The Myth of American Inequality summary

The United States is a nation divided by rising inequality. Poverty is back, and it’s snapping at the heels of America’s once-affluent middle classes. For most citizens, this is an age of stagnating wages and belt-tightening. For a tiny class of plutocrats at the top, it’s a bonanza. 

So goes the new common sense anyway. That consensus spans the political spectrum. Self-declared socialist senator Bernie Sanders says inequality in America is nothing less than “obscene.” For the staunchly anti-socialist Economist magazine, meanwhile, it’s a “universally acknowledged truth” that inequality is on the rise in the United States. When left and right butt heads, it’s over the question of whether or not this is a bad thing – or if anything can be done about it. That it is rising is established fact. We all know it. 

Well, as Mark Twain once said (or is reported to have said anyway), what you don’t know can’t get you in nearly as much trouble as “what you know that ain’t so.” 

The authors of The Myth of American Inequality argue that pretty much everything we think we know about income inequality and poverty in the United States falls into that latter category. Americans should debate these topics, they say – such discussions are vitally important in democracies. But productive conversations happen when participants have a solid grasp of the facts. Today’s debates generate more heat than light because they are based on widely held assumptions that are false. That, in a nutshell, is the argument you’ll be hearing in this Blink. 

Before we get to busting myths, though, let’s take a moment to define some terms. First off? Inequality and poverty. 

These two concepts are often conflated, but they’re not the same. We can all be equally poor on $5,000 a year or equally rich on $5 million a year. We can be poor and unequal – a society in which the poorest households earned $5,000 and the richest earned $10,000 a year would fit the bill. But it’s also possible to have income inequality without poverty. Most people would likely be content to live in an unequal society in which no one earned less than $250,000 a year, no matter what the plutocrats in the top 1 or 0.1 percent took home.

The difference is worth bearing in mind as we’ll be making two distinct but related claims. First, poverty has declined so sharply in the United States that no more than 3 percent of all Americans can be said to be poor. Second, there is a gap between bottom and top earners, but there isn’t a sharp divide between rich and poor. Some 97 percent of Americans are well-off by historical and global standards. Yes, the wealthiest Americans earn more, but the gap isn’t anywhere near as large as many people assume. 

This brings us to our next term: income. What is income – or, more precisely, how does the United States government define it? Income can be lots of things. It can be earnings – wages, salaries, or money earned from self-employment. It can be returns on investments – think interest, dividends, and rent. It can also be pensions, child support, alimony, and regular contributions from family members or friends who don’t live in your household. That’s not the full list, but that’s the bulk of the cash entering households which Uncle Sam classifies as income.

The United States Census Bureau sorts households into five income brackets called quintiles. It begins with the bottom 20 percent of earners. Then the second quintile is from 20 to 40 percent, the third is from 40 to 60 percent, and so on. Official figures paint a damning picture of widespread poverty and steep income inequality in contemporary America. Take just a couple of eye-catching numbers from 2017. According to the Bureau, the average annual income of a household in the lowest bracket was $4,908. In the same year, the average household in the top quintile had an annual income of $295,904. 

Those are staggering figures. But there’s a well-known saying: there are lies, damned lies, and statistics. As we’ll soon see, official statistics wildly overestimate the extent of both income inequality and poverty in America.