I’ve said (and written) for many years, that all the hooraw about income inequality is bullshit. Income and wealth inequality – income and wealth aren’t the same thing – are inescapable aspects of human nature; they will always exist, and any attempt to “fix” this just makes matters worse. Look at the countries with the greatest income and wealth inequalities, and you are looking at a totalitarian government every time.
You might call this a never-ending myth.
Despite the popular belief that the rich are getting richer while the poor are getting poorer, this claim is not only economically misguided but factually incorrect. Using data from The Mercatus Center’s working paper Income Inequality in the United States, we can demonstrate how flaws in inequality data often exaggerate the problem, explore why the claim that the poor are getting poorer is inaccurate, highlight why shaping policies around resentment and envy of the rich does more harm than good, and why the real solution lies in addressing the root causes of inequality through private-sector opportunities rather than government intervention.
Those flaws are mostly due to ignoring attenuating factors – or, reasons the poor aren’t as poor as the welfare advocates claim. Another flaw lies in the measuring of income and wealth.
The first item you should be mindful of when studying income inequality is that studies often exaggerate disparities due to flawed measurement methods. The two main data sources — tax records and household surveys — both have limitations. Tax records accurately capture high earners but miss low-income individuals who do not file taxes, while household surveys underreport high earners’ actual income, distorting inequality estimates. Additionally, many studies ignore government transfers like Social Security, Medicaid, the Earned Income Tax Credit (EITC), and more, which reduce inequality significantly. Readers should be mindful of these measurement problems and government transfers to avoid being misled by incomplete or exaggerated inequality narratives.
And:
Another flaw in inequality studies is ignoring non-wage compensation, such as health insurance, retirement benefits, and bonuses. This is particularly important because nonwage compensation has increased substantially since 1950, growing from just 5 percent to nearly 20 percent of total employee compensation. Since many lower-income workers receive much of their earnings in benefits rather than wages, leaving these out overlooks the financial support and economic well-being these benefits provide. Additionally, when factoring in government benefits like Social Security, Medicaid, and tax credits, the measured income gap shrinks by about 11 percentage points.
Another thing not mentioned is normalizing the data for age. People may occupy every rung on the ladder of income inequality through their lifetimes. People start on the entry level in the job or business market, usually not making much money, usually not having the best benefits.
If they show a little hustle – a little jam- they move up, gain skills, gain experience, gain value in the marketplace.
I’ve long offered one piece of advice to young men and women starting out in the workforce: that success in the employment world isn’t hard; just follow three rules:
- Show up a little earlier than the other guys
- Work a little harder than the other guys
- Never pass up the chance to learn something new
To that, I might add, “If your boss asks you if you can get something done, the answer should always be ‘yes.'”
Income and wealth inequality will always be with us. The path towards the higher end of that is always found in enterprise. Enterprise is only found in economies that reward it. Capitalist, free-market economies. That’s the final answer.
