Alan Reynolds

Recent news provided yet another addition to Reynolds' Laws: "If the headline of any major newspaper or magazine article refers to 'inequality' or 'income gap,' you can safely assume the statistics in that story will be at least 65 percent untrue."

The Washington Post was kind enough to provide two inspiring examples on two consecutive days. Nell Henderson's brief on the "Widening Income Gap" said, "The richest fifth of households took home 50.4 percent of all income, the largest share since the government began tracking the data in 1967."

The trouble is that Census estimates for 2005 cannot be properly compared with those of 1992, much less those of 1967. And that leaves the statement 68 percent untrue and 32 percent trivial -- much better than average.

The Census Bureau has made numerous changes in the way it collects income surveys, and the latest changes in 1993 were explicitly intended to capture a bigger share of the highest incomes. "A change in survey methodology in 1993 lead to a sharp rise in measured inequality," explains the Economic Policy Institute (which has never been accused of conservative bias). Figures on income shares from 1967 to 1992 are not comparable to later figures; making such comparisons is a big mistake or a small fraud.

Henderson would have been technically right to say that 50.4 percent is the largest share of pretax income going to the top fifth since 1993. But that would be nitpicking: The same figure averaged 49.5 percent since 1993, fluctuating up and down between 48.9 and 50.1 with no significant trend.

A second example, "Attacking Inequality" by Sebastian Mallaby, confuses the number of households with the number of workers. That's 100 percent wrong. He wrote that, "Economic growth no longer seems to help the majority of workers; the proceeds flow to the top fifth or so of the workforce." Not so. Half the proceeds from work and savings (not counting taxes or transfer payments) flow to the top fifth of households, not the top fifth of workers.

"Work Matters" is a chapter in my forthcoming book, "Income and Wealth," from Greenwood Press. Among much else, that chapter notes that Bureau of Labor Statistics surveys show an average of 0.6 workers per household in the lowest fifth, one in the second, 1.4 in the third, 1.7 in the fourth, and two in the top fifth. This is partly because there are many more singles in the lower income groups (including students and widows), and many more two-earner couples with older children toward the top. There are 1.8 persons per household in the lowest fifth, but 3.1 in the top fifth.


Alan Reynolds

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