The Realities of American Income Inequality

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The Realities of American Income Inequality

Every September, the U.S. Census Bureau releases its annual report titled “Income and Poverty in the United States.” This year’s edition contains lots updated data on household and family incomes, as well as household demographics through the end of 2017.

Armed with this data, let’s examine the most important trends and their implications. In the process we’ll answer several important questions including:

  • What’s really happening in terms of inequality and poverty?
  • What factors contribute to short-term and long-term inequality? And,
  • What sorts of policies are likely to make everyone’s lives better, especially those at the bottom of the pyramid?

A look at the data quickly shows that many of the well-worn talking-points simply don’t stand up to scrutiny.

For example, there’s the claim that “the typical American is making less than he or she did 40, 30 or 20 years ago.” To support that argument, critics typically cite stagnation in real median household income.

So, does the data support this argument? Consider the facts.

In the printable version of this month’s issue, we feature several charts which University of Michigan Professor Mark J. Perry prepared for his Carpe Diem blog. In the first chart we see that 2017 real median household income was $61,372, the highest level ever. That represented an increase of 1.8% from 2016, which was the fifth consecutive annual increase in real median household income since 2013. Notably that upward trend followed five consecutive declines, from 2008 to 2012, caused by the Great Recession.

The last period of four or more consecutive yearly gains in annual median household income was during the late 1990s. That period marked the end of the longest economic expansion in U.S. history; 120 months from March 1991 to March 2001.

Although it doesn’t get as much attention as median income because it’s influenced by outliers on the high-end, mean average household income also increased to a new record level last year of $86,220. That represents an increase of 1.5% from 2016 and the seventh consecutive annual increase for that metric, starting in 2011.

The problem was that it took until 2017 for the real median household income to exceed levels reached in 2000 and 2007. Part of the problem was slow economic growth during the Obama years...

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