74 thoughts on “The best inequality graph, updated”
I think the graph makes the point reasonably well.
I wondered if there is some easy way to collect and show the impact of the less monetary side of inequality. Here in Australia and I believe also in the US a lot of the changes in the past 30-40 years have less to do with absolute income than with withdrawal or limiting of benefits (education, health) or imposition of greater risk (eg less secure employment). I suspect that, if these were taken into account, income would effectively have declined for most people.
As long as everyone’s real trend is upwards, income disparity is irrelevant.
I think Other Peter T makes a good point about security and state provision, if the state provides more necessities then any increases in income at the bottom are magnified and vice versa.
Keddaw is exactly right. To focus on “inequality” is to miss the point. The slow but steady rises in the other two lines are of much greater significance.
I don’t buy the argument about “the less monetary side of inequality.” There’s no evidence that, in spite of rising real wages, “income would effectively have declined for most people.” People are better off when they make more money; even a minor increase in personal income is much more valuable to an individual than increased access to government services.
Apparently — incredibly — this is EXACTLY where the 15% income share lost to the bottom 90% since 1973 went to. 90-97 percentile income share remained unchanged. Even earners just at the 1 percentile mark did not gain share excessively — though what share shifting occurred there may be presumed part of the same phenomenon (identified below).
This huge shift is apparently about the top 1/10 of 1 percentile earners garnering $5-10 million incomes: if investigated I think we will find these lucky folks earning 25X what folks doing the same jobs in 1973 earned while average income climbed only 2X over that same span (I use 1973 because that is when the 15% share started to slip away — also because 2X is so easy to use).
My “clinical” evidence for assuming the top 1/10 of 1 percentile got the lion’s share of the shift is that in 2007, 180,000 Wall Street gamblers only averaged $300,000 (average $180,000 bonuses on top of average $120,000 average salaries — easy for my non-economist brain to remember). My family doctor certainly did not gain from the earnings that slipped away from the bottom 90 percent — nor anyone else especially useful.
What is DELICIOUS about the top 1/10 of 1 percentile getting the lion’s share of the lost money IS THAT THERE CAN BE NO LEGITIMATE ECONOMIC BENEFIT TO JUSTIFY IT (higher tech economy making higher tech skills worth comparatively more or some such). Manifestly, linebackers, TV news anchors and even CEOs are not 25X more productive than they were two generations ago. Another optimistic feature is that these lucky folks are not smart enough to have done it to the rest of us — we manifestly did it to ourselves by letting the American labor market degenerate into something like early 19th century Britain’s with total loss of — or even interest in maintaining — equal bargain power between ownership and labor.
Look around the better paying OECD world (labor dragooned Japan the exception — Japan also in endless recession: parallel?) for the answer Americans: start with legally mandated, sector-wide labor agreements — the modern answer to the modern race to the labor market bottom.
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Dean Baker* (in 18th reply on his blog post) reproduced what he called “a slightly altered table from Gordon’s paper*, showing income shares in 1972 and 2001” — my percentage changes on the right.
0-20_______2.6%, _ 2.0%________- .6%__ -12.3%
20-50____ 16.0%, _ 11.7%_______ -4.3%__ -11.7%
50-80____ 33.7%, _ 27.2%_______-6.5%____ -7.4%
80-90____ 17.0%,_ 16.1%________ – .9%___ –
*********************************************
90-95____ 10.8%,_ 11.3%______ +_ .5% __+
95-99.0___12.2%,_ 14.8%______ +2.6% ___+ 3.1%
99.0-99.9__ 5.7%,__ 9.6%_______+3.9% ___+ 7.0%
99.9 -100__ 1.9%,__ 7.3%_______ +5.4%__ +12.4%
(see p. 84 of Gordon for similar breakdown of wage income*)
4.9% loss of overall share meant 26.3% chop of 0-50 percentile share.
6.4% loss of overall share meant 14.5% chop of 50-90 percentile share.
keddaw,
Why is the disproportionate rise in income for the very wealthy irrelevant? Not being snaky, I really want to know.
My intuition is that the concentration of wealth into the top 1% of the population has the potential to turn this nation into an oligarchy.
@sdstarr: Because “income share” or inequality is just a ratio — simply a comparison between two levels of income. The real information in the graph above lies in the lower two lines, which clearly demonstrate increasing income for both the middle class and the bottom 20% over the last 3 decades. These rates of increase are largely insensitive to the fluctuations of income at the very tip-top of the scale.
If you’re poor, what’s more important: having more money so you can afford more and better products and services, or obtaining some sort of obscure psychological comfort by realizing that rich people make slightly less, while you yourself are as poor as you were yesterday?
keddaw and Rhayader,
The median wage in 1973 was $12.50/hr. Double the income later the median is $15/hr. Imagine what a different world it would be (no gangs, ghetto schools would work — on both cases because good jobs would be waiting) — for most Americans — if the median wage were $25/hr instead of $15/hr. Especially when it wouldn’t cost you or anyone you know anything — unless you are planning to be TV news anchor or baseball pitcher. Talk about an economic miracle which would cost nothing.
It goes a lot deeper than that — believe it or not. Up until early June 2007, 25% of the American workforce was earning less than LBJ’s 1968, $10/hr minimum wage — double the average income later (double since 1968 not 1973 as I mistakenly posted above).
Would not Americans of 1968 have viewed that drop in pay as an unfathomable tragedy — NOT MERE “INEQUALITY”! — if somehow this could have been forecasted to them (comet strike, small nuke attack, multiple plagues?). Wouldn’t they have reacted with a more title like “great wage depression”?
The problem here is not a faulty understanding of numbers. It is a faulty problem of motivations — which given the small, reptile (more for simple reacting than thinking) part of our brains devoted to motivations (limbic system) seems a big stumbling block for even our sharpest economic brains — they definitely do not know what to care about. I have no problem getting motivations right — it must be the LINK card (food stamps) in my wallet. :-)
Rhayader,
Here is what the uniquely crushed — as in totally powerless, totally neglected — labor market in America did for me as a Chicago cab driver:
one 30 cent raise in the meter between 1981 and 1997;
at which time Chicago started adding 40% (not going to 50%) more taxis;
all the while cutting our business seemingly in half — building subways to both airports, opening up unlimited livery licenses (to which riders flocked for the long suburban and airport rides to avoid the scary underpaid taxi drivers) and finally (the shot in the head; not just the straw that broke the camel’s back) running free trolleys between all the (our previous) hot spots downtown.
All this while average income increase 50% — if only for our affluent passengers — you? :-)
******
Same thing in New York City:
In 2004 dollars, the taxi meter rose to $2.25/mile in 1974 — after the last successful strike, before the union was nullified by the lease system. By 2004 the meter was $1.50, after average income rose 2/3. Oh, and under the lease system the missing 75 cents a mile ALL came out of the drivers end. Repeat: all.
All this in the only place in the world (Manhattan) where wealth is a plateau not a pinnacle.
All this suffering because of a moribund labor movement that would not have cost anybody you know a cent if functioning properly (don’t forget strong labor means strong progressive politics too as in matching lobbyists) — unless you are planning to play linebacker.
Lane,
I apologize if this has already been addressed somewhere on your blog, but I was wondering: is there a particular graph that you recommend for displaying changes in *global* inequality?
@Dennis —
“Imagine what a different world it would be (no gangs, ghetto schools would work — on both cases because good jobs would be waiting) — for most Americans — if the median wage were $25/hr instead of $15/hr.”
I see no evidence to support that assertion. Why is the median so significant? It can be distorted by outliers just as easily as an average. You’ll have to provide support for the idea that a change in median income results in the sort of incredible social outcomes (no gangs?!?) you’ve described.
As far as your cab driving anecdote: it’s an anecdote. For a specific industry. Not all that informative. And I’m not sure why it should matter whether “people I know” are involved or not — we’re talking about the aggregate economic picture, not my next door neighbor.
Bottom line: increasing affluence for the middle class and bottom 20% is a good thing, no matter what the very few ultra-rich are doing.
(For the record, I’m solidly in that 60% middle class, and have been all my life.)
Two questions: is there any way to determine the occupational composition of the data?
Is there anyway to identify the duration in the top 1% of specific individuals (or are there other studies of that)?
I raise these because – and yes I know it accounts for a small portion of the population – but if you plotted the incomes of sport and entertainment celebrities in that period you would see similar slopes, because the time period happens to coincide with a major gain in bargaining power by them. But there is a lifecycle issue at work in their incomes as well. Only a handful like the Spielbergs, Jordans and so forth would remain in the population throughout the entire period.
This leads me to wonder if the same holds true in other occupations such as investment or trial lawyers or real estate development such that over time the percentage of the total population that penetrates the annual top 1% is actually larger than 1% of the population, which means that the aggregation of data and the use of an annual measurement convention may overstate the social inequality.
If I recall correctly it was Milton Friedman who stated that it was socio-cultural aspects of society that mainly determines income, not pure postivistic economics that postulates solely economic factors.
If no gains, or tiny gains, for the masses are good enough, shouldn’t decades of stagnation be even better for people with high incomes?
Rhayader,
On gangs: read the 2008 book, “Cracks in the Pavement: Social Change and Resilience in Poor Neighborhoods” by Martín Sánchez Jankowski — who spent 9 years as an on the ground observer in 5 poor neighborhoods in NYC and LA, in every pllacefrom the proverbial barber shop to the high schools. He blames the abysmal academic performance of these schools on one thing: the dismal prospects for employment after graduation — why kill yourself studying.
I think it was the Freakomics guy Steven D. Levitt who found that street drug dealing paid only about $10/hr — but still almost double the federal minimum wage at the time (inflation would not add much by 2010). Double today’s federal minimum wage and why would anybody want to risk death and prison?
I read “When Work Disappears : The World of the New Urban Poor” by William J. Wilson and “American Project: The Rise and Fall of a Modern Ghetto” by Sudhir Alladi Venkatesh at the same time. The projects on Chicago’s south side began as places of hope. But as work
(or I would assert sufficient pay for work — as average income almost doubled McDonald’s pay could have gone up 50% to $15/hr — double the minimum wage in the poorest parts of the US and the price of what would go up, real estate, health care, autos, what?)
disappeared things only went downhill at first. Vencatesh’s book continues after Wilson’s ends — and the projects only turned into gang infested Hells as the minimum wage dropped to half LBJ’s level (as average income doubled since LBJ). The middle class moving out thanks to INTEGRATION cannot explain such extremes — especially in a once super segregated city like Chicago (couldn’t move far).
But, I don’t persosally need all this except to confirm my own personal observations in 15 years in NYC’s badlands from 1966 through 1980. Visited 6 different prisons for just one facet. Know what motivates juvenile delinquency, purely psychological factors not money: kids in the emotionally dependent stage who think no one cares about them don’t care about themselves — nothing can deter them (crazy stuff — kids in ghetto homes without fathers to control them go off the same crazy way — just for being out of control; crazy stuff — this ties in with gang recruitment of course).
My taxi stories happened in the context of a labor market where workers have absolutely no say either economically via unions or politically via union lobbying. Maybe the difference between us is that I am 66 years old and have had plenty of time to figure out how the world works. :-)
Mark T,
The pro athletes of my day (the 1960s) are all tending bar now. Seeing to it that highest incomes cover entire lifetimes is not sufficient justification to skinning the bottom half the nation’s workforce — not that it happens in any such deliberate fashion.
I see it as squeeze the toothpaste tube at the bottom — it all comes out the top — inner and outer pressure equalizing inbetween: economic physics (just ask any knowledgeable cab driver :-))
“Double today’s federal minimum wage and why would anybody want to risk death and prison?”
That makes very little sense. Drugs are so profitable for the players on top that they could easily compensate runners and touts at a level that still made those jobs more attractive than minimum wage legit jobs. They’re going to pay a corner boy an extra few bucks an hour much sooner than they’ll risk arrest by manning the corners themselves.
You’re not going to fix Drug War problems with a minimum wage increase. The business is far, far too large and flexible and in-demand for that sort of supply-side “fix”. This should be more than obvious given our previous experiences. We need to end the Drug War to fix Drug War problems.
And I’m not going to accept your age as proof that you “know how the world works.” Pure hogwash – there are plenty of very old, very clueless people out there. Age has nothing to do with it.
“I see no evidence to support that assertion. Why is the median so significant? It can be distorted by outliers just as easily as an average. ”
This statement is false. The median is not affected by outliers. Go look it up.
Rhayader,
The drug demand will definitely always be there. I lived in the East Village in Manhattan for two years in mid-1960s. Our first-year next door neighbor was a psychedelic dealer and our second-year neighbor was a heroin dealer (only to his friends who got high on weekends) — both 20ish white guys.
This immigrant neighborhood was an outpost of hell. Want your car burned to the ground for the insurance — just take your plates off with sight of my block and the kids would have it burned to the ground in an hour or less — guaranteed like FedEx (don’t know how word-of-mouth on that got around). One 16 year old told my brother that he couldn’t wait to be 17 so he could go to Vietnam like his brother! But, nobody sold drugs. Could it have been the $10/hr LBJ minimum wage at half today’s average income? ??? Think about how the world probably works.
There will always be a few folks who want to live the alternate/illegal life style — just not half the neighborhood like “Clockers”!
Dennis Drew is comparing apples and oranges here.
The comparison is not between transferring more of the increases in wealth from top 1% to the lower earners, it is between any increase shown to the lowest earners and no increase.
Drug dealers et al do not exist because the top 1% income went from 250k to 1.25m and also not because the minimum wage only went to $10 not $25, the price of drugs would have risen and the average wage for drug dealers would also be higher.
I thought this was an economics blog?
Rhayader
It’s not just about state transfers – it’s about conditions under a changing balance of social power. Examples include unpaid overtime, unpaid training, poorer employee health plans, poorer pension plans and so on – all private sector stuff (in the US). In short, transfers of risk and greater exposure to uncertainty.
And inequality does matter to humans, as they do to any social primate. There are well-documented biochemical pathways that go from lower status to stress to health and general performance. And in a democracy it matters even more, as open debate is premised on limits on the exercise of power by the elites (this is not about absolute equality of income, but about relative economic independence – the quality Jefferson had in mind when he advocated a nation of small farmers.
Though I’m not a fan of income inequality, your graph is misleading in that it ends in 2007. I noticed a big drop around 2000, during the last recession. Given that the wealthiest 1% are likely to derive most of their income from investments, I’m curious as to what the graph would look like in 2008 or 2009, or even 2010. I’d be willing to bet that income inequality shrank in the past few years, even if the overall trend is toward greater income inequality.
Rhayader,
Real life is not an economics blog. People don’t get into a “job” that entails daily risk of being shot over sales territory or just stupid rivalry gang tit-for-tat plus long years in jail almost inevitably (I’ve visited in plenty of jails so I am fiercely aware of such consequences) because the job pays a little more. They get “jobs” in street corner drug dealing out of absolute desperation to make at least a minimal living — which the present minimum wage is not (not to say when it was $5.15/hr — half of LBJ’s!).
Around 1991, Businessweek reported that 70% of McDonalds employees turned over every 90 days. These days the minimum wage is so low that I see the same happy Mexican (in SF, Chinese) faces behind the counter year in and year out. Americans just wont go to work for the minimum of today — period. Got to do something — drugs better than robbery and burglary. Maybe you need to visit some prisons — or spend some time ducking bullets (or drive a gypsy cab in the Bronx like I used to — an infinitely safer job than street corner drug dealing and the most the law will hit you with is a traffic ticket :-)).
The existence of gangs is your fixation. Isn’t this an economics blog? I see the explosion at the top as symptomatic of what is happening at the bottom — squeeze a toothpaste tube at the bottom — it all comes out the top. Even if you do not you accept my “economics physics” the total loss of market bargaining power on the part of American labor — uniquely; didn’t happen in Europe — is a disaster of giant magnitude of and by itself — ipso facto.
Winn,
I believe that investment income is not counted in the income chart — only earnings — not perfectly sure. Anybody?
keddaw said: As long as everyone’s real trend is upwards, income disparity is irrelevant.
I say: Wrong. The trends should follow the benefit to the whole society that each group has contributed. These deeply disparate trends show who is gaming the system better. I doubt that the top 1% income earners have contributed 25 times societal value than the remaining 99%. (25x number comes from 1,250,000 divided by 50,000)
Tell me, what has Paris Hilton contributed? She’s in that top 1%.
How about you? Presumably you are in the other 99%. Who has made more real value to society? You or Paris?
egc52556,
I don’t want to seem pedantic — but the cause of what I call the great wage depression is that understanding of the job market is so completely non-existent in America — even among the educated like you!
The top 1/10 of 1% are now earning 25X WHAT PEOPLE DOING THE EXACT SAME JOBS two generations ago were making — over which span average income “only” doubled (as it does over 40 years — which is why worrying about social security retirement benefits is such a complete joke). That is the real core of the quintupling of top 1 percentile income.
If only our progressive elite could wrench themselves away from their fun equations about the financial markets and the real estate markets, etc., etc. and cry to the world that the federal minimum wage is now $2.75/hour below what it was in 1968 — and yell out the path to a fair and balanced labor market is as clearly laid out as legally mandated SECTOR-WIDE LABOR CONTRACTS where everybody doing the same job (e.g., retail clerk) in the same geographic locale works under one common contract — used all over the better paid OECD world.
Wal-Mart just pulled 88 stores out of Germany because it could not compete by paying less than the competition. American supermarket workers, just forced to take two-tier contracts (goodbye future middle class supermarket jobs), and airline workers (subject to a never ending race to the wages and benefits bottom*) would kill for sector-wide contracts. But it hasn’t been done here before so nobody thinks it can be done. ACTUALLY, NOBODY THINKS OF IT AT ALL (an over the hill cab driver can but not elite progressives) Has to be done — it is the one, only way to end said race.
*Northwest Airlines I believe it was recently squeezed $1 billion dollars in wage concessions out of pilots and the very next year awarded average $1 million bonuses (!) to 1,000 executives (!).
It would be useful to see a chart similar to this one depicting pre-tax incomes. Can someone point me to this?
While the conversation on this site seems aimed at the social utility of attaining certain income outcomes, many would be interested to compare the after-tax situation with the distribution of pre-tax incomes.
Some people ask why income equality matters:
1) some people live in bad economic situations, but they play by the rules because they believe that their situation is improving as fast as possible. If all the benefits go to the top, they will stop believing in the system
2) regular people are constantly asked to make sacrifices in the name of economic growth. It is impprtant that they benefit from growth.
3) much of human happiness depends on social factors and status. people want attention from others more than they want extra toys. Rich people tend to hog all the attention.
Thanks Lane, it’s a very evocative graph. Here’s a version in colour.
egc52556 Says: I say: Wrong.
Fine, I have no problem with people disagreeing with me, all II ask is a decent reason so that I can either adjust my own thinking (because I’m wrong) or argue their position (because I’m right.)
When you compare the bottom 10% in the 1900’s to the bottom 10% in the 2000’s their biggest concern is not what submarine owning executives earn, it is what they can buy for themselves and their family. I people in 2000 can buy food for 4 generations of their family when people in 1900 could only buy food for themselves then we are better off as a society. It really is that simple.
keddaw, I DID give my reasons. But you’ll have to read my entire post and not just the first 3 words.
My main point is this: for WHAT are they top 1% rewarded at the levels and disparity they are? I say that they should be rewarded for their overall benefit to society. That is not irrelevant.
Now you can adjust your thinking.
As to your new comment that people in 2000 can buy food for 4 generations, but people in 1900 couldn’t…. I don’t see any evidence of that. If anything, contrast the 1950’s middle class families supported by one working adult. Today, the children of those families would need the income from two working adults to buy the house they grew up in and to support their kids in the same lifestyle.
egc52556 Says: My main point is this: for WHAT are they top 1% rewarded at the levels and disparity they are? I say that they should be rewarded for their overall benefit to society. That is not irrelevant.
Which is a view.
But requires someone to view what is beneficial to society and to decide who has contributed how much to any increase in that subjective benefit.
The top 1% are rewarded for whatever the market decides they should be rewarded for. Are you trying to be some ultimate arbiter of values and worth? Who are you to say that Paris Hilton doesn’t produce more economic value than me? That the use of wealth to fund Paris Hilton is economically wasteful is besides the point, people have income and can use it to reward whomever they like for whatever ‘skills’ they like.
You are appearing totalitarian and even if its with the best of intentions it is still wrong.
If people at the bottom tomorrow are slightly better off than people at the bottom today then we are moving in the right direction – regardless of what the people at the top are doing. Maybe there is a better, more efficient way of going forward, but making the disparity of wealth an issue is wrong. An easy way to fix that is to remove everyone’s wealth/income over $1 million – income disparity reduced massively. Is that really the aim?
keddaw wrote: The top 1% are rewarded for whatever the market decides they should be rewarded for.
Oh, here we go: the glorification of “the market”.
As far as I’m concerned, “the market” is the worst entity to endow with power over our lives. It has no social conscience. It rewards profit over real value. It favors the already-wealthy and punishes the already-poor.
What is the point of having a society — that is, having more than one person living and working together — if not for the MUTUAL, EQUITABLE, FAIR benefit of ALL the people in the society? Is “the market” going to make it so? Obviously not. Our American capitalist “free market” society is NOT mutual, equitable, or fair.
The point is NOT as you say, “If people at the bottom tomorrow are slightly better off than people at the bottom today then we are moving in the right direction”.
The point is whether EVERYONE in the society is moving in the right direction mutually, equitably, or fairly.
And we’re not. The inequality graph points this out vividly. It is not irrelevant.
keddaw,
Would you be happy with the direction things were moving if people were completing high school today at the rate they completed eight grade in 1910 (made up figures) — when they just as easily could be completing college at the same rate but the resources were being shunted away for not beneficial reason; almost by accident.
It’s not just a matter of better for something that affects us personally — it is a matter of best.
As a matter of fact most human beings are tempted to make it very much the best even if they can squeeze it out of fellow human beings. It’s always, “Many are called but few are chosen time on planet Earth.” :-) That’s why our political system is set to balance rapacity with checks and balances — rather than according to some abstract ideal like “liberty, equality, fraternity” (we know which revolution lasted the longest). If the market is not set up the same fair and balanced way then we get the same squeeze — UNIQUELY today in asleep-at-the-switch-labor America. Doesn’t happen in the European labor market.
The top 1 percentile getting 5X more when average income only increase .5X (that’s point five) REALLY REPRESENTS the top [I’m going to switch to 1968 through 2007 now — the only figures I can quickly access] the top 1/10 of 1 percentile getting 25X more than people doing the EXACT SAME jobs as 40 years ago.
To keep our eye on the ball here we must think of this out sized multiplication as symptomatic: the folks on the bottom mostly forgot to maintain their bargaining pressure but pressure equalizes gradually until it hits the 90 percentile level where income SHARE has remained the same over the years all the way up to the 97 percentile level — above that the bargaining pressure at the top starts to scoop up everything that was squeezed up from the to bottom.
The problem starts at the bottom — that is the only place where figures or not anybody can figure out that American labor bargaining pressure has disappeared (mostly not thought about!). The folks on the top are not even smart enough to exploit the rest of us (linebackers, news anchors, not even CEOs).
ZZZZZzzzzzzzz……
We have switched from my statement of fact (we are better off now than we were before) to some idealised dream view of society where everyone has their own pet rainbow and there is a pot of gold at the end of unicorn droppings.
To ask ridiculous questions (“Would you be happy with the direction things were moving if people were completing high school today at the rate they completed eight grade in 1910” – YES! As long as they are materially better off now than they were then) is pointless.
In light of that, here’s one for you: I have a switch which if I push it makes everyone 10% better off, but makes the top 1% three times as rich – should I push it?
None of which answers the main criticism of your wishful thinking which is: This requires someone to view what is beneficial to society and to decide who has contributed how much to any increase in that subjective benefit and reward them accordingly.
keddaw: In light of that, here’s one for you: I have a switch which if I push it makes everyone 10% better off, but makes the top 1% three times as rich – should I push it?
Me: No. Because there is another switch where everyone is 11% better off.
keddaw: This requires someone to view what is beneficial to society […]
Me: You assume that this requires one single someone who is a totalitarian dictator. I’m assuming that we can, through mutual consent and mutual self-interest, create the 11% solution.
To you I must seem hopelessly ridiculously idealistic. But to me you seem hopelessly cynical.
John Rawles says (cribbing a bit from WikiPedia [1]):
Social and economic inequalities are to be arranged so that they are to be of the greatest benefit to the least-advantaged members of society (the difference principle).
Note that he doesn’t say that there should be perfect equality, but that inequality that does exist should benefit those at the bottom.
Some assertions of the evidence of a significant rise in incomes of the bottom 90% nothwithstanding, judged by the ethical system outlined in “A Theory of Justice,” our current economic system is not only broken, but immoral. And that’s even if we strike Rawls use of the word “greatest” and substitute a more modest word. Something like “significant” or “meaningful.”
Or “Some assertions of the evidence of a significant rise in incomes of middle 60 and bottom 20% notwithstanding…”
egc52556: “No. Because there is another switch where everyone is 11% better off.”
Indeed, and we should be searching for that solution if possible.
In the mean time though it is completely misguided to attack income disparity when (virtually) everyone is getting better off.
J – I am no fan of arguing from authority which is what you appear to be doing. Bear in mind that the logical conclusion of what you and egc propose is socialism or communism.
keddaw: “Bear in mind that the logical conclusion of what you and egc propose is socialism or communism”
Not necessarily. It’s just a matter of degree. Every society gives up some freedom (and selfishness) in exchange for living with other people. The classic “social contract.” I don’t want or expect people to give up all of their freedoms. But I do want and expect people to be less selfish than they are…. and I expect our society to enforce these less-selfish principles through our laws.
Is that Totalitarianism? Socialism? Communism? Compassionate Conservatism? I don’t want to label it, because people react non-rationally to labels.
egc52556, you don’t want to label it because your idea doesn’t go as far as any of the labels I mentioned. However, if you say “we should take 10% of the increases obtained by the top 1% and redistribute it to the bottom 10%” which appears, on the surface, to be fair and beneficial, then someone else comes along and says “take 20%” someone else “take 30%” etc.
The problem you face is that every argument for taking the initial amount is equally valid for taking the rest. The logical conclusion of which is an equal share for everyone and no incentive for anyone to do anything.
Double the minimum wage next month, and half the people who make minimum wage will have no job at all the month after. Well over 9% of the American workforce right now is out of work, and close to 20% have either no work or less than they want — or just gave up looking and filing for benefits. Congress just extended unemployment benefits for another few months for people out of work. Small businesses who might be able to afford to hire a couple of people to do non-skilled work at $5/hr can only afford one for that work at $7.25/hr. Is it better to have two people making a little money, or one person making a little more and someone else who wants a job not making anything? As long as the unemployment benefits go on indefinitely, how do you motivate someone with few skills to get up off their couch and seriously look for a job?
@keddaw And you’re arguing on the slippery slope.
@inthomp Have you ever been on unemployment? When I drew unemployment, it was not enough to make me want to stay home on the couch.
keddaw: The logical conclusion of which is an equal share for everyone
Yes, I hope.
keddaw: and no incentive for anyone to do anything.
No, not at all. There will always be someone who looks around and thinks, “How we’re now (all) living can be better. Let’s do the thinking and working to make it better. Even if I can’t get you all to join me I’m going to do it alone.”
That’s progress based on the best humanity’s best instincts, instead of what your basis seems to be: people will only be motivated if the benefit is to themselves ALONE. A selfish, immature, and somewhat heartless motivation in my opinion.
I repeat, In my opinion. But that’s what I believe.
“As long as the unemployment benefits go on indefinitely, how do you motivate someone with few skills to get up off their couch and seriously look for a job?”
Knowing that weekly unemployment benefits are generally 60% of the base income amount (based on a 26-week history) with a cap of (depending on the state) between $360-600, AND that taxes must be paid on the unemployment comp received, I’m just not seeing this as being an issue.
Different strokes, I suppose, but ‘m thinking the potential of 100% of historical wages vs. 60% (a MINIMUM increase of 67% vs. not working) is PLENTY of incentive.
I’m working, thank goodness, but I would change jobs in a heartbeat if somebody offered me a 67% increase.
And I’ve spent time at home burning vacation that needed burning and had no money to go anywhere. I’m just not seeing staying at home doing nothing for low wages as being any kind of incentive at all.
But, that’s me.
This chart is meaningless other than to prove the point of “so what?”. The S&P500 on inflation adjusted terms is up 7.2x over the same period. This chart shows that the top 1% have expanded ~4x. One could easily make the argument that the rich have been overly penalized during the same period since their financial fortunes are more closely tied to the financial markets. The so-called disparity is a myth. What these folks don’t want to talk about is that the top 1% pays 40% of all taxes. Is that fair?
@Fred:
Share of capital income, 2003, top 1%: 57.5%
Share of wealth held, 2007, top 1%: 34.6%
Wealth distribution for all investment assets, 2007, top 1%: 49.7%
Financial wealth distribution, 2007, top 1%: 42.7%
Distribution of net worth, 2007, top 1%: 34.6%
I, uh… Yeah. I wouldn’t feel too sorry for the top 1%.
J Says – And your point is what? Try some original thought rather than cut/paste from Wikiwhoo-hoo. These stats mean nothing other than this is a country where people can work hard and make a lot of money. Can you tell me what the effective federal tax rate is for the bottom 45%? How about the bottom 45%’s fair share of the tax burden? Big clue: zero. In fact, under the Bush tax cuts the bottom 45% gets a tax credit; not a refund, a credit.
The real issue is you have a career politician trying to make policy premised on some warped sense of class warfare and it will backfire big time because the center of the country is fundamentally adverse to welfare.
@Fred
Is “try some original thought” something like “cater to my ideological biases?”
It’s consisitent with data discussed in Race Class and Gender, a course I took a couple of years ago, and consistent with data I used in a paper I wrote for that course.
But I can see that no amount of data and facts will sway the opinions in which you’re so heavily and emotionally invested. In fact, here’s a paper about that, which I did not get from wikiwhoo-hoo:
When Corrections Fail: The persistence of political misperceptions
J Says – You didn’t answer the question. You may want to bend the data to suit your anthropology but the fact is total revenues increased over the period that this chart depicts. It is erroneous to chart wealth based on a percentage of GDP for the very example I gave you for the S&P500. But the fact here is you don’t live in the reality of financial markets, but rather in the womb of liberal humanities whose primary purpose is to avoid the bitter reality that even though you may still wear Birkenstocks (I do too) and smoke dope (don’t anymore), the ability for you to spend time doing research is in fact paid for by having a robust and expanding financial system.
The fact I made about the chart above is that is misrepresents the so-called issue of income distribution and begins with an assault on folks who have worked hard, accumulated wealth and now enjoy a higher degree of financial freedom. What’s next? Racial quotas for hoe much you are allowed to accumulate?
Put on your thinking hat and tell me if I am wrong. Can you even calculate the S&P’s 10 yr return adjusted for inflation? Do you even care? Your pension certainly does, even if you don’t want to.
Modern nations with extreme economic equality collapse. America is a nation that pulled funding out of aid for the desperately poor only to use it to finance hand-outs for the rich. Meanwhile, huge amounts of public dollars went into covering the costs of years of annual “tax relief” for corporations, always with the promise that it would be used to create “good, family supporting jobs.” The joke’s on us — the bulk of this money was used to ship our jobs to foreign countries. Our anti-poverty agenda today consists of an arrogant, “just get a job”, even though there aren’t nearly enough jobs for all who need them. Our government’s response to American poverty: “Tough.” People are out of money and out of options. America has been rushing headlong into the Middle Ages for years now, and something has got to “break.”
Sorry for the typo — I meant “severe economic inequality.”
@ D.H. Fabian – If the argument is socialism/communism versus capitalism, just come out and say it. But let’s not pretend for a moment that your statements are even remotely accurate much less relevant. The fact is if you continue to tax the owners of capital, they will spend less because it is going to non-productive investments. To be sure, there is a necessary balance between fairness and maximum prosperity. Yet, I get the sense that you haven’t traveled very far from the US and therefore can’t appreciate in fact how good we have it. Had you a sense for how the larger world lives, you might appreciate the long run impact of relying too heavily on gov’t entitlements. The fact remains that the Bush Tax cuts resulted in more revenue for the gov’t, not less. When this discussion includes some semblance of gov’t reducing its expenditure, then we will be making progress but until then, more taxes will only result in less consumer activity and less job creation and longer chronic unemployment.
Fred,
I don’t know if you have noticed anything unusual happening in a America lately a giant recession — fueled by two bursting bubbles: financial and real estate.
The latter two were caused by OVER investment in NON productive securities — all the while Republican tax policy was force feeding $4 trillion more cuts into the pockets of fat cat investors (fat cat de gras? :-]).
Fat cat investors had not much opportunity for productive investments — like factories — because demand has been shrinking in step with shrinking paychecks as unorganized American labor is squeezed more and more by capital.
(What vigorous demand there was was unhealthily fueled by the Republican deregulation of banking.)
This same low demand/high investment process may actually have been the core cause of the Great Depression. You see there has to be a natural balance between demand and investment — something it is necessary to keep our eye on. Rudimentary?
@ Denis – I see, non-productive assets are ones that don’t go into government coffers? You are talking apples and oranges. 1) Where in the heck do you get $4t in tax cuts from (Daily Kos or what?), 2) help me understand why there is a dividend tax at all when that same money was already taxed at the corporate level, 3) why must the private sector reduce its income when the Federal government’s expenses remain static, 4) you may think factories are better than financial markets but the reality is, financial markets allow for factories (and jobs) to be created, 5) the narrative of jobs being shipped overseas is incorrect, the US remains the largest manufacturer in the world, 6) it seems that fundamentally what you want to say is the private sector is incapable of leading job formation and therefore, the government must inject itself via higher taxes?
The discussion here is not economic theory but the fairness of higher taxes premised on a class warfare ideology. My response to that is it might feel good to stick it to the (white) man, but it doesn’t make it fair and it doesn’t solve the structural problems we face as a country. When gov’t takes another dollar from your pocket, it leaves the productive economy and loses its utility.
Lastly, your meme that Republicans deregulated everything and ergo sum were the root cause for all of our problems is just silly. It took just as many Dems to turn Fannie and Freddie into the biggest sinkhole the country has ever seen. It also took just as many Dems to pass the Bush tax cuts which benefited far more down the economic scale than they benefited the “rich”. I know it doesn’t fit well into the lib narrative, but that’s the truth.
Anyway, none of this matters that much since Obama now carries the moniker of the quickest lame duck to ever get elected and the Dem Congress has all but dismantled its own party. I’ve enjoyed the ride down and now look forward to a new chapter in politics, hopefully.
Fred,
Do you realize what a one-dimensional (typical Republican Party) view you have of economics? Are there any other aspects we should keep track of and worry about the interaction between other than how much money investors have to invest? Any at all?
(Republican Party economic policy seems say just stay out of the market and the market will take care of all ills all by itself. Hence, no other economic problems to fix. Ever.)
Let’s look at our labor market. Since 1973, 15% of income SHARE has drifted (I say drifted because it happened without anyone — even on the receiving end — particularly trying to make it happen) to the top 3% of earners, most extremely to the top 1/10 of 1%: CEOs, ballplayers and TV news anchors making 25X what their predecessors did for the same work while the minimum wage is now $2.75/hr lower in today’s dollars than it was under LBJ.
Think there might be some kind of problem there — in the uniquely union UN-organized American labor market?
@Dennis Drew
“the top 1/10 of 1%: CEOs, ballplayers and TV news anchors making 25X what their predecessors did for the same work while the minimum wage is now $2.75/hr lower in today’s dollars than it was under LBJ.”
Could it possibly be that there are more workers available at the minimum wage due to women in the workplace? Could it be that the usual minimum wage workers today (teens) are less efficient, effective and useful than they were under LBJ? And could it be that the top 1/10th of 1% are still making more for their companies than they cost but are now getting better rewarded (more fairly?) for it?
I’m not from the US so I could be wrong.
@ Denis – You answered none of my questions, failed to address the core issues here of whether or not taxing the rich will do anything, much less it even fair (given the percentage of taxes the top 3% already pays). You clearly don’t care that the bottom 50% pays no Federal income tax and about half of those actually get an tax credit back (thanks to Bush). Tax the top 3% at 100% and it still will go no where to solving the structural problems facing this country and I would bet that your solution is to simply nationalize the private sector and take cure from Chavez. The fact is the graph at the top of this blog misrepresents actual income growth in real terms. The y-axis should be percentage growth, not USD, but that isn’t the discussion you guys want to have, is it? The discussion you want is how bad it is that so and so makes a gazillion dollars and you should get a piece of it for, well, posting on some blog about how unequal everything is. It is unfortunate that you seem stuck on labels and can’t see the forest for the trees because the truth is Washington is stealing you blind.
Here’s the fact: Federal income tax revenue grew under the Bush tax cuts. That’s a fact. They didn’t cause a deficit. Overspending caused the deficit. When I hear that Congress, by its own volition, decides to reduce their budget allocation for each member from $7 million each per year, then I’ll start believing in change……
One more thing. Minimum wage is a stupid metric. Nobody cares about minimum wage. If you wanted full employment, you’d abolish minimum wage and, bam, you’d have full employment. But then again, how would all those union leaders earn a living then, right?
@Denis, “If you wanted full employment, you’d abolish minimum wage and, bam, you’d have full employment.”
I assume you are being ironic? That then we’d have full employment at $1 per day (or less)?
I don’t think you are suggesting we could have full employment like we had in the 50’s if the same percentage of women stayed at home?
I don’t think you are suggesting we could have full employment like we had pre-Civil War if the same percentage of blacks stayed slaves?
Sorry, that should have been directed @Fred, not @Denis — bad copy/paste.
@Fred, “The y-axis should be percentage growth, not USD”
@Fred, “Federal income tax revenue grew under the Bush tax cuts.”
1. You say you want to talk percentages, but when you make your own argument you talk… what? Did income tax revenue grow in USD or in some percentage of overall GDP?
The fact is, revenue may have grown in USD during Bush’s tax-cut years, but revenue fell as a percentage of GDP. Add in the absolute total economy f**k caused by Bush’s war and hands-off oversight of Wall Street. Why would America EVER put our economy back in the hands of the GOP? I’ll take the Dems, for all their faults, as a tonic for the self-serving conservative agenda.
Fred,
50% pay no federal income tax? Mm, mm; there are two possibilities there:
one) that the tax is exceedingly kind to lower incomes — not counting FICA of course;
two) that INCOMES to tax have dropped so low that there is not much to tax — a national disaster of gigantic proportions (I would call it a “Great Wage Depression” — which is what it is even if the so-called progressive media never reports it).
Let’s look at possibility two:
In 1968 the median (not minimum) wage was $12.50/hr. In 2010 the median wage is $15.00/hr — DOUBLE THE AVERAGE INCOME (A.K.A., per capita income) later. As of early 2007 a QUARTER (!) of the American workforce was earning less than LBJ’s minimum (not median) wage.
Obama’s minimum wage is still $2.75/hr below LBJ’s minimum wage (and $.75/hr below Ike’s!). If LBJ’s minimum wage had kept up with average income gains it would be $20/hr — or $5/hr higher than Obama’s MEDIAN wage.
I rest my case; if 50% (you say) don’t pay any federal income tax it is because the American labor market has gotten so out of shape labor doesn’t get any income.
Do you think there would be any street gangs — or any ghettos — if the median wage was $25/hr and the minimum for any job you could do was $15/hr? Last I looked $15/hr was the German 10 percentile wage. This what is essentially a lack of market bargaining power and labor political power will not be changed by cutting taxes for the upper income taxes. Do you think otherwise? I wish you would address something besides your tax bracket — there really is more going on in an economy than that.
PS. For anyone else here — the answer for American labor’s unique in the OECD world (except for labor screwed Japan [believe it or not) is legally mandated sector-wide labor agreements — in use from the first world (Germany — most thoroughly organized version — you know Germany where they produce those terribly built socialist products: Mercedes, B&W, Volkswagen), through the second-world (Argentina) to the third world (Indonesia) — the only answer, the in fact easy answer for both labor and management to America’s every increasing race to the pay and benefits bottom.
@ Denis – you are a complete moron. move to Venezuela, dig a hole and stick your head in it. before the Bush tax cuts, 35% didn’t pay Federal income tax; after the tax cuts, it went up to 50%. it’s because of the tax cuts that more people got tax credits, not because wages went down. you seem to be confusing median and minimum wage. furthermore, to speak of minimum wage is stupid. you need to talk about household income, which has risen from $40k in 1960 to $52k in 2007. it actually started to decline under Clinton in the late 90s and then Clinton’s dot bomb started the decline we are still experiencing today.
since you are not interested in speaking to the issue that was the original discussion, let me say that the entire concept of organized labor is coming apart at the seams; not because organizing in and of itself is bad, but because organized labor has been hijacked by an elite who essentially adds no value and then tries to plug the financial holes by screwing companies. GM is a prime example. Obama screwed the bondholders and gave the UAW equity. you will soon see that the new GM is the same old GM. their pensions remain underfunded, their product lines are weak and they will fail to compete with better run, non-union auto manufacturers.
Money is power. Nothing else. When inequalities of this magnitude exist, the only relevant conclusion is that nearly all the power lies in a small elite group…1/2%.
@ Charlie – Ok, if money is just power and “nothing else”, how exactly do you put gas in your car, buy bread and put your child through school? The true power in a capitalist society is consumer power. You may not like it, but that’s the truth. Most of what so-called “communists” find distasteful is our proclivity towards over-consumption. I agree that the US became far too engulfed with consumerism in and of itself but that is already changing. If you think P&G is powerful just because they have a lot of cash on their balance sheet, you should give their investor relations team a call and ask them what their number one concern is? Consumer spending. Money is only as valuable as its second derivative. If it doesn’t flow, you can print all you want and it won’t mean a damn thing; which is the current situation. When gov’t takes a larger piece of the pie, for whatever reason, the so-called multiplier is an illusion. It doesn’t create any wealth and only temporarily provides a benefit. Unless of course you are an authoritarian, in which case gov’t is the only provider and decision-maker……
The graph tells us much about the roots of the chronic stagnation of the system over the past ten years. Highly concentrated economies are slower growing. Krugman proves this point best here;
Steve – Krugman makes no comparisons to other economies so to conclude with the generalization that “highly concentrated economies” [whatever that means], are “slower growing” requires a much deeper analysis of the data. To argue this point, you would have to compare “fast” growing economies with the US, UK, France, Canada etc. Were you to do so, you might surprise yourself in that the income skew in so-called emerging economies is far greater than in any first world, developed economy. That’s just a fact but you need to be open to something other than Paul Krugman to make the connection.
The good news is by Monday evening, the tax & spend liberal experiment will be over. Next step: Fed starts buying assets, again, and the USD devalues 20%+ against the commodity currencies over the next couple of years. Once our goods can compete on a global scale, we can begin to create jobs. This will also include the requisite adjustment on the part of the population that seeks a standard of living that costs much more than what we can afford as a nation.
@fred: “The good news is by Monday evening, the tax & spend liberal experiment will be over. ”
Not likely. First, the “experiment” has been going on since the Republicans drove us into the Depression. Second, the Republicans won’t control the Senate or the White House. Third, the Republicans won’t control reality and their campaign spin will hit the hard rocks of those most stubborn of all things: facts.
@fred: “This will also include the requisite adjustment on the part of the population that seeks a standard of living that costs much more than what we can afford as a nation.”
Which “part” of the population? Lowest 20%? Middle 20%? Top 20%? Top 10%? Top 1%?
Well, wages increased pretty steadily in America from 1820 til 1970 and have been falling since then.
It means a lot to people if they believe the future will be better– there’s no reason to believe that anymore in the US.
@egc52556 – Guess you read that one incorrectly. Obama is doing anything in his power to cling to some semblance of credibility, including extending the current marginal tax rates. To boot, the nonpartisan deficit panel has some fantastic ideas that will meet fierce resistance from the usual suspects: unions, teachers especially. Of interest this past week was a speech given by Gore where he flat out admits to voting for corn subsidies and corn ethanol simply to get votes from the farmer lobby. Which part of ALL politicians are full of it, don’t you get?
Keep on drinking the kool-aid that the mean old GOP just wants to hurt the little guy, but it is a pointless argument: the country is moving forward and less Federal expenditure is at the base of this shift.
@J Says: it will affect everyone.
@Doug: may i suggest a time machine to take you back to the Gilded Era or perhaps a plane ticket to Cuba/Venezuela where State-directed wage fixing has worked oh so spectacularly well….
“the best” chart would
(a) compare household AND individual income, rather than using only household data. individual incomes come from IRS data, household incomes come from census, so there are two different data sets;
(b) somehow correct for changing household sizes over the years;
(c) somehow show that the majority of top one percent earners are in that bracket temporarily, the top 1% has the highest turnover of any income bracket in the USA.
Lane Kenworthy 
I think the graph makes the point reasonably well.
I wondered if there is some easy way to collect and show the impact of the less monetary side of inequality. Here in Australia and I believe also in the US a lot of the changes in the past 30-40 years have less to do with absolute income than with withdrawal or limiting of benefits (education, health) or imposition of greater risk (eg less secure employment). I suspect that, if these were taken into account, income would effectively have declined for most people.
As long as everyone’s real trend is upwards, income disparity is irrelevant.
I think Other Peter T makes a good point about security and state provision, if the state provides more necessities then any increases in income at the bottom are magnified and vice versa.
Keddaw is exactly right. To focus on “inequality” is to miss the point. The slow but steady rises in the other two lines are of much greater significance.
I don’t buy the argument about “the less monetary side of inequality.” There’s no evidence that, in spite of rising real wages, “income would effectively have declined for most people.” People are better off when they make more money; even a minor increase in personal income is much more valuable to an individual than increased access to government services.
Apparently — incredibly — this is EXACTLY where the 15% income share lost to the bottom 90% since 1973 went to. 90-97 percentile income share remained unchanged. Even earners just at the 1 percentile mark did not gain share excessively — though what share shifting occurred there may be presumed part of the same phenomenon (identified below).
This huge shift is apparently about the top 1/10 of 1 percentile earners garnering $5-10 million incomes: if investigated I think we will find these lucky folks earning 25X what folks doing the same jobs in 1973 earned while average income climbed only 2X over that same span (I use 1973 because that is when the 15% share started to slip away — also because 2X is so easy to use).
My “clinical” evidence for assuming the top 1/10 of 1 percentile got the lion’s share of the shift is that in 2007, 180,000 Wall Street gamblers only averaged $300,000 (average $180,000 bonuses on top of average $120,000 average salaries — easy for my non-economist brain to remember). My family doctor certainly did not gain from the earnings that slipped away from the bottom 90 percent — nor anyone else especially useful.
What is DELICIOUS about the top 1/10 of 1 percentile getting the lion’s share of the lost money IS THAT THERE CAN BE NO LEGITIMATE ECONOMIC BENEFIT TO JUSTIFY IT (higher tech economy making higher tech skills worth comparatively more or some such). Manifestly, linebackers, TV news anchors and even CEOs are not 25X more productive than they were two generations ago. Another optimistic feature is that these lucky folks are not smart enough to have done it to the rest of us — we manifestly did it to ourselves by letting the American labor market degenerate into something like early 19th century Britain’s with total loss of — or even interest in maintaining — equal bargain power between ownership and labor.
Look around the better paying OECD world (labor dragooned Japan the exception — Japan also in endless recession: parallel?) for the answer Americans: start with legally mandated, sector-wide labor agreements — the modern answer to the modern race to the labor market bottom.
**************
**************
Dean Baker* (in 18th reply on his blog post) reproduced what he called “a slightly altered table from Gordon’s paper*, showing income shares in 1972 and 2001” — my percentage changes on the right.
0-20_______2.6%, _ 2.0%________- .6%__ -12.3%
20-50____ 16.0%, _ 11.7%_______ -4.3%__ -11.7%
50-80____ 33.7%, _ 27.2%_______-6.5%____ -7.4%
80-90____ 17.0%,_ 16.1%________ – .9%___ –
*********************************************
90-95____ 10.8%,_ 11.3%______ +_ .5% __+
95-99.0___12.2%,_ 14.8%______ +2.6% ___+ 3.1%
99.0-99.9__ 5.7%,__ 9.6%_______+3.9% ___+ 7.0%
99.9 -100__ 1.9%,__ 7.3%_______ +5.4%__ +12.4%
(see p. 84 of Gordon for similar breakdown of wage income*)
4.9% loss of overall share meant 26.3% chop of 0-50 percentile share.
6.4% loss of overall share meant 14.5% chop of 50-90 percentile share.
*http://beatthepress.blogspot.com/2006/06/minimum-wage-and-doctors-pay.html
**http://faculty-web.at.northwestern.edu/economics/gordon/BPEA_Meetingdraft_Complete_051118.pdf
keddaw,
Why is the disproportionate rise in income for the very wealthy irrelevant? Not being snaky, I really want to know.
My intuition is that the concentration of wealth into the top 1% of the population has the potential to turn this nation into an oligarchy.
@sdstarr: Because “income share” or inequality is just a ratio — simply a comparison between two levels of income. The real information in the graph above lies in the lower two lines, which clearly demonstrate increasing income for both the middle class and the bottom 20% over the last 3 decades. These rates of increase are largely insensitive to the fluctuations of income at the very tip-top of the scale.
If you’re poor, what’s more important: having more money so you can afford more and better products and services, or obtaining some sort of obscure psychological comfort by realizing that rich people make slightly less, while you yourself are as poor as you were yesterday?
keddaw and Rhayader,
The median wage in 1973 was $12.50/hr. Double the income later the median is $15/hr. Imagine what a different world it would be (no gangs, ghetto schools would work — on both cases because good jobs would be waiting) — for most Americans — if the median wage were $25/hr instead of $15/hr. Especially when it wouldn’t cost you or anyone you know anything — unless you are planning to be TV news anchor or baseball pitcher. Talk about an economic miracle which would cost nothing.
It goes a lot deeper than that — believe it or not. Up until early June 2007, 25% of the American workforce was earning less than LBJ’s 1968, $10/hr minimum wage — double the average income later (double since 1968 not 1973 as I mistakenly posted above).
Would not Americans of 1968 have viewed that drop in pay as an unfathomable tragedy — NOT MERE “INEQUALITY”! — if somehow this could have been forecasted to them (comet strike, small nuke attack, multiple plagues?). Wouldn’t they have reacted with a more title like “great wage depression”?
The problem here is not a faulty understanding of numbers. It is a faulty problem of motivations — which given the small, reptile (more for simple reacting than thinking) part of our brains devoted to motivations (limbic system) seems a big stumbling block for even our sharpest economic brains — they definitely do not know what to care about. I have no problem getting motivations right — it must be the LINK card (food stamps) in my wallet. :-)
Rhayader,
Here is what the uniquely crushed — as in totally powerless, totally neglected — labor market in America did for me as a Chicago cab driver:
one 30 cent raise in the meter between 1981 and 1997;
at which time Chicago started adding 40% (not going to 50%) more taxis;
all the while cutting our business seemingly in half — building subways to both airports, opening up unlimited livery licenses (to which riders flocked for the long suburban and airport rides to avoid the scary underpaid taxi drivers) and finally (the shot in the head; not just the straw that broke the camel’s back) running free trolleys between all the (our previous) hot spots downtown.
All this while average income increase 50% — if only for our affluent passengers — you? :-)
******
Same thing in New York City:
In 2004 dollars, the taxi meter rose to $2.25/mile in 1974 — after the last successful strike, before the union was nullified by the lease system. By 2004 the meter was $1.50, after average income rose 2/3. Oh, and under the lease system the missing 75 cents a mile ALL came out of the drivers end. Repeat: all.
All this in the only place in the world (Manhattan) where wealth is a plateau not a pinnacle.
All this suffering because of a moribund labor movement that would not have cost anybody you know a cent if functioning properly (don’t forget strong labor means strong progressive politics too as in matching lobbyists) — unless you are planning to play linebacker.
Lane,
I apologize if this has already been addressed somewhere on your blog, but I was wondering: is there a particular graph that you recommend for displaying changes in *global* inequality?
@Dennis —
“Imagine what a different world it would be (no gangs, ghetto schools would work — on both cases because good jobs would be waiting) — for most Americans — if the median wage were $25/hr instead of $15/hr.”
I see no evidence to support that assertion. Why is the median so significant? It can be distorted by outliers just as easily as an average. You’ll have to provide support for the idea that a change in median income results in the sort of incredible social outcomes (no gangs?!?) you’ve described.
As far as your cab driving anecdote: it’s an anecdote. For a specific industry. Not all that informative. And I’m not sure why it should matter whether “people I know” are involved or not — we’re talking about the aggregate economic picture, not my next door neighbor.
Bottom line: increasing affluence for the middle class and bottom 20% is a good thing, no matter what the very few ultra-rich are doing.
(For the record, I’m solidly in that 60% middle class, and have been all my life.)
Two questions: is there any way to determine the occupational composition of the data?
Is there anyway to identify the duration in the top 1% of specific individuals (or are there other studies of that)?
I raise these because – and yes I know it accounts for a small portion of the population – but if you plotted the incomes of sport and entertainment celebrities in that period you would see similar slopes, because the time period happens to coincide with a major gain in bargaining power by them. But there is a lifecycle issue at work in their incomes as well. Only a handful like the Spielbergs, Jordans and so forth would remain in the population throughout the entire period.
This leads me to wonder if the same holds true in other occupations such as investment or trial lawyers or real estate development such that over time the percentage of the total population that penetrates the annual top 1% is actually larger than 1% of the population, which means that the aggregation of data and the use of an annual measurement convention may overstate the social inequality.
If I recall correctly it was Milton Friedman who stated that it was socio-cultural aspects of society that mainly determines income, not pure postivistic economics that postulates solely economic factors.
This graph at EPI shows that the bottom 90%–yes, 90%–had notable average annual wage gains only during the dot.com boom. http://www.epi.org/analysis_and_opinion/entry/a_long_and_persistent_middle-class_squeeze/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+epi+Economic+Policy+Institute#When:21:21:59Z
If no gains, or tiny gains, for the masses are good enough, shouldn’t decades of stagnation be even better for people with high incomes?
Rhayader,
On gangs: read the 2008 book, “Cracks in the Pavement: Social Change and Resilience in Poor Neighborhoods” by Martín Sánchez Jankowski — who spent 9 years as an on the ground observer in 5 poor neighborhoods in NYC and LA, in every pllacefrom the proverbial barber shop to the high schools. He blames the abysmal academic performance of these schools on one thing: the dismal prospects for employment after graduation — why kill yourself studying.
I think it was the Freakomics guy Steven D. Levitt who found that street drug dealing paid only about $10/hr — but still almost double the federal minimum wage at the time (inflation would not add much by 2010). Double today’s federal minimum wage and why would anybody want to risk death and prison?
I read “When Work Disappears : The World of the New Urban Poor” by William J. Wilson and “American Project: The Rise and Fall of a Modern Ghetto” by Sudhir Alladi Venkatesh at the same time. The projects on Chicago’s south side began as places of hope. But as work
(or I would assert sufficient pay for work — as average income almost doubled McDonald’s pay could have gone up 50% to $15/hr — double the minimum wage in the poorest parts of the US and the price of what would go up, real estate, health care, autos, what?)
disappeared things only went downhill at first. Vencatesh’s book continues after Wilson’s ends — and the projects only turned into gang infested Hells as the minimum wage dropped to half LBJ’s level (as average income doubled since LBJ). The middle class moving out thanks to INTEGRATION cannot explain such extremes — especially in a once super segregated city like Chicago (couldn’t move far).
But, I don’t persosally need all this except to confirm my own personal observations in 15 years in NYC’s badlands from 1966 through 1980. Visited 6 different prisons for just one facet. Know what motivates juvenile delinquency, purely psychological factors not money: kids in the emotionally dependent stage who think no one cares about them don’t care about themselves — nothing can deter them (crazy stuff — kids in ghetto homes without fathers to control them go off the same crazy way — just for being out of control; crazy stuff — this ties in with gang recruitment of course).
My taxi stories happened in the context of a labor market where workers have absolutely no say either economically via unions or politically via union lobbying. Maybe the difference between us is that I am 66 years old and have had plenty of time to figure out how the world works. :-)
Mark T,
The pro athletes of my day (the 1960s) are all tending bar now. Seeing to it that highest incomes cover entire lifetimes is not sufficient justification to skinning the bottom half the nation’s workforce — not that it happens in any such deliberate fashion.
I see it as squeeze the toothpaste tube at the bottom — it all comes out the top — inner and outer pressure equalizing inbetween: economic physics (just ask any knowledgeable cab driver :-))
“Double today’s federal minimum wage and why would anybody want to risk death and prison?”
That makes very little sense. Drugs are so profitable for the players on top that they could easily compensate runners and touts at a level that still made those jobs more attractive than minimum wage legit jobs. They’re going to pay a corner boy an extra few bucks an hour much sooner than they’ll risk arrest by manning the corners themselves.
You’re not going to fix Drug War problems with a minimum wage increase. The business is far, far too large and flexible and in-demand for that sort of supply-side “fix”. This should be more than obvious given our previous experiences. We need to end the Drug War to fix Drug War problems.
And I’m not going to accept your age as proof that you “know how the world works.” Pure hogwash – there are plenty of very old, very clueless people out there. Age has nothing to do with it.
“I see no evidence to support that assertion. Why is the median so significant? It can be distorted by outliers just as easily as an average. ”
This statement is false. The median is not affected by outliers. Go look it up.
Rhayader,
The drug demand will definitely always be there. I lived in the East Village in Manhattan for two years in mid-1960s. Our first-year next door neighbor was a psychedelic dealer and our second-year neighbor was a heroin dealer (only to his friends who got high on weekends) — both 20ish white guys.
This immigrant neighborhood was an outpost of hell. Want your car burned to the ground for the insurance — just take your plates off with sight of my block and the kids would have it burned to the ground in an hour or less — guaranteed like FedEx (don’t know how word-of-mouth on that got around). One 16 year old told my brother that he couldn’t wait to be 17 so he could go to Vietnam like his brother! But, nobody sold drugs. Could it have been the $10/hr LBJ minimum wage at half today’s average income? ??? Think about how the world probably works.
There will always be a few folks who want to live the alternate/illegal life style — just not half the neighborhood like “Clockers”!
Dennis Drew is comparing apples and oranges here.
The comparison is not between transferring more of the increases in wealth from top 1% to the lower earners, it is between any increase shown to the lowest earners and no increase.
Drug dealers et al do not exist because the top 1% income went from 250k to 1.25m and also not because the minimum wage only went to $10 not $25, the price of drugs would have risen and the average wage for drug dealers would also be higher.
I thought this was an economics blog?
Rhayader
It’s not just about state transfers – it’s about conditions under a changing balance of social power. Examples include unpaid overtime, unpaid training, poorer employee health plans, poorer pension plans and so on – all private sector stuff (in the US). In short, transfers of risk and greater exposure to uncertainty.
And inequality does matter to humans, as they do to any social primate. There are well-documented biochemical pathways that go from lower status to stress to health and general performance. And in a democracy it matters even more, as open debate is premised on limits on the exercise of power by the elites (this is not about absolute equality of income, but about relative economic independence – the quality Jefferson had in mind when he advocated a nation of small farmers.
Though I’m not a fan of income inequality, your graph is misleading in that it ends in 2007. I noticed a big drop around 2000, during the last recession. Given that the wealthiest 1% are likely to derive most of their income from investments, I’m curious as to what the graph would look like in 2008 or 2009, or even 2010. I’d be willing to bet that income inequality shrank in the past few years, even if the overall trend is toward greater income inequality.
Rhayader,
Real life is not an economics blog. People don’t get into a “job” that entails daily risk of being shot over sales territory or just stupid rivalry gang tit-for-tat plus long years in jail almost inevitably (I’ve visited in plenty of jails so I am fiercely aware of such consequences) because the job pays a little more. They get “jobs” in street corner drug dealing out of absolute desperation to make at least a minimal living — which the present minimum wage is not (not to say when it was $5.15/hr — half of LBJ’s!).
Around 1991, Businessweek reported that 70% of McDonalds employees turned over every 90 days. These days the minimum wage is so low that I see the same happy Mexican (in SF, Chinese) faces behind the counter year in and year out. Americans just wont go to work for the minimum of today — period. Got to do something — drugs better than robbery and burglary. Maybe you need to visit some prisons — or spend some time ducking bullets (or drive a gypsy cab in the Bronx like I used to — an infinitely safer job than street corner drug dealing and the most the law will hit you with is a traffic ticket :-)).
The existence of gangs is your fixation. Isn’t this an economics blog? I see the explosion at the top as symptomatic of what is happening at the bottom — squeeze a toothpaste tube at the bottom — it all comes out the top. Even if you do not you accept my “economics physics” the total loss of market bargaining power on the part of American labor — uniquely; didn’t happen in Europe — is a disaster of giant magnitude of and by itself — ipso facto.
Winn,
I believe that investment income is not counted in the income chart — only earnings — not perfectly sure. Anybody?
keddaw said: As long as everyone’s real trend is upwards, income disparity is irrelevant.
I say: Wrong. The trends should follow the benefit to the whole society that each group has contributed. These deeply disparate trends show who is gaming the system better. I doubt that the top 1% income earners have contributed 25 times societal value than the remaining 99%. (25x number comes from 1,250,000 divided by 50,000)
Tell me, what has Paris Hilton contributed? She’s in that top 1%.
How about you? Presumably you are in the other 99%. Who has made more real value to society? You or Paris?
egc52556,
I don’t want to seem pedantic — but the cause of what I call the great wage depression is that understanding of the job market is so completely non-existent in America — even among the educated like you!
The top 1/10 of 1% are now earning 25X WHAT PEOPLE DOING THE EXACT SAME JOBS two generations ago were making — over which span average income “only” doubled (as it does over 40 years — which is why worrying about social security retirement benefits is such a complete joke). That is the real core of the quintupling of top 1 percentile income.
If only our progressive elite could wrench themselves away from their fun equations about the financial markets and the real estate markets, etc., etc. and cry to the world that the federal minimum wage is now $2.75/hour below what it was in 1968 — and yell out the path to a fair and balanced labor market is as clearly laid out as legally mandated SECTOR-WIDE LABOR CONTRACTS where everybody doing the same job (e.g., retail clerk) in the same geographic locale works under one common contract — used all over the better paid OECD world.
Wal-Mart just pulled 88 stores out of Germany because it could not compete by paying less than the competition. American supermarket workers, just forced to take two-tier contracts (goodbye future middle class supermarket jobs), and airline workers (subject to a never ending race to the wages and benefits bottom*) would kill for sector-wide contracts. But it hasn’t been done here before so nobody thinks it can be done. ACTUALLY, NOBODY THINKS OF IT AT ALL (an over the hill cab driver can but not elite progressives) Has to be done — it is the one, only way to end said race.
*Northwest Airlines I believe it was recently squeezed $1 billion dollars in wage concessions out of pilots and the very next year awarded average $1 million bonuses (!) to 1,000 executives (!).
It would be useful to see a chart similar to this one depicting pre-tax incomes. Can someone point me to this?
While the conversation on this site seems aimed at the social utility of attaining certain income outcomes, many would be interested to compare the after-tax situation with the distribution of pre-tax incomes.
James: See http://considertheevidence.net/2008/04/20/tax-progressivity-and-the-rise-in-inequality/.
Thanks for the link. It’s helpful concerning the top 1%, but do you know of anything that shows similar information for other income brackets?
James: The pre and post data for each quintile are available from the CBO at http://www.cbo.gov/publications/collections/collections.cfm?collect=13.
Lane
Some people ask why income equality matters:
1) some people live in bad economic situations, but they play by the rules because they believe that their situation is improving as fast as possible. If all the benefits go to the top, they will stop believing in the system
2) regular people are constantly asked to make sacrifices in the name of economic growth. It is impprtant that they benefit from growth.
3) much of human happiness depends on social factors and status. people want attention from others more than they want extra toys. Rich people tend to hog all the attention.
Thanks Lane, it’s a very evocative graph. Here’s a version in colour.
egc52556 Says: I say: Wrong.
Fine, I have no problem with people disagreeing with me, all II ask is a decent reason so that I can either adjust my own thinking (because I’m wrong) or argue their position (because I’m right.)
When you compare the bottom 10% in the 1900’s to the bottom 10% in the 2000’s their biggest concern is not what submarine owning executives earn, it is what they can buy for themselves and their family. I people in 2000 can buy food for 4 generations of their family when people in 1900 could only buy food for themselves then we are better off as a society. It really is that simple.
keddaw, I DID give my reasons. But you’ll have to read my entire post and not just the first 3 words.
My main point is this: for WHAT are they top 1% rewarded at the levels and disparity they are? I say that they should be rewarded for their overall benefit to society. That is not irrelevant.
Now you can adjust your thinking.
As to your new comment that people in 2000 can buy food for 4 generations, but people in 1900 couldn’t…. I don’t see any evidence of that. If anything, contrast the 1950’s middle class families supported by one working adult. Today, the children of those families would need the income from two working adults to buy the house they grew up in and to support their kids in the same lifestyle.
egc52556 Says: My main point is this: for WHAT are they top 1% rewarded at the levels and disparity they are? I say that they should be rewarded for their overall benefit to society. That is not irrelevant.
Which is a view.
But requires someone to view what is beneficial to society and to decide who has contributed how much to any increase in that subjective benefit.
The top 1% are rewarded for whatever the market decides they should be rewarded for. Are you trying to be some ultimate arbiter of values and worth? Who are you to say that Paris Hilton doesn’t produce more economic value than me? That the use of wealth to fund Paris Hilton is economically wasteful is besides the point, people have income and can use it to reward whomever they like for whatever ‘skills’ they like.
You are appearing totalitarian and even if its with the best of intentions it is still wrong.
If people at the bottom tomorrow are slightly better off than people at the bottom today then we are moving in the right direction – regardless of what the people at the top are doing. Maybe there is a better, more efficient way of going forward, but making the disparity of wealth an issue is wrong. An easy way to fix that is to remove everyone’s wealth/income over $1 million – income disparity reduced massively. Is that really the aim?
keddaw wrote: The top 1% are rewarded for whatever the market decides they should be rewarded for.
Oh, here we go: the glorification of “the market”.
As far as I’m concerned, “the market” is the worst entity to endow with power over our lives. It has no social conscience. It rewards profit over real value. It favors the already-wealthy and punishes the already-poor.
What is the point of having a society — that is, having more than one person living and working together — if not for the MUTUAL, EQUITABLE, FAIR benefit of ALL the people in the society? Is “the market” going to make it so? Obviously not. Our American capitalist “free market” society is NOT mutual, equitable, or fair.
The point is NOT as you say, “If people at the bottom tomorrow are slightly better off than people at the bottom today then we are moving in the right direction”.
The point is whether EVERYONE in the society is moving in the right direction mutually, equitably, or fairly.
And we’re not. The inequality graph points this out vividly. It is not irrelevant.
keddaw,
Would you be happy with the direction things were moving if people were completing high school today at the rate they completed eight grade in 1910 (made up figures) — when they just as easily could be completing college at the same rate but the resources were being shunted away for not beneficial reason; almost by accident.
It’s not just a matter of better for something that affects us personally — it is a matter of best.
As a matter of fact most human beings are tempted to make it very much the best even if they can squeeze it out of fellow human beings. It’s always, “Many are called but few are chosen time on planet Earth.” :-) That’s why our political system is set to balance rapacity with checks and balances — rather than according to some abstract ideal like “liberty, equality, fraternity” (we know which revolution lasted the longest). If the market is not set up the same fair and balanced way then we get the same squeeze — UNIQUELY today in asleep-at-the-switch-labor America. Doesn’t happen in the European labor market.
The top 1 percentile getting 5X more when average income only increase .5X (that’s point five) REALLY REPRESENTS the top [I’m going to switch to 1968 through 2007 now — the only figures I can quickly access] the top 1/10 of 1 percentile getting 25X more than people doing the EXACT SAME jobs as 40 years ago.
To keep our eye on the ball here we must think of this out sized multiplication as symptomatic: the folks on the bottom mostly forgot to maintain their bargaining pressure but pressure equalizes gradually until it hits the 90 percentile level where income SHARE has remained the same over the years all the way up to the 97 percentile level — above that the bargaining pressure at the top starts to scoop up everything that was squeezed up from the to bottom.
The problem starts at the bottom — that is the only place where figures or not anybody can figure out that American labor bargaining pressure has disappeared (mostly not thought about!). The folks on the top are not even smart enough to exploit the rest of us (linebackers, news anchors, not even CEOs).
ZZZZZzzzzzzzz……
We have switched from my statement of fact (we are better off now than we were before) to some idealised dream view of society where everyone has their own pet rainbow and there is a pot of gold at the end of unicorn droppings.
To ask ridiculous questions (“Would you be happy with the direction things were moving if people were completing high school today at the rate they completed eight grade in 1910” – YES! As long as they are materially better off now than they were then) is pointless.
In light of that, here’s one for you: I have a switch which if I push it makes everyone 10% better off, but makes the top 1% three times as rich – should I push it?
None of which answers the main criticism of your wishful thinking which is: This requires someone to view what is beneficial to society and to decide who has contributed how much to any increase in that subjective benefit and reward them accordingly.
keddaw: In light of that, here’s one for you: I have a switch which if I push it makes everyone 10% better off, but makes the top 1% three times as rich – should I push it?
Me: No. Because there is another switch where everyone is 11% better off.
keddaw: This requires someone to view what is beneficial to society […]
Me: You assume that this requires one single someone who is a totalitarian dictator. I’m assuming that we can, through mutual consent and mutual self-interest, create the 11% solution.
The Prisoner’s Dilemma ( http://en.wikipedia.org/wiki/Prisoner%27s_dilemma ) is working against me, so I continue to hope and work for the creation of more enlightened “prisoners”.
To you I must seem hopelessly ridiculously idealistic. But to me you seem hopelessly cynical.
John Rawles says (cribbing a bit from WikiPedia [1]):
Social and economic inequalities are to be arranged so that they are to be of the greatest benefit to the least-advantaged members of society (the difference principle).
Note that he doesn’t say that there should be perfect equality, but that inequality that does exist should benefit those at the bottom.
Some assertions of the evidence of a significant rise in incomes of the bottom 90% nothwithstanding, judged by the ethical system outlined in “A Theory of Justice,” our current economic system is not only broken, but immoral. And that’s even if we strike Rawls use of the word “greatest” and substitute a more modest word. Something like “significant” or “meaningful.”
[1] http://en.wikipedia.org/wiki/A_Theory_of_Justice
Or “Some assertions of the evidence of a significant rise in incomes of middle 60 and bottom 20% notwithstanding…”
egc52556: “No. Because there is another switch where everyone is 11% better off.”
Indeed, and we should be searching for that solution if possible.
In the mean time though it is completely misguided to attack income disparity when (virtually) everyone is getting better off.
J – I am no fan of arguing from authority which is what you appear to be doing. Bear in mind that the logical conclusion of what you and egc propose is socialism or communism.
keddaw: “Bear in mind that the logical conclusion of what you and egc propose is socialism or communism”
Not necessarily. It’s just a matter of degree. Every society gives up some freedom (and selfishness) in exchange for living with other people. The classic “social contract.” I don’t want or expect people to give up all of their freedoms. But I do want and expect people to be less selfish than they are…. and I expect our society to enforce these less-selfish principles through our laws.
Is that Totalitarianism? Socialism? Communism? Compassionate Conservatism? I don’t want to label it, because people react non-rationally to labels.
egc52556, you don’t want to label it because your idea doesn’t go as far as any of the labels I mentioned. However, if you say “we should take 10% of the increases obtained by the top 1% and redistribute it to the bottom 10%” which appears, on the surface, to be fair and beneficial, then someone else comes along and says “take 20%” someone else “take 30%” etc.
The problem you face is that every argument for taking the initial amount is equally valid for taking the rest. The logical conclusion of which is an equal share for everyone and no incentive for anyone to do anything.
Double the minimum wage next month, and half the people who make minimum wage will have no job at all the month after. Well over 9% of the American workforce right now is out of work, and close to 20% have either no work or less than they want — or just gave up looking and filing for benefits. Congress just extended unemployment benefits for another few months for people out of work. Small businesses who might be able to afford to hire a couple of people to do non-skilled work at $5/hr can only afford one for that work at $7.25/hr. Is it better to have two people making a little money, or one person making a little more and someone else who wants a job not making anything? As long as the unemployment benefits go on indefinitely, how do you motivate someone with few skills to get up off their couch and seriously look for a job?
@keddaw And you’re arguing on the slippery slope.
@inthomp Have you ever been on unemployment? When I drew unemployment, it was not enough to make me want to stay home on the couch.
keddaw: The logical conclusion of which is an equal share for everyone
Yes, I hope.
keddaw: and no incentive for anyone to do anything.
No, not at all. There will always be someone who looks around and thinks, “How we’re now (all) living can be better. Let’s do the thinking and working to make it better. Even if I can’t get you all to join me I’m going to do it alone.”
That’s progress based on the best humanity’s best instincts, instead of what your basis seems to be: people will only be motivated if the benefit is to themselves ALONE. A selfish, immature, and somewhat heartless motivation in my opinion.
I repeat, In my opinion. But that’s what I believe.
“As long as the unemployment benefits go on indefinitely, how do you motivate someone with few skills to get up off their couch and seriously look for a job?”
Knowing that weekly unemployment benefits are generally 60% of the base income amount (based on a 26-week history) with a cap of (depending on the state) between $360-600, AND that taxes must be paid on the unemployment comp received, I’m just not seeing this as being an issue.
Different strokes, I suppose, but ‘m thinking the potential of 100% of historical wages vs. 60% (a MINIMUM increase of 67% vs. not working) is PLENTY of incentive.
I’m working, thank goodness, but I would change jobs in a heartbeat if somebody offered me a 67% increase.
And I’ve spent time at home burning vacation that needed burning and had no money to go anywhere. I’m just not seeing staying at home doing nothing for low wages as being any kind of incentive at all.
But, that’s me.
This chart is meaningless other than to prove the point of “so what?”. The S&P500 on inflation adjusted terms is up 7.2x over the same period. This chart shows that the top 1% have expanded ~4x. One could easily make the argument that the rich have been overly penalized during the same period since their financial fortunes are more closely tied to the financial markets. The so-called disparity is a myth. What these folks don’t want to talk about is that the top 1% pays 40% of all taxes. Is that fair?
@Fred:
Share of capital income, 2003, top 1%: 57.5%
Share of wealth held, 2007, top 1%: 34.6%
Wealth distribution for all investment assets, 2007, top 1%: 49.7%
Financial wealth distribution, 2007, top 1%: 42.7%
Distribution of net worth, 2007, top 1%: 34.6%
I, uh… Yeah. I wouldn’t feel too sorry for the top 1%.
J Says – And your point is what? Try some original thought rather than cut/paste from Wikiwhoo-hoo. These stats mean nothing other than this is a country where people can work hard and make a lot of money. Can you tell me what the effective federal tax rate is for the bottom 45%? How about the bottom 45%’s fair share of the tax burden? Big clue: zero. In fact, under the Bush tax cuts the bottom 45% gets a tax credit; not a refund, a credit.
The real issue is you have a career politician trying to make policy premised on some warped sense of class warfare and it will backfire big time because the center of the country is fundamentally adverse to welfare.
@Fred
Is “try some original thought” something like “cater to my ideological biases?”
That information came from Professor G. William Domhoff (UCSC, Sociology Dept.)
http://sociology.ucsc.edu/whorulesamerica/power/wealth.html
It’s consisitent with data discussed in Race Class and Gender, a course I took a couple of years ago, and consistent with data I used in a paper I wrote for that course.
But I can see that no amount of data and facts will sway the opinions in which you’re so heavily and emotionally invested. In fact, here’s a paper about that, which I did not get from wikiwhoo-hoo:
When Corrections Fail: The persistence of political misperceptions
Click to access nyhan-reifler.pdf
J Says – You didn’t answer the question. You may want to bend the data to suit your anthropology but the fact is total revenues increased over the period that this chart depicts. It is erroneous to chart wealth based on a percentage of GDP for the very example I gave you for the S&P500. But the fact here is you don’t live in the reality of financial markets, but rather in the womb of liberal humanities whose primary purpose is to avoid the bitter reality that even though you may still wear Birkenstocks (I do too) and smoke dope (don’t anymore), the ability for you to spend time doing research is in fact paid for by having a robust and expanding financial system.
The fact I made about the chart above is that is misrepresents the so-called issue of income distribution and begins with an assault on folks who have worked hard, accumulated wealth and now enjoy a higher degree of financial freedom. What’s next? Racial quotas for hoe much you are allowed to accumulate?
Put on your thinking hat and tell me if I am wrong. Can you even calculate the S&P’s 10 yr return adjusted for inflation? Do you even care? Your pension certainly does, even if you don’t want to.
Modern nations with extreme economic equality collapse. America is a nation that pulled funding out of aid for the desperately poor only to use it to finance hand-outs for the rich. Meanwhile, huge amounts of public dollars went into covering the costs of years of annual “tax relief” for corporations, always with the promise that it would be used to create “good, family supporting jobs.” The joke’s on us — the bulk of this money was used to ship our jobs to foreign countries. Our anti-poverty agenda today consists of an arrogant, “just get a job”, even though there aren’t nearly enough jobs for all who need them. Our government’s response to American poverty: “Tough.” People are out of money and out of options. America has been rushing headlong into the Middle Ages for years now, and something has got to “break.”
Sorry for the typo — I meant “severe economic inequality.”
@ D.H. Fabian – If the argument is socialism/communism versus capitalism, just come out and say it. But let’s not pretend for a moment that your statements are even remotely accurate much less relevant. The fact is if you continue to tax the owners of capital, they will spend less because it is going to non-productive investments. To be sure, there is a necessary balance between fairness and maximum prosperity. Yet, I get the sense that you haven’t traveled very far from the US and therefore can’t appreciate in fact how good we have it. Had you a sense for how the larger world lives, you might appreciate the long run impact of relying too heavily on gov’t entitlements. The fact remains that the Bush Tax cuts resulted in more revenue for the gov’t, not less. When this discussion includes some semblance of gov’t reducing its expenditure, then we will be making progress but until then, more taxes will only result in less consumer activity and less job creation and longer chronic unemployment.
Fred,
I don’t know if you have noticed anything unusual happening in a America lately a giant recession — fueled by two bursting bubbles: financial and real estate.
The latter two were caused by OVER investment in NON productive securities — all the while Republican tax policy was force feeding $4 trillion more cuts into the pockets of fat cat investors (fat cat de gras? :-]).
Fat cat investors had not much opportunity for productive investments — like factories — because demand has been shrinking in step with shrinking paychecks as unorganized American labor is squeezed more and more by capital.
(What vigorous demand there was was unhealthily fueled by the Republican deregulation of banking.)
This same low demand/high investment process may actually have been the core cause of the Great Depression. You see there has to be a natural balance between demand and investment — something it is necessary to keep our eye on. Rudimentary?
@ Denis – I see, non-productive assets are ones that don’t go into government coffers? You are talking apples and oranges. 1) Where in the heck do you get $4t in tax cuts from (Daily Kos or what?), 2) help me understand why there is a dividend tax at all when that same money was already taxed at the corporate level, 3) why must the private sector reduce its income when the Federal government’s expenses remain static, 4) you may think factories are better than financial markets but the reality is, financial markets allow for factories (and jobs) to be created, 5) the narrative of jobs being shipped overseas is incorrect, the US remains the largest manufacturer in the world, 6) it seems that fundamentally what you want to say is the private sector is incapable of leading job formation and therefore, the government must inject itself via higher taxes?
The discussion here is not economic theory but the fairness of higher taxes premised on a class warfare ideology. My response to that is it might feel good to stick it to the (white) man, but it doesn’t make it fair and it doesn’t solve the structural problems we face as a country. When gov’t takes another dollar from your pocket, it leaves the productive economy and loses its utility.
Lastly, your meme that Republicans deregulated everything and ergo sum were the root cause for all of our problems is just silly. It took just as many Dems to turn Fannie and Freddie into the biggest sinkhole the country has ever seen. It also took just as many Dems to pass the Bush tax cuts which benefited far more down the economic scale than they benefited the “rich”. I know it doesn’t fit well into the lib narrative, but that’s the truth.
Anyway, none of this matters that much since Obama now carries the moniker of the quickest lame duck to ever get elected and the Dem Congress has all but dismantled its own party. I’ve enjoyed the ride down and now look forward to a new chapter in politics, hopefully.
Fred,
Do you realize what a one-dimensional (typical Republican Party) view you have of economics? Are there any other aspects we should keep track of and worry about the interaction between other than how much money investors have to invest? Any at all?
(Republican Party economic policy seems say just stay out of the market and the market will take care of all ills all by itself. Hence, no other economic problems to fix. Ever.)
Let’s look at our labor market. Since 1973, 15% of income SHARE has drifted (I say drifted because it happened without anyone — even on the receiving end — particularly trying to make it happen) to the top 3% of earners, most extremely to the top 1/10 of 1%: CEOs, ballplayers and TV news anchors making 25X what their predecessors did for the same work while the minimum wage is now $2.75/hr lower in today’s dollars than it was under LBJ.
Think there might be some kind of problem there — in the uniquely union UN-organized American labor market?
@Dennis Drew
“the top 1/10 of 1%: CEOs, ballplayers and TV news anchors making 25X what their predecessors did for the same work while the minimum wage is now $2.75/hr lower in today’s dollars than it was under LBJ.”
Could it possibly be that there are more workers available at the minimum wage due to women in the workplace? Could it be that the usual minimum wage workers today (teens) are less efficient, effective and useful than they were under LBJ? And could it be that the top 1/10th of 1% are still making more for their companies than they cost but are now getting better rewarded (more fairly?) for it?
I’m not from the US so I could be wrong.
@ Denis – You answered none of my questions, failed to address the core issues here of whether or not taxing the rich will do anything, much less it even fair (given the percentage of taxes the top 3% already pays). You clearly don’t care that the bottom 50% pays no Federal income tax and about half of those actually get an tax credit back (thanks to Bush). Tax the top 3% at 100% and it still will go no where to solving the structural problems facing this country and I would bet that your solution is to simply nationalize the private sector and take cure from Chavez. The fact is the graph at the top of this blog misrepresents actual income growth in real terms. The y-axis should be percentage growth, not USD, but that isn’t the discussion you guys want to have, is it? The discussion you want is how bad it is that so and so makes a gazillion dollars and you should get a piece of it for, well, posting on some blog about how unequal everything is. It is unfortunate that you seem stuck on labels and can’t see the forest for the trees because the truth is Washington is stealing you blind.
Here’s the fact: Federal income tax revenue grew under the Bush tax cuts. That’s a fact. They didn’t cause a deficit. Overspending caused the deficit. When I hear that Congress, by its own volition, decides to reduce their budget allocation for each member from $7 million each per year, then I’ll start believing in change……
One more thing. Minimum wage is a stupid metric. Nobody cares about minimum wage. If you wanted full employment, you’d abolish minimum wage and, bam, you’d have full employment. But then again, how would all those union leaders earn a living then, right?
@Denis, “If you wanted full employment, you’d abolish minimum wage and, bam, you’d have full employment.”
I assume you are being ironic? That then we’d have full employment at $1 per day (or less)?
I don’t think you are suggesting we could have full employment like we had in the 50’s if the same percentage of women stayed at home?
I don’t think you are suggesting we could have full employment like we had pre-Civil War if the same percentage of blacks stayed slaves?
Sorry, that should have been directed @Fred, not @Denis — bad copy/paste.
@Fred, “The y-axis should be percentage growth, not USD”
@Fred, “Federal income tax revenue grew under the Bush tax cuts.”
1. You say you want to talk percentages, but when you make your own argument you talk… what? Did income tax revenue grow in USD or in some percentage of overall GDP?
2. You’ve made this claim a few times now that tax revenue grew under the Bush tax cuts. Where is your evidence? Here is my counter-evidence: http://voices.washingtonpost.com/postpartisan/2010/08/cherry-picking_season.html
The fact is, revenue may have grown in USD during Bush’s tax-cut years, but revenue fell as a percentage of GDP. Add in the absolute total economy f**k caused by Bush’s war and hands-off oversight of Wall Street. Why would America EVER put our economy back in the hands of the GOP? I’ll take the Dems, for all their faults, as a tonic for the self-serving conservative agenda.
Fred,
50% pay no federal income tax? Mm, mm; there are two possibilities there:
one) that the tax is exceedingly kind to lower incomes — not counting FICA of course;
two) that INCOMES to tax have dropped so low that there is not much to tax — a national disaster of gigantic proportions (I would call it a “Great Wage Depression” — which is what it is even if the so-called progressive media never reports it).
Let’s look at possibility two:
In 1968 the median (not minimum) wage was $12.50/hr. In 2010 the median wage is $15.00/hr — DOUBLE THE AVERAGE INCOME (A.K.A., per capita income) later. As of early 2007 a QUARTER (!) of the American workforce was earning less than LBJ’s minimum (not median) wage.
Obama’s minimum wage is still $2.75/hr below LBJ’s minimum wage (and $.75/hr below Ike’s!). If LBJ’s minimum wage had kept up with average income gains it would be $20/hr — or $5/hr higher than Obama’s MEDIAN wage.
I rest my case; if 50% (you say) don’t pay any federal income tax it is because the American labor market has gotten so out of shape labor doesn’t get any income.
Do you think there would be any street gangs — or any ghettos — if the median wage was $25/hr and the minimum for any job you could do was $15/hr? Last I looked $15/hr was the German 10 percentile wage. This what is essentially a lack of market bargaining power and labor political power will not be changed by cutting taxes for the upper income taxes. Do you think otherwise? I wish you would address something besides your tax bracket — there really is more going on in an economy than that.
PS. For anyone else here — the answer for American labor’s unique in the OECD world (except for labor screwed Japan [believe it or not) is legally mandated sector-wide labor agreements — in use from the first world (Germany — most thoroughly organized version — you know Germany where they produce those terribly built socialist products: Mercedes, B&W, Volkswagen), through the second-world (Argentina) to the third world (Indonesia) — the only answer, the in fact easy answer for both labor and management to America’s every increasing race to the pay and benefits bottom.
@ Denis – you are a complete moron. move to Venezuela, dig a hole and stick your head in it. before the Bush tax cuts, 35% didn’t pay Federal income tax; after the tax cuts, it went up to 50%. it’s because of the tax cuts that more people got tax credits, not because wages went down. you seem to be confusing median and minimum wage. furthermore, to speak of minimum wage is stupid. you need to talk about household income, which has risen from $40k in 1960 to $52k in 2007. it actually started to decline under Clinton in the late 90s and then Clinton’s dot bomb started the decline we are still experiencing today.
since you are not interested in speaking to the issue that was the original discussion, let me say that the entire concept of organized labor is coming apart at the seams; not because organizing in and of itself is bad, but because organized labor has been hijacked by an elite who essentially adds no value and then tries to plug the financial holes by screwing companies. GM is a prime example. Obama screwed the bondholders and gave the UAW equity. you will soon see that the new GM is the same old GM. their pensions remain underfunded, their product lines are weak and they will fail to compete with better run, non-union auto manufacturers.
Money is power. Nothing else. When inequalities of this magnitude exist, the only relevant conclusion is that nearly all the power lies in a small elite group…1/2%.
@ Charlie – Ok, if money is just power and “nothing else”, how exactly do you put gas in your car, buy bread and put your child through school? The true power in a capitalist society is consumer power. You may not like it, but that’s the truth. Most of what so-called “communists” find distasteful is our proclivity towards over-consumption. I agree that the US became far too engulfed with consumerism in and of itself but that is already changing. If you think P&G is powerful just because they have a lot of cash on their balance sheet, you should give their investor relations team a call and ask them what their number one concern is? Consumer spending. Money is only as valuable as its second derivative. If it doesn’t flow, you can print all you want and it won’t mean a damn thing; which is the current situation. When gov’t takes a larger piece of the pie, for whatever reason, the so-called multiplier is an illusion. It doesn’t create any wealth and only temporarily provides a benefit. Unless of course you are an authoritarian, in which case gov’t is the only provider and decision-maker……
The graph tells us much about the roots of the chronic stagnation of the system over the past ten years. Highly concentrated economies are slower growing. Krugman proves this point best here;
http://www.pkarchive.org/economy/therich.html
Steve – Krugman makes no comparisons to other economies so to conclude with the generalization that “highly concentrated economies” [whatever that means], are “slower growing” requires a much deeper analysis of the data. To argue this point, you would have to compare “fast” growing economies with the US, UK, France, Canada etc. Were you to do so, you might surprise yourself in that the income skew in so-called emerging economies is far greater than in any first world, developed economy. That’s just a fact but you need to be open to something other than Paul Krugman to make the connection.
The good news is by Monday evening, the tax & spend liberal experiment will be over. Next step: Fed starts buying assets, again, and the USD devalues 20%+ against the commodity currencies over the next couple of years. Once our goods can compete on a global scale, we can begin to create jobs. This will also include the requisite adjustment on the part of the population that seeks a standard of living that costs much more than what we can afford as a nation.
@fred: “The good news is by Monday evening, the tax & spend liberal experiment will be over. ”
Not likely. First, the “experiment” has been going on since the Republicans drove us into the Depression. Second, the Republicans won’t control the Senate or the White House. Third, the Republicans won’t control reality and their campaign spin will hit the hard rocks of those most stubborn of all things: facts.
@fred: “This will also include the requisite adjustment on the part of the population that seeks a standard of living that costs much more than what we can afford as a nation.”
Which “part” of the population? Lowest 20%? Middle 20%? Top 20%? Top 10%? Top 1%?
Well, wages increased pretty steadily in America from 1820 til 1970 and have been falling since then.
It means a lot to people if they believe the future will be better– there’s no reason to believe that anymore in the US.
@egc52556 – Guess you read that one incorrectly. Obama is doing anything in his power to cling to some semblance of credibility, including extending the current marginal tax rates. To boot, the nonpartisan deficit panel has some fantastic ideas that will meet fierce resistance from the usual suspects: unions, teachers especially. Of interest this past week was a speech given by Gore where he flat out admits to voting for corn subsidies and corn ethanol simply to get votes from the farmer lobby. Which part of ALL politicians are full of it, don’t you get?
Keep on drinking the kool-aid that the mean old GOP just wants to hurt the little guy, but it is a pointless argument: the country is moving forward and less Federal expenditure is at the base of this shift.
@J Says: it will affect everyone.
@Doug: may i suggest a time machine to take you back to the Gilded Era or perhaps a plane ticket to Cuba/Venezuela where State-directed wage fixing has worked oh so spectacularly well….
“the best” chart would
(a) compare household AND individual income, rather than using only household data. individual incomes come from IRS data, household incomes come from census, so there are two different data sets;
(b) somehow correct for changing household sizes over the years;
(c) somehow show that the majority of top one percent earners are in that bracket temporarily, the top 1% has the highest turnover of any income bracket in the USA.