Wednesday, December 12, 2018

U.S. Income More Equal Than Advertised
By Paul Caron

Wall Street Journal, U.S. Income More Equal than Advertised:

Remember the 2014 bestseller “Capital in the Twenty-First Century” by French economist Thomas Piketty? ... The dismal tale of exploding inequality and capitalist failure has been a recurring theme in political chatter ever since. But a new report highlights just how poorly Mr. Piketty’s thesis has held up under further study.

This column should note that some scholars saw problems right from the start. ... Chris Giles of the UK’s Financial Times examined Mr. Piketty’s work and found that “the rock-star French economist appears to have got his sums wrong.” ...

Now a new report from the Urban Institute goes back further, to Mr. Piketty’s influential research with University of California, Berkeley professor Emannuel Saez published in 2003. Stephen Rose writes:

Piketty and Saez’s findings garnered tremendous attention and were cited repeatedly. But many researchers eventually found problems with Piketty and Saez’s approach and developed income inequality measures that led to different findings.

Phil Magness of the American Institute for Economic Research writes today:

In short, the widely reported explosion of inequality in the past three decades is likely a myth, built upon outdated and flawed statistics... Whereas Piketty and Saez show a massive century-long swing of almost 20 percentage points in the income share of the top 10 percent, the adjusted figures show a much flatter curve with a little over half the variation. Inequality still falls and rises under the revised numbers, but at a comparatively subdued rate. Under the adjustments, the top 10 percent income share seldom strays more than 5 percentage points away from a century-long average of about 35 percent. ...
Perhaps we should also focus on ensuring an abundance of opportunity, rather than regarding it as a problem when some people inevitably make more than others.
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