More significantly, the “rich getting richer” storyline insinuates that the top 1 percent and bottom 20 percent include the same individuals over time. For example, as reporter Julie Mack writes, “Overall, the numbers show that the more affluent you are, the better you’ve done in the past three decades.” Note how this ignores the reality that many individuals who were in the poorest group years ago have long since moved up and out, while among the rich are many families who are literally nouveau riche—they’ve recently arrived from lower income levels.
That’s the risk of relegating real people into statistical categories. Economist Thomas Sowell explained it this way: “The actual empirical evidence cited has been about what has been happening over time to statistical categories turns out to be the direct opposite of what has happened over time to flesh-and-blood human beings, many of whom move from one category to another over time.”
Data that tracks real people show that Sowell is correct. For example, as reported in The Wall Street Journal, IRS tax-return data shows that individuals in the bottom one-fifth back in 1996 experienced income growth of 91 percent by 2005. In contrast, individuals in the highest one-fifth saw their incomes increase just 10 percent over the same period. Incomes of households in the top 5 percent and 1 percent actually declined, by 7 percent and 24 percent, respectively.
Anecdotally, this makes sense: For example, in 1985, my father was just out of college and probably in the lowest 20 percent. But by 2007 he had moved up. Such examples are commonplace, but are completely missed by statistical aggregates.
In the late 1970s, Steve Jobs was trying to expand a struggling computer company. Bill Gates was writing code and just beginning to start working on a personal computer. And one of the founders of Google, Sergey Brin, had just arrived as a six-year-old immigrant from the USSR. These are individuals who did not enter that top 1 percent until many years later—in the process displacing former “one percenters.”
It was these individuals, not statistical categories, who created companies and wealth by making products people wanted. Establishing conditions in which individuals can move up the income ladder by creating, innovating, and building is what America is all about.
Jarrett Skorup is a 2009 graduate of Grove City College and former student fellow at The Center for Vision & Values. He is the research associate for online engagement for Michigan Capitol Confidential at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Centers are properly cited. Mr. Skorup can be reached at Skorup@mackinac.org.