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From a Thomas Sowell column. Largely debunks this podcast.

Anyone who follows the media has probably heard many times that the rich are getting richer, the poor are getting poorer, and incomes of the population in general are stagnating. Moreover, those who say such things can produce many statistics, including data from the Census Bureau, which seem to indicate that.

On the other hand, income tax data recently released by the Internal Revenue Service seem to show the exact opposite: People in the bottom fifth of income-tax filers in 1996 had their incomes increase by 91 percent by 2005.

The top one percent — "the rich" who are supposed to be monopolizing the money, according to the left — saw their incomes decline by a whopping 26 percent. Meanwhile, the average taxpayers' real income increased by 24 percent between 1996 and 2005.

How can all this be? How can official statistics from different agencies of the same government — the Census Bureau and the IRS — lead to such radically different conclusions?

There are wild cards in such data that need to be kept in mind when you hear income statistics thrown around — especially when they are thrown around by people who are trying to prove something for political purposes. One of these wild cards is that most Americans do not stay in the same income brackets throughout their lives. Millions of people move from one bracket to another in just a few years.

What that means statistically is that comparing the top income bracket with the bottom income bracket over a period of years tells you nothing about what is happening to the actual flesh-and-blood human beings who are moving between brackets during those years. That is why the IRS data, which are for people 25 years old and older, and which follow the same individuals over time, find those in the bottom 20 percent of income-tax filers almost doubling their income in a decade. That is why they are no longer in the same bracket. That is also why the share of income going to the bottom 20 percent bracket can be going down, as the Census Bureau data show, while the income going to the people who began the decade in that bracket is going up by large amounts. Unfortunately, most income statistics, including those from the Census Bureau, do not follow individuals over time. The Internal Revenue Service does that and so does a study at the University of Michigan, but they are the exceptions rather than the rule.

Whole column can be found here: http://jewishworldreview.com/cols/sowell112007.php3

posted by  Mike  1:12 PM   [+]

 

Facts are so easy to type when you're missing sources... at least those who say that the rich are getting richer have something to back themselves up... http://tinyurl.com/ype8sn

As you can see, both shares of income and real income are stagnating, not just one.
I read the whole column (regrettably) and was wholly unsurprised to fail to see any link to any study whether by a gov. agency or by the U of Michigan. In fact, a google search on "university of michigan income inequality" turned up only a study on mortality rates that failed to mention class mobility. One can't merely ignore statistics by saying that households vary and change, besides the logic behind the analysis is flawed. For the bottom fifth, BOTH income share and real income stagnate, it's not just income that goes up and share that's left behind, which is the reasoning used to dispute household statistics. Is it mere coincidence that the Heritage Foundation decided to go along with the original study? Don't you think a conservative think tank would have put out a rebuttal similar to yours?

posted by  Anonymous  11:03 PM   [+]

 

Sowell's criticism was actually debunked right away, which is probably why no respectable journalists gave it much light.

Sowell is taking the strange position that inequality has not increased because poor people see a 100%+ increase in income while the wealthy only see 10%. It is easy to see the flaw in this argument, as a person earning $10K can easily double their income but still fall behind a millionaire growing 10% a year.

70% of the rise in average income has gone to the top 1%. If you're already rich, your income isn't going to double even if you take nearly all the growth.

http://krugman.blogs.nytimes.com/2007/11/28/zombie-ideas-about-income-mobility/

Of course, mobility is measured best when compared to the rest of the world. Of every quintile in every developed country, the absolutely least mobile group are Americans in the lowest quintile. Every person in every other developed country has a greater statistical chance of moving up.

posted by  Anonymous  1:59 AM   [+]

 

Alarm bells should have gone off when you heard the claim that the top 1% have seen their incomes decline. This would be contrary to every other study on the subject.

The short answer is that some rich people retired over the period. People who were then the richest of the top 20% took their spot and now earn considerably more than those who left.

Jack's podcast also helps explain why the average worker has lower income, even if the IRS sees most taxfilers increase their income over time. First, simple inflation wipes out a 25% increase in wages in 10 years. Second, you have new workers earning less than previous generations. 30-year old men earn less than their parents did at their age so even if their incomes grow at the same rate, the average median income will still be lower.

An average gain of 90% for the bottom quintile is misleading. Half of the lowest earners did not budge at all. The other half tend to come from middle-upper class families and were simply in their first jobs. A person from a wealthy family usually starts with grunt-work pay, but they then quickly quadruple their income as they move along the path created for them. Such people drastically skew the overall income growth.

Jack's mobility study was good because it dealt with intergenerational mobility and was not confused by age or retirement.

posted by  Anonymous  2:39 AM   [+]

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