Thomas Sowell argues that, despite the attention they receive in the press, the “top one percent” of income earners are not a privileged class but rather a constantly churning group.
Americans in the top one percent, like Americans in most income brackets, are not there permanently, despite being talked about and written about as if they are an enduring “class” — especially by those who have overdosed on the magic formula of “race, class and gender,” which has replaced thought in many intellectual circles.
At the highest income levels, people are especially likely to be transient at that level. Recent data from the Internal Revenue Service show that more than half the people who were in the top one percent in 1996 were no longer there in 2005. Among the top one-hundredth of one percent, three-quarters of them were no longer there at the end of the decade.
These are not permanent classes but mostly people at current income levels reached by spikes in income that don’t last. These income spikes can occur for all sorts of reasons. In addition to selling homes in inflated housing markets like San Francisco, people can get sudden increases in income from inheritances, or from a gamble that pays off, whether in the stock market, the real estate market, or Las Vegas.
Some people’s income in a particular year may be several times what it has ever been before or will ever be again. Among corporate CEOs, those who cash in stock options that they have accumulated over the years get a big spike in income the year that they cash them in. This lets critics quote inflated incomes of the top-paid CEOs for that year. Some of these incomes are almost as large as those of big-time entertainers — who are never accused of “greed,” by the way.
Just as there may be spikes in income in a given year, so there are troughs in income, which can be just as misleading in the hands of those who are ready to grab a statistic and run with it. Many people who are genuinely affluent, or even rich, can have business losses or an off year in their profession, so that their income in a given year may be very low, or even negative, without their being poor in any meaningful sense.
This may help explain such things as hundreds of thousands of people with incomes below $20,000 a year living in homes that cost $300,000 and up. Many low-income people also have swimming pools or other luxuries that they could not afford if their incomes were permanently at their current level. There is no reason for people to give up such luxuries because of a bad year, when they have been making a lot more money in previous years and can expect to be making a lot more money in future years.
Most Americans in the top fifth, the bottom fifth, or any of the fifths in between, do not stay there for a whole decade, much less for life. And most certainly do not remain permanently in the top one percent or the top one-hundredth of one percent.
Most income statistics do not follow given individuals from year to year, the way Internal Revenue statistics do. But those other statistics can create the misleading illusion that they do by comparing income brackets from year to year, even though people are moving in and out of those brackets all the time.
Income is also heavily influenced by region, with the northeast and northwest coastal regions paying far more than the rest of the country for similar jobs but with that advantage largely mitigated by inflated housing prices.
Statistical sleight of hand is often performed on these numbers by those with an agenda, such as the recent much-hyped Heritage Foundation study asserting that Democrats are the party of the rich because they represent the Congressional Districts with the highest income. As Julian Sanchez and others have pointed out, this is completely meaningless, merely telling us what we already know (Democrats are concentrated in the cities and the affluent coastal areas) in a misleading way.
Most of these studies and reports are intentional application of the ecological fallacy, “whereby inferences about the nature of individuals are based solely upon aggregate statistics collected for the group to which those individuals belong.” If you want to know how rich people vote, the proper unit of analysis is the individual, not the Congressional District. Conversely, if you’re interested in the behavior of a social class, you need to look at longitudinal studies that follow the same people over time.
Image source: FemaleCSGradStudent
