I'm never going to win a Nobel Prize.  Maybe in literature.  I don't know why Joseph Stiglitz's new Vanity Fair piece on inequality is so off-base.  But it is.  And it's incredibly frustrating (1) to see someone so intelligent be thwarted by ideology and (2) to watch as his views are propagated on the basis of his name recognition.

What's a lonely uninvited-to-Davos blogger to do?  Blog.  Herewith, my fact check of the VF article.  Stiglitz writes (henceforth in italics),

The upper 1 percent of Americans are now taking in nearly a quarter of the nation's income every year.  In terms of wealth rather than income, the top 1 percent control 40 percent.  Their lot in life has improved considerably.  Twenty-five years ago, the corresponding figures were 12 percent and 33 percent.

Stiglitz doesn't cite any of his figures (possibly a limitation of the outlet), but the Piketty & Saez estimate of the top one percent's income share in the most recent year (2008) was 18 percent, which is just a hair closer to "nearly a quarter" than it is to "just over a tenth".  Their data says that share was 9 percent in 1985, but that should be adjusted upwards to 13 percent.  Similarly,  CBO says the top one percent's share was 17 percent in 2007 for after-tax income, up from 11 percent in 1989.  Saez's estimate of the top one percent's share of wealth is 21 percent for 2000, 21 percent for 1990, and 22 percent for 1985.  Edward Wolff's is 35 percent for 2007, up from 34 in 1983 (which I doubt is statistically different from 35 in this case).  The top appears to have experienced income and wealth losses from 2007 to 2009 while the bottom experienced gains.  Taken together, the top one percent's income share rose from 11-13 percent twenty-five years ago to 17-18 percent according to the most recent data.  The top one percent's wealth share basically hasn't risen.


[UPDATE: See MIT economist Erik Brynjolfsson's comment below, which led me to add this paragraph.  Brynjolfsson raises an important point (though I wouldn't call it a mistake) in noting that Stiglitz may have been referring to the Piketty and Saez numbers that include realized capital gains in "income".  I chose the series excluding capital gains because the timing of when capital gains are realized has everything to do with tax law, the strength of the economy, and when people retire.  The P&S series including capital gains still doesn't account for all the unrealized gains accruing to people (most importantly, those accruing to people in their retirement accounts).  Capital gains realization is "lumpy" in a way that makes trends problematic.  

But I will concede that the level of the top's income share (including realized capital gains) is closer to 25 percent than the P&S numbers I cite above suggest.  Now whether their share of income including unrealized capital gains is closer to 25 percent or 17 or 18 percent is an open question.  And I still say the series excluding capital gains is the way to go for trend estimation.  But look, all this aside, the CBO series includes realized capital gains (but also considers taxes and other things the P&S series leaves out).  And it shows the same basic trend and level as my conclusion above.]


While the top 1 percent have seen their incomes rise 18 percent over the past decade, those in the middle have actually seen their incomes fall.  For men with only high-school degrees, the decline has been precipitous—12 percent in the last quarter-century alone.

The 18 percent figure looks to be from Piketty and Saez (the change from 1998 to 2008).  The claim about median incomes falling is incorrect if one takes into account the value of employer- and government-provided health insurance.  (Majorities of workers with employer coverage say they prefer more generous coverage to higher wages, so it turns out employers aren't crazy in substituting ever-more-costly insurance for wages over time.)  The decline in earnings (not income) for men with just a high school diploma is probably less than 12 percent.  Based on some analyses I've been working on using the Current Population Survey, I find that men with a high school diploma but no four-year college degree saw a 12 percent decline in earnings over the roughly 33-year period from 1971-73 to 2003-2007, but that doesn't take into account the caveats I mention in this post.  And earnings among women with the same level of education  rose by over 50 percent, so that's inconvenient for Stiglitz.  


The change in household or family income among men with just a high school diploma was, I'd wager, positive even before factoring in the caveats.  And while I can't cite the paper yet, research I've seen using the PSID rejects the conclusion that wives have been forced to work more due to stagnant husband earnings—the biggest increases in work were among wives with the best-educated husbands, and while the hours of married men declined, those of single men did not (suggesting that the decline among married men was a reaction to increased work among their wives).  I'll update this post when I can cite the paper (though that won't be for a couple months anyway).  But think about it--did all these women increase their college-going simply in anticipation of marrying men with stagnant earnings, or did they prefer the fulfilling professional options that a college degree afforded them?  Or consider--is declining fertility, delayed marriage, and increased college-going among women in developed countries around the world all somehow related to rising American inequality?  You can get the basic trend on work by sex by marital status from Table 1 of this paper while you anxiously await my update.

All the growth in recent decades—and more—has gone to those at the top.

Nope, not if "the top" refers to "the top 1 percent" cited two sentences earlier.  According to the Piketty and Saez data, depending on whether one uses the share of nominal or real (inflation-adjusted) gains and whether one includes or excludes capital gains in "income", the share of income growth going to the top one percent from 1998 to 2008 was between 22 and 33 percent.  If you go back to 1988, the range is from 19 to 32 percent of gains since then.  And keep in mind that when you start from an unequal distribution, if everyone experiences the same rate of income growth, a disproportionate share of gains will go to the top.

In terms of income inequality, America lags behind any country in the old, ossified Europe that President George W. Bush used to deride.  Among our closest counterparts are Russia with its oligarchs and Iran.

Compared to nearly all of the major nations of western and central Europe, the U.S. does have higher inequality (but it may not be that far off from the U.K. or Canada).  The only numbers I could find for Russia and Iran are from the CIA World Factbook (the quality of which I can't speak to).  Out of 136 countries, the U.S. is ranked 40th worst.  Iran is ranked 43rd and Russia 52nd.  So that sounds bad, right?  Meh.  Hong Kong and Singapore rank worse than the U.S., and Indonesia, India, and Ethiopia rank much better than Russia.  Stiglitz will have to do better than this if he wants to argue that American inequality is a big deal.

First, growing inequality is the flip side of something else; shrinking opportunity....Second, many of the distortions that lead to inequality—such as those associated with monopoly power and preferential tax treatment for special interests—undermine the efficiency of the economy.

OK, so now Stiglitz is trying to tell us why we should care about the inequality that he exaggerates.  But these are just assertions.  The best evidence suggests that opportunity for men to move from the bottom to the top over the course of a career hasn't changed much over the past 35 to 40 years, and it has unambiguously increased for women (see Figures 15A and 15B).  Across generations, the evidence is extremely thin, but it doesn't point to an unambiguous increase or decrease in opportunity over the past few decades.  As for inequality and efficiency, my dissertation advisor, Christopher Jencks, has found that there is little correlation between economic growth and inequality levels, which doesn't exactly help those who believe inequality promotes growth but is equally problematic for Stiglitz and others who believe that inequality is inefficient.

When you look at the sheer volume of wealth controlled by the top 1 percent in this country, it's tempting to see our growing inequality as a quintessentially American achievement...

Here Stiglitz is conflating income inequality (growing) with wealth inequality (basically flat and at a historic low in the U.S.).  Whatevs.

America's inequality distorts out society in every conceivable way.  There is, for one thing, a well-documented lifestyle effect—people outside the top 1 percent increasingly live beyond their means.

So document it!  The share of families with any debt rose from 72 percent in 1989 to 77 percent in 2007, though note that the share with assets also grew.  Median net worth (assets minus debt) rose from $75,500 to $120,600.  In the wake of the housing bust, it fell, but it was still around $92,000 in 2009.  Among people with debt, median debt payments rose from 15.3 percent of family income in 1989 to 18.6 in 2007.  These are pretty small changes in indebtedness, and I'm not sure how Stiglitz could empirically link them to inequality.

Inequality massively distorts our foreign policy.

Ummm...going for the Peace Prize next?

[T]he chances of a poor citizen, or even a middle-class citizen, making it to the top in America are smaller than in many countries of Europe.

What little evidence there is suggests that upward mobility is lower in the U.S. only for men and only for those who start out poor.  [UPDATE: Just to clarify, I'm talking about only men who start out poor, not men plus all people who start out poor.  See the linked paper for details, but we're talking about 12 to 13 percent of the population, roughly.]

All of this is having the predictable effect of creating alienation—voter turnout among those in their 20s in the last election stood at 21 percent, comparable to the unemployment rate.

Oh boy, the shift to political science by economist pundits is always fraught with danger.  The 2010 election is a single data point (and an off-year election, when voting rates are much lower).  I'll just quote from a fact sheet from a Tufts research center that studies civic engagement among youth:  "The 2008 election marked the third highest turnout rate among young people since the voting age was lowered to 18."  What any of this has to do with inequality is anybody's guess.

In recent weeks we have watched people taking to the streets by the millions to protest political, economic, and social conditions in the oppressive societies that they inhabit....The ruling families elsewhere in the region look on nervously from their air-conditioned penthouses—will they be next?...As we gaze out at the popular fervor in the streets, one question to ask ourselves it this: When will it come to America?

My guess is never.  By the way, Joe, be honest--were you using a pseudonym here?


 


Comments

Bob Lerman
04/10/2011 11:32am

Terrific set of points. One caveat relates to the percent of gains over various yeers. This figure depends a great deal on the price index one uses. To the extent that the CPI overstates inflation, the real gains are higher for everyone but the share of gains changes.

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04/10/2011 2:42pm

I think you made a mistake.

If you are referring to the Piketty and Saez dstimate of 18% to which you link that is "Excluding Capital gains" (table a1). If you include capital gains, which seems pretty reasonable, then the figure for 2008 is 21% and for 2007 it was 23.5% (see table a3). The 2007 figure was widely circulated and may have been what Stiglitz was referring to.

Score this one for Stiglitz.

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04/10/2011 3:37pm

"only for men and only for those who start out poor"

Every way I read that it seems to say "for most people"....

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Scott
04/10/2011 4:06pm

Erik,

Thanks for the note. I wouldn't call it a mistake, but you raise an important point, and I'll add to the post above. I chose the series excluding capital gains because the timing of when capital gains are realized has everything to do with tax law, the strength of the economy, and when people retire. The P&S series including capital gains still doesn't account for all the unrealized gains accruing to people (most importantly, those accruing to people in their retirement accounts). Capital gains realization is "lumpy" in a way that makes trends problematic. But I will concede that the level of the top's income share (including realized capital gains) is closer to 25 percent than my numbers suggest. Now whether their share of income (including unrealized capital gains) is closer to 25 percent or 17 or 18 percent is an open question. And I still say the series excluding capital gains is the way to go for trend estimation. But look, all this aside, the CBO series includes realized capital gains (but also considers taxes and other things the P&S series leaves out). And it shows the same basic trend and level that I settled on above.

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Scott
04/10/2011 4:08pm

John,

Um...ask your wife or sister or daughter if she agrees that even "men" alone includes "most people". But to be precise, if you read the study, men who start out poor are something less than half of the bottom 25%, so no more than 12 or 13%.

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Bleh
04/10/2011 6:31pm

I was expecting you to demolish. This is a minor set of quibbles, really. Factoring in health insurance as compensation? This is not how people think. Health care is something that is seen by many as something that should be there automatically, like clean water or air. No one wants to think about health care having a cost, and therefore a value, no matter what you or many economists say. Sorry.

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Scott
04/10/2011 8:13pm

Bleh,

If you click the link to the Kaiser survey I included in talking about health insurance, you'll see that actually people *do* think about health insurance as compensation. I put the extra sentence and link there to persuade skeptics like you.

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04/10/2011 8:58pm

I don't understand the pseudonym remark.

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Andre
04/10/2011 11:05pm

Scott, you make some interesting clarifying points but I agree with bleh, I was looking for you to come with a stronger argument...

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Dan_K
04/11/2011 12:15am

Hello,

Came here via MR. Overall found this interesting fact check on the inequality rhetoric. I'm not fully convinced that the corrected levels of inequality aren't an issue, but this certainly takes some of the wind out of the sails of the debate.

One data question: Does the net worth data include retirement accounts?

I ask, because I'm uncertain about the comparability of net worth figures before and after the switch to defined contribution plans. I would expect net worth to naturally rise from this switch as a greater share of retirement "assets" are now on personal balance sheets.

1989-2009 might not be relevant for this shift, nor may it be applicable for the median household, but thought I would ask.

Best,
Dan

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Rick Caird
04/11/2011 7:38am

Scott, I am glad to see your counter to the Stiglitz piece in Vanity Fair. I did skim his article, but I placed it in the too rapidly expanding category of academic economists writing to make a political argument. Krugman is probably the primary example, but Stiglitz has done the same more than once.

When we see such "popular economics" we can be pretty sure we have a less than complete treatment of whatever issue is raised and a pretty one sided argument being proposed.

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Observer
04/11/2011 11:02am

You're missing the point. The details sometimes don't matter. The top 1/5% do receive/control an unsustainable amount of income/assets. You're post sounds like the loving wife defending her cheating husband.

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Clay
04/11/2011 3:00pm

I'm wondering if you read your own links? CBO, Piketty and Saez, NBER, all talk about growing inequality. Most of it is directed to income inequality. But even your link to Wolff says "Indeed, the only segment of the population to experience large gains in wealth after 1983 was the richest 20 percent of households." If your point is that this is matched in other countries, I don't think that mitigates the significance of the trend. If your point is that the data is murky, well ok. But I guess I would go in an entirely different direction. Maybe look at the fluctuations in the data (variance) compared to decade to decade changes. I think its a losing battle though - the data appears to show a very strong trend towards further inequality.

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Franz
04/11/2011 5:28pm

So are you saying Warren Buffet is full of crap?
http://www.simoleonsense.com/interview-with-warren-buffett-the-u-s-is-moving-toward-plutocracy/

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Naldo
04/12/2011 2:50pm

The thing about your argument is that even if we went by your statistics, the inequality is a national embarrassment. So Stiglitz counts capital gains in income and you don't and thus, 1% of America gets 18% of the wealth when you don't count capital gains? Not exactly a model of egalitarianism ... Also, there are different ways of calculating wealth, no? When you cite Wolff's wealth figures, for instance, they are his net-worth estimates, not his financial wealth figure, which is like 43% for the top 1%. Either way, as with income, it's somewhat beside the point: wealth is massively concentrated at the top in America. I think your claims of inaccuracy are unwarranted, considering.

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Bradley
04/12/2011 4:35pm

What about the effect of the massive amount of illegal immigration we have had over the last 30 years?

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George Kresovich
04/12/2011 4:59pm

Does anyone appreciate the irony of Stiglitz writing this article for Vanity Fair? Forget about the articles, the magazine's purpose is the ads. And the ads are targeted to people who aspire to be in the top one percent. But I would bet that the typical Vanity Fair reader who bothers with the Stiglitz article is bathed in a warm glow of self-satisfaction because she or he is not one of that selfish one percent.

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Brandon
04/12/2011 6:35pm

Warren Buffett is undoubtedly full of crap.

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Elijah
04/12/2011 11:51pm

Rigor in argument is important, and so is recognizing lapses. But the this critique is almost silly, especially considering the weight of the problem and since (as other comments suggest) all this ultimately amounts to a very minor quarrel. The trends and all accompanying issues and consequences are very real. And yes these are sufficiently researched and documented features of our times, enough to displease any reasonable person. Attempts like that of Stiglitz or Pierson & Hacker are right to stress it. There is no myth here to dismantle or diminish, nor should anyone affect a manner pretending there is.

And how annoying that Will Wilkinson at the Economist sent me here, itching to oppose the point the way you do. His reply to Stiglitz is no further from foolish, and as skewed and confused a narrative about these issues as can be expected from a Randian and Cato Institute alum, or as can be imagined of the kind of aggressive progressive he so wants to wound.

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wow
04/13/2011 2:23am

Observer, Franz, and Clay: It's very simple what he's trying to prove:
A) The growing inequality (he concedes that it does exist) isn't as severe as Stiglitz is positing.
B) That this inequality represents some kind of huge structural flaw - especially as it relates to political participation.

He demonstrates this quite aptly.

Observer: Prove that this inequality is unsustainable/structurally unsound. "Sometimes details don't matter" - god I wish I could write this on my papers.

All you people looking for a "stronger argument" - Having read the Vanity Fair article, Scott directly addresses Stiglitz's main points. If it doesn't seem as "shock and awe", it's probably because, as Scott demonstrates, Stiglitz's article lacks coherence and jumps around from progressive talking point to progressive talking point. There's no big, ass-kicking argument because Stiglitz presents no coherent point. Though I think the Economist does a good job: http://www.economist.com/blogs/democracyinamerica/2011/04/inequality_and_politics

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Dan
04/13/2011 1:34pm

I like the comments that this post sounds dearly like "the loving wife defending her cheating husband." We know that sometimes self-righteous "all-shall-be-fair" individuals like Scott here like to strike a balance in an argument. But the fact that rich is getting richer and poor is getting poorer in almost all the cited sources (either by Stiglitz or Scott or many others that you care to find) is so profound here that only a blind person would miss it.

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Clay
04/14/2011 8:35am

wow: Maybe you missed my point. Scott hasn't demonstrated the inequality isn't severe. His links largely disagree with this assessment. Even if he was right - he isn't - there's significant evidence the inequality is steadily growing. Just look at the data in Scott's links. I would love to see someone explain these trends away. But until they do, I think we need to find ways to change the situation.

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Brandon
04/15/2011 3:35pm

The links Winship provides in this section:

"Here Stiglitz is conflating income inequality (growing) with wealth inequality (basically flat and at a historic low in the U.S.). Whatevs."

speak of growing income and wealth gaps. The Wolff, 2009 paper in particular makes the case that most of the wealth for middle-class households comes from their homes, which have seen massive drops in value since 2007 (the last year in the data set), while most of the wealth for the top 1% comes in the form of stocks, which are doing quite nicely. The majority of the rise for the middle class was wiped out by the bubble, which doesn't hold true for the top 1%, since only a small portion of their wealth is held in their primary residence.

Additionally, Wolff has an updated working paper from 2010 that more clearly illustrates that wealth inequality is neither basically flat nor at a historic low through 2007 (see Table 2).
http://www.levyinstitute.org/pubs/wp_589.pdf
It also shows the huge inequality in where wealth was held in 2007--again, for most people, it's in their homes, and they've taken massive losses in wealth because of substantially reduced home values. Perhaps Winship is correct in pointing out that the share for the top 1% is slightly overstated by Stiglitz, but a quick glance to the Gini Index in the same table shows that wealth inequality has indeed been climbing steadily since 1983. It also shows the steady climb of income disparity.

Table 4 shows that the top 1% have seen an increase in net wealth of just over 100% since 1983 while the bottom 40% have seen a net decrease of 62.9%. The top 1% also took in just over 35% of all wealth gains from 1983-2007, and the top 5% combined just over 70%. Income disparity is even worse.

Does Winship still want to maintain that wealth inequality has been "basically flat" and is "historically low?"

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Scott
04/15/2011 5:35pm

Brandon,

Yes, I do still maintain that wealth inequality has been basically flat and is historically low. Let's take "historic" on your terms for a moment and look back only to 1983. Let's consider 4 inequality measures--Gini index, top 1% share, both for net worth and non-housing wealth. Three of the four show no increase between 1983 and 2007 (rather, no statistically significant increase). The increase in the Gini for net worth may be statistically significant, but it's still small. One might say, "basically flat". But regarding historic trends, talk to me after looking at the charts in the Saez paper I linked to and tell me I'm wrong. You can't.

From 2007 to 2009, wealth inequality declined. http://www.federalreserve.gov/pubs/feds/2011/201117/201117pap.pdf
Maybe from 2009 to 2011 it's increased again. Maybe.

Clay, I never made any claims about the severity of inequality, other than to show that some very specific claims of Stiglitz were mostly completely wrong. I do think income inequality has increased, and it's higher than in a lot of other countries (almost all of its peer countries). But I've not seen compelling reason to think that anyone else would be better off if it was lower. Rawls said we should allow inequality to the extent that it improves the lot of the worst off. I might accept more inequality than that, but even by that standard, who's to say that we've violated it? Not Stiglitz.

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Brandon Griffin
04/15/2011 6:14pm

Scott,

You point me to Saez 2004, but their data runs only to 2002 at the latest and mostly only to 2000. The rest of the sources you've linked run to 2007 at the latest. Those are are all particularly bad points to stop at and miss plenty of economic developments that have since occured. I can tell you that you're pointing to a source that's a nearly decade old and just happens to end the trend right in the middle of a recession that knocked wealth inequality down for a short period.

You claim statistical insignificance a to hand-wave away the numbers that directly contradict your claims--I trust you've the analysis to back this up?

I'll cite Wolff 2010 here, which includes numbers updated through July 1st, 2009.

"The fact that stock prices fell more than housing prices, at least from 2007 to mid-2009, should lead to a decline in wealth inequality over these two years. However, the results show a fairly steep rise in wealth inequality, with the Gini coefficient climbing from 0.834 to 0.865. The share of the top 1 percent advanced from 34.6 to 37.1 percent, that of the top 5 percent from 61.8 to 65 percent, and that of the top quintile from 85 to 87.7 percent, while that of the second quintile fell from 10.9 to 10 percent, that of the middle quintile from 4 to 3.1 percent, and that of the bottom two quintiles from 0.2 to -0.8 percent. There was also a large expansion in the share of households with zero or negative net worth, from 18.6 to 24.1 percent. "

Note that, when these projections were made on July 1, 2009, the S&P was down over 40%. It's since climbed back to being down only ~13%. Given that the stock market has recovered nicely since then and that home prices are basically unchanged or even slightly down in 2010Q4, the inequality will be even more substantial and the Gini coefficient will be even higher, perhaps nearing 0.9.

To me, it looks like you're cherry-picking the data.

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vishrant
04/15/2011 7:19pm

Hi, well I'm glad to see you implicitly prove Anne Coulter wrong about the U.S being a Christian (sic) nation. How? Well the Bible says "the kingdom of god is within", and you have admitted the wealthy are still trying to make more money, past what they need, I have not heard of one rich man who went within.So qed for a non christian nation. Hurrah

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Peter
04/16/2011 1:46am

This discussion, graced by Mr. Winship's last response, is so sipted in academic facts and figures that some of you seem not to be living in the real world of incomes, bonuses, and capital gains. I worked on wall street from 1977 to the present, and right around 1983 (which year the author cites as beginning his statistical period), there was a dramatic change in how, and how much, executives of the major street firms paid themselves. It was as if they woke up one morning and said: "why aren't we making as much as sports and rock stars?" So they started paying themselves much more. There was a dramatic change around that time, and many of my colleagues can second this. I would like to add, parenthetically, that women's incomes started from a much lower place, thus have more catching up to do. You can measure all you want, but you are appearing to miss the big picture.Ironic that you call yourself The Empiricist.

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Scott
04/16/2011 9:59am

Brandon,

Look, I put some time in to respond to you, so the least you can do is put some time in to consider the response. Saez only goes to 2002, so here's what you should do: look at the trend to 2002 from Saez, look at the 2002 to 2007 trend from Wolff (alternatively, coompare the Saez trend to 1983 to the Wolff trend from 1983). It's not even up for debate what the data says. Wealth inequality used to be FAR higher, and the changes over the past 30 years are tiny in comparison.

Wolff's 2007-2009 trend is a projection using a simplistic method to predict 2009 numbers from real data from earlier years. The Fed study I cited is based on real data from 2007 and 2009--follow up interviews with the same people in both years. What's more, it's from the same survey used by Wolff (who, like me, doesn't have access to the 2009 data yet). (Note also, that the Saez paper shows how Wolff has gotten it wrong in the past, but I doubt you'll bother to check that out.)

The Fed study only goes through 2009, but the housing bubble burst and stock market recovery had already happened by then. Maybe 2011 data will show something different, but I'm citing the best data that's available today.

The statistical signficance issue is not "hand-waving", and you sound like a birther or moon-landing conspiracist when you go that route. Yes, I know enough about the survey in question, its sample sizes, and basic statistics to know that the 3 trends are probably not statistically significant. I wasn't confident enough to say the same thing about the 4th trend, so I was up front about that. What more do you want?



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Scott
04/16/2011 10:05am

Peter,

No idea what "sipted" means (Google doesn't know either). Also no idea whether a representative sample of Wall St. guys would agree with you about things suddenly changing in 1983. See here's the thing: individual people have different impressions and are privy to different parts of the story. So rather than rely on a single person to understand the truth (be it you or Joseph Stiglitz), what empiricists do is rely on the best scientific surveys (e.g., the Survey of Consumer Finances) and administrative sources of data (e.g., the IRS). Then we consider the limitations of those sources and report what we think is implied. Their limitatios are far fewer and less serious than the limitations of relying on the impressions of you and your buddies.

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Dulal Basu
04/22/2011 2:21am

Re last para:- "My guess is never.", I think, Scott, it's your guess only. Whether or not you live in a glass penthouse, here are two lines from Tagore, a literature Nobel Laureate:- Those you push behind, will surely drag you back

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05/06/2011 10:09am

Tables 2 and 3 in my recent Senate Finance Committee testimony show that the top 1 percent's share of pretax, pretransfer income soared whenever the top tax rate on capital gains and/or dividends and interest went down. Such high elasticity of taxable income makes tax-based data an unreliable gauge of top incomes whenever key marginal tax rates rise or fall. This problem is most troublesome for series that include capital gains, such as the CBO estimates.

http://www.cato.org/pub_display.php?pub_id=13068

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muirgeo
05/22/2012 3:52pm

I agree with those above who pointed out you only rebutted Stiglitz in matters of degree. We are still left to explain the two worst economies we have seen in America being coincident with the two periods of significant income inequality... oh and the intervening period of 50 years of shared prosperity when, coincidently, income inequality was far less. I guess we need to run the cycle a few more times to get people to understand that supply side economics is BS and propaganda pushed by those most positioned to benefit from the orthodoxy and that demand is what revs an economy.

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