We're all getting richer

by Alex Vronces

23 May 2012

Simply put, many statisticians ignore the frequency with which individuals climb the income ladder, and often mistake narrow statistical figures for flesh and blood.

The rich are getting richer at the expense of the poor; that is, the rich are facilitating the spread of destitution, the destitution to which the 99 percent are so inequitably being subjected. Sentiments like this one are political fabrication. The poor are not getting poorer—as a matter of fact, they, and the rich, are simultaneously getting richer.

Why, then, do politicians and special interest groups lie about the welfare of others? The latter group does this for obvious reasons, for they are not called special interest groups without cause. The former, however, are deceptive in their approach. They feign empathy and benevolence, affecting to remedy each and every social ill, even if the ill must be contrived to do so.

The poorest individuals in society do retain a smaller portion of the economic pie relative to the amount they once held. In 1997, the lowest income earners in the United States accounted for 3.6 percent of the national income. Contrasted with the 4.4 percent they enjoyed in 1975, it is obvious that, in nominal terms, they have become perceptibly worse off over time. Nevertheless, this is an incomplete interpretation of reality, for it assumes the economic pie to be constant. The fact that you own a smaller portion of the constantly changing pie than you owned before doesn’t necessarily mean that you have less—you may, in fact, have more.

In spite of the many voices that profess otherwise, the real wages of the purportedly indigent classes have increased significantly over the past three decades. There are numerous indices with which economists correct figures for inflation, though each one can at times produce a different result. For example, the Consumer Price Index, which is only one of five suitable measures of income growth, showed a decrease of roughly 4 percent in real wages in the United States between 1976 and 2006.

That being said, there are other ways to measure inflation, ways that are no less respected than the CPI. According to the PCE, the Personal Consumption Expenditure Index, over the given period, real wages have actually increased by 10 percent. Using the GDP deflator, the computed rise is a staggering 18 percent. The CPI has many biases that cannot be scientifically corrected. The CPI yields obscure results because economists have yet to discover a way to precisely measure the changes in quality of the goods and services we consume. Consequential decisions with significant societal implications should not be made solely on the basis of one inaccurate assessment.

More factors that are fecklessly and frequently dismissed by the income-inequality-doomsayers are the benefits that workers receive on top of their salaries. Benefits include things such as health insurance, pensions, vacation and sick pay. By some estimates, real wages during the cited period, with the inclusion of benefits, have increased by an astonishing 26 percent.

Be that as it may, a declining wage is not the only process by which real wealth can deteriorate; an increase in the real cost of living has the same effect. The cost of living, however, has greatly decreased due to a variety of technological and procedural innovations. These expenses, which have never in history been so low, must be conceptualized in terms of the labor time necessary to purchase products at the mean industrial wage. In 1920, for example, when the average wage was low, a three-pound chicken cost about 2.5 labor hours; in 1997, that same three-pound chicken cost close to 14 labor minutes. Certainly, there is absolutely no reason to believe that the real incomes of ordinary people have become stagnant.

Irrespective of the mythological ever-decreasing real wage, why, then, does the compiled research demonstrate the existence of this horrifically widening income inequality gap? Those who pontificate about the rich getting richer and the poor getting poorer conveniently refuse to recognize an exceptionally crucial flaw in their premise. Most of the data that generates these kinds of conjectural conclusions totally disregards socioeconomic mobility.

The insufficient statistics upon which the sophists rely heavily are a snapshot of income brackets at a given time, rather than a lifetime evaluation of the wealth accumulated by real people. Simply put, many statisticians ignore the frequency with which individuals climb the income ladder, and often mistake narrow statistical figures for flesh and blood. How this reality eludes even the most promising economists—and, in some instances, Nobel laureates—is mind-boggling.

Approximately 50 percent of American taxpayers who comprised the lowest income quintile in 1996 joined the highest income quintile by 2005. Meanwhile, nearly 75 percent of the top 0.01 percent of taxpayers who constituted the highest income quintile no longer enjoyed the same status in 2005. Indeed, the median real income of this group, of the 0.01 percent, decreased substantially during this brief period. Although it will probably still not convince those who espouse such fallacies, skeptics need only peruse a few documents published by the US Treasury to confirm these figures.

The proclamations of the exceptionally conniving casuists notwithstanding, income inequality and real income stagnation are not rampant issues that require repair. The rich are getting richer, and so are the poor; admittedly, we are all enjoying the fruits of economic growth. Tax hikes on top earners cannot rectify an illusory wrong, nor can any other superficially philanthropic equalization policy that emerges from the cesspool we call bureaucracy.

The views expressed in this opinion piece are the author's own and do not necessarily represent those of The Prince Arthur Herald.

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