Thursday, December 15, 2011

Income Inequality Revisited

There are days when I'm strongly in the tar-and-pitchforks group of thinkers. Note the word thinkers there. Like all benevolent divinities, I refrain from directing thunder storms and painful boils of the bottom to those who deserve them.

But still. Here is the reaction of one economist to the news that the income share of the top one percent fell from 23% in 2007 to 17% in 2009, largely because so much of the income in that group comes from stock market investments which haven't been doing well during the recession:
“It’s very interesting that this has become such a big topic now when the numbers are back to where they were in the 1990s,” said Steven Kaplan, an economist at the University of Chicago’s business school. “People didn’t seem to be complaining about it then.”
What's the message in that last sentence? If you let us rob you poor in the past, why complain now? Just kidding.

But picking a particular non-recession year to compare with a recession year is not terribly meaningful, as the linked article points out:
In 2009 the average income of the top 1 percent, adjusted for inflation, fell below its 1998 level, but remained well above where it was in 1990: $662,000. While the protests follow the worst downturn since the Great Depression, inequality has been growing for three decades, driven by economic and political forces. Globalization created larger markets for those with scarce talents but hurt less educated workers by pitting them against cheap foreign labor. New technology also hurt unskilled workers, by replacing many with machines.
Unions declined, eroding blue-collar bargaining power. The financial industry grew, with paydays heavily weighted toward the top. Corporate culture accepted the growing gap between the executive suite and the factory floor.
Falling tax rates on the highest earners added to the net income divide, by allowing top earners to keep more of their pay and increasing their incentive to maximize it.
In the decades after World War II, by contrast, the average income of the top 1 percent grew only marginally faster than inflation and significantly slower than middle-class incomes. That combination caused inequality to decline throughout much of the 1950, ’60s and early ’70s.
As recently as 1980, only about one-tenth of the nation’s pretax income went to the top 1 percent. By 2000, that share had grown to about 22 percent. It slumped to about 18 percent in 2003, after a market crash, only to rebound by 2007 to levels not achieved since the Roaring ’20s.

And what the share of the top one percent is of today's income is not known.

But here's the bit that made me grind my fangs:
Pointing to the recent declines at the top, Mr. Kaplan argues the Occupy protesters have accused the wrong villain by focusing on inequality, which he called an inevitable byproduct of growth. “If you want to reduce inequality, all you need to do is put the economy in a recession,” he said. “If you want the economy to do well, as all of us do, then you’ll get more inequality.”
What does it mean for the "economy to do well" in that statement? Something like this?
About 97.3 million Americans fall into a low-income category, commonly defined as those earning between 100 and 199 percent of the poverty level, based on a new supplemental measure by the Census Bureau that is designed to provide a fuller picture of poverty. Together with the 49.1 million who fall below the poverty line and are counted as poor, they number 146.4 million, or 48 percent of the U.S. population. That's up by 4 million from 2009, the earliest numbers for the newly developed poverty measure.
The new measure of poverty takes into account medical, commuting and other living costs. Doing that helped push the number of people below 200 percent of the poverty level up from 104 million, or 1 in 3 Americans, that was officially reported in September.
Broken down by age, children were most likely to be poor or low-income — about 57 percent — followed by seniors over 65. By race and ethnicity, Hispanics topped the list at 73 percent, followed by blacks, Asians and non-Hispanic whites.
Even by traditional measures, many working families are hurting.

The point is, of course, that the economy is NOT doing well if the majority of people are not doing well. It's quite possible for an economy to grow and for all that growth to fall into the laps of a tiny minority. Besides, to argue that inequality is an inevitable byproduct of growth does not explain how the United States managed such impressive growth rates with reduced inequality in the past.