Great and dear friend to i to our country. Former senator phil graham with us and his coauthor john early to talk about their new book the the myth of american inequality government biases the policy and i mentioned that this is an important topic me because before i to aei and then for a while while i was to air i spent all of my time focusing on people at the bottom of the income scale and how we can help them move up and i had seen and felt both when i worked in these programs in new york city, in new york state. And when i wrote about them here at aei that we would made progress that we werent getting credit for, because the official statistics of the United States did not account that progress in an accurate way. And there was something wrong with where were telling each other the facts about what was going on and. Now the topic is not new one i think our two coauthors would acknowledge that others before them like every stat Scott Winship michael strain even murray have written about this topic at the extent to which efforts we make in reducing poverty or reducing inequality seem to be go unaccounted in. The official statistics of the United States. But whats great about this is that it pulls it all together in a comprehensive way and actually gets to new ground about what this effect is having on the feeling our country among americans a little further up the income scale and well get to in a minute but that my job is really just to introduce turn it over to our speakers, let them speak for a while and, then theyll pause. Ill have some up questions. Well get into a dialog and a discussion and then well open it up for questions from all you. I just want to remind who doesnt already know it that senator phil gramm is one of those rare things. He was an academic, a academic, an economist who became a politician. And a great United States senator, and now hes back writing and thinking and as a scholar. So senator, its great to have you back with us, john. There you go. A little applause for senator graham. Really one of the great heroes of our of our country, john hurley, is a statistical who served as the assistant commissioner in the bureau of labor statistics. Hes and thought about these issues for a long time. And he is, of course, a partner in Industry Driving the true facts with senator graham. So im going to turn over to you now, senator, to take it away and give us the story, then john, then then conversation. Well, first of all, thank you for. Coming. And robert, thank you for me and thank you for every im im very proud of my association with the inn. I appreciate everything you do the fundamental Building Block of our assessment of our individual wellbeing is a census estimate what income is and over last two decades that estimate of income has increasingly conflicted with all governments statistics that have been calculated. The census by the bureau of labor statistics and by older agencies. Economists from bruce here at aei are across the spectrum looked at consumption levels, whove looked at wealth accumulation have increasingly found an unexplained gap between what they observe spending and what the census measures people as having earned. Now, let me give you two examples of the conflict. From 1947 to 1967, the poverty in america, the number of american who were deemed to be poor, the definition that weve out in the government plumb mitted a massive expansion in prosperity, shared. And then in 1967, the decline in the poverty stopped. And for 50 years it has fluctuated roughly between 16 of the population and percent of the population, or measured as having been poor, but yet that same 50 years, the real value adjusted for inflation of transfer payments to the bottom 20 of American Income earners has risen. From 9,600. To 45,400. And yet even though we are providing benefits. Worth 35,000 to an average age, to families on the bottom 20 , the Income Distribution. And it has had no measured impact on poverty obviously that, raises some questions. A second anomaly is every quarter the bureau of the census presents data on what to income in the previous quarter and it is measured as in this quarter in the same the bureau of labor statistics presents data on consumption and for the last years the bottom. 20 of american owners have average spent twice as much as a measured income. The second quintile is spent 11 more than is measured in income, and the top quintile has spent only 50 of its income. Even theres no Financial Data available that suggests that people are saving 50 of their income. Now, how did all this happen . Well, what we have done is we have gone back to. The 1947 basis system set up by census to measure income, looked at all the decisions have been made since. And basically the conclusion is that the census does not count two thirds of all transfer by the federal, state and local governments as income to the recipient, even though census numbers are routinely compared to tell us what has happened to income equality. The numbers dont adjust for. We found that if you count all transfer as income to the recipient, if you deduct taxes paid from the income of the people who pay taxes, most of whom never see the income that where is the census says that the ratio the top quintile of earners to the bottom is 16. 7 to 1. We find that it is in fact, for the one. Now look, in a free society you can debate what the level of Income Distribution ought to be, but its much harder to argue that we to be redistributing more when the number is 4 to 1 rather than 16. 7. The one we have also found that for the last 50 years, the explosion of benefits means tested benefits going to poor has been so large in real terms that it is far outstripped earned income especially earned income after and so the bottom. 60 of american households today for all practical purposes, have the same income, especially when you adjust for income, size. Now, needless to say if you have low skills and low earning capacity and you can have an income from the government that puts you in middle income america, there is relatively little in to work and enough over the last 50 years the Labor Force Participation rate among the bottom 20 of income earners has declined from 68 to 36 . We look at poverty and find that if you count all transfer payments as income the recipients that the poverty is not 14 . Its about percent. We look Income Distribution over time. The economist tells us it is a truth universally reported that inequality in the developed world is higher and rising. Bernie sanders says that it is absurd and unsustainable. We we find that when you take into account all transfer payments income to the beneficiaries and taxes paid is income loss the taxpayer that the the income the the the the that the the rate show of the top to the bottom and the gini curve a major economy used is lower today than it was in 1947. Now, let me tell the toughest part about this book is convincing people it is possible that we having a debate in america about whether a fundamentally our system to deal with growing inequality when inequality is actually declining and this hard to believe that. Read the book now we look at why earned Income Distribution the amount that people actually earn is becoming more unequal and we find the two largest sources of inequality they are people dropping out of the labor market because opportunity in america is in a job and in the private sector the economy the second largest cause income earned income inequality is differentials in the quantity and quality of education, primarily in the primary and secondary level. We look at the ultra rich, the mega rich that basically end up being the focus of all discussion about inequality and we address the issues do. Rich people pay their fair share. The answer is yes. We look at pikettys and say studies and basically show that they produced the result they produce because know no government transfers since income and they artificially the income of high income individuals by counting Capital Gains that are never received because the assets are not sold. You remember when. A plural what was the group that had the stolen data . Propublica. Yeah, they had the the stolen tax data, but it didnt show what they wanted to show. And so what did they they did a very in switch where they looked at the income tax return but they didnt look at the taxes paid. They looked at what the income what they looked at taxes paid. But they looked at what income would have been had people sold the assets they own and taken the Capital Gains. So inflating the income they the result they wanted to produce. We looked mobility. 91 of all people born in the bottom quintile better than their parents at one generation. 70 of the people born in the top quintile do better than their parents in one generation. We look crosssectional studies, including my strange work here at aei, and we combine and it was older studies to show that mobility is alive and well in america. Now there is a return to parenting good parents pay off. Look at asian in america and their extraordinary success. But its better to be born rich, beautiful and brilliant than be born poor, ugly and ordinary but poor, ugly and ordinary americans succeed every day in this, the level of mobility they to us is extraordinary. Now, this is much more than a glass, as you want to see. But make the case, and i think we make it very strongly that mobility in, america is alive and well, and so is the american. We look at the last 50 years and the prague weve made and its been an extraordinary 50 years. The most malign in 50 years of american history. What the what the facts speak for themselves. This has been a golden age and it would be call that in any other country in the world except in america. And then finally we look at policy conclusions. We need get the congress to force the government to all income in taxes in all its comparisons. Simple and we look at ways we can improve mobility. Liberals want to talk about fairness and income inequality, but america never promised equality of result in the competition of life. In fact, we celebrate the fact that some people are successful. In the words of will. Freedom and equality. Or a tunnel and sworn enemy. And where one lives. The does. We chose freedom. And were proud of it. And it shows up in income inequality with the promise of america is opportunity. As lincoln said a fair chance open way. And we show if we had a mandatory work requirement like we had with afdc, to bring people back the labor market, and if we gave more choice and more freedom to people in choosing to educate portion of their children, especially in inner cities, that we dramatically expand the of opportunity in america. And john, you tell him where we did all these right . Thank you. Thank you. Phil for setting it up for me. And thank you, robert, for the invitation. And thank all for coming to make this hopefully a rather exciting dialog once we get through laying out the facts. So im going to lay out embellish on a few of the points that senator graham made there with some some specifics the data and methods but we cant go too deep. Feel free. Ask questions when the time arrives. The data we have about income levels at the household level, about equality of income about poverty all come from the same source, which is the census estimate of Household Income and this is the distribution of that income in the 2017, oh about 13,000 at the lowest quintile, fifth of the population. Im talking about quintiles, thats the lowest, fifth and the top fifth quintile all is well, income. About 220,000. So that data is the foundation it can be arranged in a number of different ways explained in a number of different ways but thats where all the official data is related to Household Income come from and the difference between the top and the, as bill said, is a ratio of 16. 7 to 1 and numbers that sort are built into the entire set of data based on it are two basic point. Two basic components of that data are earned income and transfers earned income comes from work and savings transfers come from government. This shows that distribution and and were going to parse that here in a moment. So lets start with the earned income. The blue curve there is, the census measure. But it leaves out things at the high end. It out, believe it or not, Capital Gains. Oh, you know, phil mentioned that, but there are real Capital Gains. These are the real realized Capital Gains that are here. The other folks added some that you had realized yet. So thats missing as of some other Investment Income and middle level or were missing earned income from the Employer Paid benefits most particularly Health Insurance. And at the bottom, theres some miscellaneous failures to collect right data on the part of census data that these are failures that they know about, have not adjusted the official data by by the oopsie daisy hang on. Okay. So earned income is a. Ratio of 60 to 1 now. So a much higher ratio of earned income. But this is the value added. This either working or giving your capital out. The people earn in the. And so we want to look at what are the causes of this and the biggest one single one is the behavior of prime age adults between the ages of 19 and 65 in terms of their participation in labor in the bottom quintile, only 6 of the work workers constitute only 36 of the prime workforce. Okay. At the top quintile is than 100 because you have a lot of people working that are beyond both in terms of older and younger than the prime age workforce. So right there weve got a big difference by whos working and they work they work half as many hours in the bottom quintile and they twice as many hours in the top quintile. And that difference, Labor Participation and and engagement in work accounts for about a third of the income difference. Okay. This is just the earned income. Now the next 25 comes from differences in education. Of course, obviously a a b. A. Degree earns you 70 more income than just a high school diploma. And on then after that, your choice of occupation education, a masters degree in science earns you half as much as a masters degree in biologic science. Theres another 2 that comes from experience any the average person in the workforce over their work life will double their real income. So that adds percent to the difference. Theres another. 18 from employment income that we havent yet been able to. Parse all the details on on. But we know its from employment income because we have the total data and then the final 17 comes from earnings on savings. Okay. So thats earned income. But now we, weve heard that transfer payments affect this a lot. So there is the census data, the biggest single thing in census transfers are social security, but includes unemployment workers comp, temporary assistance to needy families. But thats about all. They only include about six or eight programs out of the more than 100 income transfer programs. And theres whole lot missing. Two thirds of the total is missing. Examples would be. Refundable tax for the medicaid. Food stamps. Why arent we counting those things . Theyre not counted. So we those and weve got a total and now we look what happens the between the top and the bottom is no longer point seven its only 5. 7. So weve gotten rid of about 90 of the 60 ratio and earned income and. Were now already down to less than what the census said it was because census didnt count all the transfer payments even though they didnt count some of the income either, which we also added in. But then come in because the government giveth, the government taketh away and weve got a little red and orange shading showing there where that is. 7 of the income in lower quintile goes to the government, 35 in the top quintile goes to the government. And so once have done that, were now down to the point, if you look at that dashed line, which is income after transfers and taxes, its only 4. 0. So that takes out an additional 30 of that. The inequality in earned income. But its not just the difference between top and bottom that changed. It also between the middle and the bottom. Look at the little rectangle down there and we see that the first, second and third quintiles are essentially the same income. So at this this chart here is the same data just in a different format of and you can see here that the second quintile has only 8 more income than. The bottom quintile does yet 2. 8 times more of their prime age workers have a job and work. 17 to. Yeah, they. About 17 hours a they im sorry they work nearly all full time as opposed to the 17 hours in the bottom bottom quintile and then the middle quintile has 32 more income, but have three times as many people working and they work twice as many hours. Okay, so that doesnt give you a whole lot of incentive to work. Government can replace most of the money you lose if you decide not to work, which is why the workers, as a proportion of the adult prime age population and dropped from 68 to 37 . Now theyll mention the size we look at a number of them. There are three that are commonly used and ive just averaged them here for brevity. But look what happens those bottom three quintiles have almost exactly the same size income, the bottom or the quintile receives more income actually on size adjustment than the second does by 5 . And the third quintile only has 7 more sausage is the number of people in the household. Okay, thanks. Borrowing that. Okay. The statisticians speaking there for a time. I beg your pardon . Im an economist. Gini coefficient. Some of youve heard of that. This is not fictitious critter that lives in a bottle fellows name but as a measure of inequality zero means absolute. Every household has the same amount means all the incomes in one household census publishes that going back to 1967, they have archived tabulations that allow us to take and extend that back to 1947. And this shows an increase in income inequality. But before we get to excited about it, lets notice a couple of things there are some discount here. All of a sudden theres a big jump in 19 in 1993 and in 2013 and in both of these cases without going into details census changed the way it collected process the data. There was not any change in actual inequality. They just found more income at the top. So they never however adjusted the for that. So it looks like the income was getting 30 more unequal over time but they however publish data that we