Slate has an amazing series on economic inequality in America – The United States of Inequality. Beyond the interesting and clear examination of economic stratification in the United States over time, the reporting has a few visuals that are absolutely stunning demonstrations of the importance of economic policy on income equality/inequality. Some may call it social engineering or wealth redistribution. It most certainly is the latter, and could be the former – if one assumes that poor people in fact like seeing rich people’s incomes grow faster than their own, and would not want to change that circumstance. And please, please don’t throw trickle down arguments at me – they have been empirically refuted repeatedly since the 70s. How long does a failed theory get in the face of empirics, anyway?
An example of what I am talking about is this graphic (found here):
I first saw a version of this in a talk by Dick Peet – though I believe he was operating with the top 1% (see below). My household actually fits into the decile in this figure, according to how they have defined it. We arrived relatively recently. As happy as I am to be here, I am not sure that I need any more tax cuts. Even with three kids, massive daycare bills, etc. At some point, we just have to pay for stuff like roads, schools and fire departments, and giving me a tax cut is not going to really stimulate the economy – I’m going to save the money for my kid’s college funds.
This figure is stunning (found here)
The top 1% of earners in America earned roughly 8% of all income in the US around when I was born. Today, they earn 18%. Where, exactly, is the justification for further tax cuts for this section of the population – their share of total income grew dramatically under Clinton, which is where the tax rate will return to if the Bush cuts expire . . . so how exactly can anyone argue that a return to slightly higher taxes (still very low by historical standards) for the top 1% will hurt even the top 1%, let alone the whole economy?
Why am I writing about this on a blog about development and the environment? One of the big indicators of development is the GINI coefficient, which measures the distribution of incomes in an economy. We tend to worry about countries with high or rising GINI coefficients, as it suggests that economic opportunity and development are not reaching a wide portion of the population. This is even more acute in my current job, where we are tasked with worrying about the situations of the most poor and vulnerable. Yet here we are in the US, with a clearly rising GINI coefficient. Sustainablemiddleclass.com has an interesting graphic on this:
We are headed in the wrong direction here, even as we chide countries on the same path. Robs us of our standing to make this argument elsewhere, no?
In some ways, the disparities are even greater than this. Check out this source:
http://sociology.ucsc.edu/whorulesamerica/power/wealth.html
Based on wealth as opposed to just income, the top 1% owned nearly 35% in 2007 and the top 20% owned 85%, “leaving only 15% of the wealth for the bottom 80% (wage and salary workers).”
It’s an interesting graph.
Perhaps you could hunt up another couple for me. A graph of the income of the people at the bottom (say the bottom 10%) against time (adjusted in any way you please for inflation), and a graph of the rate of wealth creation against income (your choice of metric – I’m not even sure if this can be done).
Because when I look at how the poor lived in the 1930s, and how they live now, and see how your graph is telling me that these are much the same, – suggesting that “economic opportunity and development are not reaching a wide portion of the population” – I can’t help feeling that I’m missing an important part of the story.
I don’t see how you can tell what’s really going on, or come to the conclusions you do, without a lot more context.
It would be as if I were to show you a graph of the percentage of the total tax revenue contributed by the top 1%, and the bottom 50%, and try to make it a point about our duty to contribute to the good of society. Is it more virtuous to give or to receive? To create or consume? Is this an inequality we should try to fix? Is this ‘just’? Those are not conclusions I think we can safely draw from a single number.
It’s applying a one-dimensional metric to measure an entire economy.
Let me start with your conclusion by agreeing completely, and acknowledging the irony of my argument, given my complaints about development and measurement over the years. The GINI is indeed a single metric that may or may not measure what we think it measures (aside from income distribution, what does it really tell us – you are right, it hints at other things, but doesn’t really get at them). But it is a common measure, and my point was to “bracket” that whole problem with GINI and point out that when we knock countries for a rising GINI, we run into problems if they have been paying attention to our economy. I was being strategic, dammit . . . but fair enough, given my history of argumentation.
There is a lot of context we must account for here – absolutely. Surely greater equality of income had impacts that varied greatly depending on place – greater or lesser impacts on people’s quality of life and the quantity of wealth produced. Those outcomes are, of course, contextual and would really need to be explored if we are to have a full understanding of what is going on here. Too bad economists seem unwilling to unpack the social processes behind their large-scale data . . . but then, I suppose that’s why I went with anthropology and geography.
The graph does not suggest that the poor of today live the same way as the poor of the 1930s – obviously, here in the US even the poorest are likely better off than their early 20th century counterparts (though there are serious arguments to be made that in some parts of the world this is not true – but that is a different post). The argument is more implicit – that with wealth concentrating in the hands of the very few to the extent that it did in the 1920s and 30s, the opportunity for social mobility is declining – the assumption, of course, is that our economy is “not-quite-zero-sum”, if you remember the old post I put up. That is, some of the wealth concentrating at the top must be coming out of the hands of the bottom 80%/90%/99% because our economy is not growing fast enough to account for all of the wealth creation at the top.
I think that the economic point is empirically demonstrable – our economy is not zero-sum, as it does grow, but it is not growing fast enough to allow everyone in the bottom tier to hold their position while the top cohort gets wealthier. Besides, the American dream is not about holding on to what you have – it’s about having more in the future. This may be unrealistic in the coming “not quite zero sum” world of resources and economy anyway, but the point is that this data makes it quite clear that the financial component of the American dream, as it is popularly understood, is not happening except for the very few.
And I take your point about a taxation graph – I think we ought to put that up with the income graphs. It would be very interesting. Sadly, most people would miss the point about income distributions, social responsibility, and the like – all of which could be reasonably debated, I think. I get frustrated when I hear people rage about the “40% who pay no taxes”. First, its not accurate, as even the poorest have to pay sales tax, and often local taxes – so nobody goes tax free, really. Second, we shouldn’t view everyone who doesn’t pay Federal income tax as a cheat or someone who doesn’t pull their weight (I know this is not your argument – it is a common talk radio-type point, though) – we should be horrified that such a large percentage of the population earns so little (and therefore has so little to live on) that they are deemed not worthy of taxation. Hell, when I was earning $9500/year as a TA, I still paid taxes – and a hospital declared me indigent at that income level! So there are a lot of people living on a whole lot of nothing in this country.
Of course, what we all really need is a damn civics lesson on the point of taxes in the first place. I really don’t mind paying them, because in context most federal and state spending is not egregious. Sure, there are boondoggles here and there, but I like social security and medicare, and they are the bulk of our budget these days. Hell, nobody ever seems to question defense spending, but we could do with a few less insanely expensive bombers – for the price of one of those B-2s (which are largely useless against nonstate actors), we could pretty much end all material basis for extreme poverty in a small country through direct intervention (the social and political bases are, of course, a different issue). I mean, how do you spend $2.1 billion on a SINGLE PLANE? Oh, Eisenhower was right, and nobody cared . . .
An excellent rant! I agree with much of that.
You say “Besides, the American dream is not about holding on to what you have – it’s about having more in the future.”
Agreed. The question is, is the American dream also about having as much as everybody else? The poor, compared to the 1930s not only have kept hold of what they have, but have more here in the future. Is this not the American dream? Or are we asking the equivalent of what one of the politicians in my country once demanded, that everybody be above average?
I agree that as society gets wealthier, it also gets more unequal, with the rich progressing disproportionately faster than the poor. It’s exactly what I would expect, too.
The problem is, there are two fundamentally different mechanisms that cause inequality. One is the use of wealth to make more wealth more efficiently, and the other is barriers-to-trade that require wealth to overcome the barriers and make any wealth at all. The latter, I think, is what you meant by “economic opportunity and development are not reaching a wide portion of the population.” But the former is a possibility too. I don’t know which is the case here – advocates of barriers-to-trade have prospered in recent decades. I’d like to think it was the former, but that it’s the barriers is also more than possible. However, I don’t have any data to be able to say.
And may I congratulate you on the term “not quite zero sum”? I found it most amusing.
Excellent question about the American Dream – I think implicitly it did suggest that anyone could have as much as anyone else (but not that everyone would have the same amount). There is no arguing that, by and large, the poor have more now, but they certainly have less relative to the very wealthiest. This suggests that they cannot really have as much as anyone else, and therefore the American Dream does not function for them. At least as I understand it . . .
Everyone average . . . well hell, right now I live in a country where our expected test scores require something like 80% of our students to be above average . . . proving that those designing this policy are probably not above average, at least in math.
I’m not sure that inequality is a necessary condition of economic growth – though it might be more “efficient” than a more equitable, broad-based growth. It goes back to values – is a little more money earned by working harder for more hours than ever before more important than earning a bit less, but not worrying about health or retirement? If you vote for the former, growing inequality might be unavoidable (extraction of surplus labor, which is then reinvested, etc.). If you go for the latter, maybe not.
while I have finally gotten out of official poverty, I am definitely in the bottom. Interestingly my students in global ethics complain a lot this semester about the U.S. trying to “save the world” while there are obviously so many problems in our own country with poverty that they cannot understand why we do not start fixing the problems in “our own country”. There is a small glimmer of hope that my students who are 75% in the top (thanks to their parents income) still recognize the issue.