David R. Henderson  

Pikkety and Inequality: My Reply to Commenters

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In response to my recent post on the New York Times interview with Thomas Piketty, a number of people commented relatively late in the game. For that reason, few regular readers will likely see their comments and so I'm choosing to reply to two commenters here.

1. In response to my point, "even though they may well be winners, but not as big winners as those with an increasing share of income and wealth," Gary writes:
Oh well....they "may be".....well, let's NOT study the data on how pretax wages have declined for the lowest quintile '79-'09 while they rose greatly {along with all other quintiles} '45-'79.

A share in the wealth and income....indeed.

I don't know exactly what pretax wage date Gary is citing, but even if he's correct about those data (which I doubt, because my guess is that he is taking CPI data at face value and not accounting for its overstatement of inflation during the relevant period), I was not making a claim about wages; I was making a claim about incomes. Here's Brookings Institution economist Gary Burtless, writing in January about income growth between 1979 and 2010:

Households in the middle three-fifths of the income distribution saw their after-tax incomes grow only about 40% (see Chart 2). What the CBO statistics do not show, however, is that middle- and low-income families have failed to share in the nation's long-term prosperity. Over the past one-, two-, and three-decade periods, both middle class and poor households have experienced noticeable gains in living standards. Their gains are slower than those experienced by middle-income families in the earlier post-war era, but the gains are well above zero. [emphasis his]

Check out his whole article, particularly the graph. [HT to Ron Bailey of Reason.]

2. John Binder writes:

"By the way, there is one quick way to make sure that global inequality of income falls dramatically: for the richer countries to allow in an additional 50 to 100 million immigrants a year."

That is, illegal immigration has greatly increased over the last 40 years. And since many, unless I'm totally mistaken, of those immigrants were low skilled individuals who did not speak English, their incomes have been/are below the national average. And, of course, some of them have been granted citizenship via periodic amnesties.

And has this not by itself (everything else equal) caused an increase in national income inequality--the variance of the distribution of income?

When people look at a specific statistic and attribute a change in it to one particular thing, they are (implicitly at least) ignoring everything else--acting as if everything else has been constant over time.

Has anyone empirically addressed this issue or at least recognized that it affects the data for the U. S.? And it could for other countries with large influxes of relatively low income people.


To answer the last point first, yes, I addressed it briefly here. I wrote:
In 1999, 16.8 percent of the foreign-born population was poor, versus 11.2 percent of native-born Americans. A higher immigration rate increases inequality; however, it can do so without making a single person worse off. This is because immigrants, although poor by U.S. standards, are likely still better off than they were previously. In addition, adding these immigrants does not directly change the economic status of Americans. The point is that increased immigration can make the data on inequality look far worse than the reality.

But John Binder's comment misses my point. I was not focusing on the fact that increased immigration can and probably will increase U.S. income inequality. I was focusing on the fact that increased immigration will likely reduce world income inequality. Notice my use of the word "global" in the passage he cited.



COMMENTS (1 to date)
Greg G writes:

In general people care a lot more about inequality than economists think they should. And they care a lot more about inequality within their own societies than they care about inequality between different societies. This seems to surprise economists a lot more than anyone else. It certainly doesn't surprise psychologists.

It is true that the poor today are living better economically than the poor did in the past despite the increase in inequality within the U.S. and despite all the complaining about it.

It is also true that the wealthy today are living much better economically than the wealthy did in the past despite all the complaining about increasing taxation and income redistribution.

Both groups seem to be more focused on relative outcomes than absolute outcomes. Again, psychologists will not be surprised.

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