Friday, December 06, 2013

On Income Inequality in the USA

The Top Decile Income Share, 1917-2012
Source: "Striking it Richer: The Evolution of Top Incomes in the United States"
Decomposing the Top Decile US Income Share into 3 Groups, 1913-2012
Source: "Striking it Richer: The Evolution of Top Incomes in the United States"

I quote from an article from the Pew Research Center (which is based on research by Emmanuel Saez):
In 1928, the top 1% of families received 23.9% of all pretax income, while the bottom 90% received 50.7%. But the Depression and World War II dramatically reshaped the nation’s income distribution: By 1944 the top 1%’s share was down to 11.3%, while the bottom 90% were receiving 67.5%, 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% started to fall. The top 1% 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% of all pretax income, while the bottom 90%’s share is below 50% for the first time ever (49.6%, to be precise).
More than half (55%) of Republicans said the economic system is fair to most people, but majorities of Democrats (75%) and independents (63%) said it favors the wealthy. And 61% of Democrats and 50% of independents said the gap was a very big problem, versus only 28% of Republicans. Four-in-ten Republicans termed the gap either a small problem (22%) or not a problem at all (18%).
Ten percent of the American people have more income than the other 90 percent. What does it take to convince Republicans that the distribution of income is not fair?

There are a number of reasons that the current inequality in America is a problem:

  • There is little mobility in such a society. Giving our young people less economic opportunity than do European countries is a betrayal of our heritage; allowing that we are wronging our young people.
  • If the young see little chance of moving up in society, and their parents see little chance that the children will do better than they have done, it will erode the trust in our institutions.
  • The rich will use their economic power to buy even more political influence. They are conservative, and will use their economic and political power to conserve their wealth and influence. The American growth engine will slow as a result.
  • Scientists are discovering what many have suspected; the rich are less empathetic than the rest of us. The will not use their economic and political power to offer a hand up the middle class, nor will they be generous to those in real need as might be done in a society with a stronger more influential middle class.

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