Lie, big lie, and increasing income inequality

Economists are not physicists. Most visible economists tend to manipulate data in a way to be more visible by obtaining politically biased results to please lay public. Income inequality is the hottest topic of 2013. Almost all economists focus on increasing income inequality as reported by the BEA. The top 1% snatch more and more money from poor working people. When taking a closer look, the BEA tells a different story, however. Figure 1 displays the cumulative increase in GDP, Gross Personal Income (GPI), and Compensation of employees (CE) since 1929. All curves are normalized to 1960, i.e. all cross 1 in 1960.  The most remarkable feature is that the GPI has been growing much faster than GDP since 1977 (by the way, the year of dramatic changes in income statistics).  Therefore, the share of personal income has been growing. This tendency is still on and one can expect further gains in personal income.

The share of labor money or compensation of employees in the GDP has not been changing much, however. The working population gets practically  the same share of GDP since 1929. So to say, the labor part of production is rock solid. And the capital part of production has been melting out since 1977. It is not a surprize that the increment in personal income obtained by the top 1% is extracted from the capital part of GDP or Gross Domestic Income, which this 1% ... owns anyway. Figure 2 gives some more details on the period since 1960.

The distribution of income reported by the Bureau of Labor Statistics proves that the CE (labor share) does not indicate any change in income inequality.

 

Krugman and Co actually complain that the capital part of GDP involved in production is consumed now by the top 1% in a greater proportion. But this is a different story absolutely not related to income inequality.

Figure 1 . The net increase in GDP, Gross Personal Income (GPI), and Compensation of employees (CE) since 1929. All curves are normalized to their respective values in 1960.

 

Figure 2. Same as in Figure 1 but since 1960.