The huge gap between America’s rich and super-rich exposes a fundamental misunderstanding about inequality
Pedro Nicolaci da Costa July 7, 2017
Destabilizing levels of income inequality, once a problem reserved for developing nations, is now a defining social and political issue in the United States.
Donald Trump seized on the issue during the presidential campaign, vowing to become a voice for forgotten Americans left behind by decades of widening wealth disparities.
While America’s enormous gap between rich and poor and the sorry state of its middle class are well-documented, a less prominent trend tells an equally important story about the American economy: the divide between the well-off and the stratospherically rich.
This particular pattern is especially important since some economists and conservative commentators have tried to blame inequality on educational levels, arguing that those with college degrees have fared well in the so-called knowledge economy while those with a high school diploma or less lack the skills to do the jobs available.
Others, however, point to runaway salaries for top executives in industries like energy and finance as the key underlying drivers of inflation, which has been characterized by huge gains at the very top of the income distribution. Executive compensation is driven in large part by corporate boards that have cozy relationships with firms’ CEOs, rather than market forces.
From Aspen, Colorado, the New York Times columnist David Brooks recently wrote:
“There is a structural flaw in modern capitalism. Tremendous income gains are going to those in the top 20 percent, but prospects are diminishing for those in the middle and working classes. This gigantic trend widens inequality, exacerbates social segmentation, fuels distrust and led to Donald Trump.”
Gabriel Zucman, an economist at the University of California, Berkeley and a preeminent researcher of inequality, wasted little time in countering the argument.
“Tremendous gains are not going to the top 20%. They are going to top 1%,” he tweeted at Brooks, adding that this is key to understanding the Republican Party’s agenda.
Richard Reeves, a senior fellow at the Brookings Institution, makes a similar case as Brooks.
“The strong whiff of entitlement coming from the top 20 percent has not been lost on everyone else,” he wrote in a recent opinion piece. His book is titled “Dream Hoarders: How the American Upper Middle Class Is Leaving Everyone Else in the Dust, Why That Is a Problem, and What to Do About It.”
Nicholas Buffie, an economic-policy researcher in Washington, eloquently took issue with the 20% argument in a blog he wrote when he was at the Center for Economic and Policy Research.
“The problem with this type of analysis is that it misleads readers into thinking that a large group of well-educated Americans have benefited from the rise in inequality,” Buffie said. “In reality, the ‘winners’ from increased inequality are really a much smaller group of incredibly rich Americans, not a large group of well-educated, upper-middle-class workers.”
In other words, blaming America’s wealth divide merely on educational differences may be easy, but not particularly useful.
The richest US families own a startling proportion of America’s wealth
Pedro Nicolaci da Costa June 28, 2017
The United States has long taken pride in being the richest nation in the world. It remains so despite China’s quick game of catch-up and much larger population, at least when it comes to the broadest measure of a country’s economic output, gross domestic product (GDP).
Yet deep inequalities, which became a hot-button political issue in the wake of a deep recession and financial crisis that highlighted those disparities, paint a different picture of how well off most Americans really are.
Research from Berkeley economists has found incomes at the top 0.001% of the income strata surged a whopping 636% between 1980 and 2014, while wages for the bottom half of the population were basically stuck in place.
Critics of that body of work say its use of pre-tax data masks some of the equalizing effects of the tax code, and thus overstates inequality. If that were indeed the case, a look at the distribution of wealth as opposed to just income, while harder to measure, could be a better barometer as to the true state of America’s social divide.
This chart courtesy of Deutsch Bank economist Torsten Slok shows the picture with regards to wealth is even bleaker. The richest 10% of families are worth a combined $51 trillion, equal to 75% of total household wealth. To put that figure in perspective, US GDP totaled $18.5 trillion in 2016.
This eye-popping chart on inequality is a slap in the face of America’s middle class
Pedro Nicolaci da Costa June 13, 2017
Why does the US economy still feel iffy to most Americans despite an eight-year economic expansion and historically low unemployment?
Look no further than this eye-popping chart of income growth between 1980 and 2014 courtesy of Berkeley’s elite-squad of inequality research, including Thomas Piketty, Emmanuel Saez, and Gabriel Zucman.
Featured in a recent blog from the University of Chicago’s Booth School of Business, the graphic highlights just how stratospheric income growth has been for the very wealthiest Americans — and how stagnant, in contrast, wages have been for the rest.
That’s not a typo on the right. Incomes for the top 0.001% richest Americans surged 636% during the 34-year period. Wow.
There’s more. “The average pretax income of the bottom 50% of US adults has stagnated since 1980, while the share of income of US adults in the bottom half of the distribution collapsed from 20% in 1980 to 12% in 2014,” writes Howard Gold, founder and editor of GoldenEgg Investing, in the Chicago Booth blog.
“In a mirror-image move, the top 1% commanded 12% of income in 1980 but 20% in 2014. The top 1% of US adults now earns on average 81 times more than the bottom 50% of adults; in 1981, they earned 27 times what the lower half earned.”
Here’s a link to the full paper for the academically inclined.