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