The idea of growing inequality of income is a myth, despite the effort of President Barack Obama and other Democrats to make hay out of it on the campaign trail, says Kevin Hassett,director of economic policy studies at the American Enterprise Institute (AEI).
Studies showing widening inequality are flawed, he and Aparna Mathur, an AEI resident scholar, write in The Wall Street Journal
The studies largely focus on pre-tax incomes, ignoring transfer payments such as unemployment insurance, food stamps, Medicaid, and other safety-net programs.
More important, earnings generally rise over people’s working lifetime, the duo notes. Someone who invests more in education may suffer a long period of low income while studying, and then garner much higher income afterward.
Consumption is a more important measure of economic welfare than pre-tax cash income, Hassett and Mathur say. And, “the consumption gap across income groups has remained remarkably stable over time,” they write.
From 2000 to 2010, consumption rose 14 percent for the bottom fifth of households, 6 percent for individuals in the middle fifth, and 14.3 percent for individuals in the top fifth.
Standard of living has improved for those at the bottom of the totem pole too, the economists say. For example, the percentage of low-income households — those with less than $20,000 a year — owning a computer rose to 47.7 percent from 19.8 percent 2001.
“Over time, Americans have constructed a vast safety net that has adequately served the poor and helped them — as well as the middle class — to maintain significant consumption growth, despite the apparent stagnation of cash incomes,” Hassett and Mathur write.
“The notion that a society that has accomplished such a feat is rigged or fundamentally unjust is ludicrous.”
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