July 28, 2006
The Conehead Economy
Among the best of the new Times Select features are their "Talking Points," long backgrounders penned by the editorial writers on all manner of major issues, from inequality to global warming. This week, Teresa Tritch published one on "The Rise of the Super-Rich," explaining that "[i]ncome inequality used to be about rich versus poor, but now it’s increasingly a matter of the ultra rich and everyone else." Few stories are as important, or as poorly understood. From 2003 to 2004, real average income for the top 1 percent of households shot up by 17 percent. For the remaining 99 percent, the average gain was under three percent. Indeed, the top one percent accumulated 36 percent of all income increases in 2004, a six percent increase from 2003.
In the past, I've called this "The Conehead Economy." Plenty of growth in the economic body, but all of it happening in the top percent. Were that to happen to a person, you'd see six inches of growth in their forehead and doctors everywhere would be puzzling over how to correct the grotesque deformity. As it is, the media trumpets the growth, the politicians backslap over the roaring economy, and everyone wonders why the average American seems so unhappy. Meanwhile, the media rarely mentions data showing that incomes for the bottom 60 percent have grown by merely 20 percent in the last 30 years -- with nearly all those gains coming during the mid-90's. Indeed, this sort of economic concentration hasn't existed since 1929 -- hardly a golden period in American life.
Meanwhile, government policy is explicitly aimed at accelerating the income distortions. "In 2006, the average tax cut for households with incomes of more than $1 million — the top two-tenths of 1 percent — is $112,000 which works out to a boost of 5.7 percent in after tax income. That’s considerably higher than the 5 percent boost garnered by the top 1 percent. It’s far greater than the 2.5 percent increase of the middle fifth of households, and fully 19 times greater than the 0.3 percent gain of the poorest fifth of households." You'd think, given the the trends, the government would be using the tax code to smooth out the inequality. Instead, they're giving it a helping hand. Next up, of course, is the effort to cut the estate tax. But don't object, o' Democrats, lest you be accused of class warfare which, as we know, only happens when the middle class wants their wages to keep up with productivity, as they did in the last generation. Had those trends continued, the median income would now be in the $60,000s, not the $40,000s. Instead, the top 1 percent accounted for 33.4 percent of total net worth in 2004, while the bottom 50 percent commanded 2.5 percent. Yes, you read that right. In the Conehead Economy, class warfare is a fact of life, and the super rich are winning in a rout.
Crossposted at Tapped
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When elective office is, essentially, for sale then it will go to the highest bidders: corporations and those individuals with very high amounts of free cash.
Through lobbying, campaign contributions and support of PACs with cash, corporations (and the media they own) and the rich (there, I've said it!) have the best government that money can buy.
Why are we surprised? This isn't free speech (money=speech, in SCOTUS's words). It it larceny, extortion, bribery.
In the 1930's, when income distribution was out of kilter, the wealthy thought any attempt to spread wealth more broadly to raise up the middle class and the poor, the rich called it communism. They fought FDR and the Democrats will all they had, but it wasn't enough because most of the voters hadn't been figuratively been bought off with a consumer debt society, an industry that also a tool of the rich.
It will have to get far, far worse in terms of income distribution before the voters wake up - if they ever do. We may well be past the point that our politics, economy and society can self-correct as we have in the past. No one is telling the story of oncoming crisis to the average American, and no one will.
Posted by: JimPortlandOR | Jul 28, 2006 1:14:57 PM
Right on, Ezra.
Posted by: Petey | Jul 28, 2006 5:46:26 PM
the double-squeeze of gas prices and interest rates seem to be what's turning the tide of opinion. once the housing bust is in fully here, it will only get worse.
we've already got quarterly numbers showing simultanous consumer pullback and inflation-- shades of the 1970s.
short term, the 'conies' seem unbeatable since they own the public dialogue.
long term, they seem to be breeding a whole new generation of people who'll never run up debts, buy a house with no down payment, or vote GOP ever again. so much for rove's 50-year majority.
unless the GOPers seriously do think that it's all about to collapse (so there is no long term), i have no idea what they could be thinking with this strategy.
Posted by: the dreaming ape | Jul 29, 2006 9:15:52 AM
We tax the young poor people to give Medicare to rich golfers with million dollar homes in Tampa Bay. We need every single parent mother paying Medicare tax on every dollar earned so Warren Buffett can get his Viagra for free.
Pro football players should not make millions per year. Everybody should be taxed 100% on their pay over minumum wage. Down with property rights. In Cuba they have the right idea with their Socialized Medicine and the average pay of $22 a week for workers. There are no co-pays with doctor visits in Cuba.
We need everybody making the same no matter if they work long hours or not. I'm with you ezra.
Posted by: Ron Greiner | Jul 29, 2006 1:36:15 PM
Lemme guess: you're in the second quintile of income for your area, but you believe you'll be top-2% some day.
Here are some simple facts: one, you won't; two, your kids won't; three, to the extent the superrich think of you at all, it is with the gratitude with which Lenin though of his "useful idiots".
But hey -- you have the self-satisfied glow of the righteous, and far be it from us to take that away from you.
Too bad for your kids, though.
Posted by: wcw | Jul 29, 2006 6:48:03 PM
Ezra, why are you so fascinated with ultra rich vs poor wage discrepancies?
Your original post said that real income (after adjusted for inflation) was up 3% for the non-rich people.
Sounds like people are going BETTER than they were last year by your own analysis. If thats true, then its absolutely irrelevant what the ultra rich are making. Who cares if they are making more than 3% as long as everybody is getting better off?
Posted by: joe blow | Jul 29, 2006 10:31:41 PM
Joe needs a course in reading comprehension as well as one in basic economics, it seems. First of all, JB, note that Ezra wrote that the earnings of the BOTTOM 99 PERCENT of Americans rose an AVERAGE of 3 percent. That's hardly equivalent to saying that the earnings of all other Americans rose by that amount. Do you really believe that these gains were spread evenly across everyone from the top 2 percent to the bottom 1 percent? If so, you are even more of an idiot that your post reveals. The earnings of the top 2 to 10 percent increased much more than those of, say, the middle 30 percent. In fact, REAL wage gains for the average middle-class American have stagnated almost completely. If your argument is what passes for thinking in your household, I hope someone else is the main wage earner - a family might starve before a bozo like you could figure out a way to put food on the table.
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