Tuesday, December 13, 2011

Lies, Damned Lies, and Graphs used by Liberals

The left is currently excited about income inequality. To support their outrage, they show graphs such as this one which comes from the left-leaning Economic Policy Institute. It shows the share of wages received by the top 1% of earners:
After you recover from from shock at the unfair growth in income by the top 1%, notice that the above graph, as is typical of other examples, such as this, this, and this, begins at the year 1979. Why is that? If you guessed that the left chooses it because the 1970s was the historical low point for income reported by the rich, you would be right. Below is a plot, from Inequality.org, of the top-1%'s total pre-tax income, a more inclusive measure than the wage income plotted above. It covers the years 1913, when the income tax was introduced, through 2008:

Unlike the truncated graphs typically preferred by liberals, this one shows the income of top-1% has its ups and downs. Furthermore, the most recent data, for the year 2009, as reported by the NY Times (not included above), shows that the top-1%'s share of total income has dropped back to 17%. Contrary to the Occupy narrative, that number is certainly not high by historical standards.

Why is it that the income of the top-1% fluctuates so widely? One reason is that much of that income is related to stock markets and capital gains. That would be why there was a peak in the late 1990's (the dot-com boom) and in the late 1920's. Another factor is the income tax code. When marginal tax rates are high, tax shelters are popular and it is likely that much income is hidden. This would explain, for example, the long-term dip in income in the 1970s.

Whenever you see a graph purporting to show some trend, check whether it shows all the data available or just some period selected for its propaganda value.

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