Skip to comments.The Mystery Of Income Inequality Broken Down To One Simple Chart
Posted on 03/29/2013 5:40:33 AM PDT by SeekAndFind
In a March 18 post on his Economics One blog, John B. Taylor published the very illuminating chart reproduced below.
The chart, which is based upon IRS data complied by economist Emmanuel Saez, shows that (at least in absolute terms) rising inequality hasnt even benefited the so-called rich. They, like the rest of America, would be better off today if the government policy errors that led to the increasing income disparity had not occurred.
From 20 feet away, anyone can see that something bad happened to the U.S. economy in 1968. Prior to that, America experienced rapid income growth that was widely shared. The incomes of both the ten percent and the ninety percent increased by 80% in just 20 years. We had prosperity, without rising income inequality.
This 21-year golden age then gave way to 14 years of income stagnation, which was also widely shared. Incomes didnt rise, but neither did income inequality.
Then something good (but not great) happened around 1983 that got incomes growing again, but not nearly as fast as during 1948 1968, and at the cost of rapidly widening income inequality.
After that, something bad happened circa 2000, leading to another 12 years of income stagnation for both the ten percent and the ninety percent. This brings us to the present.
Note that even though, as of 2011, the income gains of the ten percent since 1948 have far outpaced those of the ninety percent (205% vs. 72%), the ten percent would have been much better off in absolute terms if the 1948 1968 trend had continued. In such case, the incomes of both groups would have risen to about 270% above their 1948 levels. Americas real GDP (RGDP) would have been 84% (more than $13 trillion) higher in 2012.
(Excerpt) Read more at forbes.com ...
Good read. Bump.
rate of income change
Saez is a lier. Anything with his name on it is pure bs
Pretty good article, It is almost as if Forbes now believes that Official Counterfeiting and Enslaving our Children and ourselves in perpetual DEBT that can NEVER BE PAID, As an acceptable Economic Policy is bad.
RE: Saez is a lier. Anything with his name on it is pure bs
Can you elaborate as to why he cannot be trusted?
This chart doesn’t show the real story, I was born in 1944 and graduated from a public high school in 1962. By the time I turned 23 people were asking me to my face what was wrong with me because I did not have a wife AND CHILDREN already. I had an honorable discharge from the Navy, a Navy electronics diploma and was working in an engineering department at a bearing plant, driving a new car and earning an above average income but people were starting to consider me a failure or worse because I was single at 23. The “norm” for that time in this area would have been for a 23 year old white mail to have a job in a textile mill, be married and have at least one child and, if not owning a home, renting a single family home and making plans to buy one. How do you reconcile that with the current situation?
The author is one of many bloggers on the Forbes.com website - his opinion is not necessarily that of Forbes.
Imagine you won the lottery, and decided you would take $100,000 and donate it to help “the poor”.
And you hired someone to handle it.
And then at the end of 1 year you asked how he did- and he said “Well I gave away $30,000 to one family and I paid myself $70,000 to run the program”
You would be Furious.
Well that is EXACTLY what the government does with Welfare.
The next target for the global corporatists is white collar labor. Expanded guest worker visas and more educated permanent immigrants will reduce wages further.
Yeah, the nation had just endured 4 years of Johnson!
I'd like to see a chart showing the "percent change" in unearned income that the freeloading sector gained over those same years. I'll bet that welfare-type income has risen enormously since 1964.
I'd also like to see the "after tax" income rather than gross income. Money stolen by the government should not be considered income.
Part of the widening is due to a basis change in 1986. After the Tax Reform Act of ‘86, the figures include many S-corps filing individual returns. Also since then muni income has had to be reported - even if not taxable.
People like John Kerry (who holds hundreds of millions in munis) can really distort the figures.
Comparing pre and post ‘86 tax return data is bogus.
“....something bad happened to the U.S. economy in 1968....”
The accumulating effects of the Johnson’s “Great Society” and the Civil Rights Act of 1964 (affirmative action, etc.) began to reach a “tipping point”. The number of non-productive (or minimally productive) members of the workforce began to increase as a percentage of that workforce. The Era of the Slacker/Entitled arrived.
Aw crap, by this chart I’m in the top 10 percent. Now I’ll have smelly OWS-ers on my lawn.
My guess is that the top ten percent of earners always do well, no matter what the overall economy is doing.
Consider two of the points in time the author identifies as important. First, what happened around 1968 that had implications for the average worker’s income? The introduction of large gov’t social programs around 1965 and spending on the Vietnam conflict were noteworthy. The unpleasant end of a popular trend toward stock market investing was coming at this point. There was a change in American culture toward more single parenthood and welfare dependency that changed the extent of self-reliance and began the two-income household trend. In addition, US economic strength following WW2 was beginning to face strong international competition from both Europe and Japan. All of those factors had economic implications. The international competition in labor costs would hit those workers whose labor was exposed to international competition—thus you see a divergence in income with the more educated people maintaining income growth at a rate higher than those whose (low tech manufacturing) jobs could be done elsewhere.
In 1983 you see the introduction of the microprocessor into broad technological development and the associated growth in educated tech labor wages. You also saw tax reforms and an increased interest in entrepreneurship. US manufacturing began to compete more directly with international competitors such as Japan. This favored the more educated workers.
So is suggesting that all kinds of income are included in that taxable income that the IRS works with.
Another thing that's bogus is not saying if it's total income for the growing population or if it's per capita income. The big part of the lie is seen when we look at total incomes from from the BEA --here's the after tax real income per person both taxable and not:
The goofy article says total real incomes were flat since the mid '90's. It's not true --they're up 30%-- and my guess is if he doesn't know he's posting a lie then he should know it. Regardless, reality is that after tax income per person adjusted for inflation was growing steadily until the policy changes after the '06 & '08 elections.
Dr. Sowell's book Economic Facts and Fallacies and the book he heavily references, Alan Reynolds Income and Wealth do a better job that my feeble attempt, but the short answer is that Saez (and Piketty and Wolfe) take income numbers for various groups and ADD as much as they can to the upper income and SUBTRACT as much as they can from the lower earners to build a false impression. Further, they ignore changes in the type of income reporting - such as the S-Corp laws that changes the way income for corporations was reported in the '80s - They ignore the threshold fallacy, they mix the definition of mean average and median average when it supports their deception, they use various inflation adjustment formulas to paint the picture they want, and on and on.
The Sowell book does a great job of unmasking these false studies, but I wanted to check sources so I looked at the Reynolds book (and the direct sources he cites). The Reynolds book is much, much drier than Sowell, but it really decimates Saez.
Since reading these books, I am amazed at how often Piketty, Saez and Wolfe show up as source material for the latest "income inequality" crusade that comes from the left. Why we don't call these guys out is beyond me.
My take too. I also fail to understand why anyone here takes their nonsense seriously.
We will never go back to a gold standard because Obama’s low brain cell voters will never be able to afford buying it nor will they ever want to have to work again when they can stay on the dole for generations.
If you have not read Economic Facts and Fallacies, I highly recommend it.If we can kick the Piketty and Saez legs out from under the progressive narrative, it will collapse. The more I see, the more I realize that almost all the "facts" the progressives use are based on these clowns and their BS studies. They crap it out, then Krugman and Reich put their spin on it, then the NYT picks it up, then it is "common knowledge".
It drives me crazy.
You are missing the entire point of the article. The guys you mention didn't write it and the conclusions reached by the author certainly aren't "from the left."
Inflation is the cause of income inequality in this country. To deny that it exists is to stick your head in the sand. But, unlike the left's assertions, it is not caused by capitalism, but by the very government they wish to entrust more power to.
You are missing the point of my objection. An article that is based on faulty statistics is, itself, faulty.
There is still a good bit of hand-wringing over "income in-equality" in this article. First of all, income in-equality is NOT a bad thing. It is a very good thing. It means that people within our society are producing a great amount of wealth that is shared through incomes and amenities for all. Don't forget to factor in income mobility when you look at these statistics.
Secondly, the "gap" that is so worrisome to the left and - according to this article - this guy, too, is heavily exaggerated by the BS statistics of Saez. Using better methods, the "gap" shrinks considerably for the 95% and the top 5% is explained (largely) by income source and reporting changes.
Finally, this guy ties all the ups and downs to the indexed dollar (or lack there of). I'm not sure that is the sole contributor. Lefties try this same tactic with tax rates e.g. "The tax rates were higher under Clinton and the economy did better, therefore we should raise taxes." Neither argument is fully correct.
I have not fully wrapped my head around the pros and cons of an indexed dollar versus a floating dollar, but I am fairly sure the decimation of Europe post-war was as much a factor in that period's growth as was the gold standard, that out of control social policy Johnson through Carter was as much a part of the decline he attributes to Nixion taking us off the gold standard, the pro-growth policies and internet expansion was a strong driver in Reagan through Clinton and 9/11 and the housing bubble (among many other things) was a large part of post 2000 problems. To pin so much of it to monetery policy seems too narrow.
Sounds good, am adding it to reading list for my own interest; not expecting any liberals to care about what I read there...
Any and all Sowell books are on my recommendation list, but that is a great one to start with. If you are interested, there is a Sowell ping list run by jazusamo. Ping him if you want on.
One thing to understand here is that income equality is a Marxist ideal. It's stupid. What happens in a free market is that usually employers have to pay more for valuable labor than they do for labor that's worth less. That's a good thing. Only a Marxist would demand that labor that's worth less be purchased at the same prices as high value labor. The other thing is that leftist or not, this article draws its Marxist conclusions using stupid reasoning.
Inflation is the cause of income inequality in this country...
Look, inflation means wages rise for the oppressed proletariat the same amount as they do for the elite ruling class that exploits them. Of course we're a long way from agreeing that making everyone's income the same is a good thing just like we don't agree that America's been hit with run away hyperinflation with money having no value.
I was essentially apolitical when my adulthood began, and my formal education consisted of math, engineering subjects, the pure sciences and a couple of foreign languages. The only economics related training dealt with engineering economics. But my self-education continued uninterrupted to this day, with the possible exception of politics; I was too busy working, supporting my family and raising three children, successfully. If the measure of succes is total independence, and education which allowed them to choose their individual lifestyle, and continuous good employment.
But there were a few unplanned lessons along the voyage to old age. I commuted for several years with a real communist (not one with just a mouth and picket signs.) He lived his beliefs and I recall early on getting an education about the Federal Reserve which, at that time was rarely mentioned among normal folk. My real involvement in politics and its handmaiden, economics, occured decades later when retirement was on the near horizon. Free Republic has been an important part of that education, since 1998. A relative newcomer. But it all falls into place once we step back and look at everything.
The chart is informative and useful, from the standpoint of econmists, where, like the man with a hammer, everything he sees is a nail
Useful as this artcle is, it is a discussion of economics divorced from everything else which happened since 1948, which is just as important, perhaps more so, in the social arena and politics. I was not aware of their importance at the time (few of us 'youngsters' were) but in retrospect those events can't be examined in isolation, either. Among them :
The Marshal Plan
The Korean War.
The construction of the interstate highway system
The Space Program.
The start of the totally unexpected nuclear destruction of the "War on Poverty."
The nascent mass transformation from a manufacturing to a service society.
The Vietnam War.
The birth of the gigantic computer revolution.
The birth of and unjustified accumulation of power by the unproductive "enviromental" movement.
The explosion of expropriation of American assets and investments worldwide.
The restructuring of the vital power attached to the worldwide sources of energy.
The wholesale exportation of heavy industry and manufacturing jobs "overseas."
The birth and rapid spread of the internet followed by the World Wide Web.
The rise and accumulation of raw, naked political power by undisguised and unproductive Socialism. The Black Swan of the economic collapse of 2007-2008.
The tranformation of "Power of the People, by the People for the People" into its direct opposite.
The discovery, suddenly, that the Constitution has become a useless outdated dusty document created by "dead white men," and ignored with impunity by the three branches of the Constitutional, Representative Republic.
All those events can be tracked on the same graph, and their influence, vis a vis economics is certainly open to debate. Certainly a subject deserving tens of thousands of words and much gnashing of teeth, to say nothing of unrealized prison time for many of the perps.
You would be Furious... Exactly.
about 1984 the government wonks realized that they could earn a lot more and have more bennies by giving away the store and sticking the bill to the tax payers. some animals are more equal than others.
img src="http://b-i.forbesimg.com/louiswoodhill/files/2013/03/Income-Inequality-Chart-032713.jpg" height=200 width=300
Fair enough. I meant to refer to widening income disparities [if you'll accept that distinction].
What happens in a free market is that usually employers have to pay more for valuable labor than they do for labor that's worth less. That's a good thing.
Yes. Absolutely. What I see, though, is explosive growth in the financial sector since the eighties. During that time period, we also see an incredible increase in the pay of financial sector participants.
The financial sector of the American economy has grown all out of proportion to the rest. That is a direct result of the Fed's half-century long policy of inflating the dollar. That has made playing games with money more profitable [in the shorter term] than producing tangible goods for consumption.
Since the bankers get the newly-printed money the Fed cranks out before the rest of us, they are able to invest it at its current level of purchasing power. By the time those dollars "trickle down" to the rest of us -- as they eventually do -- they are worth much less.
It's the Cantillon Effect. Inflating the money supply affects people and prices differently at different times. I have come to believe strongly that whatever "income inequality" exists in the U.S. is not due to nasty capitalism, but to the very government policies that control our money.
There is no income inequality.
There is only human inequality
But wed still only have the same $3,000,000 wampum in circulation. Wampum would be 4 times as scarce as they were 100 years ago. The total wampum would only be about 3% of total national net worth.
It would be much more difficult to get ones hands on actual wampum (not wampum on account, but wampum) after all that wealth accumulation, even though the average person still had the same net worth.
That's a very good example of a hypothetical society on which to base an economic discussion. Some use Robinson Crusoe -- I tend to use a tribe of primitives in my examples [white primitives, of course, wouldn't want to offend anyone].
But if the net worth of the society [or even just the spending] increases while the money supply remains constant, then prices for goods will drop. It is exactly what happened in the late 19th century when the U.S. participated in the international gold standard.
The output of an economy will adjust to the supply of money. Prices will vary accordingly. The supply of money under the gold standard was constrained by the supply of gold reserves and prices dropped by approximately 1% a year for several decades.
And output rose and the standard of living increased and wealth skyrocketed. A limited supply of money is no constraint on growth -- it's just a constraint on prices. They're not the same.