Income Inequality: Media Reports Mislead

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If these reporters had winning arguments, they wouldn’t resort to misleading their audiences.


ast week, I was briefly featured in one of the major networks’ Sunday morning news programs. The main thrust of the segment was the argument that Americans aren’t doing their fair share to help families who lost their jobs during the pandemic despite a recently published report by the Brookings Institute showing, “government policy effectively countered [the pandemic’s] effects on incomes, leading poverty to fall and low percentiles of income to rise across a range of demographic groups and geographies.”

It’s true Democrats and Republicans have been unable to reach an agreement to extend enhanced pandemic-related unemployment benefits. But which party gains politically from withholding aid prior to the upcoming presidential election? Surely the Democrats.

Arguments were made during the segment that played fast and loose with the facts; the claim, for example, that 38 million people live in poverty. But that’s only true if you exclude the nearly $1 trillion annually the government spends on welfare helping people under 65 years old. (We also spend nearly $1.5 trillion on Social Security and Medicare.) The number of people living in poverty after government assistance is less than a third of those who would be living in poverty were it not for this help .

In truth, America does a lot to help the poor. For perspective, a single mother with two children working full-time at the minimum wage would earn about $14,000 after tax. She would receive about $12,000 in cash and near-cash assistance bringing her disposable income above the poverty level. Her family would also receive $10,000 of Medicaid on average. If she were eligible, she would also receive about $12,000 of Section 8 housing allowance for a total after-tax income of about $48,000 — more than the median earnings of a full-time prime working-age male Hispanic worker.

I’m not suggesting it’s easy to be poor, or that the pandemic hasn’t crushed low-skilled employment. I’m saying the media, especially major news networks, have an obligation to give Americans honest perspectives.

Instead, the clear message throughout the segment was that inequality has reached its highest level in 50 years. But the Congressional Budget Office’s (CBO) latest measure of income inequality after taxes and transfers shows income inequality was lower in 2016 than it was in 2007. And CBO expects it to remain lower than 2007 through the farthest point of its forecast — 2021. Perhaps CBO’s 2016 estimate is out of date, but poverty has declined since 2016, even during the pandemic.

You would think from popular reports that inequality has soared, despite the fact that consumption inequality, the inequality that matters most, has barely risen since the 1960s. Pre-tax income inequality has risen, but, after taxes, it likely hasn’t risen nearly as much as Piketty and Saez’s highly politicized and often-cited pre-tax measures indicate. Unbeknown to most, the CBO estimates that the share of pre-tax wages earned by the top one percent and top ten percent have not risen since the late 1990s.

Nor does wealth inequality adjusted for the value of Social Security and Medicare that appears to have risen since the late 1980s according to a recent study by a frequent collaborator of famous liberal economist Larry Summers. It’s disingenuous to increasingly promise people Social Security and Medicare, and then, when they don’t save as much for retirement, lament their lack of wealth excluding the value of this income. The same is true of all income redistribution, which policymakers have increasingly given to the middle class. Measures of wealth inequality that ignore the value of these enormous expenditures are misleading.

As if the rich were benefiting from the pandemic at everyone else’s expense, on the show, it was claimed that the net worth of America’s 600 billionaires has risen 20 percent during the crisis. That’s only true if you misleadingly ignore the fact that the S&P 500 lost a third of its value when investors first digested the impact of the pandemic before the stock market recovered the value it initially lost.

Who will America ultimately tax to pay for the trillions of dollars the government has redistributed during the pandemic? Keynes argued that borrowing, consuming, and reemploying unused capital and workers in a recession, when they would otherwise sit idle and deplete their savings, helps to preserve the tax base. With the pandemic shutting down the economy, we cannot borrow and reemploy much of the closed domestic capacity, restaurant capacity for example. We largely borrowed offshore “Chinese” production that restaurant workers would have consumed if they had been employed. This soothes the pain of unemployed workers — an important objective. But it does little, if anything, to preserve America’s tax base. It bolsters China’s economy, and leaves America owing offshore producers payments that must be made from a diminished tax base. It surely is not the case that Americans — rich or poor — are richer now than they would have been without the pandemic.

Unfortunately, supposedly unbiased reporters, editors, and producers have political agendas. If they had winning arguments, they wouldn’t resort to misleading their audience. Rather than misleading its viewers, you would think networks would feel a moral obligation to inform their audience so they could be more effective citizens and voters. Sadly, you would be wrong.

Ed Conard is an American Enterprise Institute adjunct fellow, a former Bain Capital partner, the author of The Upside of Inequality: How Good Intentions Undermine the Middle Class and a contributor to Oxford University Press’ United States Income, Wealth, Consumption, and Inequality.

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