“It ain’t what you don’t know
that gets you into trouble.
It’s what you know that ain’t so.”
The Myth of American Income Inequality
The Myth of American Income Inequality
–Attributed to Mark Twain
Official statistics on economic well‐being distort the dialogue on public policy because they
- do not count more than two‐thirds of the transfer payments that the government gives to low‐income households;
- do not reduce the income that the government takes as taxes, which average 35 percent of income for the top quintile; and
- adjust for inflation using price indexes that are not the most accurate.
As a result, official statistics overstate income inequality by a factor of four and claim that inequality has been rising when it has actually been falling for the past 70 years. Similarly, official poverty counts are 10 times larger than the actual number.
The American dream of rising income is alive and well. Almost all children grow up to earn more real income than their parents and experience rising incomes within their own lifetimes.
Individuals who start life in the lowest‐income households benefit the most from upward mobility.
When properly constructed, all measures of economic well‐being have shown rapid improvement over the past 50 years, including the following, in inflation adjusted dollars:
- Median household income
- Average hourly earnings
- Gross domestic product
Today, most people are economically as prosperous as many people in the top 20 percent were 50 years ago.
The official statistics must be fixed, and our national commitment to equality of opportunity can be strengthened by bringing work‐age adults back into the economy with work requirements and by enabling children to escape failing schools with expanded school choice.
See how everything you know about income inequality, poverty, and other measures of economic well‐being in America is wrong in The Myth of American Inequality.
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