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Greed: The “Income Gap” Deconstructed

Everyone knows that the 80s was the “Decade of Greed,” right? Well, of course it was. That’s what it’s called, and as everyone knows, if something is asserted long enough and affirmatively enough, that makes it just so. Or does it?

It serves one well, from time-to-time, to revisit old articles and essays written by oneself and others to ascertain their accuracy and relevance years later. Recently, I was involved in a private email dialog where the subject of the “Income Gap” came up. I vaguely recalled an article I had read in Reason years ago and set about to find it. Turns out that the article is now 11 years old, and in my judgment, is just as relevant and accurate now as it was then.

See if you agree, and note that there are some typos. Looks like it was scanned and OCRed from printed text. It’s about the 80s as the “Decade of Greed” in general, but includes a great exposé of the myth surrounding the “income gap.” Here’s that part of it.

A third factor that supports the view of the ’80s as a decade of greed is an implicit sense of fairness about the distribution of income. Although egalitarians are guilty of considerable statistical subterfuge on this issue, there is no question that the income gap between rich and poor has widened recently. According to the standard Census Bureau measures, the share of aggregate income received by households in the upper fifth of the income scale increased from 44.2 percent in 1979 to nearly 47 percent in 1989. Gains by the upper tenth and the upper 1 percent were even more pronounced. The broadest measure of inequality, an index known as the Gini coefficient, began rising slowly in the mid ’70s and then rose more steeply in the last decade.

Press reports rarely bother to mention what ought to be obvious — that the poorest fifth in 1979 and the poorest fifth in 1989 are not the same class of individuals. Census figures indicate that real income in a given quintile changes by no more than 1 percent from one year to the next, whereas annual turnover in the composition of the quintiles is 20 percent to 40 percent. Thus the commonly reported statistics on income distribution do not measure the economic fate of individuals over time. They measure changes in the value that the market places on various productive functions — various "offices" in the economy that are occupied by different people at different times.

The real question of fairness is whether individuals are free to exploit the opportunities available to them in the effort to improve their condition. A mixed economy like ours places many constraints on such freedom, from the income tax to the regulations that control entry into many businesses and professions. But longitudinal studies that follow individuals over time show there is still a great deal of social mobility. The Treasury Department’s Office of Tax Analysis analyzed a random sample of people who filed tax returns during the decade from 1979 to 1989. Only 14 percent of those in the bottom quintile in 1979 remained there 10 years later; everyone else had moved up the income ladder as they got older. Indeed, more of them (15 percent) made it all the way to the highest quintile than remained at the bottom.

A similar study by the Urban Institute covered two 10-year periods: 1967-77 and 1977-87. In each case, those in the bottom quintile at the beginning of the decade increased their incomes by an average of 75 percent over the next 10 years. Those in the top quintile at the outset had an average increase of 5 percent. As the authors put it, "when one follows individuals rather than statistical groups defined by income, one finds that, on average, the rich got a little richer and the poor got much richer over the decades." The study also showed that the rate of mobility was about the same during these two decades. Contrary to the impression one gets from the media, the transformations of the ’80s did not diminish the prospects of moving up the economic ladder.

Richard Nikoley

I'm Richard Nikoley. Free The Animal began in 2003 and as of 2021, contains 5,000 posts. I blog what I wish...from health, diet, and food to travel and lifestyle; to politics, social antagonism, expat-living location and time independent—while you sleep—income. I celebrate the audacity and hubris to live by your own exclusive authority and take your own chances. Read More

1 Comment

  1. Patrick Trombly on November 16, 2007 at 10:15

    If the data showed that life expectancies were increasing, Paul Krugman would write a column about the "alarming growth in the age gap between the old and young." And the New York Times would publish it.

    Think about it….

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