Three readers, who asked to remain anonymous, sent critiques of the recent mailing by Gramm and Early on Income Inequality. Their critiques seem to devastate the central point that the two were making, that income inequality is considerably less than estimated by the U.S. Census Bureau.
Important Critiques of Phil Gram on Inequality
"This analysis is useful but does it refer only to “earned income,” or “total income?” I can’t really tell for sure from the narrative but the chart clearly shows the former. If so, I think it misses the real point: earned income represents a tiny portion of what the rich receive and doesn’t even matter to them. For example, my after-tax earned income is probably less than 10% of what I receive. And that is because I choose to work. If I chose not to work, earned income would represent 0% of my income. Many rich choose not to work, to my knowledge. And for the real rich who choose to work, such as Buffet and Bezos, I would guess their earned income represents less than 1% of what they take home, if that, or totally negligible?"
"Phil Gramm is a notorious foe of Federal spending on the poor. There is some irony that he is claiming that income inequality is mitigated by such spending since he spent his career as a representative and senator from Texas in trying to reduce it. His numbers also need some scrutiny. I believe that he is assuming all those in the lower quartile receive Medicaid benefits and he probably attributes about $25,000 a year to those benefits, benefits which almost everyone in the top quartile get through their employers on a tax advantaged basis. If you assume (as I do) that adequate health care should be a basic service provided by the government like schools and clean streets, and then subtract $25,000 from the post benefit calculation for the poor, the ratio of the top quartile to the bottom is closer to 10 to 1. Regardless it is preposterous to claim that if the bottom quartile has a disposable income of $4908 per year and the top quartile has disposable income of $295,000 that America doesn’t have an inequality problem.”
"1) I think the results about negative effects of inequality typically hold whether gross or net income is used. . .
2) They are perhaps a little disingenuous in focussing on quintiles - the top 1% and 0.1% are most problematic
3) I’m just starting Branko Milanovic’s book on “Capitalism, Alone,"which seems to emphasize the point that it is wealth inequality that matters much more. The inequality there is much greater. But we need more evidence on which type of inequality matters most to what."