Saturday, December 18, 2010

Typical Income Inequality Argument

This article on growing income inequality makes all the usual points, including confusing income and wealth. Buried at slide 12 in the article is this informative and revealing chart:

The article's caption on the chart is "America's income spread is nearly twice the OECD average." This is a great example of people seeing what they want to see. Equally valid titles for this chart would be "America has the 2nd highest average income in the OECD" and "Median income in US is nearly 50% higher than OECD average." Those titles create quite different impressions, don't they?

The next slide says this:

The Income Gap is NOT Growing in Other Countries, like France

The title on the slide is literally true. France has a smaller income gap. But why does France have a smaller income gap? France has a smaller gap than the US because in France the top 90% of the population makes less than the top 90% in the U.S. The top 10% in France makes from $35K to $55K dollars. The top 10% in the US makes from $52K to $93K. The median in France is about $22K. The median in the US is about $29K, i.e., about 30% higher than France. Based on this, even with the income inequality would you rather take your chances in France or in the US? Personally, I like the odds of 90% of the people in the US being better off than their counterparts in France.

The whole article is example of "glass half empty" reasoning by people who want to feel bad about being Americans. I agree that the bottom decile on the chart is a cause for concern. But that's about the poor, not about the gap between the rich and the middle class. We should make sure the poor in America have every opportunity to improve their situation, and we should give them a hand up in doing that. But the middle class in America is doing better than almost any other country in the rest of the world. There's no reason to complain about the rich in America also doing better than their counterparts in other countries.

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