24 April 2009

America's income distribution disparity

The data comes from the Congressional Budget Office. The numbers show after-tax income for quintiles of the population. The numbers are expressed in 2006 dollars to factor out inflation.

I'll defer any commentary because it's a "res ipse loquitur" table. Whether you think the income disparity in this country is good or bad, justified or not, is not the point here. The point of this table is that that disparity has been increasing.

Via Swimming Freestyle.


  1. Uh-oh... cue the conservatives who love god/freedom/country/capitalism at all costs reminding us that we're socialists for even *thinking* that this is unfortunate. I must be a commie because I don't glorify money.

  2. I wonder if those in the lowest fifth are those receiving benefits... If so, part of the reason for the increasing disparity is that the government doesn't up our paychecks very much. Definitely not at the rate of inflation.

  3. My mom is in that lower fifth quintile because the bulk of her income is from Social Security. The Social Security does go up each year to match inflation. I don't know about other welfare and public assistance.

    Note these numbers are inflation-adjusted, so the lowest fifth has risen 11% more than inflation - but that's not much for 27 years compared to the higher income groups.

  4. I'm just waiting for Brian Kern to jump in and say that this the way God intended it to be ...

  5. We're starting to look like a third-world country.

  6. Imagine a hypothetical country with 10 people. Out of them, nine earn $1, and the tenth earns $10. The mean income of bottom 80% population is $1, and that of top 20% is $5.5.

    Now suppose the next year, one person who earned $1 did a lot of hard work and now earns $10, and others continue to earn as much as they did. The new mean income of the bottom 80% population is still $1, while the top 20% now earn $10. Everybody gasps at the fact that the rich got richer by 81%, while the poor are not going anywhere. In reality, it was the poor who got rich, and the rich are going nowhere.

    An over-simplified example, but hopefully conveys the point that such statistics should be taken with a pinch of salt.

    (Analogy credit missing as I forgot where I read it)

  7. That logic about the poor guy who got rich makes absolutely no sense. I can't stand these sorts of arguments. Where did the $10 come from? Wealth distribution is a zero-sum game. Money doesn't get magically pulled from the ether by people who work really hard. It has to come from somebody's pocket.

    The root cause has been pointed out many times. The graduated income tax is pointless if the rich make all their money from capital gains, which are taxed at a flat rate. Before Reagan, that rate was very high. Since, it's been very low.

    Today, school teachers pay a higher percentage of their net income in taxes than billionaires. Nothing good can come out of the poor subsidizing the rich.

  8. Actually, Anonymous, Ambuj's argument does make sense both logically and mathematically.

    The table shown in the post was about income, not wealth. Income is not a zero-sum game, as all the people in the hypothetical sample could have savings which they spend to give the hard-worker a sudden boost in income after he invents the computer or whatever.

    It's also true that there are lots of people who are income-poor but asset-rich. I've known many people who live in apparent poverty in a shanty situated on hundreds of acres of valuable land that they own.

    So, even though I said the table "spoke for itself," there are some subtle connotations and implications that can be argued. I personally don't like the increasing maldistribution of income, but I do understand there are various interpretations.

    Ambuj, I've heard your example before. I believe it was first articulated by Charles Krauthammer or someone else at the Townhall site.

  9. I have to disagree with your criticism. Ambuj's scenario is still misleading. Because he has a sample population of 10 people, 1 person can cause a statistical anomaly. In his scenario, 10% of the population increased their income by 1000% in one year. You're hypothesizing that a roughly 50% increase in total income of a population came from people selling off assets - but the money from the sale of those assets still went to 10% of the population. There was still a net shift in wealth towards the wealthy. In order for the wealth gap to not change much, the citizens of this hypothetical country would have to have had many times more money in assets than in income.

    Now remember that this is America we're talking about. Asset-rich and income-poor is very, very far from the norm... If this hypothetical country is America, the other 8 people probably took out a home-equity line of credit in order to give 10% of the population 100% of their income...

    ...Actually, this scenario is starting to sound a lot more plausible...

  10. There are ways that these statistics can be skewed. For example, take someone who was self-employed and then retired to live off of savings and interest accrued on them in the bank. I have only known one person that has done this, it is certainly not the norm, but it's possible. This person does not have much in the way of material assets, has 0% earned income, but lives decently. Wouldn't he be counted as impoverished by most definitions, because he doesn't have an income and doesn't receive payments from a retirement plan?

  11. There seems to be a fundamental misunderstanding of how aggregated statistics work. Any time you think about what an individual might do and use that to draw implications out of aggregated statistics, you are fundamentally misusing the statistics.

    No, the statistics don't speak for themselves. Remember the line about "lies, damn lies, and statistics." You do need to intelligently interpret the statistics before you can draw conclusions. But trying to make any useful points based on what might happen to very small sample sizes reveals a fundamental misunderstanding of statistics.

  12. rite, don't question the implications of these very serious statistics by pointing out actual possibilities! we'll have none of that here! scientific statistics are scientific.

  13. Far be it from me to comment on the rights and wrongs of this, but a question that pops into my mind is whether or not most people stay in the same bracket as years progress. When I was 18 I was in the lowest fifth. I was working as a cashier at a grocery store. At 25 I was in the second. Now, at 33 my family is in the middle. My Dad happens to be in the top fifth...now that he's 63.

    I'm working hard and looking forward to being in the top bracket someday and I would appreciate it if Anonymous wouldn't keep advocating stealing my money because "I don't deserve it."

  14. @Anon (hope you are the same person in all the comments),

    I agree with Brian. When people from lower income group get rich, they often increase the income disparity. Of the many conclusions that can be drawn with the statistics (remember "lies, damn lies, statistics), my favorite is that people today can get very rich (in terms of absolute wealth) than ever before. Since many still start at meager salaries and work their way up, the lowest group is disproportionately poor. This doesn't mean that the same people who are starting poor are ending up poor. The pool is churning all the time. Of course, there are many things happening that affect the statistics. US is becoming a younger country, immigrants are coming from outside, etc. I just use extreme caution before taking any inference from such data.

  15. I think these statistics certainly do speak for themselves. 256% increase vs an 11% increase cannot be mitigated by special circumstances that are not reflected by the data. (i.e. the pulling of one's self up by the bootstraps). The phenomena of poor becoming rich in this country is certainly more rare than the rich becoming poor. This could be demonstrated with a table that fixed income brackets in one year, GDP adjusted them in the other year, and then compared percentages of the population that fell into those categories. This will certainly show that more and more money is winding up in fewer and fewer hands, which would mean that these results understate the growing disparity. It is quite ridiculous to suggest that these results overstate it.


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