Everybody is richer but American income inequality rose sharply

July 31, 2012

Free Market Foundation

The U.S. Census Bureau says median household income in America has risen to its highest level ever, and the poverty rate has declined to its lowest level since 1979. But there has also been a sharp rise in income inequality during the Clinton years.

The fact is that since 1992, the share of total household income of the bottom 80 percent of households has fallen. Every income quintile (20 percent) now has a smaller slice of the income pie than it did then (see figure http://www.ncpa.org/pd/gif/pd100200a.gif ).

The bottom quintile those with incomes below $17,196 fell from 3.8 percent to 3.6 percent; the second quintile ($17,196 to $32,000) fell from 9.4 percent to 8.9 percent; the third quintile ($32,000 to $50,520) fell from 15.8 percent to 14.9 percent; and those in the fourth quintile ($50,520 to $79,375) fell from 24.2 percent to 23.2 percent.

By contrast, the top quintile’s share of total income has risen from 46.9 percent in 1992 to 49.4 percent in 1999 more than during the comparable period under President Reagan.

The top 5 percent of households saw their income share rise even more, from 18.6 percent to 21.5 percent over the same period.

The 2.9 percent rise in the share of the latter group compares with a 2.4 percent rise between 1980 and 1987.

No group is worse off in absolute terms because the average real income of every quintile rose last year over 1998 and is well above the 1992 level. This means that standards of living have risen even for those whose share of total income has fallen.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, October 2, 2000.

For text http://www.ncpa.org/oped/bartlett.html

For more on Inequality and Income Distribution
http://www.ncpa.org/pd/economy/econ7.html

RSA Note:
As the American economist Walter Williams is fond of saying, If you can choose some place to be poor, the place to do it is in the U.S.A.. Interestingly enough, the biggest inequalities occur in the countries that have the least economic freedom, and America is one of the freest. As poverty is relative, Williams is certainly correct, and a substantial percentage of the South African population would not mind earning something under the measly R120,000 that is the cut-off point for the poorest 20 per cent of the American population. The late Mr KAH Adams did a great deal of research on income inequality and his research showed that the most rapid economic growth is found in countries that have great income inequality but maintain the rule of law and therefore an equitable economic environment. This implies that there should be no legislative measures that give preferential treatment to some sector of the population.

Eustace Davie, director, Free Market Foundation.