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Monday, June 06, 2005

Flawed analysis at the New York Times

Honest Partisan highlights a New York Times article on income inequality, with a predictable demand to tax the rich more. But the analysis in the article is horribly flawed.

Most importantly, you're looking at two groups of people. You can say that the average income of the top 0.1% increased from $1.2 million to $3 million from 1980 to 2002, but you're not saying that the group of people who were in the top 0.1% are now earning 250% more. People enter and leave economic groups all the time, the hallmark of a prosperous and free economy. But I will look at the data as presented.

From the article we see that in 1980, the top 0.1% had an average income of $1.2 million, which was 3.7% of the total. That means the other 99.9% had a total income of $31.2 million, about $31,200 on average. Now, in 2002, the top 1% had average income of $3 million, which was 7.4% of the total. If only they saw an increase in average income, they would be 8.8% of the total, so it is clear the real income of the other 99.9% also increased. It works out to a 20% increase, to $37.5 million in total, or $37,500 on average.

Without the source data, it's hard to estimate the average income for the 90% and the 90-99.9% groups.

Update: Mickey Kaus chimes in, making a few of the same points, but also pointing out that the rich get richer because the economy rewards them for their skills and hard work.

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