In the current issue of Regulation (Winter 2023-2024), I review the book of Phil Gramm, Robert Ekelund, and John Early, The Myth of American Inequality, which I strongly recommend. My expectation for what is a double review (see pp. 53-57 in the pdf version of Regulation‘s review section) was that I would not find this book interesting. But an expectation is at best a hypothesis, to be refuted or confirmed. I explained:
As I prepared to read these two books, I had different expectations. I thought Branko Milanovic’s Capitalism, Alone would contain some interesting defenses of capitalism, while The Myth of American Inequality by Phil Gramm, Robert Ekelund, and John Early would offer an easy and perhaps banal defense of existing inequality. After all, what should I expect from a politician like the ex‐senator Gramm, even if he pursued some good policy ideas during and after Ronald Reagan’s presidency (when the Texan switched to the Republican side of the Senate aisle)?
To my surprise, I found Milanovic’s ideas rather banal and too uncritical of the zeitgeist of our times. Gramm et al., on the contrary, present deep and interesting statistical and economic analyses of the trumpeted inequality of American society.
More background on the authors of The Myth of American Inequality (you get no prize if you catch the annoying typo in the review):
The authors are three economists: Gramm, who at the beginning of his career taught economics at Texas A&M University; Ekelund, a professor emeritus at Auburn University who passed away as I was putting the finishing touches on this review; and Early, a mathematical economist and consultant who, interestingly, was once a legislative assistant of the late Democratic senator George McGovern.
The Myth of American Inequality provides strong evidence that the trumpeted official statistics (1) much exaggerate the growth of inequality in market income (income before taxes and transfers) in the half-century between 1967 and 2017; and (2) show a growth of income inequality after taxes and transfers that did not occur–not totally surprising since the welfare state exploded over that period. The authors prove their claims mainly with other official statistics that are not biased like some reports from the Census Bureau and the Bureau of Labor Statistics are.
It is difficult to summarize the book in a short post and I encourage you to read at least my review. If you are a “chiffrophile” (a neologism meaning “number lover,” used and probably invented by economist Angus Maddison to characterize himself) or are interested in the issue of inequality, you will want to read the book. Let me just give a few examples of the surprises waiting for you, as quoted from my review:
We observe that real wages increased not by 8.7 percent … but by 74 percent during that period [1967-2017]. And the real median household income nearly doubled, instead of increasing by the reported 33.5 percent.
Real earned incomes increased all over the distribution ladder.
If we recalculate the poverty rate by adding all the transfer payments (net of taxes) and using a proper price index, it falls to 1.1 percent in 2017 compared to the official rate of 12.3 percent.
A perverse consequence of the massive transfers to bottom‐quintile households has been to incentivize these people to decouple from the labor force. In 1967, in that quintile, those who had a job represented 68 percent of able‐bodied, working‐age individuals not studying full‐time. In 2017, after 50 years of War on Poverty programs, only 36 percent worked.
