Thursday, February 05, 2015

Looking are Wealth and Income Trends in the USA

Source: Washington Center for Equitable Growth
It is now well publicized that the richest people in the United States are appropriating more and more of the nation's wealth. I quote from the article which was the source of this graph:
In recent decades, only a tiny fraction of the population saw its wealth share grow. While the wealth share of the top 0.1 percent increased a lot in recent decades, that of the next 0.9 percent (families between the top 1 percent and the top 0.1 percent) did not. And the share of total wealth of the “merely rich”—families who fall in the top 10 percent but are not wealthy enough to be counted among the top 1 percent—actually decreased slightly over the past four decades. In other words, family fortunes of $20 million or more grew much faster than those of only a few millions. 
The flip side of these trends at the top of the wealth ladder is the erosion of wealth among the middle class and the poor. There is a widespread public view across American society that a key structural change in the U.S. economy since the 1920s is the rise of middle-class wealth, in particular because of the development of pensions and the rise in home ownership rates. But our results show that while the share of wealth of the bottom 90 percent of families did gradually increase from 15 percent in the 1920s to a peak of 36 percent in the mid-1980, it then dramatically declined. By 2012, the bottom 90 percent collectively owns only 23 percent of total U.S. wealth, about as much as in 1940 
Source: Wikipedia
The income of the rich has also increased since the 1970s, but the top 0.1 percent appropriates less than 10 percent of total income, while the top 0.1 percent now holds more than 20 percent of wealth. (Of course, some of the people in the top income bracket are not in the top wealth bracket, and some of the people in the top wealth bracket are not drawing huge incomes from that wealth).

The point is, the increase in stock prices and the value of other investments has been huge over time. In other countries there are taxes that effectively reduce the rate of growth of the wealth of the very wealthy. Apparently since the Reagan revolution, in the United States these mechanisms are not so effective.

I quote from the Pew Research Center report from which the above graph is drawn:
Our analysis is based on household income data from the U.S. Census Bureau. First, we adjust incomes for family size. Incomes of households of below-average size are scaled up (because their dollars go farther), and incomes of households of above-average size are scaled down (because their dollars do not go as far). This process ultimately adjusts household incomes to reflect the standard of living of a three-person household. 
Finally, we compute the median of the size-adjusted household incomes. Middle-income households, by our definition, earn as much as twice the median income or as little as two-thirds the median. This results in a range of $40,667 to $122,000 for a middle-income American household of three in 2013.
In the years following the Great Recession, the share of Americans who live in middle-income households held steady at 51% in 2013, the same share as in 2010, according to a new Pew Research Center analysis. 
While the muddled recovery has yet to bolster the middle, this flat trend might actually be good news because, for now, it stems a decades-long slide. Back in 1970, 61% of adults lived in middle-income households.
The basic point is that middle class Americans were seeing their income increase from the 1970s to 2000, albeit not as quickly as those in the top income brackets. However, there were fewer families in this group with incomes from 2/3rds to twice the median income. Moreover, these middle incomes in 2013 were less than they had been in 2000. Of course it is not the same families, but the trends are very disturbing.

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