Wednesday, June 22, 2011

The Difficulty of Following Wealth

After checking out PolitiFact's audit of Jon Stewart's "ignorant FOX viewer" claim, I found myself on this fact check of Steve Moore from February of 2011. In the 1980s, he claimed that "The lowest income people had the biggest gains."

PolitiFact ruled this as incorrect. According to the economist they talked to, Gary Burtless, "Incomes rose in the bottom, middle, and top portions of the income distribution as Mr. Moore stated, although the income gains were certainly bigger at the top compared with the bottom." Interesting fact, but that's not what Mr. Moore said. Moore said, if you were poor in, say, 1980, by, say, 1990 you had the biggest wealth gain of anyone else. In other words, you're not poor anymore. Comparing the lowest quartile in one period with the lowest quartile in the later period tells you nothing since the people who composed those quartiles aren't constant.

Ideally, we would track families and see where they are year-to-year. Data on this isn't consistently available but economist Steve Horwitz took the time to gather some up some of this data from 1975 to 1991. Here's how you read the table. The left hand column indicates various quintiles in 1975. The rows tells us what percent of that quintile is in what quintile in 1991. For example, 0.9% of the top 20% in 1975 were in the bottom 20% in 1991.

Bottom 20% (1991)Fourth 20%Middle 20%Second 20%Top 20%
Bottom 20% (1975)5.114.621.030.329.0
Fourth 20%4.223.520.325.226.8
Middle 20%3.319.328.330.119.0
Second 20%1.99.318.832.637.4
Top 20%0.92.810.223.662.5

Almost 95% of the poorest 1971 Americans rose at least one quintile by 1991. About 60% were in the top two quintiles! This is a radically different story than what PolitiFact suggests, but Horwitz goes farther by looking at the average gains. On average, 1975 families at the bottom quintile had incomes $27,745 higher in 1991. This gain is larger than any other quintile following the same span of years. Contrary to PolitiFact's claims, Mr. Moore's state actually appears to be... .


CalLadyQED said...

Would those be inflation-adjusted dollars?
-Jenny's little sister

David said...

Interestingly, they do not need to be. All the percents are of relative position of individuals in the same time period. There is nothing to adjust to inflation.