A Look At Income Equality Since 1980

By Justin Gardner | Related entries in Money, Taxes


Kevin Drum shares this sobering chart, which shows the share of total earnings that go to each income bracket. It pretty clearly demonstrates how supply side economic policies have benefitted the rich and the super rich. Meanwhile, everybody else is left holding the bag.

Where’d he get the data? The CBO.

Here’s more…

If you look at the raw CBO figures, they show that a full tenth of the national income has shifted since 1979 to the top 1% of the country. The bottom quintiles have each given up a bit more than two percentage points each, and that adds up to 10% of all earnings. That 10% has flowed almost entirely to the very tippy top of the income ladder.

Is the middle class worse off because of this? Of course they are. Income matters even if plasma TVs are cheaper than they used to be or if CPI mismeasures middle class consumption or if average households now contain 2.6 members instead of 2.7. If this massive income shift hadn’t happened, middle class earnings would be higher, they’d be able to buy more stuff, and they probably wouldn’t be in debt as much. And the top 1% wouldn’t have quite so much idle cash lying around to do stupid things with.

Your thoughts?


This entry was posted on Tuesday, September 21st, 2010 and is filed under Money, Taxes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

13 Responses to “A Look At Income Equality Since 1980”

  1. Chris Says:

    This looks good for the plutocracy.

    I approve.

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  3. kranky kritter Says:

    It troubles me how the rich have gotten richer. Income has to be pyramidal in nature, there’s no avoiding it. But the pyramid has gotten stretched out and is crumbling in the middle, and that’s bad for sociocultural stability.

    So, I’m not bothered by the idea of, say, expiring the tax cuts for the top bracket. This doesn’t mean that such a change has much power beyond the symbolic. Taking even an extra thousand out of the pockets of the top 1% doesn’t amount to very much as a percent of overall revenue. The top 1% of income tax payers is only about 1.4 million people. I believe that 14 billion dollars is less than 1% of the current deficit from the last budget, to say nothing of the overall national debt.

    And top bracket payers do pay quite a bit. For example, the top 0.1% of Americans (141,000 people) pays 12% of the income tax collected. So it’s demonstrably true that the wealthiest are paying a lot more than the rest of us under current circumstances.

    I expect we’ll see changes that result in taking a somewhat bigger bite out of the wealthiest, and I think it makes sense in these times for symbolic reasons. That doesn’t mean that the wealthiest aren’t already paying a lot of taxes. And it also doesn’t provide anywhere near the level of revenue needed to bridge the current deficit or remedy long-term insolvency issues in social security or medicare.

  4. Tillyosu Says:

    It troubles me how the rich have gotten richer. Income has to be pyramidal in nature, there’s no avoiding it. But the pyramid has gotten stretched out and is crumbling in the middle, and that’s bad for sociocultural stability.

    What does that even mean KK? Are you suggesting that at some point, the poor and middle class will storm the rich with pitchforks and torches? If that is the case, then shouldn’t you be equally concerned with people like Justin and Kevin Drum (and the entire Democrat party, for that matter) constantly demonizing the rich and inflaming irrational fears? Or constantly telling the poor that they’re poor because the wealthy are wealthy?

    Because that statement simply isn’t true. What Justin and Mr. Drum apparently don’t understand, and what any first year economics student could tell you, is that national income is not some fixed pie of money where a dollar that accrues to one party must necessarily come from another party. Consider this part of the post:

    Is the middle class worse off because of this? Of course they are. Income matters even if plasma TVs are cheaper than they used to be or if CPI mismeasures middle class consumption or if average households now contain 2.6 members instead of 2.7. If this massive income shift hadn’t happened, middle class earnings would be higher, they’d be able to buy more stuff, and they probably wouldn’t be in debt as much. And the top 1% wouldn’t have quite so much idle cash lying around to do stupid things with.

    That statement is blatantly and demonstrably false. The idea that you are worse off, despite your particular condition, simply because someone else is better off, is such a gross distortion of logic that I have trouble believing anyone accepts it.

    A hedge fund provides a good example. A hedge fun manager typically is compensated by taking a 2% management fee per year, and taking 20% of earned profits (the carry). You might think this is outrageous. But consider that the manager’s labor provides a return to the investor that is higher than the investor could get anywhere else in the market even after the carry. So is the investor worse off because of this? Of course not! National income functions in much the same way.

    Look the bottom line is that the far greater danger to “sociocultural stability” is not income inequality, but the demagogues who use that inequality to stoke fears for political gain. That kind of rhetoric hurts everyone.

  5. Tillyosu Says:

    A quick look at Mr. Drum’s article illustrates my point beautifully:

    The super rich have a much bigger piece of the pie than they used to, and that means a smaller piece of the pie for all the rest of us.

    See what I mean? By the way, I checked. Mr. Drum was never an economics student, and as far as I can discern has no particular expertise in economics…he majored in Journalism in college.

  6. Agnostick Says:

    So, Tillyosu, you have no argument about the actual point Mr. Drum makes in the single sentence you’ve pulled out of the article…?

    Agnostick
    [email protected]

  7. Exasperated Says:

    Look I get partisan posturing, but why overlook the elephant(no pun) in the room. Technologies (computing, automation, instant global communication) in tandem with outsourcing is eliminating American jobs and “hollowing out the middle class” per Hillary Clinton. These forces interact and amplify each other. Alan Blinder of the Fed in 2007 feared that 20-40M white collar techie (drafting, research, tax preparation, etc) were vulnerble to outsourcing and M Slaughter(Tuck Business) has observed that the real income for all education levels has been declining except for the class with (about 4%) graduate and professional degrees.
    The political classes didn’t get the memo that the “New Economy” doesn’t require a middle class and the middle class is justifiably right to be alarmed. I think that is what drives the restlessness we have seen for 10+ years or so. Team Obama tapped into that anger and now that he has presented as ineffectual, the public is angry and even more disaffected in their disappointment.
    We have to figure out away to balnce good jobs with cheap goods. The neoliberal reductio ad absurdum is that “even if you are impoverished, you will be better off because (ready?), GOODS WILL BE CHEAPER.

  8. Tillyosu Says:

    Actually, Agnostik, I have a very long post before that detailing my objections to Mr. Drum’s argument. However, it is awaiting “moderation” by your good, impartial blog host.

  9. Tillyosu Says:

    I would suggest reading Posner for a more thorough and informed discussion of income inequality.

  10. Tillyosu Says:

    It troubles me how the rich have gotten richer. Income has to be pyramidal in nature, there’s no avoiding it. But the pyramid has gotten stretched out and is crumbling in the middle, and that’s bad for sociocultural stability.

    What does that even mean KK? Are you suggesting that at some point, the poor and middle class will storm the rich with pitchforks and torches? If that is the case, then shouldn’t you be equally concerned with people like Justin and Kevin Drum (and the entire Democrat party, for that matter) constantly demonizing the rich and inflaming irrational fears? Or constantly telling the poor that they’re poor because the wealthy are wealthy?

    Because that statement simply isn’t true. What any first year economics student could tell you, is that national income is not some fixed pie of money where a dollar that accrues to one party must necessarily come from another party. Consider this part of the post:

    Is the middle class worse off because of this? Of course they are. Income matters even if plasma TVs are cheaper than they used to be or if CPI mismeasures middle class consumption or if average households now contain 2.6 members instead of 2.7. If this massive income shift hadn’t happened, middle class earnings would be higher, they’d be able to buy more stuff, and they probably wouldn’t be in debt as much. And the top 1% wouldn’t have quite so much idle cash lying around to do stupid things with.

    That statement is blatantly and demonstrably false. The idea that you are worse off, despite your particular condition, simply because someone else is better off, is such a gross distortion of logic that I have trouble believing anyone accepts it.

    A hedge fund provides a good example. A hedge fun manager typically is compensated by taking a 2% management fee per year, and taking 20% of earned profits (the carry). You might think this is outrageous. But consider that the manager’s labor provides a return to the investor that is higher than the investor could get anywhere else in the market even after the carry. So is the investor worse off because of this? Of course not! National income functions in much the same way.

    Look the bottom line is that the far greater danger to “sociocultural stability” is not income inequality, but the demagogues who use that inequality to stoke fears for political gain. That kind of rhetoric hurts everyone.

  11. WHQ Says:

    The Posner article tells us we shouldn’t care about income equality, at least not from the standpoint of political stability. It doesn’t say it doesn’t exist and is silent on whether or not it’s otherwise good for the poor, or even the rest of us.

    As Drum wrote:

    This income shift is real. We can debate its effects all day long, but it’s real.

  12. kranky kritter Says:

    Right. Posner acknowledges that it exists:

    In any event, so long as one is examining changes in the degree of equality of income over time, or differences in the degree of equality across nations, income equality may be a satisfactory even though not ideal proxy for real economic equality, enabling us to say, not that the United States for example is a nation characterized by “too much” inequality of income, but that there is
    more economic inequality in the United States today than there was fifteen years ago or that there is more economic inequality in the United States than in Japan or Sweden.

    Pretty clear. And as WHQ describes, Posner’s focus is wondering how this inequality effects our socioeconomic health, which he calls “political community.”

    I do not consider whether economic equality is a good thing in its
    own right, but only whether it is an effective instrument for promoting political community.

    Posner goes on to suggest that we might have less income disparity in a lower tax, smaller government environment. Maybe we would. But since the Reagan era, we’ve seen about 30 years of promises about this. And we’ve seen lower taxes in some cases and we’ve seen growth of income disparity during that time. Smaller government? As much a fantasy today as it was in 1980. Conservatism has failed to deliver, but keeps promising. Conservatives have discovered during their ruling periods that it’s hard to do things that make government smaller while also keeping power, and they have no good answers for that, unless you credit “term limits” as a panacea.

    Later he suggests that income disparity is a function of the increasing prominence of intelligence in highly paid jobs, and thus a function of IQ. Maybe he’s got a point there too, The he goes on to talk of the high social and economic costs of income redistribution. Sure, but in what fantasy form of democracy will the vast majority of people with lower IQs accept income stagnation when they can see growing disparity? Seriously.

    Posner concedes this:

    If the distribution of income gets too far out of line with the preferences of a large bloc of voters, the politicians will respond and laws will be passed that reduce, or at least mask, the inequality.

    Posner goes on to rely on de Toqueville’s suggestion that increases in equality can well lead to greater envy and political instability. That. as we get closer in income, we’ll be less able to bear remaining inequities. Maybe there is something to this, but what’s missing is any appreciation of America’s unique and well-established insistence on trying to balance TWO ideals that often conflict: equality and liberty. Thew nightmare of conservatives is the Harrison Bergeron world where egalitarianism triumphs over libertarianism. We shouldn’t sell Americans so short when it comes to appreciation of liberty.

    As Posner alludes to in talking about how equality of opportunity alleviates envy, it seems somewhat true that people are less likely to feel envy about income disparity when they think they have gotten a fair shake and are getting by. And in the context of the current day, I think it’s easy to see how resentment towards the richest among us has grown at the very same time that many middle class people feel very afraid for their futures as they face lowered expectations for themselves and their children.

    I think that Posner and other conservatives make a good case that income disparity need not be a real concern when one particular condition is met. What condition is this? It’s the condition that the rising tide really does lift all boats. In a democracy, what’s even more important is that a substantial majority of people perceive that all boats are rising, and rising in a somewhat satisfactory way.

    This condition is not currently being met. There’s a widespread perception among many that their boat is rising too slowly, not rising, sinking, or has sunk. No one experiencing that perception is going to be receptive to blithe contentions by Posner or others that everyone will be better off a generation from now. They see no reason to believe that, and find it insulting.

  13. JimS Says:

    Posner ignores far too many things for his opinion to be that useful. KK points out a lot of it. But there is also the fact recognized by a lot of people, but not that many conservatives, that even with insurance the precarious balancing act of many people’s budgets can be completely upset with a medical emergency. In addition, even as they are being told that an education is the key to future prosperity many of the jobs that most people can really aspire to with those educations are also being shipped overseas. Education is mobile. Wages in China, India and many other countries are low and appealing to management. The cost of this education is also constantly rising and the crushing debt that new graduates face so often doesn’t inspire confidence in their future. The levels of inequality we currently have, combined with massive wage stagnation, increased deductions for health insurance further reducing take home pay and employment uncertainty all combine to damage confidence in the system and leads to the kinds of consumer confidence survey results like the most recent one reported.

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