Monday, March 21, 2016

Inequality is far lower than believed, and ...


There are two big problems with common measures of inequality: lifetime, vs. current and income vs. spending.

1.   LIFETIME VS. CURRENT: Suppose that young people earn very little, and old people earn a lot. If you take look at the distribution of income you will conclude that it is really unequal. SOLUTION: measure income over a lifetime.

2.  INCOME VS. SPENDING: Suppose that poor people pay lower taxes and get a bigger share of government spending. In this case, spending inequality will be much lower than income inequality. SOLUTION: measure spending inequality, over a lifetime.

 A recent article does just that, "We have been measuring inequality wrong,"
The facts revealed in our study should change views. Inequality, properly measured, is extremely high, but is far lower than generally believed. The reason is that our fiscal system, properly measured, is highly progressive. And, via our high marginal taxes, we are providing significant incentives to Americans to work less and earn less than they might otherwise. 
Finally, traditional static measures of inequality, fiscal progressivity and work disincentives that a) focus on immediate incomes and net taxes rather than lifetime spending and lifetime net taxes and b) lump the old together with the young create highly distorted pictures of all three issues.
HT: Marginal Revolution

2 comments:

  1. It’s obvious that low income is issue for just about everyone, we need to make sure we have secure way of earning, so we don’t feel much of pressure. I’m mainly doing Forex trading and that’s one of the greatest sources for me to make money, it only gets better with top notch company in OctaFX, it got pretty cool setup with low spreads from 0.2 pips, high leverage up to 1.500 while there is also smooth trading platform that makes work easier.

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  2. It's unfortunately that we have been told a different version of the truth, but the fact of the matter is that unless you have X level of education one should know that statistics are always manipulated to suit the needs of whoever is presenting the information. I think one of the main reasons as to why there’s a big inequality is due to the wide gap in income level. In addition to the wide gap in income level between the one percent and the rest of the population, there’s at least a couple of millions of Americans without any income. Marshall Auerback who has more than 20 years in the investment industry has argue that having a job should be a right not a privilege. Mr Auerback argues that bankers make millions a year without the bonuses while there are thousands or millions of unemployed citizens. While I agree with Auerback, he should provide more details as to what types of jobs should be provided to those that want to be employed otherwise low paying jobs that probably increase the inequality gap.

    Smith, D. (2013, February 20). A job should be a right, not a privilege! Retrieved March 27, 2016, from http://neweconomicperspectives.org/2013/02/a-job-should-be-a-right-not-a-privilege.html

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