One of the most provocative and persistent arguments against free-market capitalism claims that it's a rigged system in which those who are already wealthy are the only ones who really benefit. Under the pretense of being a wide-open meritocracy, the critique goes, what we call capitalism is really a closed system that not only distributes income gains unfairly but makes the poor feel as if their position in their lives is their fault. Market critics call for all sorts of interventions, transfers, and limits on freedom to make things right.
...When critics of market economies such as Thomas Piketty, Paul Krugman, Jared Bernstein, and others say that middle- and low-income Americans haven't gained income over the past 30 or so years, argues Roberts, they typically mis-measure the rate of inflation, ignore the growing role that fringe benefits play in total compensation, and include the elderly, who are less likely to be working full-time and thus skew results. But the really important omission, says Roberts, is that most critics fail to track specific individuals over time. Instead they track statistical averages. When you follow an individual income earner over the years, a very different—and much more optimistic—picture emerges...
What do the data show? One study finds that when you compare the income of parents working in the early 1960s to their children's income from the early 2000s, "84% earned more than their parents, corrected for inflation. But 93% of the children in the poorest households, the bottom 20% surpassed their parents. Only 70% of those raised in the top quintile exceeded their parent's income." A different study also found that kids in lower-income groups were far more likely to outstrip their parents' income than those born to wealthy parents: "70% of children born in 1980 into the bottom decile exceed their parents' income in 2014. For those born in the top 10%, only 33% exceed their parents' income."
What do the data show? One study finds that when you compare the income of parents working in the early 1960s to their children's income from the early 2000s, "84% earned more than their parents, corrected for inflation. But 93% of the children in the poorest households, the bottom 20% surpassed their parents. Only 70% of those raised in the top quintile exceeded their parent's income." A different study also found that kids in lower-income groups were far more likely to outstrip their parents' income than those born to wealthy parents: "70% of children born in 1980 into the bottom decile exceed their parents' income in 2014. For those born in the top 10%, only 33% exceed their parents' income."
...The answer, Roberts writes, is that the richest people in 1980 actually ended up poorer, on average, in 2014. Like the top 20%, the top 1% in 1980 were also poorer on average 34 years later in 2014. The gloomiest picture of the American economy is not accurate. The rich don't get all the gains. The poor and middle class are not stagnating....