‘The Myth of American Inequality’ Review: Believe Your Eyes, Not the Statistics

Charles W. Calomiris:

According to Mark Twain, “It ain’t what you don’t know that gets you into trouble. It’s what you know that ain’t so.” “The Myth of American Inequality,” by Phil Gramm, Robert Ekelund and John Early, quotes that wisdom, then offers 250 pages of analysis proving it.

Before reading the book, you should ask a few questions to test the authors’ hypothesis that misleading government statistics have led many Americans to misperceive the prevalence of poverty, the degree of inequality, and the changes in these measures in recent decades. Has the average standard of living grown substantially since the 1960s? Has inequality shrunk over that period? Did post-1960 redistributive policies reduce the percentage of families living in poverty?

Media commentators and politicians seem to believe that little progress has been made in raising average American living standards since the 1960s; that poverty has not been substantially reduced over the period; that the median household’s standard of living has not increased in recent years and inequality is currently high and rising (“a truth universally acknowledged,” according to the Economist magazine in 2020).

The authors—a former chairman of the Senate banking committee, a professor of economics at Auburn University and a former economist at the Bureau for Labor Statistics—show that these beliefs are false. Average living standards have improved dramatically. Real income of the bottom quintile, the authors write, grew more than 681% from 1967 to 2017. The percentage of people living in poverty fell from 32% in 1947 to 15% in 1967 to only 1.1% in 2017. Opportunities created by economic growth, and government-sponsored social programs funded by that growth, produced broadly shared prosperity: 94% of households in 2017 would have been at least as well off as the top quintile in 1967. Bottom-quintile households enjoy the same living standards as middle-quintile households, and on a per capita basis the bottom quintile has a 3% higher income. Top-quintile households receive income equal to roughly four times the bottom (and only 2.2 times the lowest on a per capita basis), not the 16.7 proportion popularly reported.