Economists grinding ideological axes and their media shills have portrayed the U.S. economy as a caste system where people are locked firmly in place in the income distribution. They have used income averages for each quintile, derived from data designed to overestimate the income of the rich and to underestimate the income of the poor, to say the rich are getting richer while the poor are getting poorer.
This phony portrait of the 1980s is blamed on "Reagan-era greed."MIT's Paul Krugman and Sylvia Nasar of the New York Times have been the most egregious purveyors of this disinformation. Their activities are indebted to the Congressional Budget Office, which has constructed a faulty set of statistics that it mislabels "real family income."
In recent columns I have reported the flaws in the CBO's data and its dubious manipulation by others. Now the U.S. Treasury Department has weighed in against the disinformation.
Prodded by questions from Rep. Richard Armey of Texas, the ranking Republican on the Joint Economic Committee of Congress, the Treasury's Office of Tax Analysis has released its study of income mobility. The study proves that even if the claims of Krugman and his ilk were true, the claims would be meaningless. The reason is the extremely high rate of income mobility in the U.S. The poor and rich will always be with us, but they are not the same people from year to year.
The poor move up over time, and the rich fall off their high peaks.
The Treasury study tracked the incomes of a sample of 14,351 taxpayers distributed between the five income quintiles and the top 1 percent of income earners for the years 1979-1988. The study found dramatic upward mobility in the lower income quintiles and downward mobility at the top.
For example, by 1988 85.8 percent of the individuals who made up the poorest 20 percent of taxpayers in 1979 had moved up. Of these people, 20.7 percent had moved up one quintile, 25 percent had moved up two quintiles to the middle 20 percent of taxpayers, 25.3 percent had moved up three quintiles to the second richest category, and 14.4 percent had moved to the top, or richest, quintile. A few - 0.3 percent - had even managed to climb from the bottom 20 percent to the top 1 percent of the income distribution.
The same upward ladder characterizes the progress of the second poorest quintile, with only 29 percent of the individuals in this category staying in place over the 10 years.
Of the middle 20 percent, 33 percent stayed in place, 47.3 percent moved up, again with some reaching the top 1 percent, while 14 percent dropped down one quintile and 5.7 percent fell to the bottom quintile.
Of those who began in the fourth quintile, 37.5 percent remained in place, while 35.4 percent moved up and 27.2 percent moved down.
American liberals, left-wing ideologues and misinformed journalists have long pretended that tax policy is the major factor determining the distribution of income. They have justified high progressive tax rates in order to equalize the income distribution. The Treasury study shows this belief to be pure poppycock.
The Reagan tax cuts, like the Kennedy tax cut in 1964, engineered a long economic expansion that created new opportunities for people to improve their position. Simultaneously, the more dynamic economy increased the challenge to those at the top and made it harder to hold established ground.
A dynamic economy works to the disadvantage of vested interests - which is why special interests have worked overtime to discredit the Reagan era with such disinformation as "the rich got richer and the poor got poorer" when, in fact, the exact opposite happened.
(Paul Craig Roberts is the William E. Simon professor of political economy at the Center for Strategic & International Studies in Washington and is a former assistant secretary of the U.S. Treasury.)