The Myth of Income Inequality
The American dream is not dead yet
One of the best-selling books of 2014 is Capital in the Twenty-First Century by French economist Thomas Piketty, a 696-page doorstop tome on economic history. Why is a data-heavy treatise from the “dismal science” so appealing? Because it is about income inequality and immobility, which in a December 2013 speech President Barack Obama called “the defining challenge of our time,” concluding that it poses “a fundamental threat to the American dream.” But does it? Maybe not.
The rich are getting richer, as Brookings Institution economist Gary Burtless found by analyzing tax data from the Congressional Budget Office for after-tax income trends from 1979 through 2010 (including government assistance). The top-fifth income earners in the U.S. increased their share of the national income from 43 percent in 1979 to 48 percent in 2010, and the top 1 percent increased their share of the pie from 8 percent in 1979 to 13 percent in 2010. But note what has not happened: the rest have not gotten poorer. They’ve gotten richer: the income of the other quintiles increased by 49, 37, 36 and 45 percent, respectively.
The pie metaphor is deceptive because a pie is of a fixed size such that if your slice is larger, then someone else’s is smaller. But economies grow, and the pie gets larger such that you and I can both get a larger slice compared with the slices we got from last year’s pie, even if your slice increase is relatively larger than mine. A report released by the Federal Reserve in early 2014, for example, noted that the overall wealth of Americans hit the highest level ever, with the net worth of U.S. households rising 14 percent in 2013, which is an increase of almost $10 trillion to an almost unimaginable $80.7 trillion, the most ever recorded by the Fed. Of course, on a planet with finite resources such an expansion cannot continue indefinitely, but historically capital and wealth production shifts as industries change from, say, farming and agriculture to coal and steel to information and services.
What about income mobility, which President Obama also identified as a problem? Writing in the National Tax Journal, economists Gerald Auten and Geoffrey Gee analyzed individual income tax returns between 1987–1996 and 1996– 2005 and found that for individuals age 25 and up, “over half of taxpayers moved to a different income quintile and that roughly half of taxpayers who began in the bottom income quintile moved up to a higher income group by the end of each period” and that “those with the very highest incomes in the base year were more likely [than those in other quintiles] to drop to a lower income group.” In fact, they found that “60 percent of those in the top 1 percent in the beginning year of each period had dropped to a lower centile by the 10th year. Fewer than one fourth of the individuals in the top 1/100th percent in 1996 remained in that group in 2005.” In a follow-up study that included income data through 2010, the economists found that “approximately half of taxpayers in the first and fifth quintile remained in the same quintile 20 years later. About one-fourth of those in the bottom moved up one quintile, while 4.6 percent moved to the top quintile.”
One reason for the controversy is that people overestimate differences between the rich and poor. In a 2013 study published in Psychological Science entitled “Better Off Than We Know,” St. Louis University psychologist John R. Chambers and his colleagues found that most people estimate that the richest 20 percent make 31 times more than the poorest 20 percent (it is 15.5 times), and they believe that the average annual income of the richest 20 percent of Americans is $2 million, whereas in fact it is $169,000, a perceptual difference of nearly 12 times. “Almost all of our study participants,” the authors concluded, “grossly underestimated Americans’ average household incomes and overestimated the level of income inequality.”
So both income inequality and social mobility, though not as ideal as we would like them to be in the land of equal opportunity, are not as large and immobile as most of us perceive them.
July 1st, 2014 at 9:42 pm
In today’s world, there is no excuse for authors to deliberately publish misinformation. Five minutes on Google was all it took to find the real information which totally discredits Michael Shermer’s claim that income inequality is not real. Anyone remotely familiar with statistical analysis will recognize that the study quoted by Shermer “Better Off Than We Know” is misleading with its average of the top 20% of income. The correct analysis would have been to use median income, which would have shown the effect of the top 1% of earners. This is just one example of Shermer cherry picking the statistics to make his point.
I find this misuse of data inappropriate for a publication such as Scientific American which is devoted to discovering truths. I suggest the editors subject Shermer’s columns to the same scrutiny as the scholarly articles or cease publishing his work.
July 2nd, 2014 at 1:49 am
MS’s work is as scientific as his main field is; ie. psychology. Wanna read real skeptics? Go for Tomas Szasz for example.
July 2nd, 2014 at 2:08 am
Mr Shermer is a libertarian devottee of Ayn Rand. Small wonder that he would write an article like this.
July 2nd, 2014 at 3:15 am
Go to You Tube and enter Wealth Inequality In America. Watch the 6 min. 11 sec. video published on March 6, 2013 to see the real data on the large shift in wealth to the top 1% over the last 30 years. Michael Shermer is a Frontman for the Power Elite in America. The real question is who in the Power Elite does he really work for?
July 2nd, 2014 at 3:23 am
He doesn’t say that income inequality isn’t real. He just says that the difference isn’t as big as many believe. Also,that many people move from one income level to another. What makes me doubt, however, is that like most such statistics, this is based on people’s tax returns. How do we know that these are all correct? I don’t know about USA, being a foreigner, but rich people tend to get clever lawyers/accountants to “tweak” their income statements in order to pay less tax. At least here in Europe. So the rich that have moved down a notch on the income ladder may just have found a new loophole in the taxation law. And this would be difficult to prove.
July 2nd, 2014 at 4:57 am
That is a really, really disappointing article, which totally shakes my trust in Mr. Schermer as a skeptic. He pulls out numerous distortive statistical tricks to make his point, many of which he as a skeptic has accused others of dishonesty for using.
July 2nd, 2014 at 5:08 am
Yes Michael’s brand of Skepticism is a world where Billionaires don’t collude to protect and expand their wealth and control. Governments don’t lie to the people, and we can believe our elected officials. Government officials don’t conspire to take the resources and wealth of other countries. All wars are accidents of history and are not planned in advance. Why is the approval rating of Congress at a whopping 10%? Could it be that the people don’t trust the Government? Michael is one of the few Skeptics I know that believes the Government does not lie to us. Which makes me wonder who he is really working for.
July 2nd, 2014 at 5:35 am
The title is simply not factual. Citing percentages of increase in income fails to reveal that actual dollar amounts increased disproportionally for the most wealthy over the time spans cited…and thereafter. A certain percentage of a very large income is a lot more dollars than the same percentage of a low income. Thus the dollars have flowed to the top. This is also the reason for a progressive tax. The problem is that the US tax system has not been progressive enough.
Kristen Carlsen is correct that the most wealthy can use the tax laws in their favor to pay a lower percentage of income tax than the poor.
Anyone who has followed Shermer’s writing for years knows this is his sacred cow. He will likely continue to find references that support his libertarian economic beliefs and ignore those to the contrary. The good thing is that with science no one person’s beliefs and data matter.
Warren Buffet and Bill Gates acknowledge income inequality in the US, and they have the best tax attorneys money can buy.
July 2nd, 2014 at 5:53 am
Michael Shermer’s Libertarianism is his very own delusion worthy of skepticism. He is as bad as the kookiest 6000 year old earth believing fundamental christian on this matter, and should apply his own skepticism to his belief and quit cherry picking data.
The irony is simply hilarious, and will always be a taint on his claim to reason.
July 2nd, 2014 at 6:26 am
I’ve read five books by Michael Shermer and many of his articles and columns in SciAm and I admire him. But when he begins to talk about libertarianism,…, ouch! I would recommend him to read “Profit over People” by Noam Chomsky,…, just to begin.
July 2nd, 2014 at 6:28 am
I haven’t heard of any rich folks driven to economic desperation during this “Great Recession,” as so many of the middle & poor classes have been.
How many great estates have been reclaimed by banks because the owners couldn’t make the mortgage payments? The only inconveniences they seem to have suffered is finding places off-shore to cache their $$$$. I’m really put off when they cry poor, as some have done lately.
July 2nd, 2014 at 7:04 am
When discussing and/or writing an article about income inequality / comparing different levels of income, wouldn’t it be helpful to also include statistics about disposable income rather than just talk about income levels?
July 2nd, 2014 at 7:09 am
What’s with all the character assassination? Can’t you people disagree without insulting? Sheesh! Look to yourself and tell me you see a saint.
July 2nd, 2014 at 7:13 am
Wow, I’m shocked by this ridiculous article by MS. I’m canceling my subscription to Skeptic, as I have already canceled my 30+ year to SA last year, since they went ‘pop’.
July 2nd, 2014 at 7:40 am
One of the most disappointing things in this very biased article is the dismissal of the Piketty book as a “door stopper” from the “dismal science” but no real analysis of its supposed inaccuracies. Skepticism is based on facts, not polemics.MS cannot free himself from his roots as a true believer.
July 2nd, 2014 at 7:49 am
“as ideal”???!!!
July 2nd, 2014 at 8:13 am
I am very disgusted with this article Michael Shermer wrote for the Sci Am. I plan to cancel the substantial legacy I left to the Skeptics Society in my Last Will.
July 2nd, 2014 at 8:25 am
Disappointing analysis and conclusion from a Skeptic? A Rationalist? And, I had alays assumed, a Humanist.
July 2nd, 2014 at 8:48 am
Fred Kohler you gave me an excellent idea. I’m contacting my Lawyer now to change my Will and cancel what I was going to leave to the Skeptics Society. I don’t want any of my money going to MS research. Ditto for Scientific American and Popular Mechanics which have been taken over by Frontmen for the Power Elite.
July 2nd, 2014 at 8:56 am
Read the piece and then, based on the content, propose a title. It sure as hell wouldn’t be the one Shermer came up with. What was he thinking?
July 2nd, 2014 at 9:03 am
Glad I read the comments section first. Now I don’t have to read the (apparently) biased article.
July 2nd, 2014 at 9:24 am
Quite frankly… I am skeptical.
July 2nd, 2014 at 9:30 am
I’ve read Shermer’s column a couple of times now and was shocked both times by its classic “straw man” argument and cherry-picking of statistics (I’m thinking of the claim that people overestimate what the top 20% earn, which may be the case but the top 20% is not where people see the inequality, most of which is not income per se, AND it’s not as though the average income of the top 20% is exactly peanuts anyway), so I looked for these comments online to see if I were alone in my reaction to what I was reading – I am relieved to see that I am not alone among SciAm readers!
July 2nd, 2014 at 9:41 am
Thanks Michael Shermer. We rarely hear this point of view. Few people seem to appreciate that the poor are moving up over time and most of the critics seem to focus on how well the rich are doing. You dispel misconceptions about how large incomes of the rich are. Some criticisms here are valid, choosing means instead of medians, but your point is still valid and important. Thank you.
July 2nd, 2014 at 9:54 am
I have been an avid reader of Skeptic and purchased a lot of their lectures, but Shermer’s political rants have taken a toll on my interest in his organization. Like others say, the cherry picking of statistics to write a convincing argument is not convincing and an easy ruse to see past for real skeptics. One need look no further than Romney’s 13.9% federal tax rate and his defense (it’s good for the economy) than to realize the deck is stacked by the wealthy.
July 2nd, 2014 at 10:52 am
Mr Shermer, did you actually read Piketty’s book and the mountain of evidence he provides? The only noteworthy challenge to his thesis to date has been by the Financial Times and even that did not really manage to take much away from the central argument of the book. Yours is just wrong and a bit lazy I should add. Your argument is clearly driven by our ideology. Articles such as yours is what Skeptic should be debunking. I suggest you stick to mediums and UFO abductions, that is what you do best.
July 2nd, 2014 at 10:54 am
The view is breath-taking here from the Ivory Tower.
July 2nd, 2014 at 10:58 am
any breakdown on gender in this theory ,mr shermer? i know i sure have taken a tumble, though of course i get more and more saavy with regard to how to scrimp . hey ,what are you if you don’t know how to find that food bank and make it last all week, or put off medical care, becasue it just doesn’t fit the budget?!!!! these are all skills i have learned and utilized, but hey i am still positive, which is probably just as delusional as this article.
July 2nd, 2014 at 11:14 am
Good Grief!!!
The ad hominem comments by many of the commentators show a shocking behavior on the part of left leaning activists, who cannot tolerate anything that doesn’t support their confirmation bias and envy.
There are two type of people in the world. There are those who view everything in terms of a relative social pecking order and would turn down a 10% raise in their incomes if their fellow workers got 20%, opting for a 5% raise if their co-workers got zero. Then there are those who look at the absolute value of the raise and don’t care about the social pecking order. The envy-driven pecking order thinking of many of the comments says a great deal about the commenters’ views of the world.
When you get into real discussions of inequality and mobility, the real world is messy and you get into individuals and family histories. Science (AAAS Journal) had a major group of articles on the subject, where those who were making the case for inequality and lack of mobility were discussing their actual data, models and assumption. The devil is in the details and assumptions, like technology remaining constant.
For example, when discussing mobility between groups by children, the data only followed children to age 30. I am probably not the only person at age 30 who was earning less (according to tax records) than my parents’ median group, as I was still in school avoiding the draft and Vietnam War. When LBJ announced his war on poverty, my roommates (fellow grad students) and myself found that we were at the bottom end of the poverty level: we were three people living in a two room shack commuting to UCLA and living on beans and rice washed down with cheap jug wine.
Later, at various times, my business put me in all the income groups from bottom 20% to top 20%. I even found myself a member of the elite higher end of the top 1% the year I sold the building that housed the business. Yet that exalted status was in reality the product of decades of savings paying down the huge building mortgage. It was meaningless to credit all that as income in a single year. What does that really mean?
July 2nd, 2014 at 11:42 am
Shermer really pushed some buttons with this one. Most of the comments just made people pissy about how unfair the world is. I think the author simply pointed out that, with notable exceptions (“the 1%”), people aren’t as rich as you think they are. But more to the point of the article, “being rich” ain’t that out of reach for an industrious person that manages her money thoughtfully.
July 2nd, 2014 at 11:51 am
This is a sincere question; Is there any kind of peer review that goes into the process of selecting articles for this site? What are the criteria?
July 2nd, 2014 at 11:54 am
The median income for the lowest 1/5 has gone down since 1979. Median household income for each 1/5 is readily available on the census website. In 2012 dollars, the bottom 1/5 made $11,808. In 2010, the bottom 1/5 made $11,578 (the number is even lower now). The poor are not getting richer. Shermer cites “after-tax” data on income, but this cannot possibly account for the differences cited. The poor were not charged that high of a tax rate in the 1970s. Something else is fishy with his data. Even if before-tax vs. after-tax were the reason for the discrepancy, the article would not say much. It would simply provide that earnings increases for the lower fifth arise entirely from tax cuts, not market forces. But, taxes on the poor are already very low, and therefore, post-tax income cannot continue to rise for the poor based on tax cuts.
July 2nd, 2014 at 12:41 pm
Dr. Dallas Weaver, Your 5 paragraphs of comments says nothing meaningful. What you said could have been said in two well constructed sentences. Suggest you have an Editor review your material before you post.
July 2nd, 2014 at 1:04 pm
I beleive everything Mike published was correct, what he missed was the amount of debt owned by us poor peope. That was not correctly considered in the discussion. I put 3 kids through college. I have to pay a large amount every month for that. I might make more than you, but I don’t get to touch it or feel it. It’s just gone. I owe very large parent student loans to put 3 kids through college. QE2 or whatever made the rich richer they got more out of it than me because I was not fully invested, that’s because I had very little to invest, I’ll take a shot on the short side of the market in a few months
Income eniquality happens because of people don’t think two steps ahead, and the rules keep changing.
Mike makes you think. I think that is the point. You don’t agree, you had to think, right in your thought’s. He reads them we all (I don’t know that) read them. It’s very productive. You all have to keep pushing the buttons. Everybody needs to post a thought or opinion. A few minutes to just post a thought. I hope that is not too much too ask. I like Mike, but want to hear more more of my side or the other side, not to slaghter your side but just to be more open minded for myself.
July 2nd, 2014 at 1:17 pm
@ bill Morgan, can you do me too? Can you condense my thoughts into a well constructed few lines? No bad feelings or hate involved, Just know I’m not good at this.
July 2nd, 2014 at 1:34 pm
Mark N. How does this sound?
What Mike missed was the amount of debt owned by low income people. Mike was discussing Income, not Net Worth. Net Worth is a more meaningful measure and is Assets minus Liabilities. Net Worth equals all Assets like Savings, IRA, 401K, House, Cars, Furniture, etc. minus Liabilities like Student Loans, Home Mortgage, Car Loans, Credit Card Debt, etc. Low Income people are typically in a Negative Net Worth position and thus cannot save money, let alone put money in a retirement fund. High Income people are typically in a Positive Net Worth position and have surplus funds to save for retirement or buy expensive toys. The top 20% are High Net Worth people and the bottom 20% or Low Net Worth people. This is the real Inequality that is seldom addressed or mentioned.
July 2nd, 2014 at 2:15 pm
Others have already made the same points I would make so I will only say that while I’ve subscribed to Skeptic for over 20 years and generally respect Mr. Shermer, when it comes to economics he proves once again that his Libertarian predilection can color even an avowed skeptic’s objectivity and his opinions are best ignored in this area.
July 2nd, 2014 at 3:38 pm
It is absurdly Orwellian that a religious fanatic of the Libertarian faith is the head of a skeptic group.
July 2nd, 2014 at 3:38 pm
I am somewhat surprised at Shermer’s article. The main premise would certainly be treated with quite a degree of skepticism here in New Zealand. However, his point that inequality does depend to some extent on whether the national ‘pie’ has remained static or increased. In NZ it is the former rather than the latter, which has resulted here in a discussion about having a ‘living wage’.
As to dismissing Shermer’s views on all his writings because of one set of beliefs is far to illogical. Get a life – who in this world is perfect?
July 2nd, 2014 at 3:56 pm
Shermer is mostly right, but income inequality doesn’t tell you anything about the robustness of an economy. Consider two hypothetical societies, A and B.
In society A there is absolutely no income inequality; everyone makes $35,000/year.
In society B there is HUGE income inequality; the poorest of the poor makes $50,000 and the richest makes $1,000,000,000/year.
So in B, even though there is much more income inequality, the poorest of the poor are better off than the poorest in A. Any reasonable person would choose to live in society B where there is more income inequality…
July 2nd, 2014 at 4:03 pm
According to this source (using CBO data): http://www.russellsage.org/research/chartbook/average-after-tax-household-income-quintile-1979-2010-reported-2010
The top quintile income increased by 85%, so that doesn’t seem like in-equality is growing.
It is very difficult for people to accept when they are outside of their expertise. If only I knew someone who did research and wrote extensively about being skeptical…
July 2nd, 2014 at 4:37 pm
Al Navarro, Your statement is incorrect. Should read:
“The top quintile income increased by 85% over 35 years, so that clearly shows income in-equality is growing.”
Also, the income of the top 20% equals the income of the bottom 80%. That’s a lot of in-equality!
July 2nd, 2014 at 8:35 pm
cancel my subscription
July 2nd, 2014 at 9:20 pm
As Charles Darwin taught us, science is not just data. Data either supports or argues against a testable hypothesis, or is neutral. This includes social science. When fiscally liberal progressives focus on income inequality and social mobility, they use their version of the data to support what they see as an urgent need to implement an improved, top down, redistribution plan. How many more experiments in tinkering for fairness does this planet need to endure?
Those plans can help people in abject, horrible circumstances to at least live survivable lives. They cannot however, ensure that all able bodied and properly educated individuals will attain some “fair” level of mobility or prosperity. The idea that such a thing exists, is ridiculous.
Dr. Shermer, I applaud your efforts to highlight that the problem is less consequential than the far left would have us believe. The biggest things people can do to boost their income and “mobility” is to acquire a skill, shoulder more responsibility and take risks. Whether in the trades, financial or information services, manufacturing or hospitality and leisure, there are millions of good positions opening every year. In my thirty years of manufacturing and development management, I’ve come to conclude that one of the biggest Elephants in this room is that many in today’s job market don’t want mobility. Certainly, they want a bigger paycheck, better working conditions and more leisure time, but they are often not willing to strive for those things by taking risks. Often, they are unwilling to shoulder more responsibility or accept the accountability that comes with such.
If you ask the small contractor who services your air conditioner how they feel about their “mobility” or the “income gap”, I suspect most would prefer to stick to the task at hand so they can get on to their next paying customer.
None of our circumstances were created in a vacuum. All of us should be profoundly glad we were born in the United States. All of us should applaud the efforts of those before us that opened our way to greater opportunity. All of us should seek ways to voluntarily contribute to a progressive human society. A big part of this is by not supporting class envy. There are no classes. There are just people with different circumstances and different choices. We rarely hear about the man or woman who quit their job, moved back in with mom and dad and sold all their possessions to finance a business that ultimately failed. It is a sad price of freedom. Some win, some lose, but everyone gets to play. I applaud the winners and feel sad for the losers. But that sadness is tempered by the knowledge that the losers will neither starve nor go naked. They will live to play again.
Pick-up your ball and glove. Get in the game.
July 2nd, 2014 at 9:51 pm
The great thing about Sherm is that he is willing to change his point of view after he sees the mountains of evidence against his position (example: climate change). I think the same will happen with income inequality. Eventually, he will begin to understand that those bunch of Nobel Laureates who are praising Piketty, and doing research that supports the same conclusions, are probably right.
July 2nd, 2014 at 10:43 pm
Everyone in comments that ask to make “research” through youtube clips is a moron. Stop this dumb accusations of being a libertarian shill. This is childish and irrational behavior. http://skeptics.stackexchange.com/questions/9836/do-the-rich-get-richer-and-the-poor-get-poorer
July 3rd, 2014 at 6:28 am
If Shermer is not a libertarian shill, why is he constantly preaching his vile crap in journals that are supposed to be devoted to science and skepticism?
July 3rd, 2014 at 7:58 am
I agree that the juggling of stats should be nixed by Sci Am. What is particularly galling is the use of inflating dollar figures rather than a constant dollar value. Making $1000 more at the end of a ten year period is meaningless if inflation has raised costs by $2000. I am reminded of neoecons who go on and on about the poor having colour tv’s as if that indicated great prosperity.I hope the skeptic society takes Mr. Shermer to task on this issue.
July 3rd, 2014 at 8:15 am
By my count there are 40 negative comments and 8 positive comments. Looks like the Jury is in. This is perhaps the worst article MS has ever written! His bias in favor of those who are of great wealth is obvious and out in the open for everyone to see.
July 3rd, 2014 at 10:07 am
Those that continually protest the top 1% of the wealthy and complain they are puppets of the Republicans magically ignore those in that group who are never going to vote Republican. In this group is Bill Gates, who also gives a lot to charity. Then there’s Oprah Winfrey, who if she is able to be rich solely because the Republicans want her to be part of their club, then why is she so devoted to Obama? Add the other rap stars, actors and athletes who magically go from poor liberals to rich liberals and the whining goes away.
In reality, like it or not, hard work coupled with talent put the rich where they are. Public performers are still the exception, with business owners and innovators the vast majority of the wealthy. And they only get wealthy if they spread that wealth. Money begets more money so long as it’s properly invested.
Even Neil deGrasse Tyson, hardly a conservative, understands that the wealthy create more wealth for all. More importantly, a solid education is an important key for opening the doors to higher real income. Being poor and whining about how the rich get richer while you spend what little spare money you have on things other than your future is futile.
As Michael Shermer points out, overall wealth increases. The misconception that there is a fixed amount of money, therefore the wealthy take from the poor to get wealthy, is a fallacy of perception. In reality, as the rich get richer, the poor also get richer. What we call the poverty line, when compared to poor countries, would have you live like a king in those places. But if you did similar jobs, you would still be living in poverty, just with a whole lot less money.
Just look at the spread of capitalism in Asia the past few decades. Japan was poor, but increased industry raised their economy to a par with the West. Next are Hong Kong and South Korea. As labor got more expensive, our products then were made elsewhere, now into Malaysia, Singapore, Indonesia and Vietnam. As they get on a par, then it will go on. Making cheap trinkets turns into more expensive items, and the extra money means more money for the locals to support the infrastructure. Someone has to build buildings, open stores, make food and such. The entire economy benefits.
Some time in the future, no part of the planet will be untouched by this spread of wealth. Eventually, there will be more wealth than can possibly be spent. Money will lose meaning and we might end up in a communist paradise, but one fueled by too much capitalistic wealth to spend and not one by forcing equality where it cannot exist in reality. It might seem ironic that the liberal push towards communism can be achieved through capitalism, but really isn’t so.
What we need to do is ensure we care for our planet as we continue to create wealth for all. Plus, we must colonize the rest of the solar system, even if it’s just for raw materials. We must have goals and competition for us to survive, and these goals have to reinforce each other while there is nothing wrong with cooperative competition as we now have in the capitalistic model.
Forcing equal wages on grossly inequal jobs is a prescription for failure. Should athletes and other entertainers be paid more than teachers? I don’t think so. Starting salaries for teachers should be high enough to attract better people to that profession, making it easier to weed out poor candidates. But wealthy celebrities? It would seem to be an illness, but they only make a lot (the few truly among the tops) because we have enough left over money to afford entertainment like that. It’s a sign of a strong economy, even during downturns.
Michael Shermer is extremely correct to point out that the entire pie is larger, so we all can be wealthier. For those insisting that a mean number is more representative than the average of each quintile, you have to apply it equally to all five and not just the highest. The mean income of the bottom quintile could be closer to zero than people would like to admit. Living off taxpayer funds should be a negative number, unless those funds are a result of previous wages. But using tax refunds as a basis is a tad skewed, too, but is the only accurate number we can all utilize. You can perhaps add a fudge factor for hidden income, but most of that is made by criminal enterprises, not the wealthy hiding earnings (unless they are the same). And income before deductions should be considered, not taxable income. Deductions can vary wildly. The wealthy might be able to reduce taxable income through certain investments (which has an overall stimulating effect on the economy), but certain poor can reduce their taxable income below zero and still be able to get back more than they withheld.
The rich get richer, but the poor get richer, too.
July 3rd, 2014 at 10:56 am
Yes the pie gets bigger but it doesn’t take into account that prices naturally rise as well. What $5 purchased during my grandfather’s versus my mother’s versus my 20s is a drastic change. So yes… I’m makin more. But my purchasing power has declined. Hence why income inequality is still in existence.
A better question is why are we explaining economics 101 to citizens? Why is this not discussed in schools along with basic budgeting and loan information? Shouldn’t basic money and life skills be an important class?
July 3rd, 2014 at 11:10 am
Nathan Krawitz,
What you said in 10 paragraphs could have been said in two well constructed paragraphs. Suggest you have an Editor review your material before you post and shorten it down to about 25% of what you said and say the same thing. Perhaps you should take an Editing Class at a local college.
July 3rd, 2014 at 1:08 pm
Good grief, even the Wizard himself, Alan Greenspan, admitted before Congress that his world view,(he was serious Ayn Rand devotee), was BASICALLY FLAWED!
How any intelligent person can still peddle Objectivism and Libertarian tripe with a straight face is truly amazing. Here’s Greenspan, crushed, beaten, wrong, and admitting it, (at the end of the video).
https://www.youtube.com/watch?v=QIHLezCyzCI
July 3rd, 2014 at 1:42 pm
The Federal Reserves artificially inflates fiat currency and tinkers behind tightly shut doors and windowless rooms interests and other factors. Huxley stated that for people to live in a democracy, for democracy to even exist, citizens should be able to make informed decisions. Now how can they make informed decisions when numbers are tweaked and edited at the mercy (or mercilessness) of the Fed and the Fed’s newly appointed troll? The answer is they can’t, and that was the reason for the housing bubble and collapse. With a central banking system like the Fed, we are living in an illusion that can’t go on forever. So, I’d invite you, Shermer, to figure that into account.
July 3rd, 2014 at 2:07 pm
If you think Greenspan, while Fed president, acted as a libertarian, you are as out of touch with reality as most of us who never learned economics in one lesson. The flaw that Greenspan noted is the problem with Keyneysianism and it’s magical thinking and flawed foundation. Just like Pinkety’s foundation.
Capitalism is not the problem, rather it is the lack of capitalism that through our money itself, through monetary manipulation and government favoritism, has tilted the market toward those haves, and away from those have-nots.
July 3rd, 2014 at 2:20 pm
I don’t know why Shermer didn’t link to the Federal Reserve study he cites (or even name it) but here’s one Fed study I found from early 2014 that surely makes the case that income inequality has been increasing during the Great Recession:
https://www.minneapolisfed.org/pubs/region/14-04-ar/2013_Annual_Report_Essay_FRB_Minneapolis.pdf
If he’d care to link to the one he means, it would make it much easier to judge the merits of his argument. It would also make it easier to not suspect that article doesn’t back up his arguments as much as he thinks.
July 3rd, 2014 at 2:48 pm
I often disagree with Dr. Shermer but this is one time I would let him some slack.
More Americans are poorer than ever BUT the median income IS HIGHER so let’s admit that which is true…the largest share of Americans have stayed bouyant in this disaster that began so obviously in 2004, with only the actual product creating section being ‘flushed’
July 3rd, 2014 at 3:12 pm
Judging by the amount of venom in these comments, it looks like Mr. Shermer’s article was received with the opened-mindedness of an Ayn Rand novel presented to the Marxist society.
The biggest fault I can find with this article is that the quoted statistics are all based on income tax data and it is well documented that almost half of American adults pay no federal income tax. Both Mr. Shermer and the commenters on this page might be more convincing if they used a more representative data source.
July 3rd, 2014 at 4:55 pm
They aren’t all based on income tax data. He mentions this one but it’s not based on income tax data: http://www.brookings.edu/research/opinions/2014/01/06-income-gains-and-inequality-burtless
July 4th, 2014 at 4:05 am
Watch Bill Still’s new video Jekyll Island: The truth behind the Federal Reserve.
http://www.jekyllisland-themovie.com/
It shows how the Central Bankers have gamed the money system so the top 0.1% of the population feeds off of the bottom 99.9% of the Income Earners. The Central Bankers are parasites who suck blood from the tax payers who create the real wealth.
July 4th, 2014 at 7:29 am
I find some of the comments critical of this article amusing. They seem like knee-jerk political reactions which spout out their own preconceived notions about inequality. This is a very complex issue and cannot be summed up in a column (which I think is the root problem here). Also, you can always argue: “you should have used the top 10%, 5%, 1%, 0.004%, etc. and that would have made the numbers come out the way I want, then you would see the inequality!”
That is not the point. To me, the main point that Shermer is trying to make is more qualitative: Just because Paul gains wealth does not necessarily mean that Bob loses wealth. In a dynamic economy, the amount of wealth is not fixed. Because the “pie” grows, it is possible, and often does happen, that both rich and poor can simultaneously gain. Because the rich gain relatively more than the poor, we may call that some type of “inequality,” but it probably has both good and bad economic effects and, in and of itself, is not inherently bad.
Unfortunately, the human mind tends to operate in a zero-sum world (probably due to evolution), but modern economics is much more complex than that, so the dynamism of the economy must be studied and learned. Thus, sweeping statements which automatically assume that all “inequality” is automatically bad should be viewed skeptically. That’s it people, so stop freaking out.
To some of those referencing the “Power Elite,” and asking “who does Shermer really work for?” Seriously? Why are you on a skeptic blog? Sounds like conspiracy theory claptrap to me.
July 4th, 2014 at 9:30 am
Shane Riley, “Just because Paul gains wealth does not necessarily mean that Bob loses wealth.” Wrong. The Big Banks were bailed out by the American Tax Payers over and over again over the last 100 years since the Federal Reserve was established. To the amount of hundreds of Billions of dollars. Central Bankers Win. Taxpayers Lose. A 12 year old can research this on Google and get to the truth.
Check out “33 conspiracies that actually happened” on Google. MS once told me in an email that he does not believe in ANY Government Conspiracies. He does not believe in ANY Government False Flag operations. This is nonsense. A 12 year old can research and find out there are conspiracies and false flag operations. So which Intelligence Agency does MS really work for?
July 5th, 2014 at 11:30 am
One article you disagree with and that makes some of you a Michael Shermer expert? Claiming to know exactly what kind of person he is? Thank you to those who respectfully disagree. And please think about how much credibility one would have if you agreed with him/her on everything.
July 5th, 2014 at 7:00 pm
To totally dismiss Micheal Shermer on account his opinions here is unfortunate. I will continue to read his generally informed intelligent opinions in spite of my total disagreement with the above.
July 5th, 2014 at 8:08 pm
Bill Morgan, Just for the record, I too am AGAINST bank bailouts and the Federal Reserve in general. I do think that the system is “rigged” in this sense. I am FOR a precious metal standard of objective value (gold or otherwise), instead of Government fiat. I agree with the sentiment that central bankers win and taxpayers lose. Government bailouts are creating a moral hazard that socialize bank losses and we all pay for them.
But this changes NOTHING about the fact that the wealth is not a zero-sum game. These are too different things.
By the way, I’m pretty sure that Shermer believes everything I have said above, too. I have no reason whatsoever to suspect that he is being used by some larger organization or that this isn’t really his opinion. Sorry, but I’m not going there.
July 6th, 2014 at 2:57 pm
I too was disappointed with Michael’s limited grasp of economics, as well as his long history of libertarian bias. That doesn’t mean I will stop reading his articles; on other subjects he is thoughtful and through; but even in this area it’s useful to read opposing views.
What surprised me most is that all commenters (so far) have missed the elephant in the room – Michael discounts investment income, which was a cornerstone of the book he was reviewing. Going up the economic scale earned income plays a progressively smaller part in total income and investments rule. The huge rise in total ownership at the top pretty much says it all.
Michael is right to point out the fallacy of assuming the size of the economy is static. It’s not a zero sum game. That doesn’t mean the increase is distributed evenly, or even that one group or another will keep what they have. Mapping the US economy from 1870-2010 shows this conclusively; the rise of the middle class corresponds with a decrease in inflation-adjusted billionaires; the diminution of the middle class since 1970 follows an increase in the number of inflation-adjusted billionaires.
Given the number of studies I have seen that agree with Mr. Picketty I would need a much more convincing argument and better data to take Michael seriously. He is not an economist and the evidence presented is necessarily sketchy; there isn’t room in a blog to do more. As a rebuttal it falls short. It does provide some interesting things to think about, but I think Michael should take his own advice about believing myths. Under all conditions and in all subjects we need to be skeptical of our own biases most of all.
July 7th, 2014 at 12:43 am
“MS’s work is as scientific as his main field is; ie. psychology. Wanna read real skeptics? Go for Tomas Szasz for example.”
Tomas Szasz? Seriously? He is not a skeptic. He is a mental illness denier.
Just compare Shermer’s Wikipedia page information to Szasz’s. Tonas Szasz is known for only one thing….mental illness denial.
Skepticism is a discipline that encompasses all human thought, not just ideas you don’t like or disagree with. Everyone is skeptical of ideas that don’t fit their own world views, beliefs, or ideologies.
July 11th, 2014 at 3:29 pm
Many mentioned that our “skeptic” believes in Government and question his sources. No wonder, MS believes also fervently in anthropogenic catastrophic global warming, a fine construct from a bunch of interested parties, one of them Al Gore. Since then I lost interest in The Skeptic. About inequality, it is a serious issue and the problem is what con be done for those in want because inequality will always exist, people are different in their ability and interest in amassing fortune. I was much impressed by the solution proposed by Charles Murray, a well known libertarian in “In our hands – a plan to replace the welfare state”
July 12th, 2014 at 2:31 am
Whenever I see a claim on how “economy grows” I smell a rat. If any scepticism should be applied then it’s to the idea that income, like some mysterious alchemy, is able to grow. This omits the fact that income (like any other assets) simply change hands. Nothing has grown, because every sterling has either come from a consumer, debt payer, profit made on the back of cheap workforce, bonus payout, salary, share, inheritance or family wealth. In other words – they came from other people’s wallets, debts, unpaid or much less paid work. That profit didn’t just grow all by itself. It was generated by other people.
A lot can be said about Michael Shermer clearly not having any personal experiences of poverty, or of having done unpaid work such as caring for babies or relatives whilst not having anyone supporting him or having earlier earnings to rely on. If he did, he would never have minimised the actual damage that poverty causes.
Someone who better debunks poverty myths is the writer and reporter Erika Eichelberger. Here she argues against rationalisations made by National Review Online: http://www.motherjones.com/politics/2014/03/poverty-myths-debunked-again
It’s worth reading her earlier articles on the subject too.
July 12th, 2014 at 3:01 am
Ops, amongst money changing hands I forgot speculation on properties and the stock market. Sure, it may look like a “growth” when a property or a share has increased in value but all that’s actually happened is that they are now bidded at a higher price after a bunch of rich gamblers have hyped up its value.
A typical attempt on their part to avoid paying tax and instead labelling their gambling as “investments” to be sold for maximum profit until these bubbles burst.
That’s not growth. It’s gambling. And the result of these gambles are not some mythical “trickle down effect” but economic downturns for which all of us but mostly the poorest people get blamed for.
July 12th, 2014 at 1:04 pm
Economic inequality is not a bad thing, except when the politicians are in charge of distributing economic benefits. Then the politically well-connected get very rich, and everyone else gets very poor, a situation that becomes worse over time as there is ever less wealth to redistribute, resulting in Cuba, North Korea, and Detroit. When the free market is allowed to be free, everyone gets wealthier, and the people who produce the wealth get very rich. This is something we should encourage. The richer the other guy gets, the wealthier we are.
July 13th, 2014 at 4:17 pm
Shermer, thank you for having the guts to publish the truth about income inequality even thought you will have to apologize to the “victim crowd” most of which are (were) your followers.
July 14th, 2014 at 2:25 am
“When the free market is allowed to be free, everyone gets wealthier”.
That’s a rich myth which really needs questioning. Because it’s just like saying “take away laws & police enforcement and all thugs will behave”. It simply is not true.
An unregulated market does not make it free. There has been no evidence to support that. What has been noted is that deregulated markets have enabled unscrupulous business-men* to take over and limit economic chances for everyone else.
– This is seen when the wealthy elite only sponsor parties that protects their sponsors’ interests at the expense of the public’s needs.
– This is seen when mass marketing and publicity is only made affordable to the richest corporations, leaving other businesses, political parties and organisations unable to gain same exposure.
– This is seen when every world leader come from same 5 elite universities (of which at least 2 are funded by poor people’s taxes).
– This is seen when the legal system is made affordable to the rich, but not the poor. Leaving poor people unprotected from the onslaughts on their wages, working conditions, rights to benefits, housing, health and well-being without the ability to sue or even get advice on their legal rights.
– This is seen when parenting and caring of relatives is not valued as work, which leaves mostly women** struggling on benefits.
– This is seen when most working-class jobs are so badly paid that people are constantly struggling to make ends meet, leaving them no time, or peace of mind, to prosper.
– This is seen when wealthy investors force poor people out of their homes once an area becomes more desirable for richer people to move in to.
The examples are endless, but they all prove one thing:
[b]We cannot achieve a free market by deregulating it.[/b]
Because a truly free market requires regulation (policing if you like) so that wealth does not concentrate in few unscrupulous hands. Because wealth needs to be redistributed (taxed if you like) to enable all of us to prosper. Be it financially or in other areas like arts, developing projects, doing research, parenting, caring for others, scientific studies, inventions, etc. That’s when we get a truly free market.
*yes, they are usually men, white and come from privileged backgrounds.
**yes, most parenting and caring of elderly or disabled relatives is carried out by women, who don’t get paid for it.
July 17th, 2014 at 6:54 am
Shermer gives a rather egregious presentation of incomparable statistics to attempt convince us skeptics that all is well in the land of the ‘free’. Only one with Shermer’s net worth would dare such obfuscation.