09/23/2019

More Evidence That Income Stagnation Is a Myth

A few weeks back, I wrote about a new study from the Congressional Budget Office (CBO). It convinced me that, although typical incomes are rising slowly, they are still rising and that, over long periods, the increases are significant. To cite one statistic from that column: Average inflation-adjusted household incomes for the middle fifth of Americans (by income) rose from $56,400 in 2000 to $64,700 in 2015. That’s a 15% gain.

What I didn’t know then was that the Urban Institute, a well-known think tank, was finishing a complementary report by economist Stephen J. Rose. The report, now available, compares various income estimates and reaches a similar conclusion: Most Americans have realized small annual increases that ultimately cumulated into meaningful gains.

The problem is to replace the simplistic conventional wisdom with this messy reality. It will be tough, because the status quo is more politically appealing. The story line is pointed: “The ultra-rich are destroying the middle class.”

. . . It was the Saez-Piketty analysis that suggested income stagnation for the masses, because — with the effect of taxes and transfers muted — the economy’s income gains seemed to flow disproportionally to the rich. A new study by Piketty, Saez and economist Gabriel Zucman qualifies this result. When the effect of taxes and many transfers were included, the top 10% didn’t capture all the gains. The median income jumped 33% from 1979 to 2014.

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