There’s a lot of talk about income inequality these days. We bemoan the increasing wealth of the top 1% and say things like “the rich just keep getting richer.” But how much truth is there to the rhetoric surrounding this issue?
Less than you may think. This topic, like so many other politically popular and emotionally charged topics, is full of logical fallacies and rhetorical tricks that distort what’s really going on.
One of the most prevalent and pernicious of these fallacies is the way we speak about “the rich” and “the poor” as if they’re a fixed group of people. When politicians like Bernie Sanders talk about how the top 1% continue to get richer, the assumption is that a small, elite group of people are getting wealthier at the expense of everyone else. In reality, the top 1% is a rather transient group of people in which many who were in it the previous year fall out of it the next year, and many who have never been in it before become a part of it.
In his book Skin in the Game, mathematical statistician Nassim Taleb presents statistics on income mobility in the United States which say that “39% of Americans will spend a year in the top 5% of the income distribution, 56% will find themselves in the top 10%, and 73% will spend a year in the top 20%.”
In other words, a majority of people in America will spend some time in the top 10%, and if you consider the top 10% of earners “the rich,” those who criticize them for being too wealthy are not criticizing a small group of people that stay there their entire lives but people who probably haven’t been there for long and who probably won’t be there for very long. Thomas Sowell makes the case that this is even more true for the so-called “ultra-rich.”
“The turnover rate among people in the highest income brackets is even greater than that of the population in general. Fewer than half of those Americans who were in the much-discussed ‘top one percent’ in income in 1996 were still there in 2005. Although people in that bracket have been referred to as ‘the best-off one in one hundred,’ that is true only as of a given instant. Over the course of a lifetime, the proportion of people in that bracket is one in nine, since 11 percent of Americans are in that bracket at some point in their lives. People initially in the one-hundredth of one percent had an even faster turnover, and those with the 400 highest incomes in the country turned over fastest of all.”
A similar case can be made for the lowest income brackets.
“A University of Michigan study that followed a given set of working Americans from 1975 to 1991 found that 95 percent of the people initially in the bottom 20 percent were no longer there at the end of that period. Moreover, 29 percent of those initially in the bottom quintile rose all the way to the top quintile, while only 5 percent still remained in the bottom 20 percent.
Since 5 percent of 20 percent is one percent, only one percent of the total population sampled constituted “the poor” throughout the years studied. Statements about how the income of “the poor” fared during those years would apply only to that one percent of people.”
The statistics on the shockingly large number of people who will spend time in the top income brackets and the surprisingly low number of people who will spend a significant amount of time stuck in the bottom income brackets completely undermines many of the popular narratives about wealth inequality in America. There is no set group of people called “the rich” who are getting richer and there is no set group of people called “the poor” who are worse off than ever before. These are categories in which people freely come and go far more often than we’d like to admit.
Exaggerating or distorting the extent of the problem around income inequality does not help those who are less fortunate. Instead, by misdiagnosing the problem, we ensure that the prescribed solution will be ineffectual. But politicians like Bernie Sanders do not have a vested interest in accurately describing issues. They much prefer to rile up the emotions of young ideologues—getting them to trade rational thought for moral indignation.
The perpetuation of faulty reasoning, unsound argumentation, and rhetorical misdirection around these issues must be continually called out if real progress is to be made.