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Myths About American Inequality | Podcast Highlights

Blog Post | Income & Inequality

Myths About American Inequality | Podcast Highlights

Chelsea Follett interviews John Early about popular misconceptions around inequality in the United States and the measurement errors behind them.

John Early —

Listen to the podcast or read the full transcript here. To see the slides that accompany the interview, watch the video on YouTube or the Spotify app.

So, let’s start with your book, The Myth of American Inequality: How Government Biases Policy Debate. Why is everything that most people think they know about income, inequality, poverty, and other measures of economic well-being in America dead wrong?

In some ways, this is perhaps a somewhat boring answer about facts, but that’s what makes it important; we have to get the facts straight. The numbers that people’s opinions are based on are not correct. There are various ways in which they aren’t, but two big ones.

The first is that when the US census measures income, it doesn’t count two-thirds of what are called transfer payments, or money that the government gives to people for not doing anything. In other words, a transfer payment is not what we pay civil servants or the military. Transfer payments are things like food stamps or Medicaid, which are also two examples of things that the census does not count. They also don’t count 88 percent of the transfer payments that go to people who are classified as poor. They don’t count Medicare for the senior population. They don’t count what is called Supplemental Security Income. They don’t count many state and local transfer payments to poor people. They count some housing subsidies, the so-called Section 8 subsidies, but they don’t count others.

When you add all the pieces up, two-thirds of the total amount of transfer payments aren’t counted. So that’s one big piece.

The other big piece is they don’t adjust for taxes. At the bottom end of the income scale, people pay about seven and a half percent of their income in taxes, mostly sales taxes and excise taxes. At the upper end of the income scale, people pay between 35 and 40 percent of their income in taxes, mostly income taxes. So, if you don’t adjust for those taxes, you end up with a very skewed view of the income distribution.

The census splits US households into five groups based on income. The bottom quintile has the least income, and the top quintile has the most. Using the official census definition of income, the ratio between the top and the bottom is 16.7 to 1, so the top quintile has 16.7 times more income than the bottom.

Now, the first thing we did was ask what income was missing. Well, the first thing we found that was missing was capital gains. Capital gains are not counted as income for reasons that aren’t clear. That, of course, is missing mostly from the top half of the income distribution. At the low end of the distribution, there’s all sorts of income misreporting. Not terribly large, but there is some, people just don’t report all their income. And in the middle, employer-paid benefits are missing. So, adding all that earned income data made the ratio between the top and bottom much bigger. The top quintile earns 60 times more income than the bottom quintile.

But we’re still missing two-thirds of the transfer payments. If we add all the transfer payments, the difference between the top and bottom drops to 5.7 to 1.

So that’s all the money coming in, but the census also ignores the money the government takes through taxes. If we compare after-tax income and after-transfer payment income, the difference drops to only 4 to 1.

So, we’ve gone from 16.7 to 1 to 4 to 1 after counting all the money. We didn’t have to redefine anything.

Let me hit a couple of other points here.

It’s not only that the difference between the top and the bottom became smaller after adding all the income data and accounting for taxes. The differences between the bottom, the next to the bottom, and the middle virtually disappear. The bottom 60 percent of Americans all have almost the same amount of income. Let me explain that a bit.

Income in the second quintile is only 8 percent larger than in the bottom quintile. And yet there are 2.8 times more people working in second quintile households. And when they work, they work 1.8 times more hours. They work nearly 40 hours, and people in the bottom quintile work less than 20. And in the middle quintile, there is 32 percent more income, but over three times more people are working, and they work more than twice as many hours. They put out a whole lot more effort and don’t get much more income.

Now, there’s another important wrinkle: adjusting households for size. Households in the bottom quintile tend to be single individuals, retired individuals, people who’ve just graduated from college, and so on. Households become larger as you go up the income scale. When you adjust for size, the bottom quintile actually receives 5 percent more income than the second quintile does. And only 7 percent less than the middle.

There’s also the issue of change over time. There’s something called the Gini coefficient. It’s a measure that’s set up so that at zero, you have perfect equality. Every household has the same income. And at 1, all the income is in one household. The census publishes this measure, and it has risen over the long term. When President Obama or Chuck Schumer says income inequality is awful and it’s getting worse, this is what they’re referring to. But they don’t count all the transfer payments, which have gone from being like 10 percent of our federal budget to 75 percent over time. If you count all the transfers and take away the taxes, the Gini coefficient has actually fallen.

There’s also the question of economic mobility. In a previous paper, you found that two-thirds of children reared in the lowest quintile at some point escape to a higher quintile as adults. I don’t think people realize just how economically mobile Americans are.

Your last point there is really important. Almost all income distribution data are a slice in time. So, the statement that “the poor are getting poorer and the rich are getting richer” is just wrong because these categories are not static: people who were poor ten years ago are rich today, and some previously rich folks have fallen into lower income levels. Now, there are studies that track the same people through time, and during one’s lifetime, you generally move up. Almost everyone’s income goes up, except for those who choose not to participate in the labor force. Although their income goes up too because we keep raising the transfer payments.

The same also applies to income groups. In 1967, the top quintile of households were those that made around $60,000 or more in 2017 dollars. The people in the bottom quintile made between zero and $15,000 in 2017 dollars. In 2017, 77 percent of the population was making incomes that would have placed them in the top quintile 50 years earlier. That’s inflation-adjusted. And fewer than 2 percent of the people in the bottom quintile in 2017 would have been in the bottom quintile 50 years ago. So, throughout the income distribution, we’re all a whole lot better off.

Now, are we better off than five years ago? Well, some of us are, and some of us aren’t, but the overwhelming majority of us are better off than our parents and grandparents were. Far better off.

What is another hopeful fact about the US economy right now that people may not be aware of?

If you measure it right, the share of Americans in poverty has dropped from about 14 percent back when the war on poverty began to 1.1 percent.

So, when Lyndon B. Johnson declared the war on poverty in 1964, the poverty rate had declined from over 30 percent in the 1940s and 50s to around 17 percent. Now, what happened after that? Well, poverty continued to decline at the same rate for another four or five years. Then, it stopped going down and started rising and falling with the business cycle.

Why do you suppose that happened?

Mismeasurement.

Exactly. We declared a war on poverty. We started giving people a lot of money, but we didn’t measure that money as income. And so, it bounced between 11 percent and 15 percent, back and forth, back and forth. It dropped below 11 percent last year, but it’s still in the same range. But if we count all the transfer payments, it’s only 2.5 percent. And if we correct for the CPI overstating inflation, poverty would be less than 2 percent.

So, poverty has virtually disappeared. The people in that 2 percent are people who are especially challenged, either mentally or physically, and they may need help. But most people who are called poor are simply getting lots of money from the government, and they’re not poor anymore.

Johnson had two objectives for the war on poverty. One was to alleviate the suffering of those who were poor, but the other was to enable them to become productive citizens. We completely failed at that one. Only one third of work-age adults in the bottom quintile have a job. Back when Johnson started the war on poverty, two-thirds of them did.

Why? The government’s paying them to do nothing. So, they do nothing.

Get John Early’s book, The Myth of American Inequality: How Government Biases Policy Debate, here.

World Bank | Income Inequality

High-Inequality Economies Have Declined by More Than One-Third

“A measure that captures prosperity should account for both the level of welfare and level of inequality. A measure that captures inequality, such as the Gini index, is an example of a measure of inclusivity. The World Bank reports the number of economies with high levels of inequality, defined as those with a Gini index greater than 40. Based on this, the number of economies with high inequality has declined by more than a third in the past three decades.”

From World Bank.

World Bank | Income & Inequality

Global Progress Lifts Six Nations Into Higher Income Classifications

“Since 1987, the global income classification landscape has changed significantly, with the share of economies classified as low-income declining from 30% to 11%. These shifts have not been evenly distributed, however, with some countries moving across income groups much faster than others. This year’s update to the World Bank Group Country Income Classifications shows six countries moved to a higher income category, but each has a different story to tell: a country emerging from economic crisis, an export powerhouse outpacing its peers, and an economy that turned out to be 10% larger than previously thought are just three of them…

This year, none of the countries assessed moved down. Five moved from lower-middle to upper-middle income: Jordan, Micronesia, the Philippines, Sri Lanka, and Viet Nam. One moved from low to lower-middle income: Togo. They reached the same thresholds through very different paths.”

From World Bank.

Blog Post | Income & Inequality

Was COVID Also an Inequality Pandemic?

COVID slowed but couldn’t stop the fall in global inequality.

Chelsea Follett —

Summary: Recent debates have framed global inequality as rapidly worsening, particularly in response to the COVID-19 pandemic. Evidence from the Inequality of Human Progress Index indicates that, despite temporary setbacks, long-term declines in inequality across multiple dimensions of wellbeing have largely persisted, with global disparities remaining well below 1990s levels.

Affordability fears, talk of a “K-shaped” economy, and claims of a new Gilded Age have pushed inequality to the center of today’s policy debates. Calls for a worldwide wealth tax and other unprecedented measures are not treated as radical but as inevitable—across academia, non-profits, the press, and international organizations, including the United Nations.

The COVID-19 pandemic seemed to clinch the case. As economies contracted and progress in poorer countries stalled, it was easy to assume that decades of convergence between developed and developing countries had come to an end. The authors of one Oxfam paper, for example, proclaimed during the pandemic that “unparalleled action [is] needed to combat unprecedented inequality in the wake of COVID-19.”

New research suggests a more nuanced reality. The updated Inequality of Human Progress Index assesses how the pandemic affected progress toward a more prosperous and equal world.

The pandemic clearly slowed improvement in global living standards and interrupted the pace at which countries were becoming more equal. It did not, however, cancel out the long-term, positive trends. Even under the strain of COVID-19, its attendant lockdowns, and other forceful policy responses, global inequality across key measures of well-being remained lower than it was a generation ago.

The index looks beyond income alone. It measures inequality across eight dimensions that shape everyday life, including lifespan, child survival, nutrition, education, internet access, environmental safety, income, and political freedom. The index, which I co-authored with George Mason University economist Vincent Geloso, seeks to offer a fuller view of gaps in global development, taking into account more aspects of human well-being than any prior index of inequality.

The data show a substantial decline in global inequality over the past three decades as rising prosperity allowed poor countries to narrow gaps with rich ones. That pattern held through 2019. During the pandemic years of 2020 and 2021, progress slowed sharply and, in some areas, stalled or modestly reversed. Yet the earlier gains were not erased.

This distinction is important. COVID-19 was a severe shock. Life expectancy fell worldwide. School closures disrupted education. Economic activity and international trade declined, with especially devastating effects on low-income countries. The index reflects these setbacks. Inequality stopped falling at its earlier pace and, in some measures, edged upward slightly after years of progress. Still, the overall level of global inequality remained far below where it stood in the 1990s.

In a few areas, improvement continued even during the crisis. Internet access expanded rapidly, especially in poorer countries, reducing inequality in access to information to its lowest level on record. Faster regulatory approvals amid the pandemic helped bring more people online. In Kenya, for example, Alphabet’s high-altitude internet balloons were finally cleared in 2020, allowing rural areas to gain internet access for the first time. The project had been stalled in regulatory review for nearly two years before the crisis prompted action.

Not all the data were encouraging. Inequality in political liberty ticked up during the pandemic as many countries took a turn toward greater authoritarianism. Even with the long-term shift toward electoral democracy intact, the setback shows the importance of protecting political liberty during emergencies.

For all the turmoil, the damage across different measures of well-being was thankfully limited.

These findings complicate popular claims that the world is experiencing a runaway increase in inequality. Calls for a global wealth tax, massive new aid commitments, or other significant expansions of state redistribution often rest on the premise that trade and free enterprise have failed to deliver shared gains. The data suggest otherwise.

If anything, the pandemic highlighted how sensitive progress can be to disruptions in markets. Countries with greater economic freedom generally proved more resilient. In contrast, prolonged lockdowns and restrictions often imposed heavy costs on poorer populations, particularly in countries where remote work and online schooling were not viable options for most people.

The broader lesson is that global convergence is neither automatic nor guaranteed, but instead depends on certain conditions such as undisturbed markets, even as long-term progress has proven more robust than critics often assume.

Mistaken narratives about global inequality have real consequences. They shape public opinion and influence policymakers to embrace sweeping interventions. A more accurate assessment of recent history suggests a need for caution.

COVID-19 tested the global economy in ways few events in modern history have. It slowed human progress and exposed vulnerabilities. At the same time, it demonstrated the durability of the long-term trend toward lower global inequality. Preserving and strengthening the policies and institutions that made that progress possible, including economic and political freedoms, remains a better bet than assuming they have already failed. The gains of recent decades have left the world both better off and more equal.

This article was published in the Orange County Register on 2/1/2026.

Demography | Personal Income

Generational Progress on Income Growth Continues in US

“Whether each generation of Americans continues to economically surpass the previous one has recently been called into question. We construct a posttax, posttransfer income measure from 1963 to 2023 based on the Current Population Survey Annual Social and Economic Supplement that allows us to consistently compare the economic well-being of five generations of Americans at ages 36–40. We find that Millennials had a real median household income that was 20% higher than that of the previous generation, a slowdown from the growth rate of the Silent Generation (36%) and Baby Boomers (26%), but similar to that of Generation X (16%). The slowdown for younger generations largely resulted from stalled growth in work hours among women. Progress for Millennials younger than 30 has also remained robust, though largely due to greater reliance on their parents. Additionally, lifetime income gains for younger generations far outweigh their higher educational costs.”

From Demography.