Lying With Statistics

Investor’s Business Daily posted an article about the recent discussion on wealth inequality in America. French economist Thomas Piketty has written a book called Class Warfare in which he decries the unequal distribution of wealth in America and calls for extreme taxing of the ‘rich.’

The article includes the following chart and explanation:

“There are transcription errors from the original sources and incorrect formulas,” the FT noticed. “It also appears that some of the data are cherry-picked or constructed without an original source.”

But the bigger problem is that just looking at the actual data on U.S. inequality — using what is called the Gini ratio, a measure of how incomes are dispersed across society — you can see Piketty’s thesis is wrong.

As the chart below shows, contrary to claims by left-leaning economists such as Piketty, individual inequality hasn’t changed at all since 1960. But there has been an increase in household inequality.

Why? As economist Don Boudreaux and the website Political Calculations have noted, the changing composition and size of households are the reason.

Households have shrunk markedly. Since 1960, the average size has plunged from more than 3.4 persons to about 2.55, Census data show. One-person households have nearly quintupled since 1960 and today make up nearly 30% of all households.

When charted, the household Gini ratio looks as if there is growing inequality. But in fact it shows that households are smaller, with fewer earners.

Our point is that using tendentious data to bolster a case for taking even more private-sector output for government use is dishonest at best.

It is possible to make statistics say pretty much anything you want them to say. Mr. Piketty’s book is a current example of that fact.

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