income coefficient:
    1989 0.7863 0.5399
    1992 0.7808 0.5005
    1995 0.7841 0.5146
    1998 0.7935 0.5302
    2001 0.8030 0.5643
    2004 0.8047 0.5406
    2007 0.8120 0.5745

    I still don’t have enough information or the background to interpret the
    data yet.

  • Tom Jackson

    What an interesting concept Frum has here with this site. I heard some banter at my office that this was an interesting site and that Frum was a moderate interested in expanding the horizons of “non-thinking conservatives”

    Based on the commenters all over this board I thought I was logged into HuffPo or Moveon.org. Frum, I think it’s safe to say the left loves your site (even if they disagree with you), but if you’re looking to convert conservatives to moderates you’re really missing your target audience. I guess it provides those with a re-distributive/statist bent an outlet to express the frustration they have with their lives.

    Folks, by all measures Frum is an unappologetic centrist. With the exception of foreign policy, where he represents the neo-con wing, Frum is actually slightly left of center. Frankly, I would argue that he would have fit in well with the Democrat Leadership Council (before you liberals ran them out of town) rather than with the Republicans. It’s interesting that everyone here talks about how far right the Republican party has moved, yet there are precious few moderate dems in the congress, certainly not in the White House, and certainly not on this site. If you folks represent what passes for centrist Dems, then it’s you have have moved your party to the extreme. If you (and by that I mean pretty much every commenter here) are left of Frum, you’re pretty far left.

    No need to use more of your employers time responding as I’ll be a one and done commenter.

    • Watusie

      What a shame. FF could really benefit from a new commentor who was solely interested in assigning labels and precise positions on some imaginary continuum of political positions rather than discussing ideas and policy.

      • Tom Jackson

        You mean in-depth policy proposal analysis and the discussion of ideas like this:

        “Logic, reason and truth – just a few more things that the Republicans are willing to hold hostage until their demands are met.”

        Nah

        • Watusie

          And to think that 47 minutes ago you said “No need to use more of your employers time responding as I’ll be a one and done commenter.”

          Please – don’t let your browser hit on the ass on your way out!

    • D Furlano

      If you’re the type of republican that believes data is for the weak minded then you are correct this is the wrong from for you.

    • Graychin

      I don’t claim to be a “centerist Dem.” I think that Obama is a disappointing moderate. But I come here to broaden my horizons by reading the viewpoints of conservatives who aren’t completely batsh*t crazy. And I find it sad that a moderate Republican like David Frum has more in common ideologically with Barack Obama than he has with anyone in his own party. Why is he still a Republican? Tribal loyalty, habit, nostalgia? Something like that.

      Of course I disagree with what the writers here post, perhaps 95% of the time. But they make me think.

      I also come here because the liberal commenters are the most intelligent and insightful commenters that I have found on any political website. Unfortunately, one of the very few “conservative” commenters here is a disgusting troll. (You all know who I mean.)

      It’s too bad that Tom couldn’t handle contrasting viewpoints. Tom, have fun at Red State, and don’t let the doorknob hit you in the butt on your way out. :D

    • zaybu

      Tom: If you (and by that I mean pretty much every commenter here) are left of Frum, you’re pretty far left.

      Tom is symptomatic of the disease in this land. By all measures, Frum is on the right, but not according to the rightwing bats$it like Tom. If you’re not to the extreme right, you qualify as a commie. Derp, derp.

    • balconesfault

      Based on the commenters all over this board I thought I was logged into HuffPo or Moveon.org.

      That’s because, by and large, conservative commentors get frustrated posting on anything that’s not an echo chamber, and end up leaving here when their assumptions are challenged.

      Let’s just say that “I heard it on Fox or Rush” doesn’t win an argument here.

      With the exception of foreign policy, where he represents the neo-con wing, Frum is actually slightly left of center.

      Wrong. On an issue by issue basis, Frum is still right of center.

      Frankly, I would argue that he would have fit in well with the Democrat Leadership Council (before you liberals ran them out of town) rather than with the Republicans.

      There’s something to be said for that. After all, the DLC was slightly right of center on many issues.

      It’s interesting that everyone here talks about how far right the Republican party has moved, yet there are precious few moderate dems in the congress, certainly not in the White House, and certainly not on this site.

      If you don’t think there’s a moderate Dem in the White House, you’ve drank too much kool-aid.

      • Hal

        The above comments to Tom Jackson’s post seem to prove his point. FrumForum is for all intents and purposes “Chum” Forum as in whatever topic is blogged acts as chum for the sharks who frequent this site. The result is ad hominem ad nauseam – defeating the point of a “discussion” forum, which should be to provide new insights and persuade via carefully reasoned logic base on facts. Instead most of this stuff is snark, grade school putdowns and taunts.

        The regular posters seem to be on a mission to drowned out anyone they perceive as questing their worldview. It’s an echo chamber all right – hard to hear yourself think.

        • Watusie

          Hal, can you show me an example of a conservative poster making an intelligent, cogent argument and then getting drowned out with irrelevant replies?

          In the mean time, fools like Tom Jackson aren’t going to be suffered gladly. There is no reason why his attempt at drive-by snark shouldn’t be scoffed at. Dressing it up with a veneer of serious commentary by engaging in minute analysis of precise positions on some imaginary continuum of political positions doesn’t get him a pass.

        • ottovbvs

          Ditto. There’s undoubtedly a formidable bloc of regular commenters here who rely on hard data and empirical data to shoot down various varieties of nonsense. When I was at school this was regarded as a benefit because any half baked theories or packs of lies were going to get rapidly pulverised. Seldom do I see an overtly conservative commenter here present a coherent argument that will withstand scrutiny and even the ones that have a shot at it rapidly descend into smokescreens, or outright lies, or simply disappear. If Hal has a case to make then make it, at least here he’s going to be allowed to make it and not blocked as inevitably happens at rightwing blogs who are mainly interested in preaching to choir.

    • jamesj

      It must be painful, reading comment after comment from people who voted Republican for decades and now view your policy positions as extreme and harmful to the country. This snide post and its specific refusal to engage in an actual discussion is a perfect metaphor for the intellectual cowardice that’s driven me from the Republican party.

      “…re-distributive/statist bent…”

      Hilarious and way off base. Have fun in your dreamworld as people like me (business owner, employer, former loyal Republican, etc.) flee from you and your ideas.

    • paul_gs

      I thought I was logged into HuffPo or Moveon.org

      LMAO! You’re not the only one here who has felt that way Tom.

  • D Furlano

    Depends on where Dalmia gets her data. Without looking further into it the Gini graphs look like IRS data. If this is the case it only represents up to a certain income level which I believe is 250k.

    Just a guess.

    • jdd_stl1

      Dalmia’s chart actually comes from a blog by ironman? at politicalcalculations.blogspot.com.
      That blog does cite the IRS docs they used as data but when I did a quick look
      at them they seem to lump incomes of $100K and up together. Not sure how
      you do calculations based on income using data like that. But maybe there
      is more details in there that I missed in my quick look. I’ve sent email
      to ironman to see if I can get more info.

  • jdd_stl1

    And in case anyone is interested in yet one more set of Gini data:
    http://scholar.library.csi.cuny.edu/~volschot/giniirs.html

    This set is based on AGI and I think it shows a steady
    increase up to 2007 and then declines in 2008 and 2009.
    Perhaps the decline in 2008 and 2009 supports the claim
    that the top 1% was hit hard by the recession. Poor 1%ers.

    OK. I think I have convinced myself that like a lot of other data/statistics,
    you can find someone with the data to support whatever your claim is.
    How is the general public supposed to wade through it all
    and know what is true?

    • ottovbvs

      “Perhaps the decline in 2008 and 2009 supports the claim
      that the top 1% was hit hard by the recession”

      Actually it’s an accurate claim since most of these folk’s income comes from investment. And it’s now out of date. They bounced back in 2010/11. The Dow is up 85% from the bottom.

  • indy

    The CBO released a report this week on income inequality: http://www.cbo.gov/ftpdocs/124xx/doc12485/10-25-HouseholdIncome.pdf

    EVERY single group has lost ground on their share of market income between 1979 and now EXCEPT the top 1% (figure 2 of the summary), which corresponds roughly to Piketty and Saez’s findings.

    The top 1% share of total after tax income rose from about 8% to about 18% in the same time frame while everybody else declined (figure 3, page 6).

    Appendix B discusses the GINI index and its limitations and why they chose to use a different index (the concentration index) but it gets a bit technical.

    edit: well, I just had a chance to visit Krugman’s blog for the first time in a few days and he is already on top of this report. He also apparently looked at the numbers rather than the graph and the 80-99% group has gone up slightly (looks like about 1% or less) in their income share since 1979.

  • Holmes

    Query: Is there any degree of wealth concentration in the hands of the 1% that conservatives would object to? Where would that tipping point be?

    • Graychin

      I don’t think there is such a tipping point. Dontcha know that the wealth will tinkle down to everyone else – eventually?

      So stop your silly protesting and just be patient! There’ll be pie in the sky by and by…

  • At the politics blogs . . . « Statistical Modeling, Causal Inference, and Social Science

    [...] mention Wegman At the politics blogs . . . Posted by Andrew on 4 November 2011, 9:11 amThere is no increased inequality, unless you look at the top 1%The revolving door of U.S. politicsThe redistricting song Filed under Economics, Political [...]

  • Hal Morris

    On “Where did the wealth inequality come from?” I wrote a response at http://www.frumforum.com/there-is-no-increased-inequality-unless-you-look-at-the-top-1/comment-page-1#comment-355664

    Just doing this because it is buried way deep in last nights comments even though I just finished it.

    • ottovbvs

      I actually read your little essay Hal on how the benign workings of providence and the handing out of small plots of land created our juggernaut. Apparently capital, most of it foreign specifically British, played little or no role in this process.