04 Jun 2014

Intro Notes on Economic Inequality

Inequality, Shameless Self-Promotion 2 Comments

In case you are new to this stuff and don’t like all that book-learnin’, some intro thoughts. Some excerpts:

First of all, there’s a distinction between income and wealth. The top 1% of income earners aren’t necessarily the same group of people as the wealthiest 1%. For example, imagine a small hedge fund manager in his 30s who has a great year, pulling in $20 million in income, even though his net worth is only $5 million. But meanwhile there’s an heiress to a family fortune who owns $500 million worth of property, even though she only earns $1 million in reported income that year. These people would be ranked differently in percentile groups, depending on whether we’re talking income vs. wealth.

Another important point to keep in mind in that income and wealth are created, not distributed. People will often make claims along the lines of “the top 1% appropriated x% of the income gains over the last two decades.” That makes it sound as if there’s a fixed pie of income (or wealth), and so if a rich person makes more, it means a poor person makes less. In general that’s not true. Innovators like Steve Jobs didn’t become billionaires by stealing wealth away from everybody else; no, they created it.

Another crucial point is that the usual statistics about the “gains of the top 1%” hide the mobility of people within these percentage rankings. Let me give an exaggerated example just to make the point: Suppose the today’s poorest 1% suddenly earn $1 billion each next year. Furthermore, suppose everybody else earns the same amount next year, as they earned this year. In this contrived scenario, the standard statistics would show that “the top 1% absorbed 100% of the income gains in 2015, while the bottom 99% saw zero income growth.”

2 Responses to “Intro Notes on Economic Inequality”

  1. Joseph Fetz says:

    I’m pretty certain that 99% of people will not understand your argument …

  2. Tel says:

    First of all, there’s a distinction between income and wealth. The top 1% of income earners aren’t necessarily the same group of people as the wealthiest 1%.

    That’s why government needs to monitor both your income and your wealth. You might have something worth taking, even when you don’t earn much.

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