Wall Street Journal: Movin' On Up
A Treasury study refutes populist hokum about "income inequality."
If you've been listening to Mike Huckabee or John Edwards on the Presidential trail, you may have heard that the U.S. is becoming a nation of rising inequality and shrinking opportunity. We'd refer those campaigns to a new study of income mobility by the Treasury Department that exposes those claims as so much populist hokum.
OK, "hokum" is our word. The study, to be released today, is a careful, detailed piece of research by professional economists that avoids political judgments. But what it does do is show beyond doubt that the U.S. remains a dynamic society marked by rapid and mostly upward income mobility. Much as they always have, Americans on the bottom rungs of the economic ladder continue to climb into the middle and sometimes upper classes in remarkably short periods of time.
The Treasury study examined a huge sample of 96,700 income tax returns from 1996 and 2005 for Americans over the age of 25. The study tracks what happened to these tax filers over this 10-year period. One of the notable, and reassuring, findings is that nearly 58% of filers who were in the poorest income group in 1996 had moved into a higher income category by 2005. Nearly 25% jumped into the middle or upper-middle income groups, and 5.3% made it all the way to the highest quintile.
Of those in the second lowest income quintile, nearly 50% moved into the middle quintile or higher, and only 17% moved down. This is a stunning show of upward mobility, meaning that more than half of all lower-income Americans in 1996 had moved up the income scale in only 10 years. ...
I tend to agree with you on economics, but I believe that we are seeing the dollar's buying power at home and abroad wither through inflation. This is the effect of central bank intervention that - coupled with rising fuel prices that affect everything in the economy is hurting lots of people who used to feel they had some breathing room at the end of the month.
Posted by: Charles @ ReformationUCC.org | Nov 13, 2007 at 05:28 PM
Central bank stuff gets a little too esoteric for what I want to focus on here at this blog. I'm not convinced that the central bank issues are among the top problems that face us right now how ever much I may not agree with certain practices.
Posted by: Michael W. Kruse | Nov 13, 2007 at 07:11 PM
Michael:
This is a great study. It would be interesting (and important?) to see who are the other 42% who have stayed in the bottom quintile over these 10 years. In working with the poor, I've seen the ravages that occur in people's lives that put them or keep them in poverty. Unfortunately, I've also seen the enabling type programs, originally meant to help, that too often also keep people there.
Thanks again. Great to see you writing, also.
Posted by: Rob | Nov 14, 2007 at 10:24 AM
Michael, I understand about not wanting to enter into discussions of central banking, but the issue of bank intervention through currency devaluation and inflation are related to your chart. The unanswered question is... did the buying power of the people represented as having improved incomes actually increase or did their tax brackets simply increase due to inflation?
Likely some of both. But without measuring inflation somehow, it's hard to know what the figures mean. That's my only point.
Posted by: Charles | Nov 16, 2007 at 10:15 AM
Charles, since the data is by quintiles I don't think inflation becomes an issue here. I certainly agree that measuring dollar amounts over and ten year period would require inflation adjustments but this is in quintiles.
Posted by: Michael W. Kruse | Nov 16, 2007 at 09:09 PM