It seems that there is a about wealth inequality that is going “viral.” This compelling video paints a bleak picture of the haves versus the have-nots (courtesy of very left-leaning websites such as Mother Jones). On the surface, it tells a story of how people perceive wealth inequality (based on a survey of 5,000 respondents), how it really is (much worse than perceived), and how they think wealth should be distributed. The problem with this analysis is that it discusses about wealth inequality but then goes on to mostly compare income inequality. They are different, yet economists and policymakers are constantly misleading people by interchanging the two terms.
Wealth is the stock of one’s assets while income is the flow of assets. In other words, a person who is earning $40,000 a year in wage income may be earning below the median for the typical household, but he or she may also own a $150,000 home and have $10,000 in a savings account. These items comprise wealth. So while the narrator is bemoaning the unequal distribution of wealth, and indeed he alludes to wealth by mentioning the stocks and bond investments of the top 1 percent (with a bit of sad minimalist music playing
in the background), he fails to account for other things that comprise wealth.
Moreover, using only an income measure to determine how people are doing economically, without regard to their ownership of assets or transfer benefits they receive from government (i.e. food stamps, Medicaid, etc.) is simply disingenuous. Additionally, he gets it wrong when he asks the rhetorical question, “do you really believe that the CEO is working 380 times harder than his average paid employee?” In reality, the CEO may not work 380 times harder than the average employee, but that is assuming that pay differences are based solely on productivity. As I have mentioned before, the labor market is a market like many other markets for goods; thus, it is based on supply and demand for workers. CEOs are not a dime a dozen, so they are paid far more than the average worker in order to attract candidates to that type of job. But the video simply ignores this fact, along with many others.