Income Level is Not Social Class

Scrooge McDuck Cartoon 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

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James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. Dave Schuler says:

    Class distinctions in the U. S. are something that confuses many Europeans but also many Americans to whom our very small upper class is nearly completely invisible. As you note, James, income level is not social class.

    The best rule of thumb of which I’m aware for distinguishing among our social classes is that if you’re paid by the hour, you’re lower class, if you receive a salary, you’re middle class, and if your income is derived from ownership (of land, stock, etc.), you’re upper class. There are social aspects as well and by those standards the Kennedys, for example, are nouveau riche upstarts who are just breaking into the upper class.

    Another definition I like is that you’re upper class if, no matter how badly you screw up, you’re not allowed to fail. That definition fits our current president rather handily.

  2. Anderson says:

    Oh please. I’m sure many members of the top 1% have tumbled to the top 5%.

  3. James Joyner says:

    Oh please. I’m sure many members of the top 1% have tumbled to the top 5%.

    No doubt. But a substantial number of any given year’s “top 1%” are almost certainly in the third quintile the year before and after a big windfall from the sale of home, stocks, inheritance, or other one-time event.

  4. Triumph says:

    I think Thomas Sowell has spent too much time watching “Trading Places.”

  5. Hal says:

    But a substantial number of any given year’s “top 1%” are almost certainly in the third quintile the year before and after a big windfall from the sale of home, stocks, inheritance, or other one-time event.

    I hate to be a bother and I’m not saying you’re wrong about this, but I would really like to have some back up for that assertion. I personally have no idea about these statistics and I’d like to find some actual data. Perhaps you could share these data with us?

    Sowell seems to assert that such statistics don’t really exist, and so it seems that he (and perhaps you) are likewise just guessing based on hunches rather than any actual data which could justfiy such assertions…

    Again, I’m just looking for answers. I’d like to know what the real scoop is here.

  6. James Joyner says:

    Sowell seems to assert that such statistics don’t really exist, and so it seems that he (and perhaps you) are likewise just guessing based on hunches rather than any actual data which could justfiy such assertions…

    I can’t imagine that such stats don’t exist but I haven’t been able to dig them up easily. A couple of name brand economists, including Greg Mankiw, are linking Sowell’s piece but none are providing data.

  7. Hal says:

    It certainly makes me very suspicious when people start stating things without providing any kind of back up of the data and that data isn’t easy to find at all. In the age of Google and the vast store of data we have available on the intertubes, it should strike one with caution when things are repeated without any way to verify whether the original assertion is indeed valid. Just because Mankiw asserts it doesn’t make it true. Everyone is wrong at times and the danger is high when no one can seem to find the data that supports the original assertion.

    I’m reminded of the joke where the the unimpeachable source is considered to be the guy who you can’t remember who started the rumor in the first place.

    Again, I’m sure this is all innocent, but the narrative has the rather unsettling “just so” quality to it that makes it all to convenient. It would be really helpful if some blogger who has a platform and the connections to actually track this down to see where the source of these assertions come from.

    Just sayin’.

  8. Grewgills says:

    It seems to me that half remaining in the top 1% is rather high and is certainly not “especially likely to be transient.” I would wager that it is the most stable single percent.
    I would bet the same for the top 5% and 10% with the real competition coming from the bottom. We have pretty good potential financial mobility in the US, but it is still easier to stay rich than it is to get rich.
    Perhaps these specific ranges are less stable than some people assume, but I would be quite surprised to learn that the ends were not more stable than the middle.

  9. spencer says:

    We have no data on turnover in the top 1%, 0.1% and
    there is some validity to the argument. But since we have no data it is impossible to determine if it is significant. the right claims it is significant and the left says no. But to be honest we do not know.

    Just a technical note. For the income from selling a home to be included in the income data you have to both sell the home and not buy another home in the same year for this to be included in the data. Otherwise it is netted out and not counted.

    However, I would love to see some source on the quote that hundreds of thousands of people who live in $300,00 homes on an income of under $20,000. I presume he is referring to the wifes and children of people with higher incomes. Since this has to be some weird stat without out any real meaning I will judge his statement on the other data to be in the same category.

  10. James Joyner says:

    I would love to see some source on the quote that hundreds of thousands of people who live in $300,00 homes on an income of under $20,000. I presume he is referring to the wifes and children of people with higher incomes.

    Retirees, maybe?

  11. Hal says:

    Retirees, maybe?

    Again, just speculation. Which is the entire problem here. I’m sure that my speculation is probably as defensible as yours considering we can’t actually find any data and probably comes to different conclusions given different biases.

    Sent an email to Mankiw asking for pointers to data on this subject. Doubt I’ll get a response, but it’s worth a little effort. Tried to find contact info for Sowell but came up dry or I would have asked him. Perhaps James can come up with a way to ask the man himself for some backup data?

  12. Hal says:

    Mankiw didn’t have much to add suggesting I contact Sowell instead (duh), but did provide me with a link to an interesting study on income mobility which he thought would be helpful. Upon reading the document, it appears to be the source that Sowell is using for his piece (the paper has almost identical quotes to the piece written by Sowell).