May Day 2021: Income Inequality in America

Socialism works in two places: heaven where it isn’t needed and hell where it already exists.

May Day 2021: Income Inequality in America

By: George Noga – May 2, 2021


When queried about former socialist havens like the USSR, China and Cambodia, today’s socialists demur. When asked about modern socialist Xanadus like North Korea, Cuba and Venezuela, they say not that type of socialism. Yet, when each of these socialist utopias began, they were darlings of collectivists everywhere, at least until they began eating their pets. When pressed, socialists aver that their model is Scandinavia – which is 100% capitalist. See our post of 10/15/17 at:

Socialism never has achieved economic success; a person would have to be blind not to see the advantages of capitalism. Yet, liberals remain enamored with socialism, even knowing it is a failure, because they don’t care. They see socialism as a moral, not an economic, imperative and their goal is a socialist society, not economic prosperity.


Income Inequality in America


A progressive meme is inequality. But is inequality good or bad; is it increasing; how is it measured; how much is too much; and what policies create inequality?


There are numerous and mind-numbing statistics for inequality. The Census Bureau reports the Gini coefficient, Theil index and the MLD or mean logarithmic deviation. Some of these metrics show more inequality than in the past. However, deconstructing the numbers reveals they are fatally flawed for the reasons listed below, every one of which, if properly measured, would significantly reduce income inequality.


1. The source for all statistics is AGI from tax returns. But adjusted gross income excludes giant swaths of income such as IRA and 401(k) contributions, non-taxable portion of Social Security, Medicare, Medicaid, EITC, stimulus and SNAP.


2. Statistics don’t track the same people. Income cohorts change. New (mostly poor) people enter the back of the line, skewing data downward. If the same individuals (rather than groups) were tracked, the data would show decreasing inequality.


3. Use of household instead of individual income. This renders comparisons between time periods and income groups meaningless as the number of people per household changes over time. One-person households have significantly increased, resulting in more inequality per household although there is much less inequality per individual.


4. AGI fails to account for income taxes. The USA has one of the most progressive tax systems in the world and failure to include taxes skews the data in favor of inequality.


5. Income cohorts (quintiles) are inconsistent. The top income quintile has 3.2 people per household whereas the bottom quintile has 1.7 people per household; hence, the household income in the top quintile must be spread among twice as many people.


6. Spending per income quintile. The Census Bureau reports the lowest quintile spends $2 for every $1 of reported income. If inequality were measured based on spending rather than on AGI, there would be a humongous decrease in income inequality.


It is radiantly obvious the six flaws noted above render conclusions about income inequality meaningless. No one knows how much inequality there is and whether or not it is increasing. Income inequality per se tells us nothing of value; inequality could be rising while the lives of those in the lower cohorts are greatly improved.


Some inequality is beneficial. There is little inequality in Haiti; where everyone is poor, there is no inequality. Even increasing inequality is beneficial if it results from innovation by new ventures such as Wal-Mart, Amazon or Apple. The benefit (savings) to low-income families from Wal-Mart alone is $100 per month. The Waltons are in the top 1%, but their gain must be juxtaposed against the benefit to ordinary Americans.


By the flawed measures that do exist, income inequality decreases under conservative administrations and increases under progressive regimes. That is due to progressive tax and regulation policies which result in less freedom and slower economic growth. As Milton Friedman said, “The society that puts equality before freedom ends up with neither; the society that puts freedom before equality gets a great measure of both.”


Angst about alleged increasing income inequality is political class warfare intended to beguile Americans into supporting the progressive agenda. Moreover, it is progressive policies that are the root cause of much of the income inequality in America today.

Next on May 9th: An honest discussion about race in America.
More Liberty Less Government – –