No matter who said it first, it’s true that numbers are used, misused, and abused, especially in political debates. In the early twenty-first century in the United States, debates about the nature, existence, and extent of so-called “income inequality” have made generous use of statistics.
These numbers demand examination. How does one quantify income? There are numerous ways. But income is not the only way to measure economic well-being, and perhaps not the most accurate way. Some economists point out that measuring consumption, as opposed to income, is a truer measure of one’s standard of living. Edward Conard writes:
Consumption is a more relevant measure of poverty, prosperity, and inequality. University of Chicago economist Bruce Meyer and the University of Notre Dame economist James Sullivan, leading researchers in the measurement of consumption, find that consumption has grown faster than income, faster still among the poor, and that inequality is substantially less than it appears to be.
Consumption is, after all, a measure of the items which constitute a standard of living: clothing, food, housing, transportation, etc.
Income and consumption are two variables which can increase or decrease independently of each other, as Edward Conard notes:
Measures of consumption paint a more robust picture of growth than proper measures of income.Misleading income measures assume tax returns — including pass-through tax entities — represent households. They exclude faster-growing healthcare and other nontaxed benefits. They fail to account for shrinking family sizes, where an increasing number of taxpayers file individual returns. They don’t separate retirees from workers. They ignore large demographic shifts that affect the distribution of income.
It may well be a mistake to think of “income inequality” in simplistic terms as “the gap between the highest earners and the lowest earners,” as Ben Shapiro reports. There can be low earners whose standard of living is higher than the standard of living of high earners. A simple example is retirees, whose earnings may be low, but whose standard of living is supported by a lifetime of saving and investing.
More to the point, as noted above, a low earner may receive health insurance worth thousands of dollars, and therefore have a higher standard of living than someone whose nominal income is greater.
Income gaps have reliably “widened and narrowed over time”, Ben Shapiro explains, and there is no “correlation between levels of inequality of outcome and general success of the society or individuals within it.” Income inequality at any one point in time is misleading, because it is a continuously changing variable. Income inequality between various social classes is also misleading, because mobility means that individuals are constantly moving in and out of the various classes.
It’s quite possible for income inequality to grow while those at the bottom end of the scale get richer. In fact, that’s precisely what’s been happening in America: the middle class hasn’t dissipated, it’s bifurcated, with more Americans moving into the upper middle class over the past few decades. The upper middle class grew from 12 percent of Americans in 1979 to 30 percent as of 2014. As far as median income, myths of stagnating income are greatly exaggerated
What is now called “income inequality” should be understood as an often transient condition. The fact that one person earns more and another person earns less is evil only if those individuals are irreversibly locked into those conditions. But in fact, most American wage-earners are in a position of mobility: they can work their way up, and earn more in the future.
Well-intentioned but mistaken efforts to “eliminate income inequality” lead to the unintended consequence of freezing individuals at certain income levels and reducing chances for advancement.
Income inequality exists everywhere, and “social justice” destroys personal liberty and exacerbates inequality.
Attempts to “eliminate income inequality” actually ossify inequality. Only the fluid system of a free market creates chances for individuals to move up in terms of their incomes.
