The inequality myth

Posted: Jun 07, 2005 12:00 AM

In a previous column, I noted the sudden new interest by The New York Times and The Wall Street Journal in the issue of income inequality. Since then, the Christian Science Monitor and Business Week have jumped on the bandwagon. The latest entry in the Times series made the predictable point that the Bush tax cuts are exacerbating the maldistribution of income.

 As I said earlier, I don't believe that this heavy coverage of an issue that is not remotely time-sensitive is coincidental. One clue to what is going on comes from something called the University of Texas Inequality Project, which recently produced a paper showing that Democratic presidential candidates did better in states with high income inequality.

 It doesn't come as much of a surprise that inequality is an issue that plays for Democrats. Bashing the rich is in their blood, and no Democrat is happier than when he is engaging in class warfare. Consequently, it is in the Democrats' interest to play up inequality and any sign that the rich are getting richer, especially if they can show that it is coming at the expense of the poor and middle class.

 There is an unlimited supply of liberal economists at the University of Texas, the Center on Budget and Policy Priorities and elsewhere who are eager to manipulate the data to "prove" that inequality is getting worse. The problem is that average people don't believe it. What really matters, both economically and politically, is what they see with their own eyes in their own lives. On this basis, the evidence of rising inequality is very weak indeed.

 The American Enterprise Institute compiled a useful compendium of data on this subject a few years ago. According to this study, in 1964 people were first asked what economic class they had grown up in and what class they belonged to today. Pollsters asked this question again in 1978, 1984 and 1996. In every case, there was solid evidence that people were living in a higher economic class than the one in which they were raised.

 Interestingly, the strongest evidence is found in the most recent poll, taken in March by, ironically, The New York Times. According to this study, 18 percent of people reported living in the lower class as children. But today, only 7 percent say they belong to that class. Another 44 percent say they had a working-class childhood. However, only 35 percent say they are part of the working class today. In short, the percentage of the population living in the bottom two income classes fell from 62 percent to 42 percent -- an impressive improvement, greater than in any other survey.

 Concomitantly, the ranks of the middle and upper-middle classes have increased. Only 28 percent of people reported growing up middle class, and just 8 percent said they had lived in an upper-middle class home. Today, 42 percent of people say they belong to the middle class and 15 percent are part of the upper-middle class. Only 1 percent of the population said they were in the upper class as children and that's the same percentage that say they belong to this class today.

 In other words, there is no evidence whatsoever of economic class stagnation or deterioration in the data. Fewer people live poorly, and more people live well. The data are unambiguous because people are reporting their relative position in society as they see it. And in this case, perception is reality.

 In another question, people were asked if they thought it was still possible to start out poor in this country, work hard and become rich. The first time this question was asked, in 1983, only 57 percent of people thought it was possible. In 1998, in the midst of exceptionally strong economic growth, 70 percent of people thought it was possible to get rich. Today, 80 percent say it is possible to become rich in America, and a mere 19 percent say it is not.

 People were also asked about what they thought their own personal prospects were for becoming rich. Amazingly, 11 percent of people said that they thought it was very likely. Another 34 percent thought it was somewhat likely. Only 22 percent thought they had no chance at all.

 This may explain why so many people in the Times poll said that they favor abolition of the estate tax. Only 17 percent of people favor this tax, and an overwhelming 76 percent oppose it. Obviously, many people who know that they themselves will never, ever pay this tax nevertheless favor its abolition.

 I believe that the recent media interest in inequality is part of a last ditch effort to save the estate tax from repeal this year. The Times poll suggests that it will be an uphill effort.