AS the Mark Twain maxim has it, untruth comes in three flavors: lies, damned lies and statistics. This certainly seems to be the case with the “income inequality” crusade led by Barack Obama, AKA The Great Divider.
A recent report by the Manhattan Institute, “Income Inequality In America: Fact And Fiction,” shows that much of the perceived increase in income inequality is driven by demographic factors, not any actual reduction in opportunity or quality of life.
“Many commentators today bemoan a supposed inequality in the United States,” writes Diana Furchtgott-Roth, director of the Manhattan Institute’s economics center, Economics21. “Much of this concern is a ‘problem in search of reality’, caused by problems of measurement and changes in demographic patterns over the past quarter-century. Government data on spending patterns show remarkable stability over the past 25 years and, if anything, a narrowing rather than an expansion of inequality.”
Furchtgott-Roth notes that one major flaw in many analyses is the failure to account for demographic shifts, such as the increase in two-earner families. In 1990, median income for a family with one earner was about $41,800. By 2012, it was about $43,300. Meanwhile, median income for families with two earners rose from about $71,000 to about $82,600 during the same period. That trend alone, Furchtgott-Roth notes, generates “a measured increase in inequality.”
For the most part, the increased income of two-earner families reflects the growing earning power of women. Obama often claims he objects to women being paid less than men, while simultaneously denouncing the supposed increase in income inequality. While most agree that women and men with the same job experience doing the same work should earn equal pay, achieving that goal ultimately increases broader income inequality.
The increased longevity of seniors and higher numbers of divorced people and single-parent households also contribute to the perception of growing income inequality. In 1960, 13 percent of households had just one person. By 2011, that share had grown to 27 percent. Overall, Furchtgott-Roth notes, 72 percent of women living alone are in the bottom two quintiles, and the trends are similar for men. In comparison, 58.4 percent of married couples are in the top two quintiles.
Thus, much of the perceived growth in income inequality is the result of societal changes. This undermines claims that the U.S. economic system is now weighted so that only the rich get richer, and that the rich do so at the expense of the poor.
Per-person spending provides a more meaningful measure of inequality because it avoids the distortions created by demographic changes and tax-law revisions. Per-person spending reflects current standards of living and confidence in the future. It also demonstrates how much purchasing power individual Americans have. By this measure, there has been virtually no increase in income inequality.
“Differences in per-person spending, from the lowest income fifth to the highest, are not different from 25 years ago,” Furchtgott-Roth writes. Citing Department of Labor numbers, she notes that households in the top fifth of the income distribution in 2012 spent 2.5 times the amount spent by the bottom quintile, which is about the same as 25 years ago.
Upon hearing Obama’s income-inequality claims, many citizens have wondered how the United States could have become a land of reduced economic opportunity. Furchtgott-Roth effectively argues it hasn’t.
To paraphrase another Mark Twain line, reports of the death of the American dream have been greatly exaggerated.