Arnold Kling

Recent Trends in Income and Wealth

Arnold Kling, Great Questions of Economics
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The Federal Reserve Board has published an article summarizing the results from its latest survey of consumer finances. The press is focusing on findings that include a more unequal distribution of income and broader ownership of stocks. The authors note that from 1998 to 2001,

Among groups defined by education of the family head, net worth rose only for the groups at the opposite extremes: families headed by persons without a high school diploma or its equivalent and families headed by persons with at least a college degree.

Often, people interpret this sort of study as if identical families were being analyzed at different points in time. In fact, the families are different. I like to use the metaphor of an escalator, in which you observe some families starting at the bottom (as new households or new immigrants) and others closer to the top. What the survey provides is a snapshot of the escalator in 2001, which can be compared with a snapshot of the escalator in 1997.

Discussion Question. If income and wealth rose in all quintiles of the distribution but rose most rapidly in the top quintile, is this good or bad?

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