That Pesky Income Gap

For the December 28, 2006 episode (mp3) of Nightline, ABC News led off it's first story with the following introduction:

It was a record year on Wall Street. The DOW passed 12,000. Bonuses for a lucky few executives were stratospheric in the tens of millions of dollars. But it was also a year in which the gap between the haves and the have-nots grew to new heights.

(emphasis mine)

In addition to being extremely pretentious, the introduction's claim is flatly false.

Reporting on this "growing" gap between the "haves" and "have-nots" is nothing new. Back in 2000 CNN ran a story Income gap of richest and poorest widens for U.S. families. At least in 2000 CNN had the good sense to include criticism on the claim from Cato's Stephen Moore. Nightline simply presented it's claim as the Gospel-truth and moved into their main subject matter.

Nightline's lack of accuracy aside, the notion of what Virginia's Senator-elect Jim Webb called the "ever-widening divide" is a notion with no basis in reality.

In the past year, Cato's Alan Reynolds has written two excellent responses on the subject. First, back in March:

This year, even The Wall Street Journal's urge to be politically correct apparently overcame all caution about being statistically correct. The Journal imagined the Fed's report "found a widening gap between households at the top and the bottom of the economic ladder," because "the net worth of the typical family in the bottom 25 percent fell 1.5 percent." A correction the next day mentioned that net worth among the bottom 25 percent had increased by 41.7 percent. But facts won't keep true believers from believing in a widening gap.

Yes, that's right: net worth among the bottom 25 percent had increased by 41.7 percent. Gap or no gap, net worth growing by 40% doesn't warrant press filled with economic and social gloom and doom.

More recently, Reynolds wrote another excellent piece responding to Jim Webb's editorial:

As many others have done, Virginia's Democratic Senator-elect Jim Webb recently complained on this page of an "ever-widening divide" in America, claiming "the top 1% now takes in an astounding 16% of national income, up from 8% in 1980" ("Class Struggle" Nov. 15). Those same figures have been repeatedly echoed in all major newspapers, including this one. Yet the statement is clearly false. The top 1% of households never received anything remotely approaching 16% of personal income (national income includes corporate profits). The top 1% of tax returns accounted for 10.6% of personal income in 2004. But that number too is problematic.

...

Official and academic statistics [show] no clear trend toward increased inequality after 1988 in the distribution of disposable income, consumption, wages or wealth. The incessantly repeated claim that income inequality has widened dramatically over the past 20 years is founded entirely on these seriously flawed and greatly misunderstood estimates of the top 1%'s alleged share of something-or-other.

The politically correct yet factually incorrect claim that the top 1% earns 16% of personal income appears to fill a psychological rather than logical need. Some economists seem ready and willing to supply whatever is demanded. And there is an endless political demand for those able to fabricate problems for which higher taxes are, of course, the preferred solution. In Washington higher taxes are always the solution; only the problems change.

Certainly, some people make more than others. In some cases, a lot more. But if anyone tells you that this gap between the "haves" and the "have-nots" is growing — they simply don't know what they are talking about.