I’ve frequently pointed out that income inequality data is almost worthless. I was “poor” from age 18 to 26, at least in an income sense. So if every American had the same lifetime income pattern as I did, America would have about 13% poverty (assuming I end up being “poor” for 13% of my adult life.) But I don’t think anyone except Paris Hilton would regard my student days as representing true poverty. Matt Yglesias has a new post showing that tax inequality data is also meaningless, for basically the same life-cycle reasons. Lots of people have little taxable income when they are young, and also when they are retired.
I notice that conservatives like to talk about how 47% of Americans pay no (income) taxes, and liberals like to talk about the percentage of income earned by Americans in each income decile (with no age adjustments.) Both are spouting nonsense. We shouldn’t be talking about income inequality at all. We should talk about homelessness, cyclical unemployment, single moms trying to raise kids on low wage jobs, etc.
Philosophers tell us that the most ineffective way to become “happy” is to focus directly on becoming happy. And for similar reasons the worst way to reduce inequality is to focus on the “distribution of household income.” Focus on the root causes of the real problems. Change zoning laws to construct more low cost urban and suburban housing. Increase AD when NGDP is depressed. Provide wage subsidies to low wage single moms raising kids (financed by consumption taxes on the high consumers.) Weaken patent and copyright protections for minor innovations. Eliminate occupational licensing laws.
PS. I notice that Scott Galupo at the American Conservative is also critical of the 47% figure, so I shouldn’t lump all conservatives (or liberals) together.