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  • Income Inequality vs. Wealth Inequality

    Recently, the Congressional Budget Office (CBO) released its latest statistics on income inequality. Economists, bloggers and others have been furiously debating their implications. Over at the American Enterprise Institute, Jim Pethokoukis has been bludgeoned by various left-wing bloggers for pointing out that the story of growth of income inequality is much more complicated than the simple version spun by the CBO, and that there exists a considerable amount of evidence that income inequality hasn’t gotten worse since the ‘90s.

    His arguments can be read here, here and here.

    One point that gets overlooked, however, is that income is only a part of the issue, and not a very comprehensive measure of prosperity. Wealth sums an individual’s total command over resources, whereas income reflects only the resources acquired over a given period.  Thus wealth is a much broader and more meaningful measure of prosperity than income. It includes things such as financial and nonfinancial assets, including bank accounts, investments, houses, cars and debt.

    Alan Reynolds reminds readers that the left repeatedly cites income figures from a famous study by economist Emanuel Saez, which show that top earners’ share of income has increased. Yet the left never cites figures from another study by Saez on wealth inequality, which show that top earner’s share of wealth at the beginning of the 21st century is lower than it was in the early 1900s.

    In fact, in the opening pages of his study, Saez writes:

    Top wealth shares were very high at the beginning of the period but have been hit sharply by the Great Depression, the New Deal, and World War II shocks. Those shocks have had permanent effects. Following a decline in the 1970s, top wealth shares recovered in the early 1980s, but they are still much lower in 2000 than in the early decades of the century.

    Other wealth data confirm this:

     

    Chart showing that share of total wealth held by top one percent has decreased since 1922.

     

    It’s easy to get lost in the cacophony of numbers and statistics thrown around by all sides in the income inequality debate. Just remember that wealth concentration has declined among top earners, even according to the very economist the left generally cites to argue that income inequality has grown. That wealth data reflect a decline in concentration at the top over the past hundred years should indicate that reaching conclusions about inequality using income data is at best an incomplete assessment.

    Posted in Economics [slideshow_deploy]

    6 Responses to Income Inequality vs. Wealth Inequality

    1. Bobbie says:

      How about focusing on income inequality of the private sector vs. public sector? Including benefits…
      THIS is what is WRONG and needs correction! People working in government at any level shouldn't be paid or benefited more than the people obligated to pay them!! Especially if the private sector is (or was before government took it) providing the jobs to service without the help of government (tax paid services.) The consumers control the market place where the government can't control itself but wants to control both!

    2. Radarnav says:

      Another crucial statistic that is not mentioned or is used incorrectly is: During the late 90's and early 2000 years, the middle class grew smaller by 11%. Did they become poor because of conservative policies or economic hardship? NO! That 11% drop in the middle class was matched by a 11% growth in the upper/wealthy class. We need to shout this success from the rooftops!!!!

      The MSM and liberal pundits just report the reduction in the middle class. No one ever asks them, or tells them that this 11% became successful and wealthy. So, the wrong message is left on the American public.

      • Bobbie says:

        11% of growth in wealth is a good thing in America, Radarnav! it's not the growth of wealth, it's the growth and expense of that growth, of unconstitutional government overreach that's drowning our independent lives out!

    3. Steve Walser says:

      By any honest measure poverty among US citizens has disappeared from the US over the last 50 years. There is no proof that income inequality leads to slower growth and certainly a logical basis for believing it may actually increase growth rates.
      Why would we care that relative inequality grows so long as all income quintiles continue to see increased income and wealth and so long as none lack necessities due to poverty?

      • SickOfYourBS says:

        How completely ridiculous. Poverty has disappeared? None lack necessities due to poverty? I hope your comment can be attributed to sarcasm. If not, how can you be so pathetically out of touch with reality?

        • ernie says:

          Poverty will always exist as will the loser class always exist. The poor get poorer due to thier behaviour. The rich stay rich, and get richer, due to thier behaviour. stop the jealousy commie…

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