Two Must-Read Articles

First, a newsletter(pdf) from the Federal Reserve Bank of St. Louis, rethinking the static way that we typically talk about the income distribution in the United States:

The Census Bureau essentially ranks all households by household income and then divides this distribution of households into quintiles. The highest-ranked household in each quintile provides the upper income limit for each quintile. Comparing changes in these upper income limits over time for different quintiles reveals that the income of wealthier households has been growing faster than the income of poorer households, thus giving the impression of an increasing “income gap” or “shrinking middle class.”One big problem with inferring income inequality from the census income statistics is that the census statistics provide only a snapshot of income distribution in the U.S., at a single point in time. The statistics do not reflect the reality that income for many households changes over time—i.e., incomes are mobile. For most people, income increases over time as they move from their first, low-paying job in high school to a better-paying job later in their lives. Also, some people lose income over time because of business-cycle contractions, demotions, career changes, retirement, etc. The implication of changing individual incomes is that individual households do not remain in the same income quintiles over time.

. . .

Another problem with drawing inferences from the census statistics is that the statistics do not include the noncash resources received by lower-income households—resources transferred to the households—and the tax payments made by wealthier households to fund these transfers. Lower-income households annually receive tens of billions of dollars in subsidies for housing, food and medical care. None of these are considered income by the Census Bureau. Thus the resources available to lower income households are actually greater than is suggested by the income of those households as reported in the census data. At the same time, these noncash payments to lower-income households are funded with taxpayer dollars—mostly from wealthier households, since they pay a majority of overall taxes. One research report estimates that the share of total income earned by the lowest income quintile increases roughly 50 percent—whereas the share of total income earned by the highest income quintile drops roughly 7 percent—when transfer payments andtaxes are considered.

Second, a great piece from Henry Louis Gates -- yes, that Henry Louis Gates -- on the question of slave reparations in the United States:

Advocates of reparations for the descendants of those slaves generally ignore [the] untidy problem of the significant role that Africans played in the trade, choosing to believe the romanticized version that our ancestors were all kidnapped unawares by evil white men, like Kunta Kinte was in “Roots.” The truth, however, is much more complex: slavery was a business, highly organized and lucrative for European buyers and African sellers alike.