No, inequality isn't increasing

Published April 1, 2021

By John Hood

Every argument has three parts: definitions, premises, and logical reasoning. When conservatives and progressives disagree about a specific issue, each side often leaps to the conclusion that the other side is being illogical (or dishonest, or stupid).

In my experience, however, most disagreements don’t stem from faulty reasoning. We usually disagree because we don’t accept the same sets of facts. Or we define our terms in very different ways.

For example, are the incomes of North Carolinians and their counterparts in other states diverging in unfair and dangerous ways? Are the richer getting richer and the poor getting poorer — as the middle class disappears?

Most progressives say yes. Most conservatives say no. I’m in the latter camp, and have devoted hundreds of columns, many lengthy articles and monographs, and large swaths of my books to exploring the subject in some detail. It’s a technical debate, in part, having to do with alternative ways of measuring incomes, living standards, and price changes. But the core dispute is about whether government efforts to redistribute income ought to be fully counted in income comparisons.

I think the answer to that question is clearly yes. If government decides to address economic inequalities by supplying public housing or health care to low-income households, or giving them earned-income tax credits, not counting the value of those subsidies as income seem obviously silly to me. Such a measure no longer reflects the reality of people’s lives. It’s purely theoretical.

Unfortunately, that’s our current reality. The official government statistics you see on income inequality and poverty do not count those and other sources of income. That’s why they massively overstate both inequality and poverty.

Former U.S. Sen. Phil Gramm and former Bureau of Labor Statistics official John Early explained the consequences in a recent Wall Street Journal piece. According to the official U.S. Census Bureau measure, income inequality in the United State rose 21% from 1967 to 2017. But that measure excludes about two-thirds of what the government spends on transfer programs, expenditures that in turn flow overwhelmingly to lower-income people.

What happens if you add that income in? “Not only is income inequality in America not growing,” they wrote, “it is lower today than it was 50 years ago.”

As for poverty, of course there are still many people in North Carolina and elsewhere who have inadequate food, clothing, shelter, and health care. But official poverty measures that leave out public-assistance spending not only exaggerate the rate but also obscure the tremendous decline in poverty we’ve experienced over the past two generations.

According to analysis by Bruce Meyer of the University of Chicago and James Sullivan of Notre Dame, a corrected measure based on living standards (not reported cash income) shows that the poverty rate fell from 16.8% in 1972 to 2.8% in 2018.

If you find a 2.8% poverty rate implausible and would rather raise the income threshold for what classifies someone as “poor,” we can have that conversation. I may even agree with you. But remember that raising the threshold would change the endpoint in 2018, not the trendline. Whatever threshold we choose, the data would still show a massive decline in poverty since the early 1970s — a fact that neither progressives nor conservatives have adequately factored into their policy analysis.

Remember my original observation about the origins of political disagreement? Assuming it derives from the stupidity, dishonesty, or bad intent of your opponent is almost always mistaken and counterproductive. If you think the gap between rich and poor is soaring and I don’t, based on the fact that we’re looking at different measurements, we probably won’t be able to come up with a shared vision of what our economic policies should be.

Furthermore, upstream of facts lie definitions. When some use the term “equality” to describe the end of government, they mean equal treatment under the law. Others define it as radical egalitarianism. Building a bridge over such a yawning gap will always be an impossible feat of political engineering.

John Hood is a Carolina Journal columnist and author of the forthcoming novel Mountain Folk, a historical fantasy set during the American Revolution.