I'm compelled to write a bunch about inequality.
What are the facts of the case (my CBPP colleagues are doing great stuff on this that I want to promote)?
Why has it gone up so much?
Why does it matter?
Where is it headed?
Why so much interest in it right now?
Is it a political force?
So let's start with facts of the case.
If you want to quickly and efficiently get up to speed on the income inequality story in the US -- and who doesn't? -- read this from my CBPP colleagues. It takes you pretty far into the weeds on data sources and the like, but this is one of those economic issues where the sources matter a great deal. Series that fail to include realized capital gains, for example, will miss important dynamics going on in the upper tail of the income scale.
Here's their summary of the broad trends:
This picture from recent CBO data, which are among the best for understanding the trend in income inequality over the past few decades, is quite revealing of where the Occupy folks are coming from with the 99/1 framing.
One thing to note here is the large decline in gains to the top 1% after the dot.com bust. That's a function of the decline in asset values which led to large capital losses for high-end households. The CBO data end in 2007 but you can be sure the top took another hit with the bursting of the housing bubble and the ensuing financial meltdown.
In fact, IRS data, which go through 2009, show the share of adjusted gross income going to the top 1% to have fallen sharply in 2008 and 2009, from around 23% in 2007 to 17% in 2009.
But that's expected. The question is whether it's cyclical or structural and the answer is that it's almost certainly the former. Note the huge bounce back in the growth of top incomes once the economy recovered. Since the underlying forces generating the increasingly unequal distribution of growth remained in place, there was no reason to expect a structural downshift (more on those forces in later posts, but here's an earlier post that gets into that material).
What does the future hold in this regard? Will inequality, as measured by the share going to the top 1%, start climbing again soon?
I'm quite certain it will as the forces stoking its growth remain in place. One way to test this hypothesis is to look at the correlation between the growth at the top of the income scale and corporate profits, for which we have data through 2010, and which have fully regained their stellar pre-recession peak.
The figure shows the result of a simple model regressing the CBO top 1% series on corporate profits (as a share of income) and a time trend (other than the time trend, I use the changes in the variables). It's a simplistic model -- nothing you'd want to take home to your parents -- just "blogometrics." But what we're looking for here is whether the forecasted series (in red) ticks up in 2010... and there it is.
The forces driving inequality in America remain, unfortunately, alive and well.
This post originally appeared at Jared Bernstein's On The Economy blog.
http://newsbusters.org/blogs/tim-graham/2011/12/03/occupy-huffington-post-so-snooty-they-charge-internships
I am not for redistribution but rather fair distribution. Fair distribution is a real threat to the 1%.
Unless there is some other way for the fair distribution you talk about?
http://www.treehugger.com/corporate-responsibility/want-to-boycott-the-koch-brothers-products-heres-where-to-start.html
Rather It’s the circulation of wealth via reasonable tax rates of the well-off (really an investment in American) that puts money in the hands of average folks--the spenders who create the demand for goods and services that in turn creates jobs, drives the economy and in the long run makes the super rich even richer. Indeed, taxing the wealthy is not a punishment, it’s a powerful investment tool for all concerned.
On the other hand, when tax rates drop below the seemingly magic number of 20% of GDP as is currently the dismal situation, the bottom falls out of the economy. This was Bush’s prescription for turning a healthy economy into a disaster--lower taxes and making up the difference on the credit card.
The economy only works when folks at every level spend, and collapses when they don’t. So the answer is not to jam on the spending brakes--just kill the Bush tax cuts and pay for the darn stuff.
There is a multiplier effect that happens when more money goes into the hands of the middle class and poor that doesn't happen when it goes into the hands of the wealthy.
Think of the game of Monopoly, and how the game ends when one player has all the money and assets. If people want the game to continue, then that one player has to give some of that money and assets away. Or, you can start a new game with everything being equal so everyone has a chance to play again. The latter is total wealth redistribution, leading to flourishing capitalism.
http://www.huffingtonpost.com/social/OldTulsan/inequality-united-states_b_1120924_121031612.html
OldTulsan: http://www.morganstanley.com/views/gef/archive/2006/20060303-Fri.html Globalization's New Underclass "Stephen Roach (New York) Billed as
Best
Jan
Too bad the servers aren't OpenVMS multi-site clusters that can lose one site without users noticing:
http://h71000.www7.hp.com/openvms/brochures/commerzbank/
HP Alphaserver technology helps Commerzbank tolerate disaster on September
"...Zero downtime is why the bank has run its critical systems on the OpenVMS operating system since the 1980s. According to Batan, “OpenVMS is the most secure and reliable operating system we have ever experienced...”
--OldTulsan, retired VMS system manager
I do not envy the rich. I do not begrudge the opportunities found by others. I am responsible for finding my own opportunities.
The real issue is political. There will always be more people making less than the top tier. The questions are how far will the majority go to confiscate what they want, and what rationale will they use for this confiscation. I am not in favor of the 'majority taking things it doesn't need just because it can.
We recognize that a used car dealer selling a rebuilt wreck without disclosing the car's history is fraud. Why does this same principal not apply to securities sold on Wall Street?
But investors who make bad investments because they were too lazy to do their homework don't get sympathy from me.