Wealth: What if the 1pc aren’t getting that much richer?

Already a subscriber?Everyone knows that inequality has got out of hand in the US. Thanks largely to the work of three now-famous economists –, Emmanuel Saez, and Gabriel Zucman – it’s probably one of the most widely accepted facts in modern American life. Since the early aughts, they have meticulously documented the rate at which the richest have pulled away from the rest.

Piketty, Saez, and Zucman assume that it’s the people who already report a lot of income: Think of the well-paid corporate executive who also stashes millions of dollars in an offshore account. Economists argue that the massive rise in income inequality since the 1960s is mostly a statistical illusion based on a series of methodological errors.When I called Slemrod to find out which side was citing his work correctly, even he wasn’t sure. The two camps, he told me, refer to different sections of the paper that seem to point in different directions.

The benefit of this approach is that nothing gets left out. The drawback is that, well, nothing gets left out. GDP measures the total production of an entire economy, so it includes all sorts of expenditures that don’t seem like income at all. The teams likewise disagree over how to treat government deficits, which, for methodological reasons, likewise need to be allocated to someone. Piketty, Saez, and Zucman, perhaps sensing the absurdity of the whole exercise, again take a distributionally neutral approach.

But even putting that aside, the way this supposed income is defined – by dividing the total cost of the program by the number of recipients – can make it appear as if people are getting richer when they clearly are not. Government statisticians imagine that you are renting out that house to yourself, calculate how much money you would reasonably be charging, and then count that as a form of income that you are, in essence, paying yourself.

Source: Financial Digest (financialdigest.net)

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