…More revealing than any of these points of disagreement, however, are the ways in which the papers agree on how to define income. Take health-care benefits. Economists generally count both employer-sponsored health insurance and government programs such as Medicaid as income. In reality, people value these benefits far less than they would value the cash equivalent. 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.
Source: A Baffling Academic Feud Over Income Inequality – The Atlant
Consider the following thought experiment, proposed to me by the Nobel Prize–winning economist Angus Deaton: A private-equity fund buys up a bunch of hospitals and immediately raises prices across the board, increasing the cost of health care without changing its quality. According to your typical economist, everyone receiving that health care now has a higher income than they did before. Or, Deaton said, imagine the reverse: The United States, which has the highest per-person health-care costs in the developed world, embarks on a heroic effort to lower its costs to the same level as Switzerland, the second-highest spender, without compromising quality. If that happened, it would appear in the income data as if Americans, on average, had each lost nearly $9,000 a year.
This turns out to be not too far from how both inequality papers treat health-care spending. Over the same time period that poor Americans’ life expectancy stagnated and then declined, a massive boost in spending on Medicare, Medicaid, and employer-provided insurance has made it look as if those people have gotten significantly richer. If anything, both teams may be putting a thumb on the scale in favor of finding less inequality.
…Luckily, we don’t have to rely on one data source or statistical technique to know that inequality has risen. The Congressional Budget Office finds that from 1979 to 2014, the top one percent’s share of after-tax income went up 6 percent. The Fed’s Survey of Consumer Finances and a 2023 study using tax data find similarly large increases when it comes to wealth. Then there’s plain old common sense. In 1982, the year Forbes released its first-ever annual list of the 400 wealthiest Americans, the shipowner and real-estate tycoon Daniel Ludwig topped the list with a net worth of about $6 billion in today’s dollars. In 2023, the top three wealthiest individuals, Elon Musk, Jeff Bezos, and Larry Ellison, were worth $251 billion, $161 billion, and $158 billion, respectively. Inequality also manifests in ways that aren’t obviously economic: From 2001 to 2014, for example, the life expectancy of the wealthiest Americans rose by about three years—the equivalent of curing cancer—while the poorest experienced no gains. Perhaps only an economist could figure out a way to deny that the richest people are even richer than they used to be.
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