It appears Obama’s rhetoric is working, if you believe the recent New York Times/CBS News poll about income inequality. Among the poll’s findings:
The poll found that a strong majority say that wealth should be more evenly divided and that it is a problem that should be addressed urgently. Nearly six in 10 Americans said government should do more to reduce the gap between the rich and the poor…
The percentage of Americans who say everyone has a fair chance to get ahead in today’s economy has fallen 17 percentage points since early 2014. Six in 10 Americans now say that only a few people at the top have an opportunity to advance.
The notion of every individual’s fair shot at getting ahead is, of course, at the core of our American Dream, so it’s disheartening to see so many fellow citizens believe that the opportunity to advance lies only with “a few people at the top.”
But perhaps the most striking part of this is how quickly the tide is turning on this point under Obama’s reign — with the percentage of Americans who say everyone has a fair shake having fallen by 17% in just over a year. As the The New York Times suggests, this is teeing up to be a key election issue, both in the primary and beyond. With that in mind — and in the spirit of keeping our American Dream flourishing in the hearts and minds of Americans — it seems like a good time to make sure we’re all armed with the facts to combat the myths about income inequality.
Here we offer you the Cliff’s Notes version — your own pocket guide — to combating Four Myths of Income Inequality (originally published by Forbes.com):
1.) Myth #1: Income for the average family has stagnated over the past 30 years. (It’s actually grown significantly.)
While those who argue rising income inequality often claim that taxpayers’ median real income rose a mere 3.2 percent from 1979 to 2007, this statistic is actually misleading. In fact, adjusting for flaws in the original calculation (read more details here), Cornell University economist Richard Burkhauser found that real income for the average household actually increased by 36.7 percent — more than a third — over the past 30 years.
Forbes.com adds that this is consistent with other studies, including A CBO study of family income that found an increase almost twice that size for the average family — a 62 percent increase in real income. One study even found that inequality has actually declined in recent years.
2.) Myth No. 2: People at the bottom of the income ladder are there through no fault of their own. (Hint: income is directly related to work, generally speaking.)
Here’s a newsflash that is actually nothing new: lifestyle choices matter. As Forbes.com notes: Having children without a husband tends to make you poor. Not working makes you even poorer.
In a study for the National Center for Policy Analysis, David Henderson found that… families at the top tend to be married and both partners work. Families at the bottom often have only one adult in the household and that person either works part-time or not at all.
The average number of earners per family for the top group was 2.16, almost three times the 0.76 average for the bottom.
Henderson concludes: “…average families in the top group have many more weeks of work than those in the bottom.”
3.) Myth No. 3: Government transfer programs, like unemployment insurance, are an effective remedy. (Data show they can actually incent people to not work.)
Sure, government programs like unemployment can provide transitional assistance, but at the same time they tend to encourage people to remain dependent, rather than achieving self-sufficiency. And the loss of benefits as wage income rises acts as an additional “marginal tax” on labor.
University of Chicago economist Casey Mulligan, the leading authority on welfare programs and how they affect employment, wrote in The New York Times economics blog about the impact of this “marginal tax” rate on employment, which serves to erode the incentive to work. Long story short (more detail is here):
Mulligan estimates that up to half of the excess unemployment we have been experiencing is because of the generosity of food stamps, unemployment compensation and other transfer benefits.
No surprise to this audience, no doubt.
4.) Myth No 4: Raising the minimum wage is an effective remedy. (It actually affects relatively few who are actually poor.)
We’ve seen the idea of raising the minimum wage as a means of addressing income inequality gaining momentum under President Obama .
However, even without the anticipated negative impact on business — which in turn will affect job availability — economic literature shows that raising the minimum wage does almost nothing to lift people out of poverty.
A study that published in the Southern Economic Journal examined 28 states that increased their minimum wages between 2003 and 2007 and found:
“no evidence that minimum wage increases…lowered state poverty rates.” Part of the reason is that very few people earning the minimum wage are actually poor.
In fact, the study found that only 11.3 percent of the workers who would gain from the minimum wage increase were defined as poor, while a whopping 63.2 percent of workers who would gain are second or even third earners living in households with incomes equal to twice the poverty line or more!
So, arm yourself with these facts and prepare to uphold the truth that the principles upon which our American Dream are based remain sound. Instead of focusing on ill-informed tactics like raising the minimum wage, let’s remember the importance of encouraging the entrepreneurial spirit that creates more jobs for people to actually work.