Your neighbor's fancy car should make you feel better about income inequality.

Author:Nye, John V.C.
 
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TODAY WHILE I was out running errands in my 5-year-old Honda Accord, I passed a Tesla. If I were a different kind of guy, seeing Elon Musk's latest creation whisk past me as I trundled along in my middleclassmobile might have inspired a sense of personal envy, or even some worry about the social implications of inequality in America.

But I'm an economist. And let's face it: In practical terms, the difference between a $200,000 Tesla and my last car, a beat-up minivan worth $2,000 at trade-in, is not all that large. They're both safe forms of transportation that get you from point A to point B and, given legal limits and the reality of suburban traffic, most of the time they're driven at roughly the same speeds.

In that sense, measures of income inequality overstate the differences within a developed country like the United States. The products available to the masses are, in many cases, nearly as good as those available only to the elite. Your garbageman's old Timex and your podiatrist's brand new Rolex serve almost precisely the same function.

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It wasn't always so. A century ago, a hungry rich person had access to significantly more food and more choices than a poor one. Yet even bluebloods would have been able to get their hands on less variety and quality than one now finds at an average Mid-western all-you-can-eat buffet.

When Herbert Hoover promised "a chicken in every pot" in the election of 1928, it was the sort of pledge that no one expected a politician to actually keep. Today, each American consumes an average of 27 chickens a year, and obesity is a bigger problem than hunger.

The chasm between the very rich and the median citizen yawns wider the further back you look. Three centuries ago, an aristocrat riding in a cushioned carriage would have looked down at a peasant trudging barefoot through the muck--a much more substantial difference than the Honda-Tesla gap today.

So why the 21st century panic about the gap between the rich and poor? At first glance, the numbers do look damning. Median family income has grown by about 20 percent since the 1970s, while income for those in the top 5 percent of households has grown by 75 percent or more, according to the Center for Budget and Policy Priorities. Economists Thomas Piketty and Emmanuel Saez looked at IRS data and concluded that the share of total pre-tax, pre-transfer income going to the top 1 percent has risen to levels not seen since the 1920s. That suggests an increase, not a decrease, in inequality.

But appearances can be deceiving. As the Brookings economist Gary Burtless has pointed out, if you account for transfers such as government housing assistance and employer-provided health insurance, "Americans in the bottom one-fifth of the distribution saw their real net incomes climb by almost 50 percent" since the late 1970s, while "those in the middle fifth of the distribution saw their incomes grow 36 percent." It's worth remembering that anytime someone says the gap between rich and poor is increasing, what he usually means is that rich people are getting richer/aster than poor people are getting richer--not that any group is becoming worse off overall.

Meanwhile, the difference between the lived experiences of Americans at different income levels has actually been decreasing. Changes in the quality of goods...

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