Our country is making great economic progress in reversing the slow growth of the last two decades, but we will not reach our full potential until we fully release the death grip of bureaucracy and stop the creep of socialism. Remember that JAM Views' mission is to help us see through the fog of the media and special interests in order to more easily understand business and our economy. We are constantly bombarded with misinformation, and we, unfortunately, never have the time to stop and question all of the manipulative propaganda, especially when it comes to money. Hopefully these weekly Posts are a small step forward in increasing our understanding, or at least prompting us to ask more questions.
The latest revelation comes from a stunning economic report released by John Early, the former Assistant Commissioner of the Bureau of Labor Statistics. This report is also highlighted in a new book, "Freedom and Inequality," by former Senator Phil Gramm and Professor Robert Ekelund, Jr. of Auburn University. In this week's Post, I have attempted to relay these startling findings.
When we do our bills each weekend, we know that the family dramas don't necessarily have to do with the amount of income we earned this month, but more importantly with the difference, the delta, between what we earned and what we spent. Across our country, families have to juggle their "spendable income" - how much money they have left for food, clothes, rent, and maybe Johnny's braces.
Now for decades the politicians have been pounding the table about "income inequality," but Mr. Early's report shows us that for at least 60% of us Americans there is a stunning "income equality," regardless of how much we work or choose not to work. This zero-incentive structure is possibly why we are now seeing such a backlash against all of those previous re-distribution policies which, at first, sounded so fair.
To calculate spendable income, the high earners first get a large paycheck, then take out taxes and government payments, and finally work with what's left. Lower income individuals receive their work or government paycheck and then add the government additions such as Medicaid, food stamps, earned-income tax credit, and possibly 85 other payments to end up with their spendable income.
Now pay attention to these results from dividing our country's income earners into quintiles (20% segments). The bottom 20% earned just over 2% of the country's total income, but fortunately due to the transfer payments to them, they ended up with 13% of the country's spendable income (6x their income). The next 20% (low-middle-income Americans) earned 7% of the country's total income, but due to benefits ended up with 14% of the country's spendable income (2x their income). The third 20% (middle-income Americans) earned nearly 13% of the country's total income and ended up with just over 15% of the country's spendable income (1.2x income).
Of course to make the math work, the upper-middle-income Americans earned over 20% of the nation's income, but after taxes ended up with just over 18% of the spendable income. And, finally, the high-income Americans earned nearly 60% of the nation's income, but after taxes and transfer payments ended up with 39% of the spendable income.
Interestingly, we as a democratic society take great umbrage with the fact that the top quintile earns 26 times the income of the bottom quintile, but I would posit that 99% of Americans never understood that high earners only end up with 3 times the spendable income. This is because, again, no one has ever explained to us how these things really work. But, the facts flip the narrative even more when we address how hard middle class Americans work, and their understandable frustration with their results.
Even though low-middle-income earners worked over 2.5 times as much as the bottom 20%, they had virtually the same results. For example, if a bottom quintiler worked 20 hours per week and the second quintiler worked 50 hours per week, they ended up with the same money. Worse, middle income Americans worked over 4 times as much. They had to work 80 hours per week to have the same spendable income. This startling fact is confirmed by data showing middle income Americans had more than 7 times as many families with members working two or more jobs. Therefore, 60% of Americans have virtually the same standard of living in spite of shocking differences in effort and income. Also, thank goodness we have some high-income earners in this country in order to take care of all of the rest of us.
The facts are a little different than we've been told, are they not? Is it no wonder why hardworking Americans are so angry? I ask you to do your very best to see through the fog, to stop and think, to question everyone and everything. We can do so much better. We are fortunate to live in the greatest republic in the history of this planet, but stifling bureaucracies, large governments, and redistribution forces are natural progressions for successful empires, and unfortunately, normally the fuel for their demise. The answer is not to resent the bottom or not to resent the top, but to simply allow all Americans to have the incentives to achieve and then the ability to receive their own just rewards. ALL quintiles will prosper if we just get the math right. It is simple math.
"In a thousand years, archaeologists will dig up tanning beds and think we fried people as punishment." - Olivia Wilde