A Better Read on the Economy

There’s an entire genre of “things are better than you think” books, stretching back at least a couple decades. In these sunny tomes, academics push back against pessimistic claims that, for example, middle-class incomes are stagnant, the poor are getting poorer, and inequality is exploding thanks to the gains of the evil top 1 percent. Think It’s Getting Better All the Time from Stephen Moore and Julian L. Simon; Myths of Rich and Poor from W. Michael Cox and Richard Alm; Factfulness from Hans Rosling; Enlightenment Now from Steven Pinker; and The American Dream Is Not Dead from Michael Strain.

Joining them is The Myth of American Inequality from former senator Phil Gramm and coauthors Robert Ekelund and John Early, all three of them economists. The U.S. government is getting key concepts all wrong, they say, including income, inflation, poverty, and inequality. They detail how some often-cited metrics are calculated—and how various corrections change the numbers.

It turns out things are better than you think!

Kidding aside, this is an impressive, clearly written book that can introduce everyday readers to the sausage-making process behind the numbers they see cited in the media. It also leaves room for disagreement about the authors’ corrections to the official estimates, as well as their policy recommendations.

The book’s core is a series of chapters taking on numerous concepts the government tries to measure.

Income? They’re counting only cash income—leaving out in-kind transfers like food stamps and employer benefits, as well as failing to subtract taxes. Inflation? They’re overestimating it, which means they assume more of our gains are eaten up by rising prices than is really the case. Both of these problems, meanwhile, affect the measurement of poverty, which depends on whether a family’s income exceeds a threshold that is adjusted for inflation over time. Inequality also hinges on what is counted as income, and to make matters worse, international comparisons are sullied by the Census Bureau’s failure to conform to the reporting rules other countries follow. These aren’t wild conspiracy theories; they’re backed up with careful explanations and citations, and for the most part already well known to people who follow these academic debates.

Even more interesting is the authors’ attempt to present a fresh picture of American households’ finances—both in terms of the current income distribution and in terms of trends over time—by accounting for problems like these.

Ranking households by their

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