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Inequality back at record highs

Top 1 Percent of Americans Reaped Two-Thirds of Income Gains in Last Economic Expansion — Center on Budget and Policy Priorities_1276279032245.jpeg

In 2005 and 2006 and 2007, I wrote a lot about inequality, which had reached highs not seen since the run-up to the Great Depression. After the financial crisis, I largely stopped, as I figured that the sharp crash would pretty much wipe out the build-up in wealth. And I was right, for a time. But now it's come back.

The basic story here is that assets have recovered so much more quickly than the broader economy that in 2009, "the millionaire class held a larger percentage of the country's wealth than it did in 2007." In other words, inequality has actually gotten worse. If you want to see why that's unexpected, check out the chart I cadged from the Center for Budget and Policy Priorities: After the Great Depression, inequality fell and didn't recover until 2007. That's about 80 years. After the Great Recession, inequality fell and didn't recover until ... 2009? That's one year.

In part, that's attributable to the fact that this didn't turn out to be as bad as the Great Depression. But it also says something about the policies we used to respond to this crisis. In the 1930s, we did a lot to reshape the economy so it was more balanced, and so its gains were more broadly shared. That's not been a major part of our response to this crash.

By Ezra Klein  |  June 11, 2010; 2:28 PM ET
Categories:  Economy , Inequality  
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Comments

"But it also says something about the policies we used to respond to this crisis. In the 1930s, we did a lot to reshape the economy so it was more balanced, and so its gains were more broadly shared. That's not been a major part of our response to this crash."

And it's not going to be. When it comes down to it, one interest the Republicans and the Democrats all share is protecting the super-wealthy and the hyper-wealthy and their interests. Because they are part of that class, want to be part of that class, or are obligated to that class. George Soros and Bill Gates and Carlos Slim Helu and Warren Buffet--these folks don't have to worry about their wealth. Nor do the just plain superwealthy have much to worry about, with folks like Bernanke and Geithner dedicated to the protection of their assets above all else.

If Republicans take the Whitehouse in 2012, they aren't going to institute a wealth tax or do anything else to shape wealth concentrations. Democrats may talk about it, occasionally, but it's never going to happen.

Posted by: Kevin_Willis | June 11, 2010 2:39 PM | Report abuse

Democrats may talk about it, occasionally, but it's never going to happen.

I want to the wealth tax this year as part of the deficit reduction commission. And a transaction tax on hyper fast computer arbitrage trading.

If the dems don't at least propose this now, there little chance it will happen later. Deficit reduction should have both tax increases and spending cuts...

Posted by: srw3 | June 11, 2010 2:47 PM | Report abuse

The now months-old Matt Yglesias profile of Orwellian ingsoc, doublespeak, and ObamaLogic remains a useful exploration of socialism gone awry. The failure of ingsoc -- English Socialism -- was recognized by Orwell so long ago that his prophetic vision of 1984 is largely forgotten: now, the advocates of ingsoc write on a daily basis, oblivious to (and even apologists of) Orwell's essays. Heck, some even remind us that Orwell was a socialist... who studied the writings of noted prize-winning (Nobel, 1931, 1939, and post World War II 1950) scientists responsible for Zyklon-B and the economists who touted such chemicals as the salvation of racially pure society.

Ah, well, Teddy Roosevelt and his Progressives: we're all stupid in comparison! How could any of us forget that the power of a strong, central authority with unlimited power to regulate the life of each cherished member of the governed mass is sure to bring economic prosperity (to the Podesta Brothers' Center For American Progress Foundation, et al., and to the rest of us as they allow)? Nancy Pelosi can lead us, if we only let her do so without opposition, without dissent! Some have the opinion that those who question Social-Democratic Party authority should be put to death, thereby reducing carbon emissions. How could anyone forget the reduction in carbon emissions resulting from the killing of a mere six million Jews in Germany? How could anyone forget the photos offered by Foreign Policy Magazine at the turn of the year -- the photos showing pre-earthquake Haitians eating dirt so that Progressives could power cars with biofuel from corn which would otherwise be eaten by starving humans? How could anyone overlook the mathematics of the Prius -- a car which increases the consumption of coal-produced electricity transmitted via a distribution system having a 33% loss... putting all of those 82% more efficient oil-driven carbon-producing vehicles off the road! Save the planet, yo! Prius drivers we be green and we be sma[r]ter than yo and we have foo stams and une-polyment be-fits and yo has to pays for them cuz we is part of Any's Stern's SEIU unin.

I, for one, would like to see Progressive Achievement Awards given to Matt Yglesias, Deutsche Gesellschaft für Schädlingsbekämpfung, and supporters including BASF (27.4%), Bayer (27.4% percent), Hoechst (27.4%), and Agfa (9.0%). Without the words of Ygelesis, his friends at the Center for American Progress, and partner organizations, we would never be able to implement the PPACA, mandates for "good", and elimination of "bad." How could any Progressive sleep at night without counting the bodies of those who are "saved" -- the bodies of those lost are simply "sacrifices" to the "will of the majority," which of course is "good".

Equality for all, yo!

Posted by: rmgregory | June 11, 2010 2:56 PM | Report abuse

we are a more meritocratic society than we were 80 years ago, and one result is that a lot of smart, energetic people who once upon a time were blocked access to higher incomes because they didn't come from the right background are now in highly compensated positions.

and believe they deserve every penny of their highly inflated incomes and are in a position to do something about it.

and as kevin willis notes, support for these folks is a bipartisan position....

Posted by: howard16 | June 11, 2010 3:04 PM | Report abuse

We shouldn't care, per se, about how poor Americans are doing relative to their rich counterparts. We should care how they're doing objectively. Are their living standards rising or falling?

The economic pie is not fixed.

Posted by: MDA123 | June 11, 2010 3:17 PM | Report abuse

Its funny how the failure of english socialism includes the NHS which is socialized medicine and is supported by large majorities of british citizens, even when they would like more resources for it to function better.

In fact, the US is far to the right of Britain and every other european country in tax policy, even with the socialist muslim and his democratic thugs in congress. Not renewing the failed bush tax cuts still puts the US with lower taxes than any other industrialized country. That's real socialism.

" How could anyone forget the reduction in carbon emissions resulting from the killing of a mere six million Jews in Germany?"

How can anyone forget that prominent republicans like Prescott Bush, Henry Ford, and others were tacitly supporting the Nazis through trading with them or actively supporting them with their antisemitic diatribes.

Posted by: srw3 | June 11, 2010 3:17 PM | Report abuse

This chart tracks Pre-Tax income.

I think it would look somewhat less evil if it tracked After-Tax income because those who make more money pay a much larger percentage of income.

After all, it's what goes in your pocket that counts.

Posted by: WrongfulDeath | June 11, 2010 3:20 PM | Report abuse

@MDA123: We shouldn't care, per se, about how poor Americans are doing relative to their rich counterparts. We should care how they're doing objectively. Are their living standards rising or falling?

Actually it matters a lot how the 90% of Americans are doing relative to the top 10 or 5 or 1% when it comes time to balance the budget. Do you cut/tax things that the 90% depend on (social security, medicare, AFDC, SNAP, housing assistance), or things that the 10/5/1% "depend on" (interest, dividends, accumulated assets, ridiculously inflated incomes, government subsidized off shoring of corporate profits, etc.)

It does make a policy difference who has benefited from 8 years of Bush (subsidize the rich and corporations) economics.

Posted by: srw3 | June 11, 2010 3:26 PM | Report abuse

"We should care how they're doing objectively. Are their living standards rising or falling?"

Agreed.

To do otherwise is simply jealousy

Posted by: WrongfulDeath | June 11, 2010 3:36 PM | Report abuse

@WD:I think it would look somewhat less evil if it tracked After-Tax income because those who make more money pay a much larger percentage of income.

actually it doesn't change the picture that much. from 1979-2006 the top 1% saw a 256% increase in income while the bottom quintile saw about a 10% increase.

lowest quintile 10% increase
next quintile 18% increase
next quintile 21% increase
next quintile 32% increase
highest quintile 87% increase
top 1% 256% increase.

link delong.typepad.com/sdj/2009/04/after-tax-income-changes-from-the-cbo.html

So the top quintile had after tax incomes increase by about 3 times as much as the next highest quintile and 9 times what the lowest quintile increased. A

Posted by: srw3 | June 11, 2010 3:42 PM | Report abuse

Class mobility is lower in the US than any other industrialized country, save the UK.
The system works!
And, of course, what Willis said.

Posted by: AZProgressive | June 11, 2010 3:43 PM | Report abuse

@wD: "We should care how they're doing objectively. Are their living standards rising or falling?"

Agreed.

To do otherwise is simply jealousy.

It is not jealousy for the rich and the oligarchs to pay back a majority of the debt as they were the ones that got the bush era tax cuts that make up over half the yearly deficit and the majority of the national debt (along with the two unfunded invasions sponsored by Bush). See cbpp.org for more details from CBO data.

Posted by: srw3 | June 11, 2010 3:51 PM | Report abuse

Again, I all to often here conservatives argue against the position that everyone should be equal when I've heard nobody push that position. That the scale of the income disparity in our country is a problem does not mean that the response is that everyone should be equal.

Also, we're at record levels of inequality. This isn't just the status quo playing out, with jealous poor people and righteous and deserving rich people. The scale is sliding in one direction and to new territory. It's worth thinking, studing and talking about what effects this will have on society and whether things were better or worse at various other levels of inequality. Certainly I think we should be able to agree on the fact that this is not the absolute best time in American history. To what extent is this influenced by or reflected in the income disparity? I don't claim to have the answers, but "It's just jealousy" is neither an interesting insight or helpful to the discussion.

Posted by: MosBen | June 11, 2010 3:54 PM | Report abuse

The issue is equality in opportunity, not equality in outcomes. PERIOD.

As long as we continue to pump in poorly educated illegals, and as long as they continue to multiply like rabbits, you are going to have a worsening income distribution problem.

Posted by: Curmudgeon10 | June 11, 2010 4:11 PM | Report abuse

Sorry Ezra,
Not interested in the opinion of a young punk who only started shaving a few years ago. Get some experience in the real world before you run your yap.

Posted by: Azarkhan | June 11, 2010 4:14 PM | Report abuse

@cur10: As long as we continue to pump in poorly educated illegals, and as long as they continue to multiply like rabbits, you are going to have a worsening income distribution problem.

I don't think that illegal aliens cause the top 1% to have a 256% increase in income while the entire top quintile have an 87% increase in income (about 3x less) and the next highest quintile had a 32% increase (about 8x less). Try again...

Posted by: srw3 | June 11, 2010 4:19 PM | Report abuse

@MosBen

Is the opposite of inequality not equality?

Personally, I don't think it's "just jealousy," as another commenter stated. I think it's a sincere concern on the part of Ezra and other liberals that this kind of income inequality is undesirable.

My argument is that we shouldn't care how poor people are doing in relation to rich people; we should care how they're doing, period. Looking at relative performance is a perfectly natural, though not especially helpful, human tendency. We should focus on how to empower and enrich the poor, rather than focusing on "unseemly" disparities in income.

Posted by: MDA123 | June 11, 2010 4:19 PM | Report abuse

@MDA123: Looking at relative performance is a perfectly natural, though not especially helpful, human tendency. We should focus on how to empower and enrich the poor, rather than focusing on "unseemly" disparities in income.

Well, the policy implications of who is getting what percent of the income pie or who has what percent of the asset pie is crucial when determining who should bear the brunt of raising revenue and/or cutting taxes. And the opposite of greater inequality is less inequality. I haven't heard anyone even suggest that incomes be equal, just that the huge disparity should be lessened somewhat. Don't worry, the oligarchs will still control our politics and government. After all, I doubt that there is a single senator that isn't a millionaire.

Posted by: srw3 | June 11, 2010 4:34 PM | Report abuse

@wd:The issue is equality in opportunity, not equality in outcomes. PERIOD.

Right. So the rich and poor have equal opportunity to say get into Yale as a legacy because its equally likely that their daddy went there...The poor have an equal opportunity to attend the elite private schools that funnel students into the most prestigious schools in the country and the money to pay tuition...Let's hear your ideas about actually creating equality of opportunity...

Posted by: srw3 | June 11, 2010 4:40 PM | Report abuse

if you look at who pays more of their income, it's the poor who pay for government/spending. it's the poor who keep the economy going. who else would make the rich rich. it takes two to tango, honey.

just by throwing the money to the poor, the rich would get it back after the poor spent it.

without those "yucky" poor to make the rich richer, the economy sinks. which is where we are today.

oops can't say things like that, lol

Posted by: Beleck31 | June 12, 2010 10:47 AM | Report abuse

"The issue is equality in opportunity, not equality in outcomes. PERIOD."

Agreed. To be otherwise is socialistic/communistic

The ants don't owe the grasshoppers anything.

Posted by: WrongfulDeath | June 12, 2010 4:47 PM | Report abuse

this explains a lot of the comments here about how the economy works.

http://tinyurl.com/34y8x7d

Posted by: WrongfulDeath | June 12, 2010 4:50 PM | Report abuse

Typical ignorance on display here, in the post and the comments.

Pre-tax income is the most distorted way of looking at this, since it typically doesn't include the value of all redistributions that are made to the poor, health benefits, or other quality of life items that aren't measured in dollars.

Regardless, assets typically define wealth more than pretax income, and we had a major nominal asset shock.

Looking at the % of total income is also distorted, if the total income drops or doesn't remain constant. If there is high unemployment, income skews up- so, the people in the 11th percentile also did increasingly better than the people in the 10th percentile, since the people in the 10th percentile were unemployed.

@srw3
"Do you cut/tax things that the 90% depend on (social security, medicare, AFDC, SNAP, housing assistance), or things that the 10/5/1% "depend on" (interest, dividends, accumulated assets, ridiculously inflated incomes, government subsidized off shoring of corporate profits, etc.)"

90% of people do not depend on social security, medicare, afdc, snap, and housing assistance. You know this, yet you say it anyway. If you believe it, you need to get some mental help. It's central planning, nanny state, learned helplessness creating, profligate spending fools sending the Democrats to ruin. We'll be stuck with Crazy Palin in charge if you don't wake up. In the meantime, let's all watch partisans like Krugman squirm while Germany succeeds putting fiscal discipline first. Too bad their not rich enough to bail us out.

True sign of an idiot is when they begin sentences, "We're the richest country in the world, how can we not provide..." Sound like kids asking for ponies.

Posted by: staticvars | June 13, 2010 12:59 AM | Report abuse

staticvars,

I am stunned and in awe of your analysis. Great stuff. Rings true.

Posted by: WrongfulDeath | June 13, 2010 9:58 AM | Report abuse

Ezra,

This is an interesting paper that can maybe shed some light on what is happening:

Wealth condensation in a simple model of economy
http://arxiv.org/abs/cond-mat/0002374

The key thing here is that in this toy model, income inequality is determined by the variation in asset prices, not the mean growth rate.

When markets are varying wildly (but either rising or falling), they tend to increase inequality, while stable steady growth (or decline) tends to decrease inequality. Deregulation seemed to put more variability (or risk) in the system. The market can remain "irrational" longer than most can remain solvent, but those that do can make a killing, allowing them to bet more in the future -- leading to a Matthew Effect

http://en.wikipedia.org/wiki/Matthew_effect

The downward shift in the prior year may have reflected our tax system, with the wealthy able to claim large loss deductions. (Or just some random statistical fluctuation.)

Posted by: JasonFromSeattle | June 13, 2010 8:54 PM | Report abuse

JasonFromSeattle would have a stunning point if income equality were the first and foremost consideration and goal.

For most in the US, it simply is not. To push equality at the expense of economic growth and wealth creation is as myopic a view as one can have.

JasonFromSeattle needs to get out of the liberal bubble of Seattle and meet some people from Lousiana, Texas, Kansas, Florida and get a sense of what the pulse of the US really is.

Posted by: WrongfulDeath | June 14, 2010 11:46 AM | Report abuse

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