Income inequality isn’t as extreme as claimed by progressives when the effects of government social programs are included in economic data, said Ed Yardeni, chief investment strategist at Yardeni Research Inc.
Progressives are focusing on a “flawed measure of income” from the Census Bureau that doesn’t consider the standard of living and changing demographics, Yardeni said in a July 15 report
obtained by Newsmax Finance.
Income inequality has become a source of political debate as the gulf between rich and poor widens, and wealth becomes more concentrated in the hands of a few. President Barack Obama and Pope Francis have discussed the need to spread wealth more equitably.
“Progressives are obsessed with one measure of income, namely median household income
adjusted for inflation,” Yardeni said. Those data show that households made about $52,000 a year in 2013, the same level as in 1995.
“The Census measures of income, which are used to calculate official poverty rates, are missing key items that contribute to the standard of living in America, including non-cash benefits like food stamps, Medicare, Medicaid, public housing, and employer-provided fringe benefits,” Yardeni said.
Demographic changes, such as the number of single-parent homes, may also be holding back household income, he said.
“Households composed of a single person tend to have lower incomes than those of a married couple. Young singles tend to be just starting their careers,” Yardeni said. “Older singles tend to be retired and living on their savings, dividends, interest income and government support.”
Measurements of income that include government payments paint a better picture of U.S. households, Yardeni said.
“Real pre-tax personal income divided by the number of households rose to a record high of $120,150 during March at a seasonally adjusted annual rate,” he said. “That’s partly because personal income includes both the cash value and the imputed value of all entitlement programs.”
The portion of personal income provided by government benefits has risen to 17 percent from 12 percent in 2000, the data show.
“Could it be that the progressives are right about worsening income inequality, but are ignoring the fact that the problem continues to be fixed by the very government programs that they implemented during their New Deal and Great Society heydays?” Yardeni said. “Conservatives argue that government benefits erode the work ethic and thereby exacerbate income inequality. I agree with that view.”
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