The typical rich family is a cop married to a nurse

Ryan Avent recently expressed surprise at the fact that a married couple each earning $75,000 were in the top 5% of the US income distribution.

To get into the top 5%, you need to earn less than $150,000. To me, it’s something of a wake-up-call to realise that a couple who make $75,000 each are in the top 5% of American households. I’m curious whether this is surprising to others, too? Would you, like me, have guessed the thresholds were higher? Does this change what you think about who is “rich” in America today?

In Boston, cops make about $110,000.  I’m sure some of them are married to nurses making around $80,000, putting them well up into the top 5 percent.  I don’t regard this sort of family as rich, but many people I talk to insist the top 5% are rich.  If so, there are far more rich families that are a cop/nurse, or accountant/teacher, or engineer/secretary, then there are Donald Trumps.

Why do people find it surprising that so few families make more than $150,000?  I think I know, because I used to be surprised myself.  Then I realized my mistake.  I was assuming “families” were people like me, a middle age guy with a working wife and kids.  But then I realized a “family” is any adult household.  My first 8 years as an adult I was living on my own, supporting myself with part time work will going to college and grad school.  Definitely bottom quintile.  I was probably technically “poor,” but not poor in a sociological sense.  I was a proto-upper middle class guy.  Then I spent one year in the second quintile, before shooting into the third quintile, where I stayed for a number of years.  Then I got married, then I got lots of raises and promotions, and presto, I’m rich.  (Although my neighbors would laugh, they look down on us plebs living in two-family houses.)

I’ll retire at 62, and live another 15 or 20 years if I’m lucky.  During that stretch my “income” will drop sharply, although I am not quite sure how sharply.  Probably at 70 it will bump up as I’m forced to take money from my 401k.

I think most people have this vague idea in their mind that if everyone was exactly like Scott Sumner, we’d have a fairly equal income distribution.  Not so, it would be less unequal than today, but still highly unequal, as different versions of me would be at different stages of their (my?) life.

People are surprised that only 5% of families make more than $150,000, because they forget that even most upper-middle class people spend the vast majority of their time (between 18 and 80) making much less than $150,000.

Here’s my most recent contribution to The Economist: By Invitation, on the subject of inequality.

Income and wealth inequality data: Nonsense on stilts

I keep running across blog posts showing the inequality of income and wealth in America.  In a recent post I already discussed one reason why this data is fatally flawed, capital income is nothing like wage income—rather it is deferred consumption.  Counting capital income and wage income is actually counting the same income twice.  Here I’d like to discuss some other problems with the data:

1.  Life cycle effects:  I dragged out my annual Social Security data that I get in the mail, and it shows how much I earned during each year.  I tried to do a rough adjustment for cost of living changes, to make things fairer (otherwise my income looks extremely unequal.)  I am pretty sure my five income “quintiles” are roughly as follows:   3%, 13%, 22%, 27%, and 35%.  In other words during my worst 7 years I made 3% of my total real lifetime income, and during my best 5 years about 35%.  Some people have a more equal profile, whereas others have a far more unequal profile.  I think I’m probably not that atypical.  The point is that if we had 100% lifetime equality in earnings, but wages that rose with age and experience, then that’s the sort of income inequality we might observe in America.  The actual income inequality is greater, because inequality is not just due to life-cycle effects.

2.  Inflation:  Suppose you are the richest guy in the world, owning $100 billion in Microsoft stock.  You cash out and decide to live off the interest.  To avoid inflation risk, you put it all in 10-year indexed TIPS.  You would earn $650,000,000 per year in interest.  Unfortunately your tax liability would be more than $650,000,000.    The government would report your income as about $2 billion.  So the person who might well have the highest reported income in the entire country according to official data, might not have any real income at all.  Now obviously most rich people don’t put all their money in TIPS.  They take bigger risks and get positive rates of return.  But risk implies the possibility of loss.  Some do much worse than the hypothetical I gave you.  Of course even with no income a person this rich has a fabulous lifestyle, which is what I would argue is exactly the point.  Look at consumption inequality, not income inequality.

3.  I am pretty sure that a lot of the wealth inequality data is incomplete.  I recall reading that it often ignores structures (which is much of the wealth for average homeowners and shopkeepers.)  It may ignore pensions.  Many retired public employees have defined benefit pensions that would be hard to replicate with a 401k holding a million dollars.  It ignores human capital, making it impossible to compare human capital-rich brain surgeons and lawyers, with physical capital-rich farmers and landlords.

4.  Income inequality data is often collected at the household level, implying that a doctor making $250,000 with a stay at home spouse is no better off that a Boston cop making $150,000 (including lots of overtime) married to a nurse making $100,000 (including lots of overtime.)  But the two income couple might have to spend money on child care, and have very stressful lives doing household chores on top of their paid jobs.  This isn’t a major bias, but many people who naively think of the top quintile as being “rich” would be shocked at how many working class couples in their 40s or 50s who are dual income and live in high cost areas like NYC and Boston actually fall into that category.  I’d guess two married people each making $55,000 would make it the top quintile, and I’d guess a couple who each make $75,000 would make the top decile.  Those aren’t gaudy incomes around here.

I am not trying to argue the upper middle class can’t afford to pay more taxes.  (I don’t want to get mauled like that poor U of C professor.)  Indeed, I think most Americans could afford to pay much more taxes, as we’ve become used to having lots of stuff we really don’t need.  A small Hyundai will get us from A to B just as well as a Lexus.  So that’s not the point.

Instead, my point is that we should ignore all the official data, and use our eyes.  Travel around the country.  Go into poor people’s houses.  In the 1970s I recall staying with a rural family of six in a small house who had running water for only a couple hours of the day.  Over the course of my life I’ve seen lots of poor urban and rural neighborhoods.  And I’ve driven around affluent areas like Newport Beach and Wellesey, and very rich areas like Beverly Hills.  I don’t really know what’s it’s like to be poor in a cultural sense, or not be able to afford food for my family, but I think I do have a rough sense of the different sorts of consumption bundles purchased by different classes of people.  For what it’s worth, here’s my impressions:

1.  All classes in America are better off than in the 1960s.  But the gains are most noticeable for the poor and rich.  Especially the poor in the rural South.

2.  The US has more inequality than other developed countries.

3.  Some income redistribution should occur, via a progressive consumption tax and subsidies for the poor (wages subsidies, disability subsidies, HSA subsidies, education vouchers, etc.)

So I don’t have any objection to policies of redistribution, which is what motivates all these comparisons.  But it annoys me that people are making arguments using worthless data.  Here’s an example of a graph I found in a Matt Yglesias post:

It shows wealth inequality by quintile, using data that is utterly meaningless, then shows wealth inequality as perceived by the average American.  Here you are supposed to laugh at the stupidity of Americans.  But their view may actually be closer to the truth than the official data.  Then the graph shows the inequality that Americans think would be fair.  Even the Bush voters opt for a wealth distribution far more equal than what we actually have.

Here’s the problem with this entire enterprise.  Let’s work  with the wealth definition that was probably used in this table, that is, only easy to measure financial assets.  Assume this data is correct.  How much income equality would we need to get things as equal as the Bush voters want?  I’m going to claim that even 100% income equality would not be enough.  That’s right, if you paid a 16 year old boy with pimples at McDonalds exactly the same income as a brain surgeon at Mass General, measured wealth in America would still be far more unequal that what Bush voters say we should aim for.  That makes Bush voters to the left of Mao, almost at Pol Pot levels of egalitarianism.  And the reason is simple.  Even with exactly equal incomes, people will vary greatly in how much they save, and how well they invest what they do save.  So even with equal incomes, some would become very wealthy, and some would save almost nothing.

With apologies to Bentham, income inequality data is nonsense, and wealth inequality data is nonsense on stilts.  It’s all about consumption.

Yglesias’ post was entitled “Poor People Are Much Poorer Than You Think.”  Actually, if you are an observant person, and ignore the data, economic inequality in America is exactly what you’d think.

Income: A meaningless, misleading, and pernicious concept

And now, finally, my post on the optimal tax regime.  It will be nice to finally get this off my chest, as you can’t imagine how enraged I get reading progressives talk about the “principle” that all forms of income should be taxed equally (which is like a “principle” that all fruit should sell at the same unit price.)  Or when they discuss Gini coefficients of inequality based on meaningless income data (not to mention ignoring the fact that the economic incidence of a tax is totally different from its legal incidence.)

Bear with me as I start from first principles; this is an important post.  I will try to convince my progressive readers that they should favor complete abolition of all personal and corporate income taxes, as well as all inheritance taxes.

Suppose 2 brothers both make $100,000 a year.  One spends his income on watermelon, and the other spends it on blueberries.  Would it make sense to decry the inequality of this society, merely because the blueberry eater got to consume a larger number of “fruits” (because their unit price was lower?)  Clearly not, and for two very good reasons.

1.  They are each free to buy either type of fruit.

2.  The higher unit price of watermelon indicates they are more highly valued (per individual fruit.)

Now assume it’s possible to invest income at a real rate of interest that allow one to quintuple one’s wealth between age 25 and 65.  (Say a 40 year zero coupon real bond yielding around 4%.)  In this example let both brothers consume nothing but blueberries.  One brother chooses not to save at all, the other saves 40% of his income.  One eats $100,000 worth of blueberries today; the other eats $60,000 today and saves $40,000.  After 40 years the thrifty brother gets to eat $200,000 worth of blueberries.  Both also get some social security at 65.  Here’s my question:  In this society is there any economic inequality?

I don’t see how anyone could say there is.  Both have exactly the same wage income at age 25.   Yes, they do different things with it, but that’s their choice.  At age 65 one has zero income outside social security, and the other has $160,000 in capital gains, which is generally considered “income.”  But nonetheless there is complete equality for two reasons:

1.  Both are free to choose whether to save or not, so we have no evidence that one brother had more utility than the other.

2.  In present value terms their total lifetime consumption of blueberries is identical.

The mistake is assuming that blueberries in 40 year are the same thing as blueberries today.  Future blueberries only cost 1/5th as much, as they are much less valued than current blueberries.  They are different goods just as much as watermelon and blueberries are different goods.  That $160,000 gain is not “income” in the way most people think of the term, i.e. as some sort of goodie available for spending.  Rather it reflects deferred consumption.  The $200,000 received at 65 is exactly equal in present value to the $40,000 saved today.  Indeed it is the very same wealth, simply measured at a different point in time.  It is nonsensical to say the thrifty brother has income of $100,000 today plus another $160,000 at age 65, you’d be counting the same income twice.

Studies of economic inequality should completely ignore all capital income, and measure only labor income, or consumption.  Indeed the present value of labor income should equal the present value of consumption.  And as we will see, a labor tax (like the 2.9% Medicare tax) is identical to a consumption tax (like a VAT.)

Consider how a 50% payroll tax would affect the previous example.  Every figure would be cut in half.  The spendthrift would consume $50,000 today, and the thrifty guy would consume $30,000 today and $100,000 at age 65.   An equal-sized VAT would have an identical effect, cutting consumption for each person in half, at each point in time.

But now consider a 50% income tax.  The spendthrift would be affected in exactly the same way as with the other two taxes.  But the thrifty guy would pay a much higher tax.  He’d save $20,000, and that would produce $100,000 in 40 years.  The government would then take $40,000 of the so-called capital “income” in taxes, leaving him with only $60,000 for consumption.  If he wants to prepay his future tax liability, he must save $8,000 today in order to pay a $40,000 tax bill at 65.  That means $8,000 of his current saving goes to pay future taxes, and only $12,000 goes toward future consumption.  His total tax is then (in current dollars) $50,000 plus $8,000, or $58,000.  His tax rate is 58%, against 50% for his spendthrift brother.  And all because they have different preferences, not because one brother is in any meaningful sense “better off” than the other brother.  It’s no different from putting a higher income tax rate on a brother who eats blueberries, as compared to one who eats watermelon, merely because he has more blueberries in numerical terms.

At this point you might be thinking “Yes, but wouldn’t eliminating all income and consumption taxes be a giveaway to the rich?”  No, it would be restoring fairness by taxing the thrifty and spendthrift at equal rates.  If we think the rich should pay more tax, then let’s put a progressive consumption tax into effect.  This is easy to do, just turn the regressive FICA into a progressive payroll tax, with much higher rates for those with high wages and salaries.  This sort of tax can achieve any desired degree of progressivity.   Unlike most libertarians, I think a progressive payroll tax is desirable for simple utilitarian reasons.  I don’t buy the “I worked hard for it, it’s my money” argument, for two reasons:

1.  Most of your income comes from luck.  If you’d been born in a poor peasant household in Asia or Africa, your income would be low no matter how hard you worked.  You hit the jackpot just being born in a developed country.

2.  Our wealth comes from living in a highly functional society, thus part of your wealth is due to the fact that your neighbors don’t go around raping and pillaging as in the old days, but rather peaceably go to polling stations to vote.  Am I saying; “It Takes a Village?”  Sort of, more precisely “it takes a civic-minded culture.”

At this point my progressive readers might be willing to go for the progressive consumption tax for those who worked hard and saved their money.  But surely not for that deadbeat trust fund kid, who is living off daddy’s wealth?  Surely there should be an inheritance tax so that those with inherited wealth don’t go through their entire life without paying any tax?

If this is what you are thinking, you are still confused.  I will show that, if anything, we should be subsidizing those trust fund deadbeats.

First recall that if we have an optimal payroll tax then the money they inherit is all after-tax money.  And if we had a VAT, then the heirs would have to pay taxes on their consumption.  Now let’s go back and look at the case of the two brothers.  Suppose both have arrived at age 65 with $10,000,000 in wealth.  Also assume that we have a steeply progressive payroll tax, so they are considered morally justified in spending the wealth they have accumulated after paying those taxes.  The only issue being considered is whether we should have an inheritance tax on top of the payroll tax.  So let’s assume a 50% inheritance tax is introduced.  Compare the follow two scenarios:

1.  Brother A spends the entire $10,000,000 on fancy sports cars, yachts, champagne, glamorous parties, etc.  Brother B spends $5,000,000 and gives $5,000,000 to his only child.  Who should pay more tax?  We’ve already agreed that the guy who consumes all his wealth has already paid his dues through the progressive payroll tax. If not, then make it more progressive.  The other guy would have to pay $2,5000,000 in inheritance taxes, leaving his kid with $2,500,000.  It seems to me that on both efficiency and moral grounds the more generous dad should not pay more, but rather should actually pay less taxes than the other guy:

1.  He is less selfish, so virtue ethics favors the one who makes bequests.

2.  Because of diminishing marginal utility, it’s better to share your wealth with one other person.  He wins on utilitarian grounds.

3.  The inheritance tax discourages saving, and thus reduces the capital stock.  This lowers the real wage of workers who work with physical capital.

Brace yourself.  The optimal policy is a negative inheritance tax.  At age 65 both rich guys should be forced to put some amount (let’s say $100,000) into a government fund.  When they die, the $200,000 should go to the kid who also inherited the rich guy’s money.  I know what you are thinking—why not give the $200,000 to the poor?  Because we already assumed the existence of a progressive payroll (or consumption) tax, which is redistributing the optimal amount of money to the poor.  This extra tax is just trying to make things a bit more equal among two old rich guys, and one worthless trust fund baby.

[Yes, I’m sort of joking here—just trying to rigorously apply the logic of egalitarianism.  (For my trust-fund kid readers–I have nothing against you, I am just parroting society’s prejudices.)  But I am serious about favoring a progressive consumption tax.  Indeed I favor it so much that I would prefer it even if it meant I paid more in taxes than I do right now.  You will never find me complaining that I can’t get by on a family income of over $250,000.]

I think people have a huge mental block about these ideas, because they grossly misunderstand the actual incidence of taxes.  For instance, most people think consumption is much more equal than income, and hence that consumption taxes are regressive.  Actually, consumption taxes are proportional to consumption, which is the only meaningful benchmark.  Income is meaningless gobbledygook.  And most people think wealth is much less equal than income.  But how can both of these perceptions be correct, when wealth is nothing more than the present value of all future consumption for you and your heirs!  Actually, inequality of wealth and consumption are exactly equal, when properly measured in present value terms.  OK, to make this true I have to treat gifts from the rich is part of their consumption.  But even in a society where the wealthy made no gifts, most people would be shocked to find out that wealth and consumption inequality are equal.   And the reason is that our minds are being twisted and distorted by a meaningless concept—income.  People find it hard to shake the notion that income is actually measuring something meaningful.   So we use it as a sort of benchmark for everything from tax progressivity to Gini coefficients.

The beauty of the progressive consumption tax is:

1.  No tax forms for 90% of Americans, it’s automatically collected like FICA.

2.  It’s fair to high savers, treating them equally to spendthrifts.

3.  It encourages more saving and less consumption, which America desperately needs.  This raises economic growth.

The ideal tax system would be:

1.  Externality taxes such as a carbon tax.

2.  A land tax

3.  A progressive consumption tax, preferably on wages and salaries (as the VAT is harder to make progressive.)

4.  If we opt for the high-tax Nordic model, you might also need a VAT.

But why go for the high-tax model, when the lowest-taxed developed country entity in the world has the best infrastructure?  And the second lowest-taxed rich country also has enviable infrastructure plus universal health care combined with a Japanese-level life expectancy?

It would only take four things to make me become a card-carrying Democrat:

1.  If they dumped Keynesianism and favored using monetary policy to target NGDP

2.  If they favored replacing our current tax system with a progressive consumption tax

3.  If they favored replacing the public school monopoly with universal vouchers.

4.  HSAs through forced saving plus subsidies for the lower incomes

Progressive blogger Matt Yglesias already agrees with me on the first two, and Sweden adopted the third.  Singapore combines the 4th with universal health care.  So how can any progressive call me a reactionary Chicago-school economist?

I suppose what’s holding back vouchers in America is liberal sensitivity regarding our troubled racial history, and also a fear of religious schools.  But that’s for another post.

So why the inflammatory title of the post?  I hope I showed that “income” is meaningless if it includes capital income.  It is misleading because it leads people to talk about the share of “income” earned by the top 1% as if it is all actual labor income, whereas it is often mostly capital income, aka deferred consumption and not income at all.  And it’s harmful because it leads to the establishment of an extremely annoying, inefficient, and sometimes even repressive system called the income tax.  And it punishes thrift and rewards spendthrifts.

PS.  Of course there are real world problems with estimating wage income.  How should we deal with the self-employed?  One option might be to tax income from proprietorships, allowing the expensing of investments.  I hope commenter Mark can help me out here, as it’s been 30 years since I read any public finance and am relying on my feeble memory.

Update:  A commenter pointed out that Steve Landsburg did a similar post just a few days ago.

Never criticize someone who buys ink by the barrel (or a blogger.)

I have recently become very annoyed by criticism of my post on dorms vs. the CPI.  All sorts of people point out that I did not do justice to David Johnston’s work on inequality.  Of course that is correct, as my post had nothing to do with David Johnston’s work on inequality.  It was about the CPI, nothing more or less.  I don’t recall even mentioning the word ‘inequality’ in the post.

For those new to the blogosphere, let me explain how things work here.  When I or any other blogger excerpts a paragraph from a book or article, we are under no obligation to give a fair and balanced review to the entire work.  Rather, we are free to simply discuss whatever issue catches our fancy.

I don’t know how many times I have read people argue that real incomes haven’t risen since 1973, maybe 100 times.  While reading Thoma’s blog I saw another example, and thought it would be a good opportunity to discuss this topic.  I had no interest in anything else Johnston said, and I could have picked a similar quotation from a 100 other authors.  My blog post did not criticize any aspect of Johnston’s research outside the specific factual claim in that paragraph.  Will someone please explain how I treated him unfairly?

Here is a comment left by Johnston in my comment section:

As the author of the words that set off the post above, may I suggest that it pays to read in context and to not take a snippet out of context when drawing conclusions.

How curious to read some of the words here when my book PERFECTLY LEGAL says near the start that while wages have been flat many prices have gone down, citing color televisions among other examples.

But the Tax Notes column from which this one paragraph was lifted was not about that issue.

The column was about the relative changes in incomes and taxes 1961 to 2006. It was about whether our tax system is creating wealth or concentrating it, whether it is undermining our society or building stability. The end point was this: the net worth of the middle third of households whose head is under 50 is a smaller net worth today than in 1983.

Since I have more comments today than I have ever had, I don’t have time to read his Tax Notes paper, nor am I an expert on the issue of income inequality.  But since he asked, I decided to at least take another look at the long excerpt provided in Thoma’s blog.  And look what I found:

America grew and grew during this era [1961-2006]. GDP, adjusted for inflation and increased population, was up 227 percent. But wages and fringe benefits did not grow with the economy. For most workers, they fell. Wages peaked way back in 1972-1973, were on a mostly flat trajectory for more than two decades, rose briefly in the late 1990s, and then fell sharply in the new century. … Millions are out of work, and the jobs they once held are … not coming back. And even if the Great Recession is coming to an end, we face years of jobs growing more slowly than the working-age population, which could radically transform America’s culture, work ethic, and sense of progress.

Notice the sleight of hand here.  I do not specialize in this area, but almost any economist would immediately recognize the attempt to confuse the reader by comparing real GDP and real wages.  You are supposed to think “Wow, the size of the pie rose 227%, but the average worker is no better off.  All the gains must have gone to the fat cats, or to more people having to work.”

But comparing these two series is comparing apples and oranges.  Again, I don’t know precisely how Johnston constructed his data, but since he seems to have used IRS tax data, it appears that the wages may exclude fringe benefits.  One reason why wage growth has been so slow is that fringe benefits have become an increasingly large share of total compensation.  Furthermore, there is the question of the proper deflator.  That paragraph would only be valid if both nominal series were deflated by the same deflator.  But let’s suppose nominal wages were deflated by the CPI, and NGDP was deflated by the GDP deflator.  In that case real wage growth would appear lower than real GDP growth, even if they were actually the same.  Again, I don’t know exactly which techniques he used, but I am certain the gap would not have been that large if comparing apples with apples.

Here’s one reason I don’t like using tax data.  Suppose in 2009 a worker reports wage income of $46,000.  Also suppose an investor sold stocks that had been bought in 1976 for $1 billion dollars and are now worth $3 billion.  For simplicity, assume the price level also tripled during that period.  In that case the government statistics would show that the worker earned $46,000 and the investor earned $2 billion.  But the worker actually made more in real terms; $46,000 vs. zero for the investor (in constant 2009 dollars.)  I’d say that creates a slight bias in government income distribution data.

Let’s continue:

In 2006 families worked on average about 900 more hours than families did in the 1960s and early 1970s. That is a roughly 45 percent increase in hours worked… For many, the reality is that two jobs produce the same or a smaller after-tax income than just one job did three and four decades ago. …

Again, I am not an expert here, but I am pretty sure that people like Fogel would contest this conclusion.  Modern jobs are often different from jobs of yesteryear.  You can’t compare working 40 hours in a coal mine to 40 hours in an office job were you can occasionally surf the web or take a coffee break.  And I recall my mother doing a lot of chores back in the 1960s (like washing diapers and hanging clothes out on the clothes line) that are not done today.  So part of that 900 hours is offset by fewer hours worked as homemaker.  I really don’t think men work even as hard as they did when I was young.  Women probably work a bit harder, but nowhere near as much as those number suggest.  And remember that the numbers are skewed as people shift non-market activities into the market.  Growth in child care is obviously a huge bias, but also I recall that men did all the outside work when I was young.  Now people often hire others to paint houses, move furniture, cut grass, rake leaves, etc.  When I was a teenager I did all of these jobs for money:

Newspaper route (3 years)

Helped people move

Painted houses

Raked leaves

Shoveled snow

Cut grass

But none of that labor was reported to the government.  Now it’s hard to get teenagers to do this work for you.  I am told they are too affluent now, off at summer camp or visiting Europe.  Again, I think Fogel has some data on how people actually spend their time.  Vacations, TV, internet, softball, etc.  And I seem to recall leisure is actually rising.  Maybe someone can dig up the study.

Johnston continues . . .

During the 45 years starting in 1961, payroll taxes have gone from a minor levy to almost a sixth of wages for the bottom 90 percent of American households. This $760 in income tax savings that the average taxpayer enjoyed in 2006 was taken back, and more, by the increased tax rates for Social Security and Medicare. Those rates rose from 3 percent withheld from pay in 1961 to 7.65 percent in 2006. Not all income is from wages, of course, but those higher payroll taxes wiped out the seeming reduction in the income tax and more. …

And at the top? Now, that’s a different story. The average income for the top 400 taxpayers rose over the 45 years from $13.7 million to $263.3 million. That is 19.3 times more.

Hmmm.  .  . The data is from the IRS.  In 1961 the top rate was around 90%.  So are we supposed to be surprised that in 1961 not a lot of billionaires came up to Uncle Sam and said “Look, I just earned $200 million, please take 90% of it.”  When the top rate fell sharply in 1986, the reported income of the rich mysteriously soared the next year.  I wonder why?

And it isn’t just people on the left; the right also distorts the numbers.  One of my favorite examples involves deception on both sides (here I am no longer discussing Johnston.)  The left likes to point to the huge gap in income between the top 20% and the bottom 20%.  The right likes to point out that a significant share of people in the bottom 20% at one point in time, make it all the way to the top 20% a couple decades later.  No s**t!  That happened to me and I think I am a pretty typical upper middle class professional.  Between age 18-25 I was in the bottom 20% and in recent years I have rising to the top 20%.  It’s called a life cycle.  So when someone like Krugman compares incomes in the different quintiles he is often just comparing the same basic type of person at different stages of their life.  And when a right-winger talks about all the Horatio Algiers stories of rags to riches, he is often talking about an investment banker who picked up a few bucks in college with a part time job.

The bottom line?  Don’t look to government data for answers to complex social issues like inequality.  There are no secrets to be revealed.  Open your eyes and look around you to see how people live.  I dated a girl in college whose dad made $7,000 as a small town janitor, and was raising a family of 6 on only that income.  At the same time you might have had a recent college grad working at a Border’s bookstore as a clerk for a year, also making $7,000.  What do those people have in common?  Nothing.

I have traveled around a lot over my life, and met people from all income classes.  I have observed how people live.  And it seems obvious to me that the rich are much better off than in 1973.  And it also seems obvious that the middle class are singnificantly better off than in 1973.  And it seems obvious that the poor are significantly better off than in 1973.  Are there people worse off?  Sure.  Are there job classes that are worse off?  Again the answer is yes.  If a meatpacking plant broke the union and replaced $20/hour American-born workers with $10/hour recent immigrants from Mexico, then the workers at that plant have a lower living standard than the old workers did.  But also remember that the children of those Iowa meatpacking workers often went to college and raised their living standards, and the Mexican workers often have a higher living standard than they did in Mexico.  So things are getting better.  Sorry for rambling on so long.

PS, I agree with Johnston that low net wealth figures are a problem.  Can the left and right come together and support a Singapore-style forced saving plan, perhaps with subsidies for the poor?

PPS.  One other point about the dorms.  Many people missed my point.  When I was at the UW the dorms were full of people from all sorts of backgrounds; my girlfriend might have shared a room with the daughter of a doctor or lawyer.  Dorms are the only neighborhoods in America where all classes live together.  It’s not perfect, college attendance is slightly skewed to the rich, but with a high percentage of Americans now going to college it is the best indicator we have of what people view as a “normal” lifestyle.  I wasn’t joking at all in that post.