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October 12, 2007
$1 For Me, 64 Cents For All of You; $1 For Me...
While it's true that Al Gore won the Nobel Prize today, his dominance of both the Swedes and Sundance is not the most impressive record being set. Not even near it. So don't be humble, don't be shy -- c'mon rich people, come out and take a bow:
The richest Americans' share of national income has hit a postwar record, surpassing the highs reached in the 1990s bull market, and underlining the divergence of economic fortunes blamed for fueling anxiety among American workers.
The wealthiest 1% of Americans earned 21.2% of all income in 2005, according to new data from the Internal Revenue Service. That is up sharply from 19% in 2004, and surpasses the previous high of 20.8% set in 2000, at the peak of the previous bull market in stocks.
The bottom 50% earned 12.8% of all income, down from 13.4% in 2004 and a bit less than their 13% share in 2000.
To think of this a bit more concretely, if you took a representative 100 Americans and split $5 of income between them, here's how it would look: One guy would get $1.06, forcing the other 99 to split the remaining $3.94, while the bottom 50 would split 64 cents among themselves. The leftover $3.30 would be divvied up among the remaining 49 folks.
That's a remarkable level of inequality. If income really was apportioned in such a public way, the guy taking that $1.06 would get lynched. But, in fact, it turns out that he's doing nothing wrong. He's just got a whole lot more education and skills than everyone else in society. Asked about this data, George W. Bush said, "First of all, our society has had income inequality for a long time. Secondly, skills gaps yield income gaps. And what needs to be done about the inequality of income is to make sure people have got good education, starting with young kids."
It would be nice if the President knew what he was talking about. But he isn't even close.
October 12, 2007 in Inequality | Permalink
Comments
If income really was apportioned in such a public way, the guy taking that $1.06 would get lynched.
Now, that's what I'm talking about here.
You may say that you're a liberal living in radicalizing times, like Krugman or Yglesias, but I think you've got a legitimate radical streak in you.
The notion that there is anything even close to right or fair about the way wealth and power are distributed in America is ridiculous on a prima facie level.
Posted by: DivGuy | Oct 12, 2007 10:01:49 AM
Yes, those hedge fund managers are just many thousands of times more educated than the rest of us.
Posted by: KCinDC | Oct 12, 2007 10:03:19 AM
As we ALL get richer and get more control over certain aspects of life more people opt for a more enjoyable, more rewarding life earning less money. My cousin Ed comes to mind, I make lots of money, he makes very little money, he has lots of fun, I have far far less fun. He left a much higher paying job for a more enjoyable low paying job. On the other hand high earners are often driven to make more and more money. Not only to spend but to compare with others for relative position.
I have read that there are more jobs available in manufacturing than other areas despite them paying more. That is understandable because they are lousy jobs.
How much of a factor is this divergence in goals. What is more important to YOU money or time/fun/enjoying work. I wish that I could buy more vacation time. Perhaps I should quit my job and sell my part of the company and start bloging.
Posted by: Floccina | Oct 12, 2007 10:20:36 AM
You hear a lot about the education resolution and I think it’s just the default position with little thought put into it. It’s analogous to “throwing more money” at the issues. If some is good, more must be better. The return on education, while important, isn’t great enough to explain away inequities growth. The answer probably lies more in a combination of the tax systems (I read recently that Germany has the same level of inequity pretax), globalization, technology changes, etc.
Posted by: DM | Oct 12, 2007 10:27:23 AM
Floccina,
From everything that I've read, it isn't the absolute level of wealth that is the determinate of happiness, it is the relative wealth compared to who you compare yourself to. If you compare yourself to Person X who makes twice as much as you, you'll be unhappy, if you compare yourself to Person Y who makes 1/2 as much as you, you'll be happy.
Posted by: Decided FenceSitter | Oct 12, 2007 10:41:36 AM
DFS,
My guess would be that if comparing wealth is how a person strives to attain happiness, they won't be very happy.
Posted by: Dave Justus | Oct 12, 2007 10:51:49 AM
And let us not forget that income mobility has decreased as inequality has increased... After all, it is easier to climb a hill than a mountain.
So Milton Friedman managed to refute himself -- pursuing his policies has increased inequality but reduced mobility and reduced labour's share of national income.
Strangely, he failed to mention that in the introduction to the 50th anniversary edition of "Capitalism and Freedom" -- although he did proclaim the protectionist and state-directed economies of the Asian Tigers as examples of the benefits of free market capitalism!
Ah, the joys of ideology...
Posted by: Anarcho | Oct 12, 2007 11:27:13 AM
"From everything that I've read, it isn't the absolute level of wealth that is the determinate of happiness, it is the relative wealth compared to who you compare yourself to. If you compare yourself to Person X who makes twice as much as you, you'll be unhappy, if you compare yourself to Person Y who makes 1/2 as much as you, you'll be happy."
I think that it is different for different people. One of my business partners is very concerned with his relative position. One result of this is he spends a lot on conspicuous consumption and is not growing investment assets. He compares his salary and our company profits with others rather than that plus investment income. He buys new very expensive cars so his neighbor can see them, the other partners, all making more than him, buy used cars. (We seem to love used minivans nothing more practical IMHO.) He is not interested in having anything that cannot be seen or bragged about. For me if it was not for my partners I would take a lot more vacation and a lot less money. If I could sell my part of the company for just 5 times the annual income that it generates I would do it in a minute. Why, because we all have different goals and desires just like everyone else and that is my point the richer that we get the more some people can choose to drop out, this IMO would make the difference in pay between the people like my one partner and people like my cousin Ed will grow. I tell my kids, I think rationally that a college degree is not all that important, to the consternation of my wife. For many years my wife and I lived on about than 20k year inflation adjusted to today. It was not bad. In some ways it was quit nice (and BTW we paid for our own health insurance policy and IMHO health insurance is still cheap (I have the same policy it cost $310/month for the 4 of us, we have to children now). One more point middleclass people can live on very little money, it is the middleclass habits.
BTW anybody in the USA who thinks that he is not rich should travel to a 3rd world country and look around.
Posted by: Floccina | Oct 12, 2007 11:55:31 AM
How would President Smirky know about inequalities, much less education. He's been limo'ed everywhere in his life since the age of two. Ran and ruined two oil(!) businesses in Texas, with no repercussions. Got caught insider trading by the SEC, but suffered no penalties because daddy saved his ass. Been allowed to erase his Texas driving record when he was caught snorting coke in the car. Been allowed to ditch National Guard duty when he got tired of it. Been carried along for six years by Cheney, Rummy, Rove and the rest of the White House smegmoids while he focused on his workouts and his vacations. How did *any* of that gross privilege come from his having been highly educated?
Posted by: Gregor | Oct 12, 2007 12:00:10 PM
Increases in income inequality likely throw certain prices completely out of whack-- eg, real estate -- making life a lot less happy and affordable for those of us who aren't at the top of the pyramid.
If you could point to any assets who price increases march in lockstep with salary/wealth increases of the very top, it would stand to reason that those assets/goods will be come much less affordable for the wide swath of the populace whose salaries don't increase at that same rate. I think real estate is one of these things. Lacking as I do a background in real estate economics, I can't say for sure.
Posted by: Tyro | Oct 12, 2007 12:07:17 PM
Tyro,
Interesting thought, but how does this square with recent findings that growth in income inequities have been somewhat regional (Silicon Valley and Seattle in the late '90's, Northern VA and some other location that I can't recall off the top of my head today)? Is this just a regional effect as well?
Posted by: DM | Oct 12, 2007 12:30:27 PM
The wealthiest 1% of Americans earned 21.2% of all income in 2005, according to new data from the Internal Revenue Service.
What is NOT discussed is the same 1% of the top earners paid 33.89% of the income taxes...over a third and the top 5% paid over 50% of the income taxes. These are the people footing the bills for the rest.
Posted by: El Viajero | Oct 12, 2007 12:37:56 PM
Why don't progressives get away from the word "inequality" and start moving towards a better signifier like "wage depression" (the best I can think up but some pro writer ought to come with better) that signals the scale of the wage catastrophe involved. "Inequality" usually depicts a minority beset by a majority; the current squeeze to the top (fueled by the race-to-the-bottom, see below) is the other way around.
A quote from Dean Baker's "Beat the Press":
http://beatthepress.blogspot.com/2006/06/minimum-wage-and-doctors-pay.html
I'll reproduce a slightly altered table from Gordon's paper, showing income shares in 1972 and 2001.
percentiles inc sh 72 inc sh 01
0-20 2.6% 2.0%
20-50 16.0% 11.7%
50-80 33.7% 27.2%
80-90 17.0% 16.1%
90-95 10.8% 11.3%
95-99.0 12.2% 14.8%
99.0-99.9 5.7% 9.6%
99.9 -100 1.9% 7.3%
****************************
If we were somehow able to forecast to Americans of 1968 that by early 2007 the minimum wage would have dropped almost half (from $9.50/hr, adjusted) -- or that 25% or American wage earners would be earning less than the minimum wage of 1968 (while Europe did the opposite flip-flop) -- they could only have guessed that a small nuclear war or a series of depressions or plagues or even a mini-ice age (on this side of the Atlantic) could be the cause of such a gigantic tragedy.
Guess what: the race-to-the-bottom (RTB -- unrecognized on this side of the Atlantic as the "default program" on the free market OS since the advent of industrialization) effect is powerful enough to achieve the same exaggerated result -- in a nation that is unaware what is happening to it; the first remedy for which might be more accurately identifying the catastrophe for what it is.
Posted by: Denis Drew | Oct 12, 2007 12:48:35 PM
Norwegians choose the Peace Prize, not Swedes. No one knows exactly why Nobel set it up this way, but it is the only one not chosen by Sweden.
Posted by: Mudge | Oct 12, 2007 12:51:34 PM
If income really was apportioned
But income is not "apportioned", and we saw the increases in these inequalities during the Clinton presidency since the WSJ report that the current level "surpasses the previous high of 20.8% set in 2000, at the peak of the previous bull market in stocks." That same bull market enabled the US to close the budget deficit too.
The top half pays 96.93% of taxes. That's from the IRS's excel file (and the top 1% pay 39.38% of all taxes, not 33.89%).
The question is how much the inequality matters for standards of living. On that score, it does matter. The income floor in 2005 dollars for the top 50% is $30,881. That means that 50% of the filers had adjusted gross incomes below that figure. Wow!
Posted by: c.l. ball | Oct 12, 2007 1:13:26 PM
Couple of notes, El Viajero notes what percentage of income taxes the rich pay, which is different from their total tax. Kevin Drum has had a bunch of charts up lately showing that overall tax rates are a lot flatter than El Viajero would like to have us believe. The richest Americans pay tax at a lower rate than a household with, say, two college grads with good-paying jobs.
The inequality noted in this and other posts is not due to the factor Floccina mentions, where people take easier jobs to be happy. That's just messing around in the fat area of the income distribution curve. It's due to the winner-take-all method of paying people.
Lastly, I wouldn't credit the education and skills of the multi-millionaire too much. Bill Gates never graduated from college, and didn't write Windows (though he wrote software in the beginning). He, and others are just really good at making money. That's the only difference, and now, everything is set up so they can make a lot more than everyone else.
Posted by: American Citizen | Oct 12, 2007 1:37:00 PM
Foccina said: "BTW we paid for our own health insurance policy and IMHO health insurance is still cheap (I have the same policy it cost $310/month for the 4 of us, we have to children now)."
It is still cheap for you, the minority. The majority of Americans are paying upwards of $900/month for a family of 5. Personally, we pay $45,000 every 5 years to the health insurance company. We might use $5,000 of this, in that time frame. Plus, many in the middle class go without insurance because they are deemed "uninsurable" by the underwritters.
(Who made them Gods?) Bankrupt from a bad accident or incurable disease, they fall down the rabbit hole of endless health problems and a lifetime of debt. That is what you get when you have for profit healthcare.
That is UnAmerican, IMHO.
Foccina said:"One more point middleclass people can live on very little money, it is the middleclass habits."
This is funny. I see many of them avoiding habits. Middleclass folks are forced to live on very little money. Then, they are held hostage to the fear of loosing their job or health insurance because cancer came to town and comforts of life have been sabotaged by high energy cost and inflation.
They are seeing a greater burden on their ability to balance budgets, because their neccessities have taken over every aspect of their life. Essentially, they are enslaved to the corporations. Working for one, to pay everything they earn to another. No freedom to live unburdened, and those who are tethered to consumerist habits are usually the painful results of anxiety and stress.
Foccina said:"BTW anybody in the USA who thinks that he is not rich should travel to a 3rd world country and look around."
Great. Comparing apples to oranges does nothing to demonstrate truth or reality. Please visit the back woods of Appalachia, or the bowels of Louisianna.
National Policy Center states:
Poverty rates are highest for families headed by single women, particularly if they are black or Hispanic. In 2004, 28.4 percent of households headed by single women were poor, while 13.5 percent of households headed by single men and 5.5 percent of married-couple households lived in poverty. In 2004, both black and Hispanic female-headed households had poverty rates just under 40 percent.
There are also differences between native-born and foreign-born residents. In 2004, 17.1 percent of foreign-born residents lived in poverty, compared to 11.8 percent of residents born in the United States. Foreign-born, non-citizens had an even higher incidence of poverty, at a rate of 21.7 percent. In total, the foreign-born poor account for about a sixth of all poor persons.
How many children live in poverty?[3]
Children represent a disproportionate share of the poor in the United States; they are 25 percent of the total population, but 35 percent of the poor population. In 2004, 13 million children, or 17.8 percent, were poor. The poverty rate for children also varies substantially by race and Hispanic origin.
One person's rose colored glasses does not make everything better for those of us that struggle with the clear picture of fact.
Why distort the colors of truth?
Posted by: Sweetrock | Oct 12, 2007 2:21:14 PM
"If income really was apportioned in such a public way, the guy taking that $1.06 would get lynched"
Sounds like the Chinese Cultural Revolution to me. Remind me how that worked out for them.
Posted by: abw | Oct 12, 2007 2:46:40 PM
Sweetrock wrote:
"They are seeing a greater burden on their ability to balance budgets, because their neccessities have taken over every aspect of their life. "
One man's neccessities are another man's luxuries. I can only speak for myself I and my family could do OK on 20K per year. See the book "Your Money or Your Life" (http://www.yourmoneyoryourlife.org/). I have lived in Honduras and I know that the professional class there have less than 20K/year income.
Sweetrock you are correct that if you have diabetes or some cronic disease you will have to get medicaid to live on 20K.
Sweetrock I wonder if you would have liked me any more when I was poor. BTW My wife and I lived in a moble home that we bought for $3,000 but thanks to our middleclass habits we saved lots of money and then sold it for $2,700.
Tyro here is your realestate economist:
http://www.economics.harvard.edu/faculty/glaeser/papers.html
Slow growth policies make it so that even the carpenters that build the houses in some places cannot afford to own one.
American Citizen I only said that could be one of the factors.
I tink that apart from housing a minimum wage hour of work buys more now than it ever has.
Posted by: Floccina | Oct 12, 2007 2:52:46 PM
At the time of the creation of the Nobel prizes, Norway was a part of the Kingdom of Sweden and in the process of negotiating additional autonomy (and its eventual independence). Having the Peace Prize decided in Oslo was, I believe, a gesture to the growing nationalist movement in Norway.
Posted by: Michael Rebain | Oct 12, 2007 3:31:49 PM
the current level "surpasses the previous high of 20.8% set in 2000, at the peak of the previous bull market in stocks."
The mark surpassed the previous high attained in 1929, just prior to the Great Depression.
Posted by: Neo | Oct 12, 2007 5:05:05 PM
What is this liberal obsession about how because my neighbor is making more than I am, that I am somehow being cheated? Because that's essentially what the position is.
How about this? Let's say I'm making $50k a year, and my neighbor makes $100k a year, and I get a $5k raise this year, but he gets a $12k raise. His raise was bigger than mine in dollars and by percentage. Am I getting cheated? Or are we both better off then before? That's exactly what the argument is!
Please look at historical income data from the Census Bureau, that splits households into quintiles. http://www.census.gov/hhes/www/income/histinc/h01ar.html
Look at the second table that adjusts for inflation. Now look at the trends. The poor, middle class, and rich all show real gains or losses in incomes in the same years for the most part. All show gains over any 10 year period. The rich merely get richer faster, then the poor get richer. Yet somehow, the poor and middle class are being cheated according to liberals?
Put simply, your share of the pie may be smaller, but the pie is much bigger than it was years ago. Overall, the amount of pie you receive is more than it was. So stop your complaining!
Posted by: Kevin | Oct 12, 2007 5:08:44 PM
Shorter Kevin: roll on the transformation of the US into a third-world economy.
The richest Americans pay tax at a lower rate than a household with, say, two college grads with good-paying jobs.
Warren Buffett noted in one of his letters to shareholders that the tax code treats him better than it does his secretary. But Fred apparently knows better.
Posted by: pseudonymous in nc | Oct 12, 2007 6:35:57 PM
Ezra,
To think of this a bit more concretely, if you took a representative 100 Americans and split $5 of income between them, here's how it would look: One guy would get $1.06, forcing the other 99 to split the remaining $3.94, while the bottom 50 would split 64 cents among themselves. The leftover $3.30 would be divvied up among the remaining 49 folks.
If this is supposed to be a serious analogy to income distribution, then we must ask where the $5 came from in the first place. It didn't appear out of thin air. Someone must have produced it. If the guy you give $1.06 to contributed that amount, why shouldn't he get it back? If the bottom 50 contributed only 64 cents between them, why should they get any more than that back?
Posted by: JasonR | Oct 12, 2007 8:43:37 PM
If the guy you give $1.06 to contributed that amount, why shouldn't he get it back?
And if you weren't a Randroid, you wouldn't be full of shit.
That's a big ol' "if", R.
Posted by: pseudonymous in nc | Oct 12, 2007 11:58:29 PM
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