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April 23, 2007

Inequality Facts, Cont.

From The American Prospect's poverty report:

In 2005, the top 20 percent of American households had 50.4 percent of the nation's income, while the bottom 20 percent had 3.4 percent -- the largest margin between top and bottom since this data series began, in 1967. The Center on Budget and Policy Priorities reports that between 2003 and 2004, the post-tax income of the bottom fifth rose by $200 a year, while that of the top fifth rose by $11,600, and post-tax income for the top 1 percent rose by $145,500. And the wealth gap is far more extreme, with the top 1 percent of households holding one-third of the nation's net worth, while the bottom 40 percent have less than one percent of the nation's net worth.

I'm always impressed by how remarkably stark the data is. "The top 1 percent of households holding one-third of the nation's net worth, while the bottom 40 percent have less than one percent of the nation's net worth." Utterly unreal. But, of course, we're all to believe that a hammerlock on the nation's wealth confers no advantages, and the children of the poor are exactly as likely to succeed as the children of the rich, and the real story in this country is that, over the past few years, the rich are making all the money paying more in taxes. Meanwhile, I never quite know whether to believe these reports:

A new study by Harry Holzer and several colleagues, commissioned by the Center for American Progress' Task Force on Poverty, underscores how serious the drag on the economy turns out to be. Holzer and colleagues estimate that the net loss to the economy from persistent childhood poverty is about $500 billion each year. That is about 4 percent of the gross domestic product, more than $1,600 for every person in the country. The economic loss is almost evenly divided among lower productivity, higher health costs, and increased crime costs for adults who grew up in persistent poverty.

I've no problem summoning outrage over persistent childhood poverty, but it's a little trickier to believe it costs us the equivalent of $500 billion each year. And if you extrapolated the same methodology out into the wider childhood population, would we be missing out of 32% of GDP? How sensitive are the mechanisms causing the deadweight loss to the policies that would alleviate deprivation and poverty? I'm fully convinced poverty is vulnerable to social policy, but I'm less certain that a massive economic expansion will follow.

April 23, 2007 in Inequality | Permalink

Comments

I don't know about a "massive expansion," but I think it's pretty clear that middle-class dominated, rather than wealthy-dominated, economies tend to be much more prosperous overall. My understanding is that's the usual explanation for why the economy does better under Dems: they take better care of the middle, which increases their purchasing power. I'm really glad you included wealth data along with income data. The wealth data really show how bad the problem is; the income data actually understates it somewhat. For that reason, I'm annoyed that the wealth numbers are often ignored. My impression is that the wealth disparities greatly favor whites over both blacks and Hispanics, but this seems to get little attention in, for example, affirmative action debates.

Posted by: beckya57 | Apr 23, 2007 8:01:38 AM

"The top 1 percent of households holding one-third of the nation's net worth, while the bottom 40 percent have less than one percent of the nation's net worth."

Does anybody have the corresponding tax burden? I'd love to know -- and to be able to follow the above observation with something like, "and that same top 1% holding one-third of the nation's net worth pays just 10% of U.S. tax revenues, while the bottom 40%, with less than 1% of the nation's total net worth, pays 25% of tax revenues." Or whatever it is.

On the other hand, my guess that the tax stat would help the progressive argument against inequality might be totally wrong . . .

Posted by: AJ in DC | Apr 23, 2007 8:53:22 AM

AJ: With wealth I'm not sure. With income of course those with the higher incomes do indeed pay the vast majority of income taxes.

One thing I would love to know though:
"In 2005, the top 20 percent of American households had 50.4 percent of the nation's income, while the bottom 20 percent had 3.4 percent -- the largest margin between top and bottom since this data series began, in 1967."

How is income being defined? The same was as it is when we look at the Federal poverty line (ie, not including the EITC, housing vouchers, Medicaid etc etc but including direct cash transfers) or actually counting all poor.
Apart from the idea that you should, if you're going to be intellectually honest, measure incomes given what help is already being given, rather than without it, if your intention is to argue that more should be done, there's another point.
There's been a bi-partisan move since the late 60s to move such support of the poor away from direct cash transfers to things like the EITC, housing vouchers, etc etc. Their effect appears in one way of measuring income and not in another.
(Running from memory) by the mid 80s this move had meant that $100 billion extra was being spent on income redistribution to the poor but the methods used to calculate the Federal poverty line meant that it looked as if $30 billion less was.
Whether those figures are correct in detail or not doesn't change the original question.
How are they defining income?
Another (again from memory) example of the same thing, the way in which how you define income changes matters. One way of counting has 12% of children in poverty. The other 3%.

Posted by: Tim Worstall | Apr 23, 2007 9:57:33 AM

To actually see a massive economic expansion, you'd have to wait a while, and you'd have to have better measures of economic health than GDP (remember that until Katrina it was a truism that hurricanes and other natural disasters caused a spike in GDP as the destruction was repaired).

Except for the lost productivity, all of the effects listed in your excerpt above aren't deductions from GDP, they're just elements of GDP that aren't signs of desirable economic activity. If you replaced the needed extra medical care and the excess incarceration with people planting flowers and cleaning up litter (just for example) you might not engender any extra economic activity, but the nation would still be a much more pleasant place.

(Indeed, you can even argue that by dying young the poor consume fewer resources than they otherwise would, and that extending and improving their lives might be a net accounting loss. I leave it as an exercise for the reader how that hypothesis should be interpreted.)

Posted by: paul | Apr 23, 2007 10:05:32 AM

In 2005, the top 20 percent of American households had 50.4 percent of the nation's income, while the bottom 20 percent had 3.4 percent

And here is the tax burden distribution: http://www.ntu.org/main/page.php?PageID=6

Top 1% of earners pay 36.89% of income taxes

Top 5% of earners pay 57.13% of income taxes

Top 10% pay of earners pay 68.19% of income taxes

Top 25% of earners pay 84.86% of income taxes

Top 50% of earners pay 96.70% of income taxes

Bottom 50% of earners pay 3.30% of income taxes

Posted by: Fred Jones | Apr 23, 2007 11:48:53 AM

Hey, given that income taxes are the only taxes people pay, we must have a pretty progressive tax rate! Oh, wait...

Posted by: Sam L. | Apr 23, 2007 1:14:50 PM

Ezra, Ezra, Ezra. We should be grateful that our wealthy overlords don't round us up and kill us for sport. Yet all you do is bitch, bitch, bitch.

Posted by: Amanda Marcotte | Apr 23, 2007 1:22:48 PM

A large part of the wealth controlled by people at the top is in the form of stocks, the market for which has been strong for several years. If a severe external shock suddenly cut stock prices by 30%-50%, triggered a severe recession and drove up the unemployment rate, the wealth inequality gap would be much narrower, but would that be a good thing? I don't think so.

Separately, the effective wealth of the middle and lower middle class is materially understated because it probably does not include the vested actuarial value of assets held by public and private sector defined benefit pension funds. Total assets in these funds are currently about $2 trillion or a bit more.

Posted by: BC | Apr 23, 2007 1:52:20 PM

Time after time I see Ezra post article lamenting the differences in income. Even Skank-girl takes time out of her busy day of man-bashing to chime in on this subject.

And time after time I ask him the same question:

What, in your opinion, is the optimum income distribution and why?

And time after time, there is nothing but crickets chirping......

Posted by: Fred Jones | Apr 23, 2007 5:27:59 PM

Not true, Fred.

Posted by: Sanpete | Apr 23, 2007 7:20:44 PM

And time after time I ask him...

You ain't him. Please pay attention, Mr. Sanpete. Or better still, get a job

Posted by: Fred Jones | Apr 24, 2007 9:17:52 AM

Fred, it really doesn't matter who answers your question, as long as it's answered. Or it shouldn't.

Odd non sequitur there at the end. You seem to be internalizing and projecting the attacks on you.

Posted by: Sanpete | Apr 24, 2007 11:56:08 AM

Moral of the story: When I want your opinion, Sanpete, I'll slap it out of you.

Posted by: Fred Jones | Apr 24, 2007 1:45:26 PM

Not to mention that som 60 million Americans are living on $7 dollars a day. Given what $7 can buy you today, a lot of American families are now on part with families in developing countries.

Posted by: Terrance | Apr 24, 2007 4:24:25 PM

Not to mention that som 60 million Americans are living on $7 dollars a day.

Yeah, right. Also, the top 1% pay 99.99999% of all taxes.

Posted by: JasonR | Apr 24, 2007 4:34:07 PM

Terrance, I'd like backup on that $7/day. I work with the homeless in Kansas City, and the average SSDI/SSI check is twice that. Did you perhaps mean $7/hour? I wouldn't be surprised if that many people were existing on wages that close to minimum

As for the 500 billion/year cost of poverty to GDP, I can see a myriad of costs associated with poverty that affect us, not least is the long term health and mental health effects of poverty stricken people living in unsafe physical and sociological environments.

This can lead to opportunity costs in employment, increased medical costs, increased costs in crime and infrastructure, etc. A wonderful book on the effects of poverty related environmental and tetragenic causes of mental illness is Ghosts from the Nursery, by Robin Karr-Morse and Meredith Wiley.

Posted by: odanu | Apr 25, 2007 9:15:24 AM

Frank:

Gini coefficient of between 0.2 & 0.35 is probably a good start. I personally think the top 1% should be satisfied with no more than 25% of the wealth, which probably makes me a foam-at-the-mouth socialist.

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