A recent Congressional Budget Office report on inequality has been drawing headlines for finding that inequality is on the rise. Given the Occupy Wall Street protests focused on the 1 percent vs. 99 percent narrative, the paper couldn’t be more timely.
The report actually doesn’t contain much new information — we’ve known for a while that many measures of inequality have been rising — but it does contain a number of stark charts like this one:
As I’ve argued at length before, in many ways the rich are getting richer while the middle class isn’t doing quite as well, but the way these statistics are reported, including in this newest CBO report, exaggerates the size and nature of the problem. For an interesting and informed explanation of how the stats on inequality can be misleading, I’d recommend this Econtalk podcast with University of Chicago economist Bruce Meyer. But I’d also recommend this chart from Political Calculations, which cuts to the heart of the matter by showing the trend of the Gini Coefficient, a commonly-used measure of inequality, for U.S. individuals over the period 1994-2010:
It’s totally flat, indicating no increase in inequality at all over the past 15 years or so. The reason that it differs so drastically from the CBO chart above is that it captures what’s happened to individuals as opposed to households. Household formation has changed significantly over the past 40 years, leading to correspondingly large changed in measurements of incomes and inequality at the household level.
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