Income Inequality: Myths vs. Facts

Cross-temporal comparisons of incomes by percentile are meaningless, as Arnold Kling and Russell Roberts explain. The bottom line: the persons included in a particular income range (e.g., bottom decile or quintile) in one year are not the same persons who were included in that income range five, ten, twenty, or thirty years earlier. Moreover, real (inflation-adjusted) income has grown steadily across the board: at the bottom and all the way to the top.

Those persons who are (temporarily) at the top do not take away anything from those who are at the bottom or in between. Those at the top earn because more they produce things of commensurate value. (I exclude politicians, lobbyists, and the beneficiaries of economically restrictive regulation.) Those in the middle and at the bottom earn what they earn because they produce things of less value. (Teachers, for example, earn less than baseball players because there are so many more persons who are able to be teachers than there are persons who are able to be major league ballplayers. It's that fact -- not "social injustice" -- which accounts for the fact that teachers, firemen, policemen, etc., don't make as much as ballplayers.) There's no other way for an economic system to generate more for all than to allow it to reward producers according to the market value of what they produce.

Income inequality is a bogus issue. It is exploited by economic illiterates, do-gooders, and politicians to advance various forms of welfare, which necessarily involves income redistribution. The result, of course, is to make almost everyone worse off. The only beneficiaries of income redistribution are the welfare bureaucracy, vote-grabbing politicians, and perennial parasites. The rest of us pay via higher taxes and slower economic growth.

Related posts:
"Why Class Warfare Is Bad for Everyone" (21 Sep 2004)
"Fighting Myths with Facts" (27 Sep 2004)
"Debunking More Myths of Income Inequality" (13 Oct 2004)
"The Destruction of Wealth and Income by the State" (01 Jan 2005)
"Ten Commandments of Economics" (02 Dec 2005)
"More Commandments of Economics" (06 Dec 2005)
"Zero-Sum Thinking" (29 Dec 2005)
"On Income Inequality" (09 Mar 2006)
"The Causes of Economic Growth" (08 Apr 2006)
"The Last(?) Word about Income Inequality" (21 Jul 2006)
"Your Labor Day Reading" (04 Sep 2006)
"Status, Spite, Envy, and Income Redistribution" (04 Sep 2006)
"Things to Come" (27 Jun 2007)
"The Poor Get Richer" (06 Feb 2008)