Are there inconsistencies b/t income inequality and the observed state of the economy?

fakename posted on Wed, Aug 1 2012 6:34 PM

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Here's a guess that if correct, might prove enlightening (or not, my insight is actually pretty low-brow).

We know that income inequality is based on taking fifths of the working population and then seeing how much each fifth makes.

Thus, some quintiles have so and so income and so and so % of total income and some quintiles make more than others.

Under some conditions, a quintile can have less money than another w/o it being bad. For instance, if there are more factories or businesses then there will be a need for more people and the expansion of the labor force would lower wages plus the magnitude of the increase in labor could be greater than the magnitude of the rate of providing more than the necessary for daily life. In relation to the other quintiles, inequality would have increased greatly. However, our experience of the economy might be gusingly positive since more people would be getting jobs, profits and production would be up, and there would be houses and factories being built all around.

(Of course, one could argue that the income stats would show even greater equality since more than 20% would have a certain (low) income, but that would be another reason to say that the stats are inconsistent with what we observe).

Is that an accurate view of how inequality statistics could disguise an otherwise booming economy?