Under the headline "Richest Are Leaving Even the Rich Far Behind," a front-page New York Times article dubbed the "top 0.1% of income earners -- the top one-thousandth" as the "hyper-rich" and declared that they "have even left behind people making hundreds of thousands of dollars a year."(via Carpe Diem)
Once again, the confusion is between what is happening to statistical categories over time and what is happening to flesh-and-blood individuals over time, as they move from one statistical category to another.
Despite the rise in the income of the top 0.1% of taxpayers as a statistical category, both absolutely and relative to the incomes in other categories, as flesh-and-blood human beings those individuals who were in that category initially had their incomes actually fall by a whopping 50% between 1996 and 2005. It is hardly surprising if people whose incomes are cut in half drop out of the top 0.1%.
What happens to the income of the category over time is not the same as what happens to the people who were in that category at any given point in time. But many among the intelligentsia are ready to seize upon any numbers that seem to fit their vision.
Behind many of those numbers and the accompanying alarmist rhetoric is a very mundane fact: Most people begin their working careers at the bottom, earning entry-level salaries.
Over time, as they acquire more skills and experience, their rising productivity leads to rising pay, putting them in successively higher income brackets.
These are not rare, Horatio Alger stories. These are common patterns among millions of people in the United States and in some other countries.
More than three-quarters of those working Americans whose incomes were in the bottom 20% in 1975 were also in the top 40% of income earners at some point by 1991.
Only 5% of those who were initially in the bottom quintile were still there in 1991, while 29% of those who were initially at the bottom quintile had risen to the top quintile. Yet verbal virtuosity has transformed a transient cohort in a given statistical category into an enduring class called "the poor."
Just as most Americans in statistical categories identified as "the poor" are not an enduring class there, studies in Britain, Canada, New Zealand and Greece show similar patterns of transience among those in low-income brackets at a given time.
Just over half of all Americans earning at or near the minimum wage are from 16 to 24 years of age -- and of course these individuals cannot remain from 16 to 24 years of age indefinitely, though that age category can of course continue indefinitely, providing many intellectuals with data to fit their preconceptions.
Only by focusing on the income brackets, instead of the actual people moving between those brackets, have the intelligentsia been able to verbally create a "problem" for which a "solution" is necessary. They have created a powerful vision of "classes" with "disparities" and "inequities" in income, caused by "barriers" created by "society." But the routine rise of millions of people out of the lowest quintile over time makes a mockery of the "barriers" assumed by many, if not most, of the intelligentsia.
Monday, January 18, 2010
Investor's Business Daily is publishing excerpts from economist Thomas Sowell's latest book. Confirming what I've written about income mobility, the first two articles are well worth reading and bookmarking. Here's part of the second: