Occupy Wall Street has moderately heightened interest in the rising gap between the top one percent of income earners and the bottom ninety-nine percent. (It’s important to not get carried away on this point… compare this and this chart from google trends, the top panel shows google searches and the bottom shows news coverage). With the small spike in coverage, I wanted to discuss some of what’s cropped up in the news and on blogs.
Is Income Inequality a Myth? James Pethokoukis on the AEI blog puts forward five arguments intended to show that the empirical data do not show an increase in income inequality. Fully evaluating the data he presents is too complicated for today’s post – but I’ll return to this next week. As a placeholder let me say two things: first, some of the arguments are intended to show that comparisons between poor and rich are often “apples and oranges” because of improper adjustments for factors such as inflation, household size, and fringe benefits. Second, Pethokoukis wants to get some mileage out of the argument that the standard of living for middle and lower income Americans has improved much more rapidly than the income data would suggest. We’ve dealt with both (standard of living and measurement of inequality) of these issues on this blog, neither of the arguments speak directly to the question of whether American workers are fairly sharing in growing economic productivity.
Who are the 1%? Catherine Rampell in the NYT draws on some pre-recession data to show the occupational breakdown of the top 1% of the income distribution. In 1979, executives, managers, and supervisors outside of finance accounted for 36% of the top 1% taxpayers, but this had declined to 31% by 2005. Doctors were 17% in 1979, and 16% in 2005. Much has been made about financial professions: these were 8% in 1979 and 14% in 2005 – this is a large relative increase, but still means that financial professionals have never been the majority of the top 1%. Another way of looking at these data is to see what percentage of national income is controlled by each of these groups over time – so for instance, the top 1% controlled 9% of all income in 1979, but 17% in 2005. You can see this broken out by segment – as it happens financial professions controlled 0.82% of the wealth in 1979, and 2.77% in 2005, an almost tripling in the amount they controlled. There is a lesson here: simplistic explanations that financial firms completely account for income inequality are wrong, but we still need to know more about the underlying economic process that caused this 1% population to control more and more income.
Did Income Inequality Grow in the Recession? Megan McArdle at the Atlantic draws on some unpublished data that show income inequality actually decreased in 2008 and 2009, mainly because of a decline in the incomes for the top 1% and 0.1% of income earners. McArdle says: “income inequality has been rising for so long that people have started to assume that it has just kept rising, even when the data show otherwise. We don’t want to spend years focused on income inequality, only to learn that the financial crisis fixed it for us.” As McArdle says, however, this may be a story about two bad years in financial services, and 2010 and 2011 were much better years for those industries. The financial crisis has probably not “fixed” income inequality, especially if income inequality is a problem about spreading risk from corporate sectors to working households.
Time for Some New Policies? Tanya Somanader on the Think Progress blog takes the opportunity to run through some standard liberal policy proposals to reduce income inequality: promote unionization, rein in CEO pay (a bit vague about how this would happen), tax reform (such as the implementation of the “Buffett Rule”), increasing the capital gains tax, and promoting economic mobility through education. It’s nice to see an effort to think about some longer-term policies to help working families, but it’s not clear that the political will exists to fund more programs or go toe-to-toe on labor unions. Tax reform is the area where OWS has created some real opportunities to shift the conversation about revenues and deficit reduction.