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Is There Really a Growing Income Disparity?

I have noticed from numerous media sources that Washington is abuzz about tackling the “unfairness” of income disparity in the US, and how members of government are looking to reclaim the war on poverty first instituted by President Lyndon Johnson.

There is certainly the general notion that the rich are getting richer and that this is happening on the backs of a disappearing middle-class and and/or a growing poverty class. This of course got me to thinking whether this was true or not.

Before we dive into those waters, let’s please remember some basic economics. Specifically, economics is not about a zero-sum gain, which means that one person does not get wealthier by impoverishing another.

Communism, dictatorships, and other totalitarian forms of government certainly have been known to have that result, but history is replete with examples of how a free-market society results in an increase in the standard of living, and wealth, for the society as a whole.

Now to the specifics. Please let me present a table, something I have not done in previous blogs. The data comes from the US Census Bureau. Charlotte Souto, a researcher at ITR Economics, recently pulled together this for us. I will first point out that the data is in constant dollars to remove the impact of inflation/disinflation from the analysis.

Also, the analysis is based on households, not families. A household is any one or group of people living together. This includes income earners who are not related or married. The year 1967 is used because that is when the war on poverty began and the data was first collected.

Ok, now that we have some definitions, the table:

Income by Household % in 1967 % in 2009
Less than $50,000 61.4% 50.1%
$50,000 to $200,000 38.0% 45.9%
Over $200,000 0.6% 3.8%

The table shows that the amount of people making over $200,000 per year has certainly grown while the middle group has also grown and the amount of people in the lowest economic strata has declined. More households have moved into the middle-class and more people have joined the highest income group.

An astute observer may theorize that there are more income earners per household now and that is driving up the number. That is a good thought, but according to the US Census Bureau the average household in 1970 was 3.1 people, it was 2.6 people in 2000 and 2.6 people in 2010.

It seems we should be celebrating our success as a nation as opposed to trying to figure out how to redistribute the wealth.

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