This morning’s page-one Wall Street Journal story on incomes in America contains many bungled facts and concepts in a single sentence, giving a false impression about income distribution in America.
The piece follows the curious look at the fortunes of the rich published August 20 by The New York Times, which examined the anomalous case of one man who blew his fortune and, like the Journal, speculated on data that does not yet exist to conclude that “over the last two years, they have become poorer…. Just how much poorer the rich will become remains unclear.”
These reports display a puzzling sympathy for the best-off in America, part of a trend that I believe has helped cost newspapers readers—identifying with the concerns of the comfortable, often without context about the woes of the afflicted.
Both papers left out significant news about how much the incomes of a very few soared and how tens of millions have been getting by for decades with virtually no increase in their incomes. The bottom 90 percent of Americans, for example, earned incomes in 2007 that were 1.7 percent less than in 2000, the equivalent of working fifty-two weeks but getting paid for only fifty-one, facts not mentioned in either newspaper, while the top 1 percent during the same period saw their incomes rise 12 percent. The average increase alone was $145,300, which is more than four times the average income of each taxpayer in the bottom 90 percent.
In its “Beyond the Bubble” series this morning, the Journal relies on the annual analysis of Internal Revenue Service data by two economists renowned for their work on income trends, reporting with qualification:
Mr. Saez and other economists expect income going to the top 1% of taxpayers — currently, those with about $400,000 a year — will drop to somewhere between 15% and 19% of all income by 2010.
There are so many confused concepts here that the mind reels.
First, that $400,000 figure was just the threshold for being in the top 1 percent in 2007. The average income in that group that year was more than three times as much—$1,364,500.
That’s nearly a million bucks more than the number the Journal uses. That is not just some kind of detail.
While the highest income is not known, the hedge fund manager John Paulson made $3.7 billion that year, according to Institutional Investor’s Alpha magazine, while two other hedge-fund managers made about $3 billion each and two others earned a billion each. At least 151 executives and others were paid wages of $50 million or more that year, tax data show, collectively earning at least $7.5 billion and probably much more.
To be sure, the story attributes the data to Emmanuel Saez of the University of California at Berkeley and “other economists,” but the Journal quotes them as Gospel.
And the Journal’s use of the verb “will” suggests a crystal ball that neither the professors nor reporters Bob Davis and Robert Frank possess, which is why our language has other verb tenses and words, like “are expected to be” or “predicted to be.” This use of absolutes seems to be part of a trend in the Journal in the past few months, where a lack of care in verb tense along with unattributed statements of debatable “facts” is growing.
Problems with the thesis of the Journal story—that incomes at the top are falling back—are betrayed by the use of the word “currently,” because the $400,000 figure comes from two years ago. If, as the story posits, incomes at the top are falling back, then the threshold for the top 1 percent is not “currently” about $400,000, but instead somewhere in the mid-to-low $300,000s.
To be accurate the Journal piece should have said “…income going to the top 1% of taxpayers – those making more than $400,000 in 2007…”
It may seem a quibble, but an accurate use of the fact would have alerted readers to the speculative nature of the story’s entire premise.
And what about the part that says, “economists expect income going to the top 1% of taxpayers — currently, those with about $400,000 a year — will drop to somewhere between 15% and 19% of all income by 2010.”
First of all that’s a heckuva wide range. Second, if the fall is to the top of the range that “economist expect,” it would be far less severe than from 2000 to 2002, when the stock market also swooned. The top 1 percent’s share of total income dropped from 21.5 percent to 16.9 percent then, a 21 percent decline. If the 2007 number, 23.5 percent, drops to the higher end of the “expected” 15 percent to 19 percent range, it would be even less than that 21 percent previous drop—and it’s guesswork anyway. (UPDATE: See editor’s note below.)
Besides, the earlier drop was hardly permanent. Why should this one be? Readers would have benefited from some context.
Unmentioned in the Journal (See editor’s note below) is the fact that at the very top, the top tenth of one percent, incomes and income shares tend to rise and fall with the stock market. The best-off 0.1 percent of taxpayers had a whopping 12.8 percent of all income in 2007 (the best off 0.01 percent—14,988 families—had 6 percent), up from 10.9 percent in 2000, the end of the previous economic expansion, and more than the income share of the entire bottom half of taxpayers, according to IRS data not cited in either newspaper.
Given the severe drop in the stock market since 2007, and the other economic losses, the rich may fare worse than in the last recession. If, however, enough bets were placed on falling asset prices, then the losses would be mitigated and there might even be gains, at least among the top hundredth of one percent. The fact is we do not know, we can only speculate.
But why speculate? Why not instead do what newspapers are supposed to do: report the data we have, instead of largely ignoring them?
Editor’s Note added 9/11/09 at 3:43 p.m.:
Due to an editing error, in the paragraph (starting, “First of all that’s a heckuva wide range”) comparing drops in the rich’s share of total income after stock market crashes, an earlier version mistakenly compared the rich’s actual average income in one period to its average income share in the other. That’s now fixed to compare income shares in both periods.
Also, an earlier version of the story said neither the Times nor the Journal mentioned the correlation of rich people’s incomes to the stock market. In fact, the Times did mention it, including here:
One of the starkest patterns in the data on inequality is the extent to which the incomes of the very rich are tied to the stock market. They have risen most rapidly during the biggest bull markets: in the 1920s and the 20 years starting in 1987.
Also, while we say both papers left out significant information, and they did, particularly about the recent and stunning decline in non-rich people’s actual incomes, the Times did include a graphic with useful information about their shrinking income share compared to the rich.