Income Inequality Hasn’t Changed in 25 Years

[Lord Zentei]

That you can't see that someone's total wealth can change without thier income changing is rather disturbing. Hint; there is thing called expendatures and tax liabilities. How changes in expendature affect income is a much murkier problem, and not one the gini coefficient measures.

Changes in expenditure affecting income... What are you talking about, and what does this have to do with income distribution?

The Gini coefficients assume every montary unit in the set has the same value. This is why it doesn't work between countries(as they have different offiical inflation rates) and as what is regarded as "income" has to be carefully controlled for as you will run into the 'fun' stuff of assigning a montary value to something which has been offset by future/past events or potential future/past events (which do need to be inflation adjusted for).

What are you talking about? Any measure of income inequality in a country describes the spread of income levels in that country. You are comparing the distribution of different sets independently, not the mutual distribution of different members of different sets.

The Soviet Union was measured to have relatively high income inequality: by some estimates, in the late 1970s, Gini coefficient of its urban population was as high as 0.38,[15] which is higher than many Western countries today. This number would not reflect those benefits received by Soviet citizens that were not monetized for measurement, which may include child care for children as young as two months, elementary, secondary and higher education, cradle-to-grave medical care, and heavily subsidized or provided housing. In this example, a more accurate comparison between the 1970s Soviet Union and Western countries may require one to assign monetary values to all benefits – a difficult task in the absence of free markets. Similar problems arise whenever a comparison between more liberalized economies and partially socialist economies is attempted. Benefits may take various and unexpected forms: for example, major oil producers such as Venezuela and Iran provide indirect benefits to its citizens by subsidizing the retail price of gasoline.

Oh, dear, a wiki link. Naturally we want to monetize transfer payments to calculate effective living standards. But what does this have to do with historic changes of income distribution in the USA?

[Lord Zentei]

For fuck's sake Destructinator. I know how economics works. My requirement for Xon was that he needed to show that this relation was relevant in the context of the topic of this thread. Incidentally, measures of income generally include transfer payments.

[Lord Zentei]

You're a lying sack of shit, and you need to lose your bad attitude. You specifically said "prove this claim", and "provide justification for such a sweeping claim" both when he specifically said income inequality is not necessarily wealth inequality, so put the goal posts down and just admit you don't understand even basic economics.

Wow, quite the bit of trolling. Or idiocy.

Here's the post again:

Also, it's quite easy for income inequality via gini coefficients to not change significantly despite a significant change in wealth inequality occuring.

So, where's the evidence? The best you came up with was this:

Wealth = time (Income + Assets - Taxes - Spending - Debt)

...or something like that... but good enough for this thread.

Rest assured that it is not.

[Xon]

Gini index for united states has moved by about no more than 7% since WW2 going by the chart posted in this very thread. This website has a reasonably well sourced table with wealth distribution, which shows spikes upto 34% increase in wealth distribution for the top 1%, with less than a 1% change in the gini index for the same time period (1955-1975-ish). Other figures show the mean income for majority of the population has been flat for most of that time period too.(usa census - doesn't go back to 1955, so only covers part of the period I've highlighted).

It isn't exactly an extraordinary claim that something which doesn't measure a variable is going to be unaffected by that unmeasured variable changing.

[Lord Zentei]

Apparently you aren't familiar with this site. Try reading the header some time:

"Get your fill of sci-fi, science, and mockery of stupid people"

You are stupid people. Deal with it.

So, in other words, you admit to trolling.

Also, it's quite easy for income inequality via gini coefficients to not change significantly despite a significant change in wealth inequality occuring.

So, where's the evidence? The best you came up with was this:

Do you actually have a counter argument, or are you just so stupid that you can't understand subtraction? I think you have bigger problems than your complete lack of knowledge of economics.

Go back to kindergarten, child. You might learn something.

In the event that it escapes you, when someone claims that it is "quite easy" for variable A to remain constant while variable B changes in a thread about historic trends of said variable, then it's not enough to show that one is merely a function of the other, rather than an identity. You have to actually show evidence that there's a history of A remaining constant while B changes. Notwithstanding that your formula is laughable.

Rest assured that it is not.

Prove this claim.

It's called DR5.

[Lord Zentei]

Gini index for united states has moved by about no more than 7% since WW2 going by the chart posted in this very thread. This website has a reasonably well sourced table with wealth distribution, which shows spikes upto 34% increase in wealth distribution for the top 1%, with less than a 1% change in the gini index for the same time period (1955-1975-ish). Other figures show the mean income for majority of the population has been flat for most of that time period too.(usa census - doesn't go back to 1955, so onlt covers part of the period I've highlighted).

It isn't exactly an extraordinary claim that something which doesn't measure a variable is going to be unaffected by that unmeasured variable changing.

Thank you.

Now, see Destructinator: this is how you do it.

EDIT: On further review - actually, the GINI index went up from 35 to 45 since the 1970s, and that's the interval where the highest differential in wealth inequality arises.

Code: Select all

Table 3: Share of wealth held by the Bottom 99% and Top 1% in the United States, 1922-2007.
	Bottom 99 percent	Top 1 percent
1922	63.3%	36.7%
1929	55.8%	44.2%
1933	66.7%	33.3%
1939	63.6%	36.4%
1945	70.2%	29.8%
1949	72.9%	27.1%
1953	68.8%	31.2%
1962	68.2%	31.8%
1965	65.6%	34.4%
1969	68.9%	31.1%
1972	70.9%	29.1%
1976	80.1%	19.9%
1979	79.5%	20.5%
1981	75.2%	24.8%
1983	69.1%	30.9%
1986	68.1%	31.9%
1989	64.3%	35.7%
1992	62.8%	37.2%
1995	61.5%	38.5%
1998	61.9%	38.1%
2001	66.6%	33.4%
2004	65.7%	34.3%
2007	65.4%	34.6%

Meanwhile the GINI index went up from 35 to 45 during the same period.

[Lord Zentei]

We are not talking about pure mathematics. We are talking about economics. More specifically, we're talking about historic trends in economics.

I'm still waiting for you to comply with debating rule #5. Even small children know you don't accumulate money that you spend. Why can't you grasp this?

So: you ignore my calls for DR5, and echo my demand. Just wow.

In case you genuinely don't get it and aren't a troll: when people invest money, they make more money. There's a correlation between income and wealth, and to claim that it is "quite easy" for one to rise when the other remains constant in a thread about historic trends, the onus of proof is on you.

[Lord Zentei]

Are you aware that variables in markets don't respond instantaneously to factors which influence them?

Way to cherry pick, asshole. Guess what, I can do that too!

Ah, so you're admitting to cherry picking then.

[Lord Zentei]

As for your own demand, tell you what: why don't you just download this paper and look at it:

http://econpapers.repec.org/paper/oecelsaab/65-en.htm

The Joint Distribution of Household Income and Wealth: Evidence from the Luxembourg Wealth Study

Markus Jantti, Eva M. Sierminska (esiermin@jhu.edu) and Tim Smeeding

No 65, OECD Social, Employment and Migration Working Papers from OECD Publishing

Abstract: This report looks at the extent to which household net worth and disposable income are correlated across individuals. After having briefly discussed the importance of better information on household wealth for social policies, the paper describes the main features of the Luxembourg Wealth Study – a collaborative project to assemble existing micro-data on household wealth into a coherent database that aims to do for wealth what the Luxembourg Income Study has achieved for income– and some of the basic patterns highlighted by these data, while noting the important methodological features that affect comparability. The main bulk of the report focuses on the joint distribution of income and wealth. While the comprehensive definition of wealth used (i.e. including business equity) allows covering only five OECD countries, the analysis uncovers a number of patterns. In particular, household net worth and disposable income are highly, but not perfectly correlated across people within each country. Many of the people classified as income poor do have some assets, although both the prevalence of holding and the amounts are clearly lower than among the general population. While part of the positive association between disposable income and net worth reflects observable characteristics of households, such as age and education of the household head, a sizeable correlation remains even after controlling for these characteristics.

Now, how about you address the DR5 demand I made to you earlier instead of trying to shift the burden of proof, fool?

[Number Theoretic]

The Big Wiki tells me that the Gini coefficient is defined as the ratio of two areas defined by the Lorentz curve for the case of ideal equality vs the Lorentz curve resulting from the actual wealth distribution (see figure):


The article about the Lorentz curve states that it is based on the cumulative income distribution function and therefore is monotonically increasing. Economics may not be my background but from what i know about probability theory, this makes sense to me, because a cumulative distribution function is always increasing.
Furthermore the article says that the curve is convex. Both of these properties suggest that the Lorentz curve is unique and therefore different income inequalities are always mapped to different curves and different Gini indices (although the difference might show only in the third or fourth decimal place or is even smaller). However, the reasoning that two entirely different areas can produce the same ratio is also perfectly plausible, which leaves me confused: Is the Gini coefficient unique or not?

[D.Turtle]

The Big Wiki tells me that the Gini coefficient is defined as the ratio of two areas defined by the Lorentz curve for the case of ideal equality vs the Lorentz curve resulting from the actual wealth distribution (see figure):

Careful: The Gini coefficient is defined as the ratio between the "ideal" Lorentz curve and the "actual" Lorentz curve from that same quantity. So, you can get a Gini coefficient for wealth, income before taxes, income after taxes, disposable income, and so on.

Just mentioning this, because you talk about wealth distribution, while your graph is labeled for income distribution (which is the "traditional" Gini coefficient). You probably know this, but a lot of the arguments have come about because of mixing these together and/or exchanging them.

The article about the Lorentz curve states that it is based on the cumulative income distribution function and therefore is monotonically increasing. Economics may not be my background but from what i know about probability theory, this makes sense to me, because a cumulative distribution function is always increasing.

This has nothing to do with economics or so, but arises through the construction of the Lorentz curve. To get the Lorentz curve, you start adding together all the income (for example) of people - starting with the lowest, and working your way up. This obviously means that the slope of the line can never decrease (it can stay the same when several people have the same income), as you can never add a smaller quantity than you have added before.

Furthermore the article says that the curve is convex.

This arises from the above property.

Both of these properties suggest that the Lorentz curve is unique and therefore different income inequalities are always mapped to different curves

Yes.

and different Gini indices (although the difference might show only in the third or fourth decimal place or is even smaller).

No.

However, the reasoning that two entirely different areas can produce the same ratio is also perfectly plausible, which leaves me confused: Is the Gini coefficient unique or not?

Yes, as you realized, two different areas can produce the same ratio:

Obviously very different curves and distributions, but they both enclose the same area, and would thus produce the same Gini coefficient.

[Number Theoretic]

Ah, thank you for that figure and clarification, D.Turtle. I somehow wasn't so sure if it were possible to create two different Lorentz curve ratios, given the uniqueness properties of a Lorentz curve, but clearly it is. I rest my case then.

[Plushie]

I thought this kind of thing was generally known, although not quite to the degree the righty pundit wants.

Income inequality amongst the bottom 99% or so hasn't changed much at all since the 90's. Even amongst the bottom 99.9% the change hasn't been quite as drastic as we usually think of changes in income equality in the last few decades being.

The real change has been at the very, very top. A relatively small group of people has done very well in the last 30 years. Their doing so well has distorted the whole picture in highly aggregated statistics like the GINI coefficient. The top 15,000 earners, the top .01%, went from earning 1% of all incomes in 1974 to 6% of all incomes in 2007. That's a 600% increase in their share of incomes over slightly more than 30 years. They've been getting wealthy faster than anyone else, including the rest of the top 1% (the top 1% earned about 8% of all incomes in 1974, so the top .01% earned about an eighth of the incomes for the whole class, while the top 1% earned about 18% of all incomes in 2007, so the top .01% earned a third of all incomes within the top 1%).

So yeah, outside this extremely small group of people, income inequality essentially hasn't changed all too much in the last couple decades.

[Patroklos]

I think its funny the second article attacks the first one for the years it chose to analyze, when the first articles point was that the CBO included 1979-1986 for no good reason. Why did the CBO chose 25 years instead of 40 or 15? They are both playing the same game, but in terms of describing what is actually happening now the Schmdt is more helpful.

I would like to see 2010/2011 included, I'd guess it would erase the decline in inequality from the early 2000s and show a more or less constant.

Damned Statistics!

[Simon_Jester]

I thought this kind of thing was generally known, although not quite to the degree the righty pundit wants.

Income inequality amongst the bottom 99% or so hasn't changed much at all since the 90's. Even amongst the bottom 99.9% the change hasn't been quite as drastic as we usually think of changes in income equality in the last few decades being.

The real change has been at the very, very top. A relatively small group of people has done very well in the last 30 years. Their doing so well has distorted the whole picture in highly aggregated statistics like the GINI coefficient. The top 15,000 earners, the top .01%, went from earning 1% of all incomes in 1974 to 6% of all incomes in 2007. That's a 600% increase in their share of incomes over slightly more than 30 years. They've been getting wealthy faster than anyone else, including the rest of the top 1% (the top 1% earned about 8% of all incomes in 1974, so the top .01% earned about an eighth of the incomes for the whole class, while the top 1% earned about 18% of all incomes in 2007, so the top .01% earned a third of all incomes within the top 1%).

So yeah, outside this extremely small group of people, income inequality essentially hasn't changed all too much in the last couple decades.

Correct me if I'm mistaken, but this creates a problem of shares- basically, if a certain extremely wealthy of the population is making 5% more of all income, that means (in relative terms) that the available money to be had by the rest is reduced by that 5%.

Suppose the top 1% goes from 8% to 18% of all income, and consider the effect on the remaining 99%. While the relative income relations between people in the 30th percentile and the 90th percentile may not change, they can still both see an across-the-board decline in the incomes of the 99%- because instead of dividing up 92% of the pie among themselves, they are now dividing 82% of it. Their relative income drops by a little over ten percent.

Since for people at around the median income, a decline in income translates pretty seamlessly into a decline in standard of living, there's a problem here. And the fact that the income inequality between 30th percentile and 90th percentile is not changing just means the problem affects more people- doctors and lawyers and other people traditionally thought of as 'upper middle class' are suffering from this too, though possibly to a lesser degree.

[madd0ct0r]

you assume zero net growth in wealth over that period.

[Simon_Jester]

you assume zero net growth in wealth over that period.

I am not conscious of such an assumption.

But unless wealth inequality holds constant throughout society (including the uppermost upper crust seen in Lifestyles of the Rich and Famous), we have the same issue with wealth if we chart wealth instead of income. A modest increase in the absolute percentage of wealth in the hands of a few people means a small decrease in the relative amount of wealth owned by everyone else- one which can become noticeable quite fast. Especially when people start flopping over the line from "positive net worth" to "negative net worth" because they're trying to maintain their old standard of living in an era when wealth is steadily trickling out of their hands.

[madd0ct0r]

...
Suppose the top 1% goes from 8% to 18% of all income, and consider the effect on the remaining 99%. While the relative income relations between people in the 30th percentile and the 90th percentile may not change, they can still both see an across-the-board decline in the incomes of the 99%- because instead of dividing up 92% of the pie among themselves, they are now dividing 82% of it. Their relative income drops by a little over ten percent.

Since for people at around the median income, a decline in income translates pretty seamlessly into a decline in standard of living, there's a problem here. And the fact that the income inequality between 30th percentile and 90th percentile is not changing just means the problem affects more people- doctors and lawyers and other people traditionally thought of as 'upper middle class' are suffering from this too, though possibly to a lesser degree.

it's between those two paragraphs. The first one you are talking about relative income, the second it becomes ' a decline in income'

a 'relative decline in income' would mean that the 30th and 90th percetile's incomes have declined relatively to the 99th. BUT in this scenario nothing has ACTUALLY declined, it's the 99th has suddenly gone up. That's the growth I'm talking about. Their relative income as dropped, but total income has risen enough to counterbalance it.
ie
Ignoring inflation, the 30th and 90th aren't any actually worse off then they were before, just relatively. The 99th are ACTUALLY much better off then they were before, as well as relatively.

the rich are getting richer, not the poor getting poorer. (in your example anyway )

[Simon_Jester]

it's between those two paragraphs. The first one you are talking about relative income, the second it becomes ' a decline in income'

a 'relative decline in income' would mean that the 30th and 90th percetile's incomes have declined relatively to the 99th. BUT in this scenario nothing has ACTUALLY declined, it's the 99th has suddenly gone up. That's the growth I'm talking about. Their relative income as dropped, but total income has risen enough to counterbalance it.
ie
Ignoring inflation, the 30th and 90th aren't any actually worse off then they were before, just relatively. The 99th are ACTUALLY much better off then they were before, as well as relatively.

the rich are getting richer, not the poor getting poorer. (in your example anyway )

The problem is that to make my example not work, you must assume not only wealth growth, but wealth growth fast enough to offset the increase in the share of that wealth held by the 1% (and the 0.01%). If they go from having 8% of the income to 18% of the income, the sum of everyone's income must rise by about 10-11% to compensate without some of that income showing up at the lower classes' expense.

The same thing goes for wealth. And while we might reasonably assume some level of economic growth, I don't think we can posit as a routine, universal condition that the economy will always grow fast enough to offset increasing income/wealth inequality. Which it has to, for your objection to be germane.

In the case of the US, couple that problem (is the US economy growing that fast?) with stagnating after-inflation wages for the lower and middle classes in the US- a well known fact- and the picture gets even worse. Stagnant real wages and increased income in the 1% suggest that all that increased wealth is being funneled into the hands of the upper class. Or that if the low and middle classes do enjoy increased wealth, it is being counterbalanced by debts that act as a lien on their future income and ability to continue to enjoy that wealth.

It gets even worse if we posit that the government is lowballing inflation statistics- compare the price of bread or gasoline or any other routine commodity (or health care, college tuition, et cetera) to what it was in 2002 and see if it matches the 25-30% increase in the Consumer Price Index. In that case we get declining income in real terms and the lower classes really are losing wealth- the total size of the pie is not expanding fast enough to compensate for the shrinking size of the thin slice held by each member of the working class.

Inflation hurts the rich too, but as far as quality of life and ability to achieve one's aspirations goes, the rich don't feel the pain from a 20% devaluation of the dollars in their bank account the way that the poor do. To Richard J. Butterworth III, that means fewer hyper-expensive vacations or smaller trust funds for the kids. To Joe Average, that means not being able to put the second (or the first) child through college at all without saddling the poor kid with a mountain of student loans.

[madd0ct0r]

Stagnant real wages and increased income in the 1% suggest that all that increased wealth is being funneled into the hands of the upper class.

that's what I said.

But your other points are correct - i didn't consider accumulating debt, nor a government lowballing inflation. hah!

And yes, the same percentage reduction in wealth (for whatever reason) will hurt the poor more then the wealthy. always.

I'm just waiting for someone who knows more economics to come and hit the two of us with a wet towel.