Utter Nonsense About America's Inequality
In an otherwise decent article about the children of the super-rich who dissipate their inheritances, we read this:
This is the most gilded age since the Gilded Age, with 5 percent of American households controlling 63 percent of the country's wealth. Decades of stagnant income growth for the middle class contrasts with family dynasties such as the Waltons of Wal-Mart, wealthier than the poorest 40 percent of households combined. Some $59 trillion--the largest intergenerational transfer of wealth in U.S. history--will flow down from estates through 2061, according to Boston College's Center on Wealth and Philanthropy.
The author is a well-meaning, middle-class fellow trying to keep his job in an industry that is going belly-up. He reads some report by tenured economists at Boston College, and he swallows it hook, line, and sinker.
I have never read an article that is critical of today's inequality that offers any statistics about inequality a century ago.
At the end of the 19th century, Vilfredo Pareto did studies of wealth in Western Europe. He found that 80% of the wealth was controlled by 20% of the people.
Since then, statistics like these have been discovered, not just in studies of income distribution, but in the distribution of all institutions.
No one knows why.
So, our author says that we are living in an era of increasing inequality. He read a report that says so.
So, in my Ed McMahon imitation: "How bad is it?"
Answer: 5 percent of American households controlling 63 percent of the country's wealth.
It sounds bad.
Actually, it sounds normal. Well, not quite normal. It sounds a bit too egalitarian.
The Pareto distribution is a power curve. It keeps its shape. So, if 20% of the population owns 80% of the wealth, then 4% (.20 x 20%) of the people own 64% (.80 x 80%) of the wealth.
Wait a minute. In the USA today, 5% (more than 4%) own 63% (less than 64%) of the wealth. If the figures are correct, the USA has moved slightly toward a more equal distribution.
The poor guy who wrote the article was suckered by the authors of the report, who also have never heard of Pareto's law. Jesus had a phrase for this: the blind leading the blind into the ditch.
These people simply do not know what they are talking about. They are ignorant of the basics: Pareto's distribution. They are ignorant of economic history. Yet they keep writing their articles, and the news media -- desperate for copy at all times -- keep publishing them.
And so it goes, breathless report after breathless report. The supply is never-ending.
Nothing changes, of course -- not opinions, not policies, not Pareto's curve, and not the supply of ignorant analysts. But the journalists keep their jobs for another month.