New study exposes income-inequality “crisis” as bogus

posted at 10:26 am on April 12, 2012 by Ed Morrissey

How does one manufacture a class-warfare fight?  For a good start, find a study that leaves out a great deal of information to claim that the middle class is shrinking and got left behind in the greatest economic expansion in modern American history — and hope that no one notices.  Unfortunately for Barack Obama and the White House, Cornell University has completed a much more comprehensive study of economic progress over the last several decades, and has found the holes in the study that Obama uses to proclaim that the middle class got screwed, as Jim Pethokoukis reports for The American, emphases in the original:

Underlying Obama’s entire thesis is the work of two economists, Thomas Piketty and Emmanuel Saez. According to them, median American incomes rose just 3.2% from 1979 through 2007.  (All figures are inflation adjusted.)

So what happened to the rest of the dough? The top 10%, 1% and 0.1% grabbed all the money. Or pretty much most of it. Time to crank up taxes on the rich and spend more on the middle class. It’s not overstating things to say that the findings of Piketty and Saez form the very heart of Obamanomics, giving a powerful economic rationale for Obama policies such as ending the upper-end Bush tax cuts to Obamacare to the Buffett Rule.

But it’s just not true, according to a new study in National Tax Journal from researchers at Cornell University.(Here’s an earlier, working-paper version.) The academics, led by economist Richard Burkhauser, don’t say the findings of Piketty and Saez are wrong — just incredibly, massively incomplete. According to the Cornell study, median household income – properly measured – rose 36.7%, not 3.2% like Piketty and Saez argue. That’s a big miss.

So what got left out?  Plenty, although some of it won’t warm the hearts of fiscal conservatives and libertarians:

See, Piketty and Saez made lots of odd choices about what to measure and how to measure it. They chose to measure something called “tax units” rather than households, a move which ignores the statistical impact —  including economies of scale — of couples who cohabitate, kids who move back in with their parents after college, and senior parents who live with their adult children.

They chose to ignore the value of all government transfers — including welfare, Social Security, and other government provided cash assistance — received by the household.

They chose to ignore the role of taxes and tax credits.

They chose to ignore the value of healthcare benefits.

This is an interesting conundrum for both sides.  Obama has been hammering Republicans for opposing his massive expansion of entitlements, claiming that they have been enacted on a bipartisan basis in the past, and that they do … pretty much what the Cornell study says they do.  If Obama wanted to do so, he could embrace this study to make his point, but then it would devastate his class-warfare arguments and his demand for Buffett Rules, higher capital-gains taxes, and so on.  On the other hand, Republicans can use this study to fight those policies, but it would hem in their arguments about safety-net programs and the complications of the tax code.

However, the bottom line is clear: there is no income-inequality “crisis.”  At best it’s a misunderstanding of the data based on incomplete and irregular analysis, and at worst it’s a demagogic lie intended to divide Americans along false lines.  In fact, it’s most likely both.


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WTF is the point of doing a study when you make up crap as you go along, and have no real evidence to back up the study you started.. like Tax Units? WTF is that?

upinak on April 12, 2012 at 10:30 AM

Manufacturing an income-inequality crisis to stoke class warfare. It’s what Marxists do.

petefrt on April 12, 2012 at 10:31 AM

Who was that dude from long ago who said “Americans are so focused on equality that they would rather be equal in poverty than unequal in success”? De Toc….De Toqu….De something or other.

Eh, doesn’t matter, he was white.

Bishop on April 12, 2012 at 10:33 AM

No, that doesn’t work. Change that, make it fit our class warfare scheme.

/O

Red Cloud on April 12, 2012 at 10:36 AM

Cornell must be racist to point this out.

Bitter Clinger on April 12, 2012 at 10:36 AM

Obama using bogus numbers to push a BS narrative in an effort to pit citizens against each other?

I’m shocked.

forest on April 12, 2012 at 10:39 AM

Who was that dude from long ago who said “Americans are so focused on equality that they would rather be equal in poverty than unequal in success”? De Toc….De Toqu….De something or other.

Eh, doesn’t matter, he was white.

Bishop on April 12, 2012 at 10:33 AM

Alexis De Tokeville. Not only a white guy, but obviously a pot-smoking hippie.

The Rogue Tomato on April 12, 2012 at 10:39 AM

Cornell must be racist to point this out.

Bitter Clinger on April 12, 2012 at 10:36 AM

…will something now happen to Cornell’s grants and other funding?

KOOLAID2 on April 12, 2012 at 10:46 AM

But…but…but where would Barry be, if not telling 1/2 the nation that they were being screwed by the other half – which Barry openly courts for campaign money?

GarandFan on April 12, 2012 at 10:47 AM

So borrowing money to lift a certain groups standard of living is a good idea? I don’t think so.

aniptofar on April 12, 2012 at 10:48 AM

Cornell must be racist to point this out.

Bitter Clinger on April 12, 2012 at 10:36 AM

I expect we’ll soon see a royal proclamation an executive order stating that Cornell is now no longer to be referred to as an “Ivy League” school.

cicerone on April 12, 2012 at 10:48 AM

See, Piketty and Saez made lots of odd choices about what to measure and how to measure it. They chose to measure something called “tax units” rather than households, a move which ignores the statistical impact — including economies of scale — of couples who cohabitate, kids who move back in with their parents after college, and senior parents who live with their adult children.

They chose to ignore the value of all government transfers — including welfare, Social Security, and other government provided cash assistance — received by the household.

They chose to ignore the role of taxes and tax credits.

They chose to ignore the value of healthcare benefits.

If I get this right the original study looked only at wages not government transfers, and also it looked at individual tax units instead of households. This means that it focused on individual income or at most joint returns of married couples derived from wages. The survey found their wages to be stagnant. Only when the government rode to the rescue with free handouts did incomes rise. What lessons are we imparting to our citizens? Work is for suckers!

DFCtomm on April 12, 2012 at 10:50 AM

I expect we’ll soon see a royal proclamation an executive order stating that Cornell is now no longer to be referred to as an “Ivy League” school.

cicerone on April 12, 2012 at 10:48 AM

Except for the college that Keith Olbermann went to.

milcus on April 12, 2012 at 10:52 AM

Let me get this straight. We conservatives are going to rejoice that wages have been stagnant and that government has been handing out larger and larger amounts of money as entitlements because it refutes one of Obama’s talking points?

DFCtomm on April 12, 2012 at 10:54 AM

Same old strategy, say what you want or need to get the message out first. Doesn’t matter if it correct or not, the sheep hear it first and believe it. The real data coming in after is viewed as political hateful resistance with little chance to make the mainstream news.

Is the dumbing down of the presidency a favorite trait of the democrats? Seems respect and honesty of the highest office comes second to their quest of power.

plutorocks on April 12, 2012 at 10:55 AM

Alexis de Tocqueville

preallocated on April 12, 2012 at 10:59 AM

I don’t think this hurts the conservative argument as much as Ed posits. The purpose of the study is to show that Obama simply lied by saying that things have gotten much better for the rich while the middle class has remained stagnant. It undercuts the class-warfare theory. The argument about the fairest way to utilize tax money is a different argument.

JDF123 on April 12, 2012 at 11:00 AM

What is this concept called “income equality”????

So, a person who works hard and makes responsible life decisions like not being promiscuous or doing drugs, or going out partying all the time, are stealing or, or, or…should make the same money as some hippie who camps out in the public square defecating on police cars while high on drugs and hoping to have sex with other like-minded transients????

Yeah…right. Good luck with that concept.

Each person gets paid according to their worth, and their worth is defined by what skill set that provide to an employer or to their own endeavors, NOT according to what the government is willing to send out each month in the coupon book.

Seriously, any of these morons who believe otherwise should be forced to live outside the U.S. for no less than 4 years….so that they have to actually LIVE within the society of these places they think are so awesome.

KMC1 on April 12, 2012 at 11:06 AM

Except for the college that Keith Olbermann went to.

milcus on April 12, 2012 at 10:52 AM

Olberdouche graduated from the New York State College of Agriculture and Life Sciences.

Trafalgar on April 12, 2012 at 11:07 AM

“Income equality” is just another way of saying “wealth redistribution”.

When people like Obama use that phrase they never seem to want to talk about how that income was derived and what are the causes of those who have less.

It is a discussion that always leaves any talk of “hard work equality”.

NeoKong on April 12, 2012 at 11:13 AM

In many ways, this is just a bunch of hand waving because how do you quantify improvements in the standard of living due to new technologies? Using inflation measures is unconvincing because one could not have gotten a smart phone 30 years ago for infinity dollars and now they’re several hundred dollars.

I guess the real question is in terms of standard of living, would you rather be a median wage earner in 2010 or 1980?

NukeRidingCowboy on April 12, 2012 at 11:13 AM

Analyst Gomer Pyle weighs in on the truthfulness of Leftist arguments on income-inequality, see link.

Gladtobehere on April 12, 2012 at 11:16 AM

They chose to ignore the value of all government transfers — including welfare, Social Security, and other government provided cash assistance — received by the household.

They chose to ignore the role of taxes and tax credits.

They chose to ignore the value of healthcare benefits.

Since welfare is received only by the poor, the Picketty and Saez study under-estimated their increase in income. Which was cut under President Clinton.

Since Social Security is received only by the elderly, Picketty and Saez under-estimated their increase in income, and also the fact that there were more people over 65 in 2007 than in 1979, because many of those born before 1914 (65 years old in 1979) died in World War II.

So when Reagan and Bush 43 cut taxes, and thereby increased take-home income, Picketty and Saez pretended that never happened.

And if Picketty and Saez chose to ignore the value of employer-provided health care insurance, Obama used their study to justify passing ObamaCare, which will increase health care costs for everyone.

While we’re adjusting income for inflation, let’s figure energy costs into the price index. We all have to commute to work and heat our homes! Energy prices actually DECREASED during the early 1980′s, were relatively stable during the late 1980′s and 1990′s, spiked after 9/11 but were relatively low from 2003-2007. If we adjusted “incomes” post-2008 for energy prices, wouldn’t we be worse off under Obama than under Bush?

Steve Z on April 12, 2012 at 11:17 AM

Russ Roberts of the excellent EconTalk podcast interviewed Burkhauser in this week’s episode. I highly recommend listening if you are interested in this topic.

LibertarianRepublican on April 12, 2012 at 11:17 AM

“Income equality” is just another way of saying “wealth redistribution”.

When people like Obama use that phrase they never seem to want to talk about how that income was derived and what are the causes of those who have less.

It is a discussion that always leaves any talk of “hard work equality”.

NeoKong on April 12, 2012 at 11:13 AM

That is exactly the opposite of what is happening. We don’t want to talk about how the income was derived. We only want to wave our hands and say see Obama is wrong. The study does a fairly good job isolating individual/joint income from wages, and has found them to be stagnant. Another study comes along and finds that once you add in government handouts then income rises across the board. We are happy about this since it refutes Obama’s talking point, but we really, really don’t want to hear where the money is coming from.

DFCtomm on April 12, 2012 at 11:21 AM

The link to the original paper doesn’t work.
Here is one that does:
http://www.freepatentsonline.com/article/National-Tax-Journal/282741043.html

topdog on April 12, 2012 at 11:27 AM

Obama to make another Custer decision in 5.4.3.2…

Speakup on April 12, 2012 at 11:28 AM

KMC1 on April 12, 2012 at 11:06 AM

Verboten radical talk – report to the nearest re-education camp….

dentarthurdent on April 12, 2012 at 11:30 AM

Margaret Thatcher has a few words on this.

thebrokenrattle on April 12, 2012 at 11:31 AM

Those Cornell folks never worked a day in their lives. Who are they telling the Messiah he’s wrong?

eyedoc on April 12, 2012 at 11:31 AM

… it implies that these transfer programs are necessary and helpful

No, no. It implies that Obama sees these transfer programs are negotiable.

J_Crater on April 12, 2012 at 11:32 AM

And if Picketty and Saez chose to ignore the value of employer-provided health care insurance, Obama used their study to justify passing ObamaCare, which will increase health care costs for everyone.

Steve Z on April 12, 2012 at 11:17 AM

That’s a valid point. Has all the pay increase gone into paying for a rapidly expanding cost of health insurance? I would be interested to see the breakdown of total wage increases including all benefits.

DFCtomm on April 12, 2012 at 11:39 AM

If you go to the IRS historical taxpayer tables, it’s actually pretty easy to see that the middle class mostly moved UP, not down. Over several years the number of taxpayers in the lower and middle income brackets went down, while the number of taxpayers in the upper income brackets went up. That cannot be an indication that the middle class got poorer.

When I look around at the people I know (people who work for a living), the indications are very clear and mostly similar to my own situation. I now make 3 times more than I made 25 to 30 years ago, my house if 4 times bigger, I have more cars (with better features), I have more and better toys (smart phones, computers, cable, internet, DVD players, etc), and I’m still able to pay for a kid in college. And that is the same for most people who actually WORK for a living – your pay and standard of living increases with experience and skill levels.

dentarthurdent on April 12, 2012 at 11:39 AM

Manufacturing an income-inequality crisis to stoke class warfare. It’s what Marxists do.

petefrt on April 12, 2012 at 10:31 AM

Alinsky as well, he taught that the role of the community organizer is “to rub raw the sores of discontent.”

slickwillie2001 on April 12, 2012 at 11:41 AM

Picketty is a French socialist who had to quit his job in 2007 to work for Segolene Royal, the French Socialist candidate for president. He is regularly published in Le Monde and Liberation, both left-wing rags, and he has been a member since 2003 of A gauche en Europe, literally ‘To the left in Europe,’ a socialist think-tank.

Saez, who works often with Picketty, is also French, and a graduate of MIT. He is currently a professor of economics at — drumroll, please — UC Berkeley. He is on record as of 2011 as believing that the top marginal federal income tax rate in the US should be 74%.

Both of these guys have fashioned careers based on the specialized study of income inequality, which is to economics what anthropomorphic global warming is to climatology — essentially a religion with little or no scientific backing. Of course they cooked the books!

Humphrey on April 12, 2012 at 11:43 AM

Tax units are on a par with “created or saved jobs.”

I’m going to measure employment only in my household. Unemployment is at 0%. It’s easy to fabricate just about anything.

the wolf on April 12, 2012 at 12:12 PM

Cornell must be racist to point this out.

Bitter Clinger on April 12, 2012 at 10:36 AM

…will something now happen to Cornell’s grants and other funding?

KOOLAID2 on April 12, 2012 at 10:46 AM

You people are too funny… critical thinking clearly isn’t your strong suite.

The study covers a very long period and doesn’t contest stagnant middle class wages since 2000. You don’t seem to understand that ‘free trade’ with China and other developing countries actually has resulted in the loss of millions of American jobs and our massive trade accounts imbalance has bled America of wealth- all at the cost of the middle class.

But that would require you to actually understand the Cornell study and that’s asking too much.

B

bayam on April 12, 2012 at 12:23 PM

slickwillie2001 on April 12, 2012 at 11:41 AM

Right. Here’s hoping you have a place in the country somewhere. You may need it this year.

petefrt on April 12, 2012 at 12:28 PM

Olberdouche graduated from the New York State College of Agriculture and Life Sciences.

Trafalgar on April 12, 2012 at 11:07 AM

Or as we call it, SUNY Ithaca.

Cornell Conservative on April 12, 2012 at 12:31 PM

So how do we know that any of the information or the conclusions drawn in the study are valid?

stukinIL4now on April 12, 2012 at 12:38 PM

We can bitch and complain all we want that the practices of this administration are nothing but a sham to feed the naive Americans (and there are far too many), but as long as these findings remain tucked inside the likes of HotAir, and never are exposed to the light of day elsewhere, we will continue to let the democratic machine spin lies all they want, and our voting public will never be educated enough to know that Hope and Change is nothing but BS

stacman on April 12, 2012 at 12:39 PM

So men make 22% more than women in the 0bama regime?

Almost a million more women have lost their job under the 0bama regime?

But it is the republicans that have a war on women?

Well, at least our chocolate ration was increased from 4 ounces to 3 ounces.

jukin3 on April 12, 2012 at 12:44 PM

So how do we know that any of the information or the conclusions drawn in the study are valid?

stukinIL4now on April 12, 2012 at 12:38 PM

Read his bio and judge for yourself:
http://www.human.cornell.edu/bio.cfm?netid=rvb1

How does that compare with Humphrey on April 12, 2012 at 11:43 AM?

topdog on April 12, 2012 at 12:47 PM

Can someone help me out here? I would like to see how many tax units I made in the last year so I can complete my 1040.

buckeyerich on April 12, 2012 at 1:20 PM

Let me get this straight. We conservatives are going to rejoice that wages have been stagnant and that government has been handing out larger and larger amounts of money as entitlements because it refutes one of Obama’s talking points?

DFCtomm on April 12, 2012 at 10:54 AM

I agree with other posters who state that this doesn’t necessarily undermine the conservative argument. For example, a campaign theme is that we’ve got to shift more of the income growth into wages (and benefits) and away from government transfers. This certainly squares with the idea that entitlements are a runaway that we just can’t pay for. In fact since we know that entitlement money is going to run out the only way to save the day is to grow the economy and boost incomes.

Fafhrd on April 12, 2012 at 1:44 PM

bayam on April 12, 2012 at 12:23 PM

Clearly YOU don’t understand the real world beyond your masters’ lib talking points.
You lib morons look at this as people being static in the same income level their entire life, and as if a certain level of income always buys only the same stuff – and that just isn’t what happens. People in the middle income brackets now used to be in the lower income brackets; people in the upper brackets used to be in the middle income range. Actual people move through the income brackets throughout their life – most of them going up, and then going back down a bit when they retire. Also the standard of living provided by a certain level of income is far better now than it was 20, 30 or 40 years ago.
If you were to look at actual people, not just statistical groups, it wouldn’t matter if middle class wages stayed the same – the actual people are continually moving up through those wage brackets.
Try a little critical thinking of your own and maybe you wouldn’t look like such a socialist tool.

dentarthurdent on April 12, 2012 at 2:00 PM

If you were to look at actual people, not just statistical groups, it wouldn’t matter if middle class wages stayed the same – the actual people are continually moving up through those wage brackets.
Try a little critical thinking of your own and maybe you wouldn’t look like such a socialist tool.

dentarthurdent on April 12, 2012 at 2:00 PM

That’s the best attempt at sophism I’ve seen in a long time. You’re stating a blatantly obvious point yet saying nothing of actual merit. No, income growth that accompanies career advancement doesn’t invalidate statistical measurements of income.

bayam on April 12, 2012 at 2:34 PM

Obama claims that after eight years of Bush policies, more US households are in near poverty or poverty. He fails to mention that for purposes of the 2010 census, his administration revised the income levels for the “near poverty” and “poverty” classifications upward. The administration says it was a necessary adjustment because the old levels weren’t “realistic.” That the new data would fit nicely into his “blame Bush” meme had nothing to do with it, of course.

SukieTawdry on April 12, 2012 at 2:42 PM

Proof positive again that “income equality” is a measure of, basically, nothing.

J.E. Dyer on April 12, 2012 at 2:54 PM

Alternate Headline: Cornell Researchers Prove Heritage Center Right!

http://www.heritage.org/research/reports/2004/08/two-americas-one-rich-one-poor-understanding-income-inequality-in-the-united-states

Funny how far behind our Ivy League Researchers are in comparison to conservative think tanks. I wonder why…

Dumbcollegekid on April 12, 2012 at 3:24 PM

bayam on April 12, 2012 at 2:34 PM

That’s the most blatant and failing attempt at intelligent commentary I’ve ever seen. If you don’t know what you’re talking about, you really should try not to point it out to everyone.

The libtard attempt at manipulating statistics specifically ignores the real world (such as career advancement), precisely because it kills your entire strawman argument.

dentarthurdent on April 12, 2012 at 3:53 PM

The libtard attempt at manipulating statistics specifically ignores the real world (such as career advancement), precisely because it kills your entire strawman argument.

dentarthurdent on April 12, 2012 at 3:53 PM

The prog/libs have to cook the books. There’s no other way for them to even try to argue using “facts.”

Humphrey on April 12, 2012 at 10:27 PM

Liberalism always seems to produce Over-Elaborate and Ineffective Solutions to Non-Problems.

landlines on April 13, 2012 at 11:45 AM