Arnold Kling has this article in Tech Central on US Income distribution.   His article is largely in response to an article by Paul Krugman in the NYT on the disappearing middle class.

The Krugman article is packed with convenient, politically loaded factoids like:

Over the past 30 years most people have seen only modest salary increases: the average annual salary in America, expressed in 1998 dollars (that is, adjusted for inflation), rose from $32,522 in 1970 to $35,864 in 1999. That's about a 10 percent increase over 29 years -- progress, but not much. Over the same period, however, according to Fortune magazine, the average real annual compensation of the top 100 C.E.O.'s went from $1.3 million -- 39 times the pay of an average worker -- to $37.5 million, more than 1,000 times the pay of ordinary workers.

Krugman also cites more broadbased numbers such as % of total wealth held by the top 5% vs. middle 20% over the past 30 years (yes, the "rich" hold a greater % of the wealth today).

Kling presents a superb, readable analysis of Krugman's argument & a counter-response.   One of the critical points made by Kling:

"Annual snapshots of the income distribution might deserve attention if we lived in a caste society, with rigid class lines determining who gets what share..." -- W. Michael Cox and Richard Alm, Myths of Rich and Poor, p. 72

In other words, the key question is not income distribution but rather income mobility.   The folks who started in the bottom X% in 1970 aren't necessary the same folks in that bracket today.   Kling analyzes this data and presents us with some startling conclusions:

...what is the picture of economic mobility in the United States? Cox and Alm cite the University of Michigan's Panel Study of Income Dynamics, or PSID. They compare the income quintile of people in 1975 with their income quintile in 1991. Here is a subset of the data:

Where they Began in 1975	Percent who made it to the top 40 percent in 1991
Lowest Fifth	59%
Second Fifth	52%
Middle Fifth	49%
Fourth Fifth	70%
Highest Fifth	86%

True, those who started in the higher income classes had a higher chance of ending up in the higher income classes. But even the lower income classes had about a 50 percent chance of ending up in the higher income classes.

Very cool.    Of course, this begs the question, if all these folks are moving UP the income ladder, who's filling in the bottom that Krugman is worried so much about?   Immigrants.   A few economists have often pointed out (in a VERY tongue-in-cheek manner!) that the fastest way to reduce income inequality in the US is to tighten immigration laws -- certainly not the policy outcome Krugman is hoping for   ;-)

In yet another case of the layman understanding something the Intellectuals don't,  the average man-on-the-street certainly expects to be a notch or 2 higher on the income ladder than they are today.    The expectation of Income Mobility is thoroughly ingrained in the average American psyche.   Perhaps that's why we're a Nation of Wild Optimists as Brad DeLong cites in his blog:

DAVID BROOKS, ATLANTIC MONTHLY - During the most recent presidential election a Time magazine-CNN poll asked voters whether they were in the top 1 percent of income earners. Nineteen percent reported that they were, and another 20 percent said that they expected to be there one day.

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