The latest inequality statistics from the Congressional Budget Office have produced a funny reaction. Both liberals and conservatives have embraced them as proof that their ideology is right — liberals, because the gap has grown; conservatives, because earnings have risen across the board.
Conservatives say a rising tide lifts all boats, and that’s a good thing. Liberals can’t seem to get past the fact that some people have bigger boats than other people do.
But what interested me is the fact that the CBO report doesn’t give us an indication of mobility, other than to observe, “the population with income in the lowest 20 percent in 2007 was not necessarily the same as the population in that category in 1979.”
Yeah, no kidding.
Twenty-eight years passed between 1979 and 2007. The trajectory for most Americans is to start at the lower end of the income spectrum when they begin working and steadily move up until they peak, usually sometime in their 50s, after which their income declines until retirement. The CBO data tell us nothing about average earnings, only aggregates for an entire quintile, and they tell us nothing about mobility.
The Census Bureau, on the other hand, has data about both topics. And they tell quite a different story than the simplistic, “The rich are getting richer faster than the rest of us.”
If you were 20 years old in 1979, you were 48 in 2007. And your earnings, adjusted for inflation, would have jumped from an average of $37,414 to an average of $87,391 — a 134 percent increase.
Is that as large an increase as CBO reports for someone who was in the top 1 percent in both 1979 and 2007 (275 percent)? No. But then, not many people would have remained at such a lofty level for so long. It’s more likely that someone in the top 1 percent in 1979 would have moved down by 2007.
That 134 percent increase is twice as large, however, as the increase for someone who was in the top quintile all those years (65 percent, again per CBO). For that matter, the increases for the 15- and 25-year-olds of 1979 would also have been near or greater than that of a constant top 20 percenter.
Now let’s look only at quintiles. The biggest percentage increase a household could have made between 1979 and 2007, by moving up just one quintile, was the 155 percent increase, on average, that it would have seen by moving from the lowest group to the second-lowest group. And the biggest increase for a two-quintile move was the 340 percent rise by moving from the lowest group to the middle group.
All of this to say: The biggest gains were for the upward steps that Americans were most likely to make, as they moved from the beginning of their careers to their peak earning years. We must consider that fact as we weigh inequality statistics.
There are lots of other factors at play when it comes to inequality. James Pethokoukis of the American Enterprise Institute has compiled not one but two lists of them. Among the economic research findings that he reports are explanations that inequality varies widely from the official statistics when one considers such factors as differences in household size (households at the top of the income scale are also more likely to have more people in them) and in inflation (inflation has been faster over the past 30 years for the kinds of goods richer households buy vs. the goods that consume the bulk of poorer households).
There’s value in the CBO’s report, but it’s far from the whole story. And it’s dangerous to take the top-level findings at face value, and to continue to stoke class-based grievances because of them.
– By Kyle Wingfield