One of Senator Bernie Sanders’s favorite talking points is inequality– both income inequality and wealth inequality. For this post, let’s focus on wealth inequality. Sanders and his comrades have relied on estimates from economists Emmanuel Saez, Gabriel Zucman, and Thomas Picketty. For example, Saez and Zucman 2016 claim the concentration of wealth at the top 1% rose from about 28% in 1990 to over 40% in 2012 (Figure IV).
But as much as many wanted to unquestioningly accept those results, they were always suspect. Many economists were skeptical of their methodology. Some even produced their own estimated which showed wealth inequality was either stable or rising much slower. In fact, it is entirely reasonable to argue the research by Saez, Zucman, and Picketty are outliers.
Those questioning the progressive narrative got even more support today with a working paper from three economists from the University of Pennsylvania.Their methodology makes a novel contribution by adding Social Security wealth to multiple wealth inequality measurements that did not count them. Social Security wealth is over 42 TRILLION and accounts for over half the bottom 50% wealth.
Related article: Bernie Sanders can Calm Down, Inequality is not a Big Problem
So, when Social Security takes out a portion of your paycheck that money is taken out and put in a “lock box” for you. That account is essentially a mandatory savings account. It’s your money saved for the future. Yet, studies like Saez and Zucman 2016 don’t count that in measuring income. That radically changes their results as shown by the below image.
Exit quote: “Wealth inequality appears to have increased in recent decades because we tax labor income heavily, put it in an “account,” but then don’t count that “account” in traditional wealth statistics” –Jeremy Horpedahl, University of Central Arkansas Assistant Professor of Economics
Related article: Debunking the Case for Bernie Sanders