Income Inequality in the US

For John, BLUF:  We have been told we are seeing great income inequality, but when all factors are considered, it isn't so.  Nothing to see here; just move along.

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Income Inequality In America Is Lower Than It Was 50 Years Ago

In which The Tax Prof introduces the concept of GINI Coefficient♠.

The Gini coefficient is a single number aimed at measuring the degree of inequality in a distribution. It is most often used in economics to measure how far a country's wealth or income distribution deviates from a totally equal distribution.

The Gini coefficient measures the inequality among values of a frequency distribution (for example, levels of income).  A Gini coefficient of zero expresses perfect equality, where all values are the same (for example, where everyone has the same income).  A Gini coefficient of one (or 100%) expresses maximal inequality among values (e.g., for a large number of people where only one person has all the income or consumption and all others have none, the Gini coefficient will be nearly one).

For larger groups, values close to one are unlikely.  Given the normalization of both the cumulative population and the cumulative share of income used to calculate the Gini coefficient, the measure is not overly sensitive to the specifics of the income distribution, but rather only on how incomes vary relative to the other members of a population.

From The Tax Prof Blog, by Professor Paul Caron, 1 April 2021.

Here is an except from a Wall Street Journal op-ed:  "Incredible Shrinking Income Inequality," by Mezsers Phil Gramm and John Early:

We can now show that if you count all government transfers (minus administrative costs) as income to the recipient household, reduce household income by taxes paid, and correct for two major discontinuities in the time-series data on income inequality that were caused solely by changes in Census Bureau data-collection methods, the claim that income inequality is growing on a secular basis collapses.  Not only is income inequality in America not growing, it is lower today than it was 50 years ago. ...

And here is the ultimate paragraph:

The raging debate over income inequality in America calls to mind the old Will Rogers adage: “It ain’t what you don’t know that gets you into trouble.  It is what you do know that ain’t so.”  We are debating the alleged injustice of a supposedly growing social problem when—for all the reasons outlined above—that problem isn’t growing, it’s shrinking.  Those who want to transform the greatest economic system in the history of the world ought to get their facts straight first.

Will Rogers, the Roping Fool.  A very smart man.

But, we need to be careful of people selling the idea of income inequality.  There is some, but not as much as some are bleating.

Hat tip to the InstaPundit.

Regards  —  Cliff

♠  Named after the Italian statistician and sociologist, Corrado Gini.