Income inequality: does this graph say what I think?

[Learjeff]

Looking for one thing, I stumbled on another. The graph below shows the percentage of families in three income groups over time:

http://cdn.theatlantic.com/newsroom/img/posts/Screen%20Shot%202013-09-06%20at%2011.04.05%20AM.png

It charts three groups, divided by $25K and $75K boundaries (in 2011 dollars adjusted based on US consumer price index) from late 60’s to 2012. The trends are gradual and nearly monotonic, so just listing the start and end points in a chart gives a pretty good idea:

Start: 30% low, 55% middle, 18% high
End: 25% low, 42% middle, 33% high

Clearly, the middle class is reduced. The odd part is, so has the bottom class, and the gains are in the top class.

My interpretation of this is that while there may be more inequality between the middle class and the top 1%, for most of us, there is less inequality, and more people are better off (more people are in a higher class at the end than at the beginning).

My interpretation is that we also have more purchasing power than we did in the 60’s. If more of us are in a higher class, that has to follow, assuming the CPI what we can get for our money (which I believe is the main intent).

So, regardless of the top 1%, it seems the rest of us are better off, not worse off: the top 1% hasn’t “taken away” income from the rest of us (though it may reap much more of the gains in productivity than the rest of us).

Here’s the source, which was a projection analysis for the auto industry. I haven’t assessed the possible motives that might color the analysis by cherry-picking.

The Dubious Future of the American Car Business—in 14 Charts

What does this chart say to you? Is it believable? Might it be accurate but misleading?

I posted this in GD because I’m interested in opinions. But as always here at SD, I would appreciate responses with facts and citations.

Thanks!

[Mr.Nylock]

Looks a little like, according to the graph the rich get richer, but the poor just sort of stay the same. That’s all I got.

[Batistuta]

If the chart is correct (and I have no reason to believe otherwise), then I think your interpretation is right.

However, I may add one layer of analysis if you don’t mind. The proportion of people in the ‘middle’ has been declining, whereas the proportion of people in the ‘top’ range has been growing: this means that people are successfully climbing from one group to the next. The group at the bottom, however, has remained largely unchanged since 1967.

So you could also read the chart like this: more median-income people are getting high incomes, but those at the very bottom have been unable to make a similar jump. That 25% of the population are not only relatively poor, but also have a very slim chance of joining the middle class.

[TriPolar]

It confirms the theory that we are turning into a two-tier society.

[ITR_champion]

@Learjeff

So, regardless of the top 1%, it seems the rest of us are better off, not worse off: the top 1% hasn’t “taken away” income from the rest of us (though it may reap much more of the gains in productivity than the rest of us).
…
What does this chart say to you? Is it believable? Might it be accurate but misleading?

The chart is entirely correct and you’re interpreting it correctly.

When I read the papers and watch TV, I see a lot of claims to the effect that the wealthiest 1% are getting richer and the other 99% are getting poorer. In the long term, this is simply not true. When I read conservative and libertarian sources, they instead report that on average, all income brackets have been getting wealthier during the past few decades. There’s been a slight downtick in the years since 2008, visible on the graph, but the general trend is up.

Of course this graph does not tell us what percentage of wealth is controlled by the top 1%. By all accounts, that’s risen in both the short and long term. However, there’s disagreement about whether we should care. One side seems to assume that when the wealthiest 1% get a larger share of the wealth, this is necessarily bad. The other side sees no problem with it as long as wealth increases for everyone.

[Omar_Little]

@TriPolar

It confirms the theory that we are turning into a two-tier society.

No. We are going through a deleveraging of the long term debt cycle of the economy. Things will cycle back and continue.

See: https://www.youtube.com/watch?v=PHe0bXAIuk0

This is actually a very good short summary to explain economic cycles that every economy goes through.

[Duckster]

Don’t think income inequality.

Think wealth inequality.

Wealth Inequality in America

[TriPolar]

@Omar_Little

No. We are going through a deleveraging of the long term debt cycle of the economy. Things will cycle back and continue.

See: https://www.youtube.com/watch?v=PHe0bXAIuk0

This is actually a very good short summary to explain economic cycles that every economy goes through.

That’s a 30 minute video. Maybe you could summarize the summary.

[Learjeff]

@Batistuta

So you could also read the chart like this: more median-income people are getting high incomes, but those at the very bottom have been unable to make a similar jump. That 25% of the population are not only relatively poor, but also have a very slim chance of joining the middle class.

That’s just how I see it, though I didn’t put it that succinctly. BTW, the chart doesn’t address class mobility; the wash cycle might exchange the people in the classes quite regularly and it wouldn’t show. But still I believe you’re right.

@ITR_champion

One side seems to assume that when the wealthiest 1% get a larger share of the wealth, this is necessarily bad. The other side sees no problem with it as long as wealth increases for everyone.

Right. I’m not quite comfortable with either assumption, but as you put it here, I’m more comfortable with the latter than the former. I do think we need to worry about concentration of wealth, though.

@Omar_Little

No. We are going through a deleveraging of the long term debt cycle of the economy. Things will cycle back and continue.

See: https://www.youtube.com/watch?v=PHe0bXAIuk0

This is actually a very good short summary to explain economic cycles that every economy goes through.

I look forward to a chance to watch the video. (Aside: I wish we had a good term for “cycles” that are not “cyclic”. Perhaps “periods” as long as we don’t imply “periodic”.)

[Honesty]

@Learjeff

I posted this in GD because I’m interested in opinions. But as always here at SD, I would appreciate responses with facts and citations.

Thanks!

There are two things wrong with that graph. The first is the delineation of incomes are far too small, for all intents and purposes, income inequality is between the narrow range of 0 - $75,000 a year. There are individuals making 100 times that. The second is that the graph is adjusted for CPI and does not include share of income.

Here’s a graph from Picketty’s book that shows the top 1% share of income grow from 35% to nearly 50%. Here’s another graph looking at the 10% which eat up a bigger share. In contrast, as this graph shows, rest of the 90% have seen their share of income and capitaldecrease.

• Honesty

[Learjeff]

@Honesty

There are two things wrong with that graph. The first is the delineation of incomes are far too small, for all intents and purposes, income inequality is between the narrow range of 0 - $75,000 a year.

Really? Those categories are useless for any purpose? There’s no useful information there?

Or are you just saying that people who worry about income inequality are worried about the difference between the top 1% (or less) versus the bottom 99%, even if the bottom 99% are doing as well as or better than before?

There are individuals making 100 times that.

You say that like it’s a bad thing.

The second is that the graph is adjusted for CPI

Why is that a problem? I see that as very helpful, since we can compare ends of the graph for a single line, rather than merely looking at the differences between the three lines.

and does not include share of income.

I don’t understand your point here.

Here’s a graph from Picketty’s book that shows the top 1% share of income grow from 35% to nearly 50%. Here’s another graph looking at the 10% which eat up a bigger share. In contrast, as this graph shows, rest of the 90% have seen their share of income and capitaldecrease.

• Honesty

Picketty’s point is that income from ownership is greater than income from productive activity, and that for this reason, eventually, nearly all wealth will be concentrated to a very small class. I see that as a significant problem. If your point is that the above graphs are “wrong” because they don’t show that problem, then I take your point. That doesn’t make them wrong, though, it just makes them fail to illustrate your point.

[Acsenray]

What if there were more than three groupings? And what if you added lines for the poverty level or other standardizing metrics?

[Learjeff]

Those are very interesting graphs.

One issue I have with this: income and capital is that it seems to assume that total wealth is a zero-sum game. But I don’t think it’s central to Piketty’s thesis, and even in a non-zero-sum game, I would not like to see a world where the vast majority of wealth was owned by a small minority.

[Learjeff]

@Acsenray

What if there were more than three groupings? And what if you added lines for the poverty level or other standardizing metrics?

I think it would be fascinating to see more finely-grained data. When looking at historical data for tax receipts, for example, it’s a bit frustrating that we can see only by quintiles and not by percent.

[missred]

This graph may be accurate, but how many incomes per household in 2011 as compared to 1968 are there?

Anecdote does not equal data, but in 1968, I lived in a household with one income for seven people, as did most of my friends and family. Now, Mom works, Dad sometimes moonlights and Junior flips burgers after school. They pay out $$ for afterschool / daycare for little sister, so if they are in the middle or lower ends of the spectrum, there goes half of one income.

[Learjeff]

@missred

This graph may be accurate, but how many incomes per household in 2011 as compared to 1968 are there?

Yeah, that’s an interesting factor. No doubt that in the middle group, the number is higher. Probably in all three groups, but my guess is the middle group is the most affected. I wonder what the graphs would look like per individual, but per household or per taxpayer info to mine.

[Honesty]

I don’t have much time so I can just address for now.

@Learjeff

Picketty’s point is that income from ownership is greater than income from productive activity, and that for this reason, eventually, nearly all wealth will be concentrated to a very small class. I see that as a significant problem. If your point is that the above graphs are “wrong” because they don’t show that problem, then I take your point. That doesn’t make them wrong, though, it just makes them fail to illustrate your point.

I think we all know what Picketty’s central thesis is. I am referring to the specific graph that shows income inequality, you know, the title of the thread. The graph is actually entitled “Income Inequality”. Please see the original post for the link, if you’re interested.

• Honesty

[Sage_Rat]

@Batistuta

So you could also read the chart like this: more median-income people are getting high incomes, but those at the very bottom have been unable to make a similar jump. That 25% of the population are not only relatively poor, but also have a very slim chance of joining the middle class.

While that is possibly the case, to some extent, one thing to consider is that in either source of numbers, you’re looking at a moment-in-time snapshot of the entire US population. So all of the people in their late teens and twenties who have just entered the market and are working entry-level jobs, are bunched into the lowest class even though some percentage of those people will go on to become middle or upper class. Similarly, some of those middle class people are people who are still working their way up the ladder and when they hit their 50s will be in the upper class.

Particularly for the lower segment, this adds a static percentage of the population who are going to be there in every survey regardless of anything.

I think I once tried to correct for this sort of thing; figuring out what percentage of people never make it out of poverty during their overall career path. But it’s not a value that’s easy to determine. I think I had to perform a translation through a study on career paths dependent on education and rates of enrollment in the different sets of education - so a bit hazy.

Unfortunately, I don’t recall what the result was, but I’d guess that less than half of the people listed in the lowest segment end their lives there.

[Learjeff]

@Sage_Rat

While that is possibly the case, to some extent, one thing to consider is that in either source of numbers, you’re looking at a moment-in-time snapshot of the entire US population. So all of the people in their late teens and twenties who have just entered the market and are working entry-level jobs, are bunched into the lowest class even though some percentage of those people will go on to become middle or upper class. Similarly, some of those middle class people are people who are still working their way up the ladder and when they hit their 50s will be in the upper class.

That’s an excellent point. We know that the median age is considerably higher now, so we’d expect to see an increase in income between then and now, and I didn’t think to account for that. Not sure how I could, but it takes quite a bit of wind out of my assertion that we look like we’re mostly better off now (more people in higher income brackets). Thanks.

[Half_Man_Half_Wit]

It’s not entirely clear to me that even if income increases across all brackets, that necessarily means that everyone’s better off. Relative wealth matters, as it is e.g. correlated with representation on the political stage; thus, if everyone gets more wealthy, but some group disproportionally more so, it may mean the other tiers get marginalized. Better off financially, but that’s not the only metric that matters. Somewhat along these lines, just as an additional data point, a recent study has concluded that at least in part due to income inequality, the US is factually an oligarchy, not a democracy. So, even if ‘everyone’s better off’ income-wise, income inequality still may represent a significant problem, it seems to me.