Posted on 12/31/2012 8:25:40 AM PST by ksen
On September 12, 2012, the Census issued its report on Income, Poverty, and Healthcare Coverage in the United States: 2011. While the full report has some nice charts, one that was conspicuously missing was on income inequality. The data for such a chart was in the tables, and so I was able to construct the chart above from them. Mean household (not individual) income for each quintile (20%) is expressed in real (inflation-adjusted) dollars.
One feature that jumps out at you are how relatively flat mean income has been for the bottom 80% over the last 45 years and how much it has grown for the top 20%, from an already high baseline. I thought this merited some further investigation.
If you look at the far left, in 1967, the income difference between the quintiles of the bottom 80% was remarkably similar, less than $17,000 between each group ($16,679 between the 1st (lowest quintile) and 2nd; $15,572 between the 2nd and 3rd; and $16,631 between the 3rd and 4th). But even in 1967, we see significant income disparity ($46,619) between the 4th and 5th (top) quintile. The top 20% have an income difference nearly 3 times as great as the other quintiles.
In the succeeding decades, difference between the 4 lower quintiles showed some moderate spreading. For 2011, they are $17,965 from 1st to 2nd; $20,638 from 2nd to 3rd; $30,238 from 3rd to 4th; and $97,940 from 4th to highest 5th). What we see in this is a movement of the top 20% from around 3 times the initial 1967 spreads between quintiles (~$17,000) to something over 5 times them ($97,940).
What is interesting is that the mean income of the top 20% increased $73,100 from 1967 to 2011. About $20,000 of this increase occurred during the Reagan years, but what often gets overlooked is that about $43,000 of it happened during the Clinton years.
Because the first 4 quintiles are so flat, it is worthwhile to look at their averages over the 45 years of data.
For the bottom 20%, their average mean income was $11,618. For the second 20%, it was $29,425. For the third 20%, it was $48,938. For the fourth 20%, it was $74,183. For the highest fifth 20%, it was $146,693.
Now compare these to the 2011 mean income numbers.
For the bottom 20%, it was $11,239. For the second 20%, it was $29,204. For the third 20%, it was $49,842. For the fourth 20%, it was $80,080. For the highest fifth 20%, it was $178,020.
The lowest 40% are essentially unchanged, actually slightly worse, than their 45 year average. The middle 20% is also not much changed, but slightly better than its average. The fourth quintile is doing modestly better, about a $6,000 increase. The highest 20% is doing about $31,000 better than its average.
You can see this effect in the chart where dramatic rises in the income of the top 20% are reflected in smaller and smaller rises as we go down from one quintile to the next until we arrive at the bottom 20% where there is almost no change at all.
If you think about it, this chart completely refutes trickledown economics. As I said, the periods of greatest income growth in the top 20% correspond to the Reagan and Clinton Administrations. But what we see is that great increases in income at the top have only modest effects on the incomes of the nearest quintiles and have almost no effect at all on the lowest quintiles. That is very little trickles down, and almost nothing trickles down to the bottom.
The chart shows in easy accessible terms much of what we already knew. Wages have been flat for most of us our whole working lives even as the rich have been making out like bandits. But it also shows that theory so near and dear to neoliberals: trickledown aka supply side economics aka Reaganomics aka “job creators” doesn’t work, has never worked.
So, what do you propose is the solution? Tax the wealthiest quintile until they are no more than $17,000 above the fourth quintile? You accuse the top quintile of stealing it from the others (”Making out like bandits”) so why not? That will surely take care of the problem.
Your view is far too narrow. You are casting this once again as a battle between labor and management in this country. That was always flawed since the battle is and always has been between labor and labor. Why do you think that the word ‘scab’ has all the baggage and hatred that it connotes? If a management is shackled to its labor force, and the labor force strikes for unmeetable demands, they both may lose. The owners (shareholders) will liquidate if they cannot make a profit. If they can, they must and will hire a replacement labor force. Where is most union violence directed, at management personnel or at replacement workers?
The evolution of the labor market is that the battle of labor vs. labor is now global. There is an inevitable leveling of standards of living and wages that is going on due to exponential growth of international commerce, communications and shipping. As our workers’ conditions decline, conditions for workers in other countries rise (relatively). This is why the ‘power’ rests with the labor consumer. There is a surplus of it.
I’d say, the bottom quintile are people who largely don’t work except in casual, low-skill or part time situations. The folks in the middle three quintiles are the ones at risk, whose jobs may be among those that can be exported. The trend started in manufacturing, but then expanded to IT and ‘information economy’ occupations that were once excellent paying white-collar jobs. Soon it may engulf real professional jobs - it is already occuring. Where was your last CAT scan read? Here or in Mumbai? An electronic image looks the same there as it does here. Wait until robotic surgery gets rolling.
Concurrently, while our education system continues to decline, others are advancing and passing us. Fact is, across pretty broad segments of occupations, our people aren’t any more skilled or productive than workers in other nations, or at least the differential in skill and productivity is often outweighed by the lower cost of compensation, even with added transportation and risk costs factored in.
Sorry, but the unionized, 40 hour medium-skill production line job that paid for a stay-at-home mom, three kids with braces, a new Chevy and a 3 bedroom 1 1/2 bath Cape Cod in the suburbs went out with double knits, lava lamps and Woolworths. We have to keep advancing, keep innovating and keep finding new competitive edges to stay ahead. The people who do that are the ones in your top quintile. They aren’t all the same people all of the time. As another poster pointed out, people move up and down the scale. Twenty years ago, the ability to write HTML and SQL meant an $80,000 income. No more. On the other hand, a CDL driver, critical welder or crane operator working in a shale play can be pulling down that much and more thanks to hydraulic fracturing. Innovation = competitive edge.
Triple-F ping.
Thanks ksen.
My bad. I thought this chart depicted government salaries in the top curve.
Who is the "they" making all these profits you refer to? Maybe we should get the government to steal it from them and spread it around...I mean, trickle it down?
Things in life are dynamic and cyclical. We need a downside to clean up the "excesses messes" made when things are really good, but we didn't want one, so we voted for fantasy instead. We're too big to fail!
In good and bad times, but especially in volatile times, smart people, business, cities and states save (or what you call "hoard") to prepare for the inevitable bad.
Those "hoarding" now are acting on their opinion of the future, the same way the overspenders are. We'll see who is right. Either way, having resources means survival and the ability to take advantage of opportunity. Maybe we'll get another chance to relearn that again.
To me, trickle down is a two word explanation for how a capitalistic economy works, so for me the above quote is backwards as a definition. If you changed "discourage" to "encourage" it would be correct.
Trickle down is the reason to remove excess tax and regulatory burdens and let people do with their money as they will.
Please refer to Adam Smith for an explanation. I would only be paraphrasing him.
To me, trickle down is a two word explanation for how a capitalistic economy works,
hahaha, good one.
SargeK, you make some very good points. As a country we need to rethink how we do some things. Technological progress is going to inevitably make it so that fewer and fewer workers are required to produce more than enough goods and services that the population can consume. That is not necessarily a bad thing. But if certain things aren’t addressed it could potentially be very bad indeed.
Currently we have a society where a job is required to pay for a person’s needs, i.e. food, shelter, medicine, etc. What happens to a society where technology creates a situation where it is nearly impossible to break into the job market? More and better education is certainly one item that will help make people more employable. But you know as well as I do that not everyone is cut out to perform jobs that require a master’s degree or a PhD, heck or even a bachelor’s degree.
So do you leave those people out on the streets to starve and fend for themselves in a black market economy? If you want a french-style revolution then sure. Or do you rearrange your economy before that happens so that the vastly increased wealth provided by technological change is able to be more equitably shared so that families aren’t required to steal or engage in other illegal activities just in order to live? I’m not advocating putting in a pay ceiling or “from each, blah, blah, blah” but there has to be a way to go forward that doesn’t put the majority of the country in the poor house.
I remember reading articles and stories years ago about how as technology progressed society as a whole would become richer and everyone would have more leisure, etc. Unfortunately that doesn’t seem to be playing out. Instead we are seeing a return to s feudalistic type society and I can’t see that ending in a good way.
Instead, I find myself in good company noting that Thomas Sowell, an ardent supporter of trickle-down theory, argues that the popular definition gets it backward.
Being wrong about how things are defined is not new for me. For what it's worth, "red" used to mean communism/socialism and now seems to mean republican and "gay" used to just mean happy and joyous.
I know trickle-down economics states that deregulation and tax cuts will lead to job creation but WHERE are those jobs being created? Not in the US, that’s for sure. Even if the minimum wage were abolished tomorrow Chinese workers would still work for lower wages than US workers because cost of living is lower in China. Our federal government has turned a blind eye to the outsourcing of practically our entire industrial sector to China and to China’s blatant currency manipulation but China would not be so powerful today if executives had believed and invested in America.
Outsourcing of American jobs is probably at least one area where conservatives and progressives can agree on a fix.
“Also people don’t stay in the bottom quintile their ENTIRE lives unless they are losers, mentally handicapped, lazy, or liberal welfare parasites.”
You’re generalizing a bit there, FRiend. I have known poor people who were born welfare queens and I have known poor people who have slaved away at their jobs and still haven’t gotten ahead. Classifying people based on how much money they have is a classic liberal tactic; conservatives see people as INDIVIDUALS.
Agreed. By the way, great article and posts. The consumer truly is the “forgotten man” of trickle-down economics. Without him, the economy grinds to a halt. Also, it’s nice to read an article that includes actual numbers and graphs instead of just an exchange of vitriol between progressives and conservatives.
No it won’t end well if we give in to completely unfettered cannibalistic forms of capitalism. We can and must insulate ourselves to the degree possible from unfair foreign labor competition. And I don’t mean the kind of union feather-bedding that the likes of the USW and UAW have become notorious for. But it won’t end any better if we give in to unfettered, cannabalistic government either.
Free trade has to be fair trade. When nations engage in subsidizing industries to provide a loss-leader and rub out the competition, that is unfair. When domestic employers hire illegals, which helps destroy wage structures for the less skilled here, that is unfair. When we turn a blind eye to the use of prison and slave labor, and wanton environmental destruction, that is unfair.
But why is a bad thing for people to have to perform productive work to get the things they need? When a person is truly incapable of work, i.e. truly disabled or elderly, then yes we need a social safety net. When a person has temporary circumstances that leave them without support, they should be supported. But for a limited time. Nothing motivates like the wolf nipping at your heals. No able bodied person should be able to live comfortably or even tolerably on the dole for very long. I believe there is one immutable economic law - when you pay for something, you tend to get more of it. On the social disfunction side, we pay for single motherhood, we pay for unemployment, we pay for disability and we have it all in spades. More people on disability now than ever, more people on food stamps, more children in single-parent households (the single greatest predictive factor of childhood poverty).
We have vast numbers of people who simply have gotten out of the habit of work. Look at the labor force participation rate We have created a safety net that is so generous that it is a disincentive to work. I don’t need a government study to tell me that. My own ears have heard a chorus of “I can get more on (unemployment, disability, whatever) than I do here.” And if the individual plays the system right, they can indeed.
Thanks to the crash of 2008 and the disastrous policies of the Obeyme administration that have deepened the hole, we have now put more people on the other end of the see-saw. We have crossed the tipping point between makers and takers, and the takers now demonstrably outnumber the makers. At the margins, makers are choosing to become takers. Many makers are getting out of the game (’going Galt’) because they see their efforts being met with threats of confiscation.
I understand your concern for the less skilled and less gifted. But there is, always has been, and always will be a tension and an oscillation between the two sides of the see-saw. Give too much to either side and and it tips out of balance.
But the one factor we haven’t dicussed is becoming the weightiest of all - the size and power of government and its involvement in and interference with business. We are rapidly losing the battle of global economic competition due in large part to the size and burden of our bureaucracy. Our rates of taxation and the economic burden of paperwork compliance are exceeding those of explicitly socialist countries. Half of the top ten wealthiest counties in the country are those contiguous to the nation’s capital. Talk about your top quintile - how many federal employees now make six figures? Cronyism and favoritism are rampant. Inordinate sums are spent to influence government to use its powers to aid or destroy one business entity or segment or another. Government and political influence is now the chief determinant, not market forces, in too many economic sectors.
But why is a bad thing for people to have to perform productive work to get the things they need?
I never said it was a bad thing to have to perform productive work to meet your needs. When it gets bad is when the work just isn't there for those otherwise willing to work. And as our society progresses technologically that is going to happen with increasing frequency as machines and programs do more and more what un/low-skilled people used to do.
Could it be the high cost of dealing with our ever growing body of regulations here vs somewhere else?
Could it be the high cost of our personal, business and corporate tax rates and a government that wants to raise them even more on those who produce?
Could it be the high cost of our labor along with the onerous unions and their frequent disruptive strikes?
Could it be we have priced ourselves out of the market and made it too costly to do business here? (Check out the exodus from California, Illinois, NY, etc.)
Could you add to that the uncertainty of our economy and a government that is spending way beyond budget now, with looming completely unpayable entitlements of the ever growing welfare state waiting ahead and as far as the eye can see that no country on earth could hope to pay for?
Could it be that we are no longer one of the freest countries in the world and are rapidly sinking down that list?
No, of course not. It's Bush's fault.
We could do better and we used to, but instead we will do worse.
On the plus side, it's easy to stand out when the competition sucks. Too bad there aren't many jobs to be competing for.
I agree our corporate tax rates are too high but Google “top 10 personal income tax rates” and you will not find the US on there. The rich are, of course, free to move to any country they wish as long as that country will accept them but where exactly are they going to go? Japan, Canada, and especially Europe have more regulation and higher taxes than the US, Russia and China have repressive governments that require bribes to get anything done and deny basic rights like freedom of speech we Americans are used to, and, while many developing countries would be happy to accept affluent American immigrants, they are developing countries for a reason: repressive and/or unstable governments, anti-American sentiment, and a lower standard of living are common in third world countries. In short, the US is the worst country in the world to be rich...except for all the others.
The executive class isn’t the only one that produces. Isn’t the worker whose labor actually produces the widget also a productive member of society? Management plays an important role in the economy, to be sure, but to believe the rich are the only productive members of society, as you seem to, ignores the contribution of the working class (emphasis on “working”, I’m not talking about welfare queens here, just the working poor).
What “frequent disruptive strikes”? I haven’t heard about any strikes in the last few years. Of course that could just be the MSM covering things up as usual. But I will say that compared to some countries I have been to (e.g. Italy and Argentina) the US unions are downright amateurs when it comes to strikes, particularly the private sector. The Italian workers, in spite of their high wages and generous benefits, go on 1-day strikes for the sheer heck of it and the student occupation of University of Buenos Aires in 2010 lasted months. We haven’t seen that kind of radicalism in the US since the 1960s, and for that I am very thankful.
I agree that the deficit is a huge problem that should not be ignored by liberal politicians. but I fail to see how more tax cuts for the rich is going to help the deficit or indeed do anything except create more jobs in currency-manipulating China.
I never said it was Bush’s fault because 1) Congress and the Federal Reserve have more power over our economy than any president. It was Congress that passed fiscally unsustainable budgets (when they could pass a budget at all) and the Federal Reserve who enabled the housing bubble with its unrealistically low interest rates. 2) This crisis has been decades in the making. What we have now is the end result of decades of political mismanagement by Democrats and Republicans alike, each obsessively rearranging deck chairs on the Titanic. So I don’t believe it’s all Bush’s fault (as the liberals would have us believe) or even all 0bama’s fault (as some conservatives believe).
I agree our educational system is a failure. I just picked up a copy of our local high school’s student newspaper and apparently we are adopting something called the Common Core System (talk about a vague name!) which has “removed the need of requiring the students to take the annual STAR testing”. The newspaper itself was proof of our educational system’s decline: spelling errors on every page and more articles on pop culture than on substantive topics. I graduated from that same high school less than 10 years ago and the paper was much better written back then.
I might also add that the rich have a financial incentive to employ as few workers as possible to reduce their labor costs. This is true regardless of how high wages are because 2 workers will always cost more than 1 (unless of course they are 2 illegals competing against 1 American citizen). Add that to mechanization and you have our current situation where there are simply more potential workers than jobs. Even if we closed the borders, stopped giving China a free pass on currency manipulation, and eliminated the minimum wage, all unions, and all unnecessary regulation tomorrow I doubt we could ever return to the employment levels of the 1950s simply because there is so much less work that needs to be done by humans.
My apologies for the length of my previous post.
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