Media Raises Alarm: The 1% is Getting Richer! Obscures the Fact That the 99% is, Too.

By Mitch Boersma Published on July 11, 2016

If you were to believe recent headlines in the business press, the 1 percent continue to get the gold mine while the rest of us get the shaft. But a more careful look at the data tells a very different story: the 99 percent is also progressing economically, and the consumption gap isn’t as wide as reports suggest.

For example, when economist Emmanuel Saez recently issued an updated report on income equality (using an unusual way of estimating incomes by relying on tax data instead of governmental surveys of reported income) the report indicated incomes for the 99 percent rose the most since 1998, but he nevertheless called the widening inequality “an alarming trend.” But if the 99 percent is also progressing, what is so alarming?

According to the analysis, the average income of those outside the top 1% rose 3.9% to $48,768, the strongest annual gain in 27 years. By comparison, the average income for the top 1% of households in 2015 increased 7.7% to $1.36  million and that of the “super-wealthy,” the top 0.1%, rose 9% to $6.75 million.

Saez, an economics professor at the University of California, Berkeley, is a colleague of leftist French economist Thomas Piketty, whose Capital in the Twenty-First Century was an international bestseller.

The Alternative

Saez contends that his untraditional method better captures income inequality by including data from the ultra-wealthy, who usually aren’t included in surveys. But another study, which examined his way of measuring income, found that while relying on tax data does allow for more accurate estimates of top incomes, it does a poor job of capturing total income of poorer people.

In particular, it does not account for in-kind or cash transfer programs such as Social Security benefits, Medicaid, Medicare and other government benefits. As a result, the report overstates the pace and share of income gains at the top by as much as 21 percent.

Looking at several studies of income differences, economist Aparna Mathur of the American Enterprise Institute stresses the importance of including those other sources of income. These “significantly boost” the incomes of poorer Americans, meaning that “consumption inequality is not as high as the [Saez] income inequality measures suggest. In other words, people’s standards of living have continued to improve over the last several decades despite much of the income gains going to the top.”

More work needs to be done to understand income differences, but that isn’t the main question economists should be addressing, Mathur insists. “The larger point is that a focus on inequality per se is misguided,” she argues. “Income inequality can narrow simply because we are redistributing income to lower-income households through an expansion of transfer programs.” That means something, she writes. However,

we can only make real improvements in the lives of people if we can improve opportunities and outcomes through access to good education, skill building and good jobs that lead to higher incomes and move people up the income ladder. Seeking parity in those indicators would be a much better measure of success than a narrowing of the income distribution through even more transfer programs.

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