On Nov. 2, the Political Economy Project hosted former Texas Sen. Phil Gramm, a Republican who served in the United States Senate from 1985 to 2002, for an event titled “Is Growing Economic Inequality a Myth?” in Carson Hall. According to Political Economy Project director Henry Clark, roughly 24 people attended the event and there were no virtual attendees.
The basis for Gramm’s speech stemmed from his 2022 book “The Myth of American Inequality: How Government Biases Policy Debate,” which he co-wrote with economists Robert Ekelund and John Early.
According to economics professor Douglas Irwin, the event itself was “serendipitous,” as “The Myth of American Inequality” related to his course, “The Future of Capitalism” which Irwin teaches at the Tuck School of Business.
“We’re talking about inequality, and this book has made a little bit of a splash,” Irwin said. “[Gramm] is in New Hampshire, we have this class, bring him over. [Let’s] open it up to the public and undergraduates as well.”
Gramm began the event with a discussion about the significance of the economic measures analyzed in his work.
“To compare our country to other countries, to assess how the nation is doing, we look at economic numbers,” Gramm said. “The most basic of all those numbers — the cornerstone of American statistics — is the census measure of household income.”
However, Gramm said he did not always believe that economic statistics “reflected” the United States as he understood it. Among his examples, Gramm said his use of a 2017 census measure for household income reflected high levels of inequality, with those in the top income quintile making about 16.7 times the income of the bottom quintile.
However, Gramm said that when he compared those measures to other government data, he noticed that the bottom quintile’s household expenditures were approximately twice as much as their household income.
“So you ask yourself, ‘How is it possible to consume twice as much as you earn?’” Gramm said.
To answer this question, Gramm explained that the census household income measurement began in 1940 when there were fewer social welfare programs transferring money to low-income Americans. During the War on Poverty in the 1960s, welfare programs increased and began paying more to low-income households. The household income measurement did not previously include these welfare payments, making household income seem less than it actually is.
“In total, the federal government does not count over 100 federal programs [in the census] that transfer more than $100 million each to beneficiaries,” Gramm said.
Gramm readjusted the 2017 household income numbers to include transfer payments from welfare programs. According to Gramm, after the adjustment, the income of the top quintile was only about four times that of the bottom quintile. He then concluded that the census of household income inaccurately represented this inequality and needed to include payment from welfare programs to provide a more accurate measure.
“Now, you can say four to one is too high. Perfectly legitimate debate,” Gramm said. “But it is a very different debate than 16.7 to one.”
Gramm criticized the effect of these government transfers on Americans’ work participation.
“The objective, as Lyndon Johnson said, is to make people self-sustaining,” Gramm said. “The program has done exactly the opposite of that.”
Gramm concluded his talk with a message about the American Dream and upward economic mobility through an anecdote about his wife, Wendy Lee Gramm, who served as the chairperson of the Commodity Futures Trading Commission from 1988 to 1993. According to Gramm, his wife’s grandfather, who was a Korean immigrant, was a contract laborer who worked in the sugarcane fields in Hawaii.
“As the chairwoman of the Commodity Futures Trading Commission, she regulated the trading of all commodity futures, including sugar,” he said. “Now that’s America in action.”
After his initial talk, Gramm answered questions from the audience, including one about the increased polarization in the Senate today. He said that he thought that “America changed,” and that the country is “further apart on issues” than when he was in the Senate.
“When I was in the Senate, one of my best friends was Senator [Robert] Byrd from West Virginia,” Gramm said. “We fought every time I tried to save money he was opposed to. We were apart, but he didn’t represent a threat to the country in my mind, and I didn’t represent a threat to the country in his mind.”
Hanover resident Kathy LoCurto, who attended the event, said that she wanted to listen to Gramm because she was “interested in what’s going on politically and … how our country is proceeding with debt,” and because she thought Gramm is a “remarkable” person.
“I like his delivery and his personality and his realness,” she said. “I also respect his numbers and how he has come to his conclusion to take a look at the inequity.”
Irwin said he hoped that audience members walked away with more understanding about statistics.
“We have to think about how [statistics] are constructed,” Irwin said. “What’s behind them? What’s the decision to include or not include? We can’t take them and assume it’s the gospel truth.”
