Addressing the fallacies of income inequality in the United States

Akin to yesterday’s piece about the potential dangers of a federal government shutdown, CNN published an article that looks at income inequality in the United States and how it is affecting all facets of life: education, lifespan and economic growth.

Since the economic collapse, the topic has been rigorously debated upon by academics, public officials and the general public (through the means of Occupy Wall Street and many anti-poverty demonstrations). However, it seems that pundits are never truly honest in their conversations because they never seem to address the Federal Reserve, income mobility and public policies.

Here are just two elements to add into the debate of income inequality:

Federal Reserve’s inflation

When the Federal Reserve turns on the printing press, the freshly created money benefits the richest people in America. Unfortunately, as the money goes through the system, the poor and the middle-class have money that has been immensely devalued, which then leads to the consequences of price inflation (higher food, rent and transportation costs).

The media, Washington and liberal activists never bring up the concept of expanding the money supply that aids Wall Street and Main Street and hurts the remainder of the country – this can be seen in the $85 billion bond-buying initiative that helps markets and investors but not some middle-class worker in Biloxi.

Income mobility

Media outlets enjoy putting up charts that shows a certain percentage of Americans are poor and that they remain that way for the rest of their life. However, what is not shown is that they are not absolute poor. This means that they may maintain a smaller share of national income but their absolute income is higher.

Snapshot data is dangerous because it creates emotional reactions without any real insight. For instance, the charts just compare rich people and poor people in one year and then the next and so on. What it does not show are households over time and to observe the bottom 20 percent and how they increased their incomes in the long run – the government even has data on this here.

In addition, the statistics include poor people who are students, young people entering the workforce, immigrants, etc. Of course they’re going to start poor but then with skills, education and experience they increase their net worth. In the end, individuals start off poor but then get richer over time.

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Comments

  1. The article is correct about income statistics being deceptive. It is net wealth over many years that counts.

    Between 1995 and 2010 the poorer half of the country gradually lost 70% of their net wealth. Half the population now has only 1% of the net wealth. Without a modest amount of wealth, families have been destroyed.

    The income numbers are bad but the wealth numbers are devastating.

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