Frequently these days I will see some shocking statistic reported:
- The top 1% of earners receive over 18% of all the income (or 23% including cap gains)
- The top 5% sickest Americans account for half of all healthcare costs
These numbers suggest a shocking inequality. And there might even be an unusual inequality but you won’t see it from these numbers. What’s vital when people report things like this is that they outline what the ratio should be given what would be an expected distribution. You should expect the top 1% or top 5% of any unevenly distributed thing to be consuming a much larger share of the pie. That’s what it means to have an uneven distribution. If the top 1% of income earners only earned 1% of income, you would be in a communist utopia, and that’s true even if they earned 5%. That’s what it means to be one of the top earners.
To make this clear, I present the following statistic I suspect to be generally accurate: 99% of the fire insurance payouts in a given year go to the top 1% claiming policyholders. I have not got an actual source, but it is presumably the case because fewer than 1% of people have their house burn down. You would expect that the top 1% would get essentially all the fire insurance money in any given year.
So when you see a claim about distribution involving the top x% getting much more than x%, the right response is, “sounds normal, show me why this is unexpected or unusual.” It may well be, but you need the numbers to back it up.