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Wealth and Inequality on YouTube


-This article was originally published at National Review Online.

On November 20, 2012, a video alleging vast wealth inequality in America was posted on YouTube. Over the last few weeks, the video has gone viral, with over 5.1 million views as of this writing and prominent political mentions, including at Ezra Klein’s Washington Post “Wonk Blog.”

The video relies on scare tactics, such as a reference to the wealth held by the top 1 percent being “off the chart” — which is a problem with the scale, not the wealthy. It changes from referencing “wealth” to referencing “income” without appropriately differentiating between the two. And it makes loaded assertions, such as saying that wealth distribution is not “fair” and the non-wealthy are “scraping by,” without providing data to back these points up.

There are probably a hundred ways the video is wrong, but here are twelve:

1. The video’s narrator says that “we certainly don’t have to go all the way to socialism to find something that is fair for hard-working Americans.” What does this person think is fair? The average 1 percent earner makes 50 times as much as someone in the bottom 20 percent of earners, but pays 1,500 times as much in taxes. Is that “fair” enough?

2. In bashing the “wealthy” for having too much money, the video’s creators forget that even with alleged “inequality” of wealth, it’s all a matter of perspective. Compared with previous eras and civilizations, in America and in many other countries, the difference between the rich and non-rich is modest. Today the rich have very nice cars, fly first-class, and have a vacation home or two. Meanwhile, non-rich Americans have a decent used car or two, fly coach, and go on some vacations.

Compare this with the differing lifestyles of the rich and poor in ancient Rome, or in the early 20th century — or today in socialistic countries like Cuba and China.

3. According to the video, the poor are “suffering” because of inequality. However, as Heritage Foundation researchers Rachel Sheffield and Robert Rector noted in a paper about poverty in America, “poor” doesn’t equal “suffering.” From the paper, describing “poor families with children” in 2005:

  • These homes typically had both air conditioning and a personal computer.
  • For entertainment, they typically had cable or satellite TV, three televisions, a DVD player, a VCR, and a video-game system, such as an Xbox or PlayStation.
  • In the kitchen, they had a refrigerator, a stove, an oven, a microwave, and an automatic coffeemaker.
  • Other amenities included a cell phone, a cordless phone, and a clothes washer.

This is not to say that being poor means one is flourishing in America, but it does provide important context.

4. In the video, the bottom 80 percent of the people have just 7 percent of the wealth in America. Some basic math reveals that this means the average wealth of the bottom 80 percent of Americans is just over $15,000. However, this is an apples-to-oranges comparison, since the common analysis of wealth looks athousehold wealth, not individual wealth — after all, four kids under the age of eight might be wealthy because of their parents, but they don’t actually make income.

According to CNN, the median American household had a net worth of $57,000 in 2010, which would have been much higher had the Great Recession not occurred. The Federal Reserve’s estimate in July 2012 was a bit better — the median family “had a net worth of $77,300 in 2010, compared with $126,400 in 2007,” according to the New York Times.

Perhaps this lack of applicable data on individual wealth (and the fact that inequality of wealth was made worse by the recession that began in 2007) is why the authors of the video have no citations to back up their “facts” related to inequality, and why social-media site’s only link to “data” backing up the claim is Wikipedia.

5. The video gives the impression that the average “one percenter” is someone like Donald Trump. Reality is a bit more clear. According to CNN in September 2012, the average one-percenter household has assets worth $16.4 million. Certainly, this is a lot of money, but not for the top 1 percent of a wealthy country like the U.S.A. — especially since this is about households, not individuals.

6. The video switches from wealth to income and says that the bottom 50 percent of Americans own a mere 0.5 percent of stocks, bonds, and mutual funds, concluding that this 50 percent is “just scraping by.” While the recent recession has eroded wealth and income for many middle-class and poor Americans, “scraping by” is a relative term in America, as compared with true debilitating poverty.

The video never admits that the upper 50 percent may have that much money in stocks, bonds, and mutual funds because they made smarter financial decisions when they were middle-class or poor. Either way, the lack of bond and stock ownership by non-wealthy Americans does not equal “just scraping by,” particularly when the bottom 50 percent pay so little in taxes for government programs benefiting them.

While almost all Americans do pay some sort of federal taxes, the 50 percent or so who don’t pay non-payroll income taxes benefit from federally funded roads, education services, immigration control, the military, and other federal services. Who pays for these services? According to an October 2011 report from the Tax Foundation, “The top 5 percent earned 31.7 percent of the nation’s adjusted gross income, but paid approximately 58.7 percent of federal individual income taxes.” In short, most taxes for non-retirement social spending — the same social spending liberals are so keen on expanding — are being paid by the people liberals say don’t pay enough in taxes — the top 5 percent, whose threshold income was a relatively modest $154,643 in 2009, according to the Tax Foundation.

7. Speaking of income inequality, the implication that the wealthy earn unbearably more than non-wealthy Americans is rebutted by a Congressional Budget Office (CBO) report in July 2012showing how government transfer payments increase the income of non-wealthy Americans. Because of that pattern, before-tax income is more evenly distributed than market income alone. Households in the lowest quintile of the before-tax income distribution received 5.1 percent of income, the middle quintile received 14.7 percent, and the top quintile received 50.8 percent.

8. The video’s definition of income does not include these transfer payments from government programs, whose total of means-tested welfare was over $1 trillion in 2011. That’s without including Social Security and Medicare.

9. The video’s next point is that while many wealthy people work hard, “Do you really believe that the CEO is working 380 times harder than his average employee?” Maybe not, but:

  • CEOs are paid for their added value. Example: A popcorn vendor is important to an NBA game. But LeBron James adds far, far more value.
  • CEOs are paid for the quality, not the quantity, of their work. Would the video’s creators prefer to pay for the relatively modest profit advantage of a popcorn vendor or the much larger profit advantage of LeBron James?
  • Finally, most CEOs aren’t making millions to sit around. Many are small businessmen who own LLCs and similar modest-sized corporations.

The average pay of all CEOs might be 380 times that of average employees, but it’s certainly not accurate for every CEO. According to this October 2012 analysis of census and Forbes data, there are over 2 million CEOs in America. Half of them make $250,000 or less.

10. In complaining about income inequality, the video never describes the full reality of income differences. According to the tables below this chart, all of which are based on CBO data, the top 1 percent earned at least $1.219 million in 2009. The middle 20 percent of earners averaged $64,300.  A lot of income, yes — but Donald Trump these people are not.

An additional fact: Using the data in the aforementioned tables, the average one-percenter makes 19 times as much as the average person in the middle quintile of earners — and pays over 49 times as much in taxes.

11. Switching back to wealth, the narrator never asks why the wealthy have their money. The basic assumption throughout is that the top 1 percent are evil, corrupt, uncaring, or outright thieves, and it is the place of government to step in. Yet if it weren’t for government giving $100 billion annually to corporate welfare, government collusion with big business on regulations that hurt smaller competitors, and tax loopholes benefiting the wealthy (including $67 billion in the fiscal-cliff law signed by President Obama), those who are indeed corrupt would not have so much more wealth than honest workers. Nor would the wealth difference be so high if major banks and other corporations hadn’t gotten trillions in bailout money from Congress and the Federal Reserve after the financial crash.

Obviously, most wealthy people are regular and decent. But if the video’s creators really want more “equality,” government intervention is the last place they should look.

12. How do the wealthy live? The video insinuates they are dishonest, evil people putting the screws to the rest of us. According to a New York Times article in January 2012, however, the full story is more telling. While “most 1 percenters were born with socioeconomic advantages, which helps explain why the 1 percent is more likely than other Americans to have jobs, according to census data,” the following is also true:

They work longer hours, being three times as likely as the 99 percent to work more than 50 hours a week, and are more likely to be self-employed. Married one-percenters are just as likely as other couples to have two incomes, but men are the big breadwinners, earning 75 percent of the money in one-percenter households, compared with 64 percent of the income in other households.

The top 1 percent of earners in a given year receives about 17 percent of the country’s pre-tax income, about double their share 30 years ago. They pay more than 25 percent of all federal taxes, according to the Tax Policy Center. In 2007, they accounted for about 30 percent of philanthropic giving, according to Federal Reserve data. They received 22 percent of their income from capital gains, compared with 2 percent for everybody else.

In other words, yes, the top 1 percent make a lot of money. They also pay a lot in taxes and make up a vastly disproportional share of charitable giving. They work long hours and are entrepreneurial risk-takers.

It has been claimed by the Left for some time now that inequality is bad in and of itself. The real question remains unanswered, however: Is inequality permissible if all people’s lives are improving? If all people are making economic gains, would liberals destroy that progress in the name of equality?