What Andrew Coyne Got Wrong About Income Inequality

09/04/2013 05:46 EDT | Updated 11/04/2013 05:12 EST

Andrew Coyne marshals an impressive range of statistics to make the case that rising income inequality is not a serious issue. A careful reading of his article shows that this is not the case.

As Coyne himself agrees, top incomes (incomes of the top 20%) rose much faster than those of middle and lower income groups for two of the last three decades. Things got worse over the 1980s and 1990s, and then there was a change, of sorts.

He is right that the 1980s and 1990s were decades of rising inequality due mainly to the deep recessions of the early 1980s and early 1990s which were followed by very slow recoveries. His charts also show that rising market income inequality during that period was also reflected in rising income inequality after the impact of taxes and transfers is taken into account. The equalizing role of the tax and transfer system became much less effective, as has been highlighted by the OECD and others.

It is a stretch for Coyne to argue that the last decade or so has been more typical than two of the past three decades, though he is right that low unemployment from the late 1990s made a big difference.

That said, Coyne fails to make an absolutely key point that clearly emerges from his own data.

What happened between the late 1990s and the Great Recession of 2008 was that income inequality arguably stabilized at higher levels. There was no reversal in the trend. The income share of the top 20%, both before and after taxes, stabilized or slightly increased, but did not decrease.

Meanwhile, the income share of the top 1% continued to increase significantly until 2008. It should be underlined that data on the income share of the top 1% -- based on tax returns -- is more accurate than data on the income of the top 20% which is based on household surveys. Surveys usually fail to capture the incomes of the very, very rich.

The key point is that good (or at least better) times for the economy from about 2000 to 2008 did not change the dismal trend of the previous two decades. A temporarily rising tide did not make incomes more equal than they had been, as used to be the case in years of recovery.

Coyne's best efforts notwithstanding, income inequality is very much an issue.

*See more from the Broadbent Institute

*This blog previously appeared on the Broadbent blog.

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