Rich Get Way Richer

Yet another study confirms the alarming pace and extent of U.S. income inequality. According to research by Emmanuel Saez, an economics professor at UC-Berkeley, U.S. income inequality has been increasing steadily since the 1970s, and now has reached levels not seen since 1928.

Pew Research Center reports:

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In 1928, the top 1 percent of families received 23.9 percent of all pretax income, while the bottom 90 percent received 50.7 percent. But the Depression and World War II dramatically reshaped the nation’s income distribution: By 1944 the top 1 percent’s share was down to 11.3 percent, while the bottom 90 percent were receiving 67.5 percent, levels that would remain more or less constant for the next three decades.

But starting in the mid- to late 1970s, the uppermost tier’s income share began rising dramatically, while that of the bottom 90 percent started to fall. The top 1 percent took heavy hits from the dot-com crash and the Great Recession but recovered fairly quickly: Saez’s preliminary estimates for 2012 (which will be updated next month) have that group receiving nearly 22.5 percent of all pretax income, while the bottom 90 percent’s share is below 50 percent for the first time ever (49.6 percent, to be precise).

Saez found that between 2009 and 2012, average real income per family grew modestly by 6.0 percent, however, the gains were uneven. The incomes of the top 1 percent grew by 31.4 percent while bottom 99 percent incomes grew only by 0.4 percent from 2009 to 2012, meaning, the top 1 percent captured 95 percent of the income gains in the first three years of the recovery. In 2012, top 1 percent incomes increased sharply by 19.6 percent while bottom 99 percent incomes grew only by 1.0 percent. "In sum, top 1 percent incomes are close to full recovery while bottom 99 percent incomes have hardly started to recover."

Saez attributes the "surge" in top incomes since 1970 to an explosion of top wages and salaries. He adds: "The evidence suggests that top incomes earners today are not 'rentiers,' deriving their incomes from past wealth but rather are 'working rich,' highly paid employees or new entrepreneurs who have not yet accumulated fortunes comparable to those accumulated during the Gilded Age.

"Such a pattern might not last for very long. The drastic cuts of the federal tax on large estates could certainly accelerate the path toward the reconstitution of the great wealth concentration that existed in the U.S. economy before the Great Depression."

According to Saez, the U.S. labor market has been creating much more inequality over the last thirty years, "with the very top earners capturing a large fraction of macroeconomic productivity gains."

That inequality can be blamed on "underlying technological changes" but also "the retreat of institutions developed during the New Deal and World War II—such as progressive tax policies, powerful unions, corporate provision of health and retirement benefits, and changing social norms regarding pay inequality." He adds: "We need to decide as a society whether this increase in income inequality is efficient and acceptable and, if not, what mix of institutional and tax reforms should be developed to counter it."

It will be important to note if those vast income gains and disparities can be translated into political heft in coming elections—because of Citizens United liberation of $ as free speech and other weakening of restrictions on campaign finance—that will tend to solidify the political and economic power differential of the 1 percenters versus, well, everybody else.

Comments are automatically closed two weeks after an article's initial publication. See our comments policy for more.
Marie Rehbein
4 years 5 months ago
Economics is a game, and the richest make the rules to favor themselves. Unless the government of the people blocks that process (instead of enabling it by stepping in whenever there is a financial crisis), it is inevitable that the nation's money supply will become concentrated in the accounts of the richest, which means less diversity in spending and investment and more likelihood for bubbles that burst and affect the entire economy.
Bill Mazzella
4 years 5 months ago
We have to take responsibility for a good part of the problem. We fawn on the rich. Praise, celebrate and suck up to them. Gates and Buffet have done a lot and continue to make good use of their money. But too many revel in excess while many who are employed are homeless.

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