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Your economic problems in graphs

This graph, from EPI, is probably the sort of thing most of you have seen before.

030310-snapshot1.jpg

The normal takeaway from this is that the American economy is very unfair. But I don't think that's a sufficient conclusion. Rather, there's something dangerous in these lines. One of two things happen when the majority of a country goes through a sustained period of wage stagnation. Either political unrest reaches destabilizing levels or we mask the trend by amassing enormous amounts of debt so that people can spend more and have more services even as they're making less and the government is getting less in revenue. The outcome of that latter approach, of course, is a debt bubble, and we're enduring the aftermath of one of those right now.

So much as there's been real energy devoted to averting total financial collapse and mitigating the recession, there's really not been that much energy left over for figuring out how to rebuild an economy that shares its gains. Quite the opposite, in fact. Wall Street and high-end industries are either rebounding or were never hit very badly, while middle-class workers are still in terrible straits. There might not be much that we can do about this until economic growth returns and we can see what the economy looks like once it's settled back down, but if we're to avert either more bubbles or a much more gruesome level of political division, people better start considering it.

By Ezra Klein  |  March 5, 2010; 4:45 PM ET
Categories:  Charts and Graphs  
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Comments

Ezra, most of us have seen this because we get our news online. When can we expect it to be on the front page of the WP?

Posted by: racheljl | March 5, 2010 5:08 PM | Report abuse

The top 400 earners against everybody else? That seems like an odd comparison. Ah, well.

Just raise taxes on those 400 people, and our economic problems are over!

And the wage stagnation is comparative to the wage increases of the top 400 earners. 13.2% from 1992 to 2007 ain't great, but it's better than actual 0% growth (real stagnation) or negative growth.

"here's really not been that much energy left over for figuring out how to rebuild an economy that shares its gains"

You think it's very likely that anyone in politics, liberal or not, is going to attempt to start a dialog about how we can better re-distribute wealth? If the Republicans can turn some insurance reform and various other healthcare policies into socialism, I think you can imagine what's going to happen to the politicians who start talking about how to better "share the gains", which will immediately be seen as codespeak for wealth redistribution and higher taxes.

Posted by: Kevin_Willis | March 5, 2010 5:15 PM | Report abuse

Actually, 13.2% over 15 years is pretty awful. Assuming that this is in constant dollars, the difference between this and 0% each year is well within the margin of error of the inflation algorithm, so for people in many circumstances actual growth was 0 or negative.


there's really not been that much energy left over for figuring out how to rebuild an economy that shares its gains.

Surely you jest. Such an effort will not be allowed. If the wake of 2008 wasn't enough to put some of the banksters in jail, nothing will. These folks and the small cohort just below them own the country, and they have no interest in letting go short of catastrophe. Look back over history - their type never does.

Posted by: zimbar | March 5, 2010 5:24 PM | Report abuse

Correct, when can we get that on front page of WaPo and when can we have Fox News talking about it as well WSJ publishing?

Ezra, I believe in Democracy of this country. I can believe Political System also for a while.

But 'thinking about Economy where undeserved, over compensated Wall Street banker/ trader influence is restricted' - I do not believe that is possible in United States of America.

This country is 'so sucker' of money folks that they will continue to buy themselves all the needed protection. Read Krugman to see how our beloved GOP members are 'dieing and fall over each other' to protect Estate Tax of rich guys regardless of how poor are left un-attended.

We have a 'cast system' in this country - those who blindly believe in Randism / Reganism and everybody else. So far the former folks are winning and they will continue to win.

Read NYT Editorial which asks after AIG and Greece who else will be the victim of 'gambling' conducted by Goldman Sachs and Wall Street Bankers. Can you believe in your right mind that it ever will be stopped? Na, look at the faces of those GOP folks who will systematically screw any sensible financial regulation and many Dems who join them.

So let us learn to live with this 'original sin' in this country. Nothing is going to change on this front.

Posted by: umesh409 | March 5, 2010 5:25 PM | Report abuse

there's really not been that much energy left over for figuring out how to rebuild an economy that shares its gains

Congress and the WH don't do much of that, but the EPI does a lot of thinking and planning for a more just economy. Then there's this coalition, which is doing the same thing: http://www.jobs4americanow.org/plans-for-job-creation/

And the CBPP frequently issues reports that try to solve the problems of inequity in our economy.

Posted by: eRobin1 | March 5, 2010 5:27 PM | Report abuse

Whether you most often agree or disagree with Paul Krugman, his writing about the effects of a prosperous middle class during the post-war period that he calls "The Great Compression" makes for very interesting reading.

Krugman presents some fascinating data showing that historically our politics become most polarized in times when there is the greatest income inequality, and that the highest level of bipartisanship appears when the middle class is growing.

At some point in trying to get this economy running soundly again, we need to include as a central part of the strategy a focus on growth in well-paying, secure, middle class jobs.

Posted by: Patrick_M | March 5, 2010 5:33 PM | Report abuse

"There might not be much that we can do about this until economic growth returns and we can see what the economy looks like once it's settled back down, but if we're to avert either more bubbles or a much more gruesome level of political division, people better start considering it."

Perhaps the citizenry/electorate could put forth the effort to become informed and engaged, and enforce its will upon congress and the president.

All of the tools to do so are available to us, particularly now in the internet age; but it's just too much trouble to drag ourselves away from whatever presently entertains us to fulfill a primary assumption upon which our republic ("union") was created.

Posted by: ChrisBrown11 | March 5, 2010 5:41 PM | Report abuse

Income inequality is one of the most important, and under-reported, problems in America today. Particularly unreported is how high levels of income inequality trend with high levels of partisanship. This is mystifying, unless it's conspiratorial, because media and politicians spend so much time talking about partisanship. The way the American economy distributes gains must be changed, because current rising income inequality is not sustainable.

Posted by: jeff01 | March 5, 2010 5:49 PM | Report abuse

Tax policy has a great deal to do with this, and not just in letting top income group pay preferential (lower) tax rates on their investment income. When individual tax rates were high, it did not make so much sense for corporations to give out a lot in compensation if the gov't was going to take half of it in taxes. So corporations retained more earnings and reinvested in the corporation.

Then came a series of tax cuts that chopped the top rates all the way down to 35%. At the same time the practice of giving away options took off. Compensation committees created a situation where the bar was constantly raised higher so that executive compensation went through the roof, and of course they got to keep more of it. Estate taxes went down too. That's why the line goes up so sharply for most of the period after 1995 (except for the bursting of the dot-com bubble).

This is not only destabilizing for the economy, it is for the society too, because sharp class distinctions (of a kind they no longer have in Europe, by the way) and loss of mobility are really demoralizing. People other than the top 1% have less and less stake in preserving society. Bush's "Ownership Society" was good in theory as a way to giove mjore people a stake, but it clashed with his party's redistributive policies, and as a result many in the moidfdle class lost everything including their credit in the mortgage bubble.

And of course this is the climate in which dictators get their start.

Posted by: Mimikatz | March 5, 2010 6:37 PM | Report abuse

Wrong graph Ezra. You say the graph shows a sustained period of wage stagnation for the majority of the country. That is based on the almost invisible changes in the blue curve. The only thing I see is the number 13,2%, the increase over the past 15 years. Growth of about 1% per year is not stagnation. The *long term* trend of *average* income per individual in the USA used to be around 2% per year. 0.88% is just not that horribly bad.

Now I think the 13.2% is misleading. It includes the Clinton years. In the 7 years 2000 to 2007 median family income did stagnate. Then if fell.

Now that's an issue. But it is very hard to see in a graph which includes the percent change in income of the 400 richest families.

Posted by: rjw88 | March 5, 2010 7:44 PM | Report abuse

Its hard to overstate how massive a problem this chart represents, and our political system both Democrats and Republicans havent a flipping clue what to do about it, and make no mistake if its a mystery why people are generally angry and frustrated by our political system this chart shows why.

The American middle class is falling further behind, and they know it. Wages havent risen even when times were supposedly good, let alone with 9.7% unemployment. This is the genesis for all this angry populism on both the left and the right, and its really scary where this could all lead.

Posted by: zeppelin003 | March 5, 2010 10:32 PM | Report abuse

I think the plot would be better served by adding a lower percentile wage group (e.g., bottom 400 earners, just to be consistent). My guess is that the folks at the median wage, while upset, are fine because they know that it could be worse - and knowing that is good enough for them. Add on the fact that any discussion of income redistribution may constitute transfer of money to them to a lower income scale is heresy. Its all a tough sell, even with such obvious graphical evidence.

Posted by: macrowley | March 5, 2010 10:57 PM | Report abuse

What's more interesting to me is what has happened to world income in the same time frame. Our consumption, innovation, and job creation has pulled hundreds of millions of people out of poverty around the world.

I think there is far too much whining about income inequality of a few people. What your graph basically shows is that Warren Buffet, Bill Gates and friends created more value in the world than most of us can imagine. The gains they made also benefited all of the pension funds and individuals savers that invested in their enterprises. And they are already giving a lot of this money back, except in a self-directed way that allows them to quite effective in taking on global problems.

If you want to understand the differential in income inequality, you need to compare worldwide rates for unskilled labor. At a certain point, it becomes cheaper to just put people here on welfare, because we aren't allowed to put them to work at the prevailing worldwide wages. Of course, this competition has now grown into many areas of skilled labor that are outsourced.

Perhaps I am just not nationalistic enough to care so much about people here that have places to live, plenty of food, and TVs when compared to the status of people in other countries with far less.

Posted by: staticvars | March 6, 2010 7:56 AM | Report abuse

I would like to personally thank Bill Gates, Michael Dell, the founders of Google and Amazon, and the late Sam Walton, if any of them are among that 400. You have all enriched my life and I don't begrudge you a nickel of the money you earned through 2007. You all lost your a**es 2008, I'm sure. Well, except for the late Sam Walton. But this chart, not unlike global warming charts that stop well before 2009, fails to tell the entire story, doesn't it? Not only are the rich not as numerous or as rich as they were in 2007, our federal budget is experiencing the ill effects of a narrowly based revenue system that relies for the bulk of its revenues on a minority of the population.

Posted by: bgmma50 | March 6, 2010 8:02 PM | Report abuse

staticvars, it seems we were on the same wave length, there.

Posted by: bgmma50 | March 6, 2010 8:04 PM | Report abuse

I looked at the same sources a few weeks back, and saw a couple of very disturbing trends.

The income growth data runs from 1979-2005, and over that period it looks exponential when viewed vs. income percentile bracket. As for the "Top 400", the more provoking trend was to look at income growth alongside the tax receipts from 1993-2007. While income had grown more than 200% over that time, tax receipts had grown less than 100%. And from 2002 onward that gap was growing considerably.

http://voice.sierratangowhiskey.net/2010/02/income-inequality-introduction.html

Posted by: SierraTangoWhiskey | March 7, 2010 1:09 PM | Report abuse

2008 seems conveniently omitted. Why might that be?

Posted by: Cutaway | March 7, 2010 2:02 PM | Report abuse

"2008 seems conveniently omitted. Why might that be?
Posted by: Cutaway "

Because you would see the same thing that you would see if Ezra posted a global warming chart that showed temperatures through 2010....

A great big line heading south.

Posted by: bgmma50 | March 7, 2010 8:29 PM | Report abuse

AHEM.

It would seem that the Obama administration Friday Night News Dump contained the not unsurprising (at least not to me) news that the Obama spending plan underestimates deficits. The reason? Hmmm. They basically can't project revenues to save their lives. As I have mentioned on more than one occasion, the most recent one being at 8:02 above.

Yo. Obama. You are going to have to instate a consumption tax. Not only do you need a more broad based revenue source than soaking the diminishing ranks of the rich, but your health care plan and other policies are going to drive lots of workers into the labor black market (off the books and under the table) so you're gonna have to get the money elsewhere than the income tax.

http://www.businessweek.com/news/2010-03-06/obama-spending-plan-underestimates-deficits-budget-office-says.html

Posted by: bgmma50 | March 7, 2010 9:20 PM | Report abuse


Income inequality and healthcare costs are two drivers of the increase in the uninsured. The current healthcare reform bill does nothing to solve the problem of healthcare costs. The bill expands coverage through subsidies, but this seems like an inefficient way to redistribute wealth.

Posted by: RandomWalk1 | March 8, 2010 11:11 AM | Report abuse

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