The Center on Budget and Policy Priorities in Washington spends a great deal of its time and effort trying to convince politicians and the public that the American Dream is faltering, the rich is gaining at the expense of the poor, and other trendy ideas from, say, 1933. In its latest missive, CBPP reports the findings of a paper in the Quarterly Journal of Economics that uses statistical estimates to gauge disparities in reported U.S. incomes all the way back to 1913. Naturally, the conclusion is that the share of ?national income? claimed by the top one percent of households is now at its post-war high. I thought the authors would go ahead and cite this portend as among the signs of the Apocalypse, but perhaps the End Times paper is next in the queue. (Not all economists read the data as tendentiously, by the way.)
Seriously, these analyses based on income reported to the Internal Revenue Service are fruits from a poisoned tree. Surely there is no need to explain why various individuals, rich and not-so-rich, may not fully report their true economic condition to the taxman. Other evidence persuasively suggests that measuring household consumption, not income, is the best way to gauge living standards and eliminate biases related to tax sheltering, the underground economy, temporary gains or losses, and other issues. And even that change is insufficient to depict the reality of daily life for most Americans, because the measurements inadequately capture non-wage forms of compensation such as health care and changes in the options and quality of the goods and services available to all but the very poorest of the poor.
The good news is that after decades of being subjected to the constant beating of the income-redistribution drum, Americans still prefer a more traditional rhythm. In polls, the vast majority continue to express satisfaction with their own economic condition, optimism about the future, and confidence that their children will have more economic choices and opportunities than they will.
But, yeah, Americans are upset about gas prices, no question about it.
