Senator Bernie Sanders recently published an op-ed in the Huffington Post where he makes numerous claims about the economy. In typical leftist political theater, his narratives are either grossly misrepresented or outright lies, nor does he include a single citation for his wild claims.
From “stagnant middle class” and “income inequality” to “child poverty” and “evil corporations”, his analysis employs one step thinking and over-generalization to draw incomplete conclusions. I will directly address some of his specific claims.
Income inequality is one of today’s most popular economic myths derived from the misconception that wealth and income are fixed pies. Sanders makes the usual claim of the “1%” having a disproportionate amount of both.
Economic inequality is largely overstated through aggregate statistics, nor is there a connection between inequality levels and overall economic well-being.
In a paper for Columbia University, economists Emmanuel Saez and Wojciech Kopczuk analyzed wealth shares from 1916 to 2000 using more inclusive and exact definitions of income and wealth. They found that “there has been a sharp reduction in wealth concentration throughout the 20th century”. Around the 1920s, the top 1% held about 40% of wealth, but that has remained about 20% in the last few decades. Saez, who worked with Thomas Piketty at one point, postulates that, in 2004, the top 1% held about 18% of total wealth, which is a historic low.
Robert Haig and Henry Simons developed the Haig-Simon metric. Their measurement includes: wages/salaries, transfer payments (such as employer insurance), gifts of inheritance, income in-kind, and net increases in the real value of assets.
In a 2013 paper, economists found that Haigs-Simon is an attractive standard for calculating wealth and income because of its inclusive definition. By employing Haigs-Simon, observed growth of income inequality within tax brackets is dramatically reduced.
Based on the inclusive metric, top income shares have not significantly increased in the last 20 years, and most income growth has been in the bottom 80% of earners. Also, by incorporating accrued capital gains and not just IRS-realized capital gains, economic inequality quickly dissipates.
Leftists such as Sanders often cite the Gini Coefficient, which is the measure of a country’s inequality. The United States ranks next to African countries, while egalitarian Norway ranks next to Afghanistan. The Gini Coefficient might measure inequality to a degree, but, if anything, it proves that income inequality is not associated with economic well-being.
Bernie Sanders must not care to read further. Instead, he bases his claim off incomplete data by adjusting the CPI for inflation, which overstates it, and then excludes fringe benefits, which have doubled since 1970. Why would you when pandering to the base is more profitable?
“Income inequality” is expectedly followed by claims of a “shrinking middle class”. In reality, however, the middle class has “shrunk” upwards to higher incomes.
According to Census Bureau data compiled by the American Enterprise Institution, 61% of families qualified as middle-class income in 1967. They define “middle class” as $25K to $75K per family per year. In the same year, upper-income families, or over $75K, only made up about 16% of families.
Fast forward to 2009 and things have dramatically changed. We have 43% of families in middle class incomes and 38% of families in the upper class. It’s also worth mentioning that lower incomes declined from 22.8% to 17% in that same time period.
A well-respected paper published by NBER further illustrates the increasing wealth and income going to the middle class. According to their findings: “using our broadest measure of available resources – post-tax, post-transfer size-adjusted household income – median income growth of individual Americans improved to 36.7% from 1979 to 2007”.
In other words, by expanding the definition of “income” and “wealth”, much like in the Haig-Simon metric, the narrative changes dramatically. Such a narrative, however, doesn’t make for vote-inducing rhetoric.
Sanders also claims that alongside the “decline of middle class”, there has been a decline in overall economic mobility. Nothing could be further from the truth.