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01 / 05
US Incomes Climbed Last Year, Census Bureau Says

Wall Street Journal | Household Income

US Incomes Climbed Last Year, Census Bureau Says

“Household incomes rose last year for the first time since the Covid-19 pandemic began, reflecting the effects of easing inflation and a strong job market.

The new data from the U.S. Census Bureau on Tuesday signaled an improvement in 2023 after inflation that spiked to a 40-year-high the prior year swallowed up household income gains.

Inflation-adjusted median household income was $80,610 in 2023, up 4% from the 2022 estimate of $77,540, the bureau said in its annual report card on households’ financial well-being. This move returned incomes to about where they were in 2019, the peak that was hit just before the pandemic.”

From Wall Street Journal.

Blog Post | Income Inequality

The Rise of Wealth Equality in the West | Podcast Highlights

Chelsea Follett interviews Daniel Waldenström about the decline of wealth inequality in the western world.

Read the full transcript or listen to the podcast here.

Your book, Richer and More Equal: A New History of Wealth in the West, reveals a surprisingly upbeat story: ordinary citizens in the Western world are now richer and more equal than before. Tell me about that and why the prevailing narrative of increasing inequality seems to be overstated or wrong.

One key aspect to this question is how we interpret economic outcomes in society. How do we interpret wealth creation? How do we interpret entrepreneurs creating new firms that make profits and build enormous fortunes? Is that something positive or a problem for society?

My view is that within a democratic market economy, I see very few problems with having such value-creating activities. Of course, that is different in autocratic countries. We have examples of oligarchs in Eastern Europe that have become rich through theft or dictatorships in developing countries where people gain wealth through political connections. But within democratic market economies, value-creating activities generally improve human well-being. Whether you’re a worker or a tax collector, everything begins with value creation in the private sector. People start firms, hire people, and pay wages and taxes. So, when some people become very successful at this, I think that is inherently positive.

This view contrasts with that of some of my research colleagues, who see rich people as a problem.

I departed from that view, and I challenged that view using data. The previous narrative argued that equalization—the reduction in inequality during the 20th century—was mainly due to the destruction of the capital of the rich, either through war or taxes. My data show that the main force that has created equality over the 20th century is lifting the bottom, allowing normal people to save and build wealth. And that equalization goes hand in hand with value creation and capital accumulation. So, equalization doesn’t rely on the destruction of capital but on the creation of capital.

You discuss the changing nature of wealth and how it has increasingly moved into housing and pension funds. Tell me about this shift.

So, there are different kinds of assets that we can own. We can own a house, stocks, bank deposits, bonds, land, or a summer cottage. This differs across households, but when we add up all the households in the economy and analyze the aggregate composition, we see that the wealth stock in all the rich nations has transformed profoundly.

One hundred years ago, most wealth was stuff that the rich people owned: things like industrial corporations and large agricultural domains. The stuff that the middle-class or workers owned, like houses and their long-term savings, composed just a fourth of all assets. But during the 20th century, we started establishing structures and institutions that made people more engaged in the economy. We saw educational reforms allowing more people to get better trained. We had better rules in the labor market with structures for working hours and so on. And all of that made workers more productive. So, they had a safer work environment, and they were better trained. And then, therefore, they got better paid. That allowed them to start saving privately. And the first thing they started saving in was housing.

We saw during the middle of the 20th century a virtual explosion in homeownership, going from 20 to 30 percent of the population to maybe 60 to 70 percent. Alongside this development, people started living longer—way past retirement age. And what did that imply? Well, they started to save for retirement.

These two kinds of assets, housing wealth and pension funds, have grown in importance and value over time. Today, they have become the most important part of total private wealth in all Western societies. Maybe 75 to 80 percent of all wealth is in housing or long-term savings. Wealth has transformed from being mainly composed of the stuff that the elite own to being mainly composed of stuff that regular people own, and that explains why we have a much more equal society in terms of wealth ownership today.

Part two of the book shifts the focus to the distribution of wealth over the past 130 years or so in various Western nations. What did you find?

So, over the last 20 years, we’ve built comparable, longitudinal wealth inequality series for several countries. How do you do this? How do we measure wealth inequality? It’s difficult. But mainly, we use data on the holdings of those with wealth, the rich people. We rank all households from the poorest to the richest and then look at the richest ten percent. Then, we divide the sum of their wealth by the total wealth in the economy. And we can also do this for the top 1 percent. So, we have data on the top wealth shares over the entire 20th century up to today: around 130 years of comparable wealth inequality trends.

And what they say is quite clear: we are much more equal today than in the past. In the European countries, the richest tenth of society once held around 90 percent of all wealth. That share has been halved over the 20th century. The first fascinating thing is that this great wealth equalization occurred in all Western countries, even the US, over the 20th century up to the 1970s and ’80s. That kind of consistency is very interesting.

Then, in recent decades, if you continue from 1980 onwards, one of the most surprising facts is that in the European countries, wealth inequality has not increased since the 1980s. It’s been hovering around the same historically low level that they landed on in the 1970s. And this is in spite of the fact that wealth values have increased tremendously around the Western world. Housing has become more expensive; stock markets have boomed. We are richer today than we were in 1980, and yet, in Europe, wealth inequality has not increased. The reason is that most of the wealth that has increased in value is held by the middle class or the ordinary people. So, they’ve been lifted up by these asset price increases and the positive economic developments.

In the US, there has been an increase in wealth concentration. In the US, the wealth holdings of middle-class households have increased in value a lot, but the wealth of the top groups has increased even faster. Mind you, even in the US, there hasn’t been much of a wealth concentration increase since 2010. Over the last 10 to 15 years, US wealth concentration has been relatively stable.

Yet, even in the US, you note that inequality is lower than pre-war levels. What explains this pattern of inequality?

We can see that mechanically, the main explanation for the long equalization during the 20th century is that we’ve been lifting the bottom. We’ve been expanding wealth ownership and wealth growth in the lower parts of the wealth distribution, and the lower parts have experienced higher wealth growth than the top.

The reasons why we’ve seen this are, to a large extent, institutional. Political and economic institutions expanded opportunities, allowing people to get educated, gain access to the labor market, and take loans for starting enterprises. Basically, entering the economic market and possibly succeeding. So, as I said before, capital destruction or taxing the rich has been relatively unimportant to wealth inequality change.

Then, of course, taxes matter, and they can prevent people from wanting to invest and so on. We’ve seen examples of that in the economic histories of all of these Western countries. But, mind you, much of the growth of government that we’ve seen over the 20th century has actually been built by increasing labor taxes. So workers have borne the biggest burden of increased taxation, meaning that their opportunity to save privately is what has been prevented the most by tax increases.

You go into greater detail in the book about the different kinds of wealth, including offshore wealth, to public sector wealth, and inheritance. Tell me about all of these things.

The concept of wealth is a little bit complicated if we compare it to, for example, income. So, income from labor is quite clear in its definition, whereas wealth is the stock value of assets that need to be defined and valued. One complication is that some wealth is held offshore. Of course, this wealth should be part of people’s portfolios and the standard wealth measurement. The problem is that some offshore wealth is hidden for tax reasons. There is research trying to measure the size of those hidden assets, and the main conclusion is it doesn’t change much. On the aggregate, when it comes to measuring wealth inequality, it doesn’t change a lot. And it does not change the historical developments at all.

You also mentioned social security wealth. When we get sick, we get an income, or when we retire, we have a pension. Some of that is then based on our savings, but some is also based on promises from employers or, most of the time, from the state. You can think about those future pension incomes as wealth because you would need to save more money privately in the absence of a pension system. These wealth amounts are huge, and they are much more evenly distributed than other types of wealth. So, whereas many workers don’t own much property or have a lot of private savings, they have a lot of expectations of future pension incomes. So, when we add the present value of future pensions, we see that the equalization of wealth inequality over the 20th century is much larger. This is true for both the US, which is one of the lowest-taxing market economies, and for Sweden, which was, during parts of the 20th century, close to a socialist command economy.

Finally, you asked about inheritance. When we look at the aggregate picture, looking at the aggregate flows of inheritance compared to GDP, and how has that changed over time, we see that over the last 120 years, the relative importance of inheritance was the largest at the beginning of the 20th century and has since become less and less important. We don’t have that much data for many countries, but data for the UK, France, Sweden, and the US show basically the same picture. We see that even though richer heirs receive larger inheritances, the relative importance of inheritance is larger for less wealthy heirs. So, in fact, inheritance has an equalizing effect.

Another section of the book discusses how many of the super-rich are self-made and how many are rich heirs. And I have data there for the US and Sweden showing clearly decreasing trends in the relative importance of inheritance. So, there have been more and more self-made billionaires in our economies over the last 30 and 40 years. This is a signal that the book’s overall message that we are getting richer and more equal is not changed when we also account for inheritance.

Fascinating. You mentioned globalization. Your book focuses on the West, but how generalizable are your results to the rest of the world?

So, yes, I have some discussion about this in the book. If we start with the global level, looking at all the wealth in the world and how it is distributed, we can see that it’s very unequally distributed, more unequally distributed in the world than in any country. However, we also see that the measures of wealth inequality have decreased every year from the year 2000 up until the 2020s. So, the world is much more equal today than it was 20 years ago. The equalization has been much faster for poverty and for incomes than for wealth.

Given these trends toward more equality, why do you think there is this prevailing narrative to the contrary?

It’s a difficult question. One reason is that the discussion has been quite narrowly focused on certain years, especially comparing outcomes to the early 1980s. So, the early 1980s were a turning point in the global economy, especially in the Western world, where we started leaving a very bad period of stagnation. Our production systems became less productive, and manufacturing industries were evaporating. They left the rich world because we were outcompeted by upcoming countries, especially in Asia.

But we learned our lessons. Our economic struggles were explained by regulations and high taxation. In Sweden, for example, the top marginal tax rate on labor income was above 90 percent. So, we started deregulating and lowering taxes and developed a better understanding of the role of technological change and economic incentives.

That, of course, lead to growth and also greater income inequality. But much of that was a normalization. Most Western countries went from historically low levels of income inequality, which resulted from extremely high taxes on productive people, to higher levels of income inequality as economic growth led to higher incomes. People interpret this fact negatively, but this normalization improved general welfare through things like better medical care and technology. So that’s a kind of a misinformed narrative, but it’s based on observations of increasing inequality since the 1980s.

Let me also say this. People on the right side of the political spectrum are generally less interested in discussing and understanding inequality, what is happening to it, and how it is measured. And in many cases, they basically left a vacuum in these discussions. People on the left have an interest in inequality, but their problem is that they already know the answers. They don’t care about data or measurement; they take for granted that inequality is high and increasing. So, it’s a very strange debate with many strong but misinformed statements.

What insights can we learn from this new history of wealth?

One very important lesson is that we can build wealth broadly in the population by enabling more people to become owners. We have seen that home ownership has been the main pillar of household wealth. I cite a research paper in the book showing that the long-term returns in home ownership have been almost as high as the long-term returns in the stock market, but at half the risk. I think another pillar is mutual funds. Mutual funds have democratized the stock market, allowing people to own shares that give high returns but with a low level of risk. Luckily, we understood this and guided many of our pension savings or investments into mutual funds.

There is also a lesson when it comes to the taxation of capital. There’s one big group of capital taxes that work well. These are capital income taxes, so capital taxes on flows of returns. The biggest one is the corporate tax. So, the profit tax of corporations. Corporate taxes amount to around half of all capital taxes in total. Then, we have taxes on dividend income. We have taxes on rental income. We have taxes on realized capital gains. Whenever you, as an owner, take out cash from your company, we tax that as income, just like any labor earner.

The other kind of capital taxes, which are much more problematic, are the taxes on wealth and stocks of capital. Maybe there is a stock market valuation, and you pay taxes based on your company’s value. The problem is that if you make little profit, you won’t have any money to pay the tax with. What should you do then? Should you sell parts of the firm? That’s going to create corporate governance problems. It’s very clear from economic research that we don’t want those kinds of effects of taxation. It’s a very negative outcome of taxation. Another problem with wealth taxes is that we don’t know exactly how to value assets that are not actively traded. Many companies are not on a stock exchange that lists how much they’re worth. We could guess, but I would suppose we would have maybe 50 percent error margins. A 50 percent error margin on your tax bill is not so fun and could be very costly.

These problems are why very few countries today still have wealth taxes. These taxes also haven’t worked historically. The revenues that they have generated are also very small compared to capital income taxes. So, I recommend not taxing wealth or “unrealized capital gains.” I think those proposing these kinds of taxes lack a basic understanding of entrepreneurship and the economy.

Get Daniel’s book, Richer and More Equal: A New History of Wealth in the West, here.

The Human Progress Podcast | Ep. 54

Daniel Waldenström: The Rise of Wealth Equality in the West

Daniel Waldenström, a professor of economics at the Research Institute of Industrial Economics, joins Chelsea Follett to discuss the decline of wealth inequality in the Western world.

Blog Post | Income & Inequality

Smithian Insights into Shrinking Global Inequality

There is a widespread but mistaken belief that the tremendous progress across a range of metrics has coincided with increasing inequality.

Summary: Human progress has lifted living standards worldwide, with people living longer, becoming wealthier, and enjoying greater political freedom. Contrary to popular belief, this progress has been widely shared, with globalization and market liberalization raising living standards and reducing overall inequality. Using recent data and the Inequality of Human Progress Index, it can be seen that global inequality has declined across key measures such as life expectancy, education, and income since 1990.


Over the past two and a half centuries, the world has seen significant progress. People live longer, are richer and better educated, and enjoy greater political freedom. (I previously explored the role of cities as engines of such progress for the Liberty Fund’s AdamSmithWorks project). But has that progress been enjoyed by only a few? Has the improvement in living conditions accrued mainly to a small elite, leaving much of the world behind?

What many don’t realize is that these improvements have indeed been widely shared. It seems that globalization and market liberalization—whose power Adam Smith recognized more than two centuries ago—have raised absolute living standards to unprecedented heights and reduced overall inequality. The world is not only wealthier but also more equal.

In this series, I will discuss what inequality is, how it’s measured, and how to understand it’s decline.

Part 1: Understanding Inequality

A popular adage states that “the rich get richer and the poor get poorer”—encapsulating the view that progress is enjoyed only by some. In a much-quoted passage subject to various interpretations, Smith wrote, “Wherever there is great property, there is great inequality. For one very rich man, there must be at least five hundred poor, and the affluence of the few supposes the indigence of the many.” How readers understand Smith’s words on inequality often depends on whether and to what extent they consider inequality to be a problem.

Smith was hardly the first to bring attention to the subject of inequality. Some research even suggests that concern about inequality may be evolutionarily hardwired. Human psychology evolved at a time when people lived in small hunter-gatherer bands that tended to divide meat in an egalitarian manner. Society has altered considerably, but moral intuitions remain largely unchanged—highly unequal distributions of resources often strike people as unjust.

Of course, our genetic predispositions for thinking in certain ways should not be given undue weight: human impulses can be bad as well as good. What Smith calls “the odious and detestable passion of envy” is sometimes implicated in the desire to reduce inequality and has long been characterized as negative by sources such as the biblical Book of Proverbs (which says that “envy rots the bones”) and the playwright William Shakespeare (who wrote that “envy breeds unkind division”). The tendency to focus on relative, rather than absolute, measures of well-being can also be harmful because absolute rather than relative measures of progress are the best standard to assess the success of different institutions and policies.

Furthermore, the majority of people have no objection to inequality arrived at by merit, and there is no evidence of widespread inequality-induced unhappiness. In developing countries, increased economic inequality that arises as part of the population escapes poverty is often seen as heartening—proof that upward mobility is possible—and can coincide with greater average happiness. Research has similarly found “a complete lack of any effect of inequality on the happiness of the American poor.”

Of course, when the rich are protected through privileged status in law, inequality seems far more troubling. Smith recognized that incumbent businesses sometimes gain unfair privileges from the government—in the form of regulations that strangle competition, for example:

The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers. . . . The proposal of any new law or regulation of commerce which comes from this order ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention.

Wealth of Nations, Bk 1, Ch 11

The growth of government since Smith’s time makes those concerns even more relevant. Examples of such laws range from a needlessly expansive regime of occupational licensing stopping individual competitors from entering a field and overbearing regulatory barriers blocking new businesses from entering an industry to bailouts, mandates, and subsidies that artificially boost sales and coddle entire industries. Inequality that arises from such cronyistic government policies is concerning, and reforms to prevent governments from increasing inequality in this manner are a prudent idea with broad appeal.

There are of course other possible causes of inequality, particularly in rich countries. Consider income inequality. As countries develop economically, income inequality becomes less and less useful as a measure of well-being. In subsistence economies, everyone is engaged in the same struggle for survival. In contrast, people are engaged in different pursuits in affluent societies because such societies offer diverse avenues for fulfillment.

While some individuals seek to maximize their income, others may choose lower-paid professions that they find enjoyable or meaningful or that confer prestige or greater flexibility. Individuals may prefer work that allows more time for leisure or caring for their children. Smith famously observed that each person pursues self-interest—“the care of his own happiness, of that of his family, his friends, his country”—but as Lauren Hall previously noted for AdamSmithWorks, “Smith never argues that economic interest is or should be the sum total of all human activities” (emphasis added).

When income inequality results from personal decisions that some people make to pursue things other than material prosperity, it is hardly a good measure of well-being. Income inequality in such societies reflects personal choices, not overall well-being. In other words, advanced economies provide numerous paths to happiness, diminishing the significance of income inequality. Fortunately, there is a more meaningful way of measuring inequality which I will discuss in part two of this series by focusing on the Inequality of Human Progress Index (IHPI) created by myself and Vincent Geloso.

Part 2: Measuring Inequality

Adam Smith was well aware that money is not the sum total of well-being; he once opined that “the chief part of human happiness arises from the consciousness of being beloved.” Smith would easily comprehend why someone might choose greater flexibility over higher pay to spend more time with loved ones and would understand that such a choice does not render anyone worse off but is merely an example of someone acting on personal preferences. The greater an individual’s freedom to make choices to act on her preferences, the better off she is. “Every man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniences, and amusements of human life,” as Smith noted. Income is just one (admittedly important) measure of well-being precisely because greater income often affords more options to individuals.

Well-being is multifaceted. Attempts to measure it should include income but should also recognize the complexity of the topic and avoid focusing myopically on income.

George Mason University economist Vincent Geloso and I tried to do just that by creating a new measure of inequality, the Inequality of Human Progress Index (IHPI). The IHPI assesses well-being holistically by seeking to capture a fuller range of choices available to individuals than can be gleaned from income alone. By examining inequality in a multidimensional way, the IHPI takes inequality more seriously than measures that focus solely on income inequality. In fact, we surveyed international inequality across a greater number of dimensions than any prior index.

We first constructed a Human Progress Index that includes income as well as other metrics, each speaking to a different component of progress that matters in terms of human well‐​being: lifespan , childhood survival , nutrition, environmental safety , access to opportunity , access to information, material well‐​being, and political freedom.

We chose those variables to capture the multifaceted nature of well-being with the best available data. Smith may be right that “the consciousness of being beloved” is a key component of well-being, but it is rather hard to find a good measure of it; we limited ourselves to readily quantifiable metrics where the extensiveness of each data set’s year range and coverage of different countries allowed for meaningful analysis. Including so many variables meant we had to constrain ourselves to measuring how global inequality has changed since ​1990, because data were often not available or limited before that date. The index confirmed that impressive gains have been made since then, with most people around the world becoming better off in absolute terms.

Importantly, were those gains shared, or did a few countries see most of the benefits while other countries were left behind? To find out, we looked at how inequality between countries has changed over time across those dimensions which I will discuss in part three of this series.

Part 3: Declining Inequality

There is a widespread but mistaken belief that the tremendous progress across a range of metrics has coincided with increasing global inequality, but in fact the data in the Inequality of Human Progress Index (IHPI) created by myself and Vincent Geloso unambiguously show a decline in global inequality. That’s true on a variety of metrics, including income inequality, education inequality, and most important, overall inequality. In fact, across all but two of the dimensions of inequality that we analyzed, the world has become more equal since 1990.

Worldwide equality has grown continuously since 1990 for life expectancy, internet access, and education. Equality of political liberty has similarly improved almost continuously since 1990, although there has been a slight and troubling downturn in recent years. That recent reversal does not cancel out the long‐​term trend of widening access to political liberty but is a reminder that progress is neither inevitable nor irreversible. Political freedom can be lost if not safeguarded. Globally, incomes became less equal until the mid‐​2000s, but income equality has improved considerably since then. As for adequate nutrition, the trend line has been erratic, with a turn toward greater inequality in the early- to mid‐​2000s. Yet the long‐​term trend has been one of appreciable gains in nutritional equality, as access to an adequate food supply becomes more common around the world.

What about the two exceptions? Two indicators in the index show trends toward more inequality: mortality resulting from outdoor air pollution and infant mortality. Regarding air pollution deaths, they may be a result of economic growth in progress. Economists talk about this with references to the environmental Kuznets curve (created by Simon Kuznets), which predicts that pollution rises along with economic growth until reaching a critical threshold beyond which pollution decreases. The growing disparity in outdoor air pollution deaths may indicate that some countries are in the midst of this transition. Those developing countries will almost certainly experience gains in environmental quality similar to those seen in today’s rich countries as they, too, grow richer.

Regarding infant mortality, it is important to remember that in absolute terms, infant mortality has fallen around the world. The growing inequality in infant mortality outcomes could be attributed to the fact that reductions in child mortality in high-income countries have outpaced those in low-income countries since 1990. While infant mortality has, again, decreased globally as more and more children survive past their first year of life, advancements since 1990 appear to have simply occurred relatively faster in high-income nations with access to cutting-edge medical technologies.

These exceptions are important but our most significant finding is that overall inequality is down. In fact, when compared with inequality trends in prior indexes of inequality, which surveyed fewer dimensions, the IHPI shows a far greater degree of improvement toward global equality. This result suggests that older indexes tended to underestimate how widespread progress has been, as well as the share of improvements in living standards that have gone to the poorest people in the world. Global equality has grown faster than many appreciate.

In Adam Smith’s day, for each very rich man, there were at least 500 poor ones. Inequality was extreme. The wealth explosion since then has made even ordinary people today rich beyond the wildest 18th century dreams. In the past few decades, the world has become better off, and those gains have been widely shared. Increasing public awareness of the global decline of inequality may bolster support for the systems of free enterprise and liberalized international trade that Smith advocated and that have brought absolute poverty to record lows and made humans across the globe more equal.

This article was published in three installments, part 1, part 2, and part 3, at EconLog in July 2024.

NBC News | Personal Income

The Typical US Worker Out-Earned Inflation by $1,400 a Year

“While higher costs for everything from milk to medicines have preoccupied U.S. consumers in the pandemic era, earnings have also risen enough, on average, to push up households’ purchasing power a bit. And blue-collar workers have been the biggest beneficiaries.

An analysis published in July by economists at the Treasury Department found that the median worker can afford the same representative basket of goods and services as they did in 2019 — plus have an additional $1,400 a year.”

From NBC News.