The American Enterprise Institute has decided, shockingly, that Barack Obama is wrong about income inequality. Well, not really wrong that it exists, but wrong to actually care about it. Like most modern problems, the root of systematic income inequality is giving a shit that it exists. Much like the boogeyman, diabetes, and The X Factor, if you just ignore it, it'll go away.
There are a few arguments in the post that deserve some further investigation. And don't worry, "further investigation" means looking at them, realizing the basic logical errors involved, mocking them, and then moving on. We ain't gettin' think-tanky up in this piece.
Liberals frequently claim the average American family has been losing ground for the past three decades—or at least since Ronald Reagan took the presidential oath in January 1981. (As if the 1970s with its sky-high Misery Index was a great economic time.) The CBO refutes this. Its data show real median after-tax household income (half of all households have income below the median, and half have income above it) grew by 35 percent over the past three decades.
The "losing ground" argument actually has a lot to do with…hold on, let me use a picture here.
It has a lot to do with that. Technically, if you take someone with $100 and give them a nickel, and then take someone with $10,000 and give them gold bars, both people are better off. Technically. In real terms, however, the poorer person has lost a substantial amount of ground to the richer person, as the richer person has been given a metaphorical wealth rocket to get metaphorically ahead in order to, metaphorically speaking, leave the poorer person really screwed.
Have the poor lost ground to the super wealthy? If you demand a technical adherence to a recognizable meaning of "losing ground", yes. If, however, you just don't want to think that, then don't. It's a free country, and the American Enterprise Institute will pay you on the basis of merit for how straight you can keep your face while saying it. It's the free market we've all come to know and warily accept in our lives.
The CBO fails to factor in that American households in the top income quintile have, on average, almost five times more family members working than the lowest quintile. (Analysis by AEI blogger Mark Perry). Those folks are also far more likely, as Perry notes, than lower-income households to be well-educated, married, and working full-time in their prime earning years. Perry also notes that “individuals are not stuck forever in a single income quintile but instead move up and down the income quintiles over their lifetimes.” (Indeed, a Treasury study on income mobility found that starting in 1996, half of taxpayers who started in the bottom 20 percent had moved to a higher income group by 2005.)
Shorter AEI: put a ring on it, and money will flow unbidden from the joyous coupling of your bound nuptials (please post pics). One of the odd things about Mark Perry's analysis is the "almost five times more family members working that the lowest quintile". This makes it sound like the top quintile has eight kids, two parents working, every kid over 14 pitching in and earning cash, and generally living the Little House on the Cul De Sac life we all dream of.
The actual numbers? The bottom quintile has .42 people working per household. The top quintile? 1.97. The five times figure doesn't mean you have five times as many actual people working, unless the poor are actually all cyborgs who can send their brains and legs to work while their torsos watch Maury Povich. What it means is that less than half of poor households have anyone working at all.
The problem isn't that the poor have vast unproductive families sitting around taking up time and energy that could be used to start finally getting some capital gains on that five bucks they got back from DeeDee last week, the problem is that the poor don't have jobs. They're about fifty percent more likely to have part-time jobs, and five times more likely to not have jobs at all.
It's also odd for AEI to argue that the poor should be getting better educated when they wrote three days ago that student loans should be means-tested. Get a full-time job that's not available with the education you can't pay for, and sustain it all by getting married to someone who also can't find a job or get a degree.
Last but not least:
And why did the top 1 percent do particularly well? One potential explanation from CBO: ”The compensation of ‘superstars’ (such as actors, athletes, and musicians) may be especially sensitive to technological changes. Unique characteristics of that labor market mean that technical innovations, such as cheap mass media, have made it possible for entertainers to reach much wider audiences. That increased exposure, in turn, has led to a manyfold increase in income for such people.”
You know how that hedge fund manager at Goldman Sachs cleared a million last year, or that CEO of that failed tech venture got a $5 million golden parachute? They were totally blowing up Twitter.