^{Democracy & Technology Blog} Reynolds on “inequality”

I had just last night finished reading Alan Reynolds’ spectacular new book Income and Wealth, and I wake up this morning to find that he’s written a great article about the “top 1%” in The Wall Street Journal.
Among other malignant myths, statistical slights-of-hand, dubious data, and conceptual quackery that Reynolds demolishes, he shows in the book that:
— Comparing the top and bottom household quintiles can be highly misleading because the top quintile has almost SIX TIMES more full-time, year-round workers than the bottom quintile. Some 56% of bottom-quintile households have no workers at all. As Reynolds says, “work matters.”
— Age matters. The median net worth of households headed by someone 45-54 years old is $144,700. And by someone 25 or younger? Just $14,200. Aren’t we usually describing the same people at different points in their lives?
— Tax law changes make useless or downright misleading many comparisons over the last several decades. Dramatically falling income and capital gains tax rates, combined with the major tax reform of ’86, mean that top earners report far more income as individuals that used to be reported as corporate earnings. At the same time, just the opposite is true for middle class workers as IRAs, 401(k)s, Keoughs, 529s and other tax deferred or tax exempt savings mechanisms have proliferated and thus shielded many trillions of dollars of income (both original labor income and build-up of income within accounts) from tax statements. There are more than $10 trillion in such plans, and in 2004 alone middle class savers contributed $172.5 billion. Top earners are mostly prevented from using these savings vehicles.
— Nevertheless, despite assertions of “stagnation” and the statistical and analytical mistakes so often cited in the newspapers, real compensation per hour is up 40% since 1973, and real per capita consumption is up from $11,000 in 1973 to $25,000 today.
These are just a few of the multitude of startling figures that Reynolds offers to obliterate completely the dismal discourses from Paul Krugman and the rest of the envy brigades.
-Bret Swanson
Update: Don Luskin, commenting on this great feat of economics, says, “I totally bow down before Alan Reynolds.”