In the debate over “fairness,” my statist friends mistakenly see the economy as a fixed pie. This leads them to claim that rich people are rich because poor people are poor.
But there’s no data to support this position (other than in kleptocracies such as Venezuela where a ruling socialist elite steals wealth).
For evidence, they cite data showing that incomes have been mostly flat over the past 30-40 years for poor people and middle-class people, particularly when compared to the rich.
But there’s a big problem with their data. They look at income levels in some past year and then they compare that data with income levels in a recent year.
But, as I wrote back in 2015, this means they are comparing apples and oranges.
There is considerable income mobility in the United States, which means today’s rich and today’s poor won’t necessarily be tomorrow’s rich and tomorrow’s poor.
I don’t necessarily expect people to automatically believe me. So if you’re one of the skeptics, watch this video from Russ Roberts. It is almost eight minutes and it is filled with rigor and data, but it’s worth watching since it masterfully demonstrates that lower-income and middle-class households actually enjoy larger gains than rich households.
As Russ says, you have to follow the same people over time if you want legitimate analysis.
And he shares lots of data showing that the rich actually have smaller-than-average gains in income over time.
It’s also worthwhile to investigate what happens with families over time. What we find is that children from poor households are more likely to exceed their parents’ income than children from rich households.
P.S. The above video is a great addition to John Stossel’s recent video.