Analysis at the "Political Calculations" blog suggesting that income inequality has been flat for decades has been making the rounds, including with Mark Perry and Don Boudreaux. I'm no inequality expert, but I wanted to make few points that I think are getting lost in sharing this around.
1. First, the basic analysis is right that household formation patterns are very important for understanding different measures of inequality. This is widely acknowledged.
2. But, what I think people are missing is that there are a lot of ways of measuring inequality besides the Gini coefficient. The Gini coefficient aggregates changes across the entire income distribution, which is a very important property! But it doesn't necessarily give you a good measure of what's going on at different points in the distribution. Most people who talk about inequality have been referring to what's going on at the upper end of the income distribution. Gini coefficients are fine, but don't use a Gini coefficient to try to refute a completely different claim.
3. I am taking the result at face value for the time being because I haven't crunched the numbers myself and they come right from the Census Bureau! But, we should be careful. They come from the CPS, which top-codes income, and of course we know that the biggest changes in inequality have come at the top of the income distribution. As recent Economic Policy Institute analysis has shown, this is even true of wage income. They use Social Security data which I assume does not top-code like the CPS data. So would the Gini coefficient hold as steady if better data were used? Maybe, maybe not. You just have to know what you're dealing with when you pass this stuff around.
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