Authored by: Matt Palumbo
As cliche as it is to quote Mark Twain in stating that there are three kinds of lies; lies, damned lies, and statistics, discussions over income inequality and its effects are often exhibit A in “how to lie with statistics.”
Let’s review a number of those: Michael Moore edition.
Claim: During the Reagan era, while productivity increased, “wages for working people remained frozen.” – Michael Moore, 2009
This is a common claim: that Ronald Reagan cut taxes, and then all the gains went to the top, leaving wages stagnating for the average American since.
This is partially true. Wages alone have diverged from productivity (though that’s been since the early seventies). But wages aren’t everything that makes up a person’s income, since most people get benefits as well. It’s misleading to only measure wages when the percentage of income in the form of “fringe benefits” has nearly doubled in the past 40 years. Below is a chart of productivity and total compensation, as calculated by the Heritage Foundation:
Noteworthy is that the London School is Economics has actually found a lower productivity and compensation gap than Heritage, that “productivity has grown 13% more than compensation since 1972 in the US.”
The reason that total compensation has been increasing, but wages have stagnated has to do mainly with healthcare costs. As the cost of providing healthcare benefits to employees increases, this comes partially at the expense of wages.
Claim: “Just 400 Americans — 400 — have more wealth than half of all Americans combined.” – Michael Moore, 2011.
This statistic is particularly interesting, because there are also babies that have more wealth than 25 percent of Americans combined by Moore’s metrics. Why? Because he’s measuring net worth, and thanks to student loan debt, credit card debt, among other liabilities, 25 percent of Americans have a negative net worth. If you have no debt an a dollar in your pocket, you have more wealth than 1 in 4 Americans combined. Don’t you feel rich?
While Moore made this claim to link income inequality to wealth inequality (which seems like an obvious connection), there are interestingly a number of countries with low levels of income inequality, and considerable wealth inequality. Denmark, which is the most equal country when it comes to income inequality. Denmark’s richest 10% has as much wealth as 70 percent of all Danish citizens combined, while the figure in America the top 10% control 77% of all wealth.
Claim: Back in 1989, in his debut 1989 film Roger and Me Moore brought to the audience’s attention that “The CEOs of our top 300 companies, are earning 212 times what their average worker is earning.” That gap has since grown to a gap of approximately 270:1, at our nation’s 350 largest companies.
As Moore admitted, this is only at the nation’s largest companies. The average orthodontist or psychiatrist both earn more than the average CEO, so it’s a useless statistic at the national level.
While Moore would like to present this information with the implication that this rise in CEO pay (at the largest companies) is at the expense of worker wages, this phenomenon is entirely due to increases in stock-based compensation as a percentage of total compensation of top executives, and rising stock prices. A study from the National Bureau of Economic Research concluded that “the sixfold increase in CEO pay between 1980 and 2003 can be fully attributed to the sixfold increase in market capitalization of large U.S. companies during that period.”