Income Inequality: Left Distorts the Facts, Again

Earlier this month, University of California economist Emmanuel Saez released his latest installment on income inequality. Predictably, the media is trumpeting its message without considering crucial facts.

In this newest update, Saez argues that in 2010, “the top 1% [of income earners] captured 93% of the income gains in the first year of recovery.”

Assailing these figures, economist Alan Reynolds points out that the study defines income in this way:

Our income definition is…before individual income taxes and employee payroll taxes, and income excludes all government social transfers such as Social Security retirement and disability benefits, government health care insurance (Medicare and Medicaid), unemployment insurance, welfare assistance programs, the earned income tax credit, etc. The importance of taxes and transfers has grown over time.

In other words, since taxes are heaviest on the rich and transfer payments most favorable to the poor, excluding these paints a misleading picture of income disparity. But that’s not all. It also leaves out other forms of employee compensation, such as health benefits, which have been a growing form of low- and middle-income compensation.

That’s why a better measure is to look at total wealth, which sums an individual’s total financial worth—assets minus liabilities. In fact, Saez conducted a study on wealth distribution in which he and his coauthor state that wealth distribution is more equal than it was at the beginning of the 20th century:

Top wealth shares were very high at the beginning of the period but have been hit sharply by the Great Depression, the New Deal, and World War II shocks. Those shocks have had permanent effects. Following a decline in the 1970s, top wealth shares recovered in the early 1980s, but they are still much lower in 2000 than in the early decades of the century.

It is curious that Saez’s studies on income inequality create a racket in the media while his study on wealth inequality receives scant attention. It would be nice if the left dropped its obsession over income inequality and instead joined the right by focusing on policies that best enable all Americans to reach their maximum earning potential.

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Source material can be found at this site.

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