I have posted several excerpts from Alan Reynold’s book Income and Wealth in this blog. You can find them by putting his name in the ‘search the archives’ window in the upper right. Income and Wealth was written years ago and focused on how misleading and erroneous much of the information we have about income and wealth distribution in his country has been.
When the data takes into account individuals instead of households, the mobility among the categories, hours worked, government transfer payments, tax effects, and consumption we find a very different picture from the one the redistributionists want you to believe. ( It may be more accurate to say the picture THEY want to believe.)
Rick Moran writes in American Thinker 7 reasons why Obama is wrong about income inequality October 29,2011.
And why did the top 1 percent do particularly well? One potential explanation from CBO: “The compensation of ‘superstars’ (such as actors, athletes, and musicians) may be especially sensitive to technological changes. Unique characteristics of that labor market mean that technical innovations, such as cheap mass media, have made it possible for entertainers to reach much wider audiences. That increased exposure, in turn, has led to a manyfold increase in income for such people.” The CBO also mentioned “changes in the governance and structure of executive compensation, increases in firms’ size and complexity, and the increasing scale of financial-sector activities” as possibilities.
Alan Reynolds pointed out several statistical distortions in the numbers as well and Moran highlights one of them. Because of the superstar syndrome where a success such as Mark Zuckerberg at Facebook can earn billions while still in his twenties, the uppermost bracket becomes distorted. In other words the variance within the upper brackets is far more pronounced than in the lower brackets. Statistically this widens the difference between the average income and the median (the midpoint of the number of earners). This is logical since there is no real limit for the highest income but the lowest can not earn less than zero.
Policies that focus on such outliers are hazardous when applied to the whole group. Tax policies that would have little effect on the super wealthy would create severe job killing disincentive for the other upper quintile working wealthy.