Essays on Inequality VIII – OWS and the “New” Income Inequality Data

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The large and growing gap between the haves and have-nots will tend to undermine growth, both directly and indirectly — including by reducing the marginal propensity to consume and by amplifying the political polarization that has already contributed to poor economic policy-making.    -  Mohamed El-Erain, CEO, Pacific Investment Management

Widespread education has become the secret to growth. And broadly accessible education is difficult to achieve unless a society has a relatively even income distribution.  -  Branko Milanovic, World Bank economist

The data discussed in Essays on Inequality VII – Seven Big Lies, and the Next Depression showed that the bottom 99% of Americans, considered separately from the top 1%, are effectively in a depression. When I began researching and discussing inequality issues over eight months ago, the data upon which I base this conclusion was available on the internet, but the issue had not gained much media attention and was still somewhat obscure.

Now that Occupy Wall Street (OWS) has grabbed the attention of the American people and the media, a serious discussion of inequality has commenced, the data is coming out, and its implications, at long last, are being widely discussed.  The Congressional Budget Office issued a report on income inequality just a few days ago, on October 27, and the Associated Press reported:

Average after-tax income for the top 1 percent of U.S. households almost quadrupled, up 275 percent, from 1979 to 2007, the Congressional Budget Office (CBO) found. For people in the middle of the economic scale, after-tax income grew by just 40 percent. Those at the bottom experienced an 18 percent increase.

The report, based on IRS and Census Bureau data, comes as the Occupy Wall Street movement protests corporate bailouts and the gap between the haves and have-nots. Demonstrators call themselves “the 99 percent.”

“The distribution of after-tax income in the United States was substantially more unequal in 2007 than in 1979,” CBO Director Doug Elmendorf said in a blog post. “The share of income accruing to higher-income households increased, whereas the share accruing to other households declined.” [1]

A report for the Washington Post noted that such a study had been requested a months ago by two senators:

Several years ago, Senators Max Baucus and Charles Grassley asked the Congressional Budget Office to whip up an analysis of income inequality in America. It took awhile to piece together, but the report’s now out, and the picture’s quite stark. The incomes of the wealthiest 1 percent have nearly tripled since 1979. Everyone else? Not so much. [2]

The release of the CBO study followed the issuance of a similar, separate report less than two weeks earlier:

Disputes over what constitutes economic fairness are moving to center stage amid a near-stagnant U.S. economy saddled with 9.1 percent unemployment yet boasting record corporate profits. President Barack Obama last month targeted “the wealthiest taxpayers and biggest corporations” for higher taxes, saying they should pay “their fair share.” That drew charges of “class warfare” from House Speaker John Boehner of Ohio.

The debate comes as demonstrations in New York by an amorphous group called “Occupy Wall Street” move into their 27th day. The rallies over what protesters call unbridled corporate power began in lower Manhattan’s Zuccotti Park, a few blocks from Wall Street, and have spawned copycats in several U.S. cities. “We are the 99 percent that will no longer tolerate the greed and corruption of the 1 percent,” says the occupywallstreet.org web site.

The reference is to the fact that a sliver of U.S. households have enjoyed a disproportionate share of recent economic rewards. Between 1993 and 2008, the top 1 percent of families captured 52 percent of total income gains, according to a 2010 analysis of Internal Revenue Service tax data by economist Emmanuel Saez of the University of California, Berkeley.  [3]

The New News is Old News

The most noteworthy thing about these reports is that, despite a contrary appearance,  they do not contain new information.  Note that the data are only available up to 2007.  The first inequality study based on this data, an invaluable contribution for Americans, was released by Emmanuel Saez and Thomas Piketty in 2007 and updated to 2008 in July of 2010. [4]  Their data, reflected in my first post on income inequality six months ago, are in universal use.

The vastly increased media attention to inequality and, indeed, the release of the CBO study itself, coincides with OWS.  That is not, in my opinion, coincidental.  Once tens of thousands of Americans began to occupy the streets with winter coming on to take a stand for economic justice and their future, and once it became clear that they were already aware to some degree of growing inequality and had appropriately identified the dividing line in the class war (the top 1% vs. the bottom 99%), this information suddenly came flying out.  The activism of Occupy Wall Street should be credited for loosening media constraints.

A dramatic question lingers:  It’s now almost 2012, and the media are still referring to data periods ending in 2007 as if they were current.  The lack of data that analysts like Piketty and Saez can use to trace income and wealth inequality beyond 2008, the Wall Street market crash, and the advent of the Great Recession (which I argue has sent the bottom 99% into a depression), is something more than a curiosity: When will post-2007 inequality data worth discussing become available?

A Much Improved Inequality Bar Graph

For now, nonetheless, we are at least seeing improved availability and presentation of the old data.  Take a look at this useful interactive bar graph,  Where the One Percent Fit In the Hierarchy of Income (based on 2006 Saez data), which the New York Times presented with this introduction:

The Occupy Wall Street protests have set off an enduring conversation in the city concerning what has come to be known as the 99 percent. There has also been a collateral conversation about the richer and remaining 1 percent. Here is the hierarchy of income that underlies the conversation. [5]

This table summaries the 2006 inequality data displayed on that graphic:

Percentile    Low Income    Average Income  #of Families    % of Total   Cum. total

Top 0.01%    $11 million       $31 million           14,000                   5%                 5%

Top 0.1%       $2 million        $3.9 million       135,000                   6%                11%

Top 1%            $386,000        $717,000         1.35 million              11%                22%

Top 10%          $108,000        $167,000         13.2 million             25%                47%

Bottom 90%          -0-              $36,ooo            132 million             53%             100%

____________

I added a cumulative total to show that the data is the same as that used to make the graphs showing inequality over time that are in common use, such as this one:

A Fantastic Interactive Pie Chart

Now the Economic Policy Institute has developed a remarkably useful interactive pie chart to show, between any two points of time from 1912 to 2008, the percentage change in inequality for four groups: the top 1%, the top 1-5%, the top 5-10%, and the bottom 90%.  This is the data that we were working with in Essays on Inequality VII – Seven Big Lies, and the Next Depression.  Watching the top 1% or even the top 0.1% increase their shares of total income over the last 30 years is like watching grass grow, as a glance at the above graph confirms.  It is much more informative to see the rates of increase or decrease in income shares over time; that is the insight that shows the severity of our current crisis.  Here is EPI’s interactive pie chart, When income grows, who gains?  The initial setting, for example, shows that all growth was in the top 10% from 1917-1927.  Here are some representative changes that people are talking about:

1917-2008

For nearly a century of data, the bottom 90% shared just about one-half of all income growth.  A free market system provides ample opportunities for success – the other one-half of income growth was captured by the top 10%, and the top 1% did very well, bringing home what appears to be about 22%.

1917-1944

From the last year of WWI until the last year of WWII (and the year of my birth), almost 75% of all growth went to the bottom 90% as the United States grew out of the Great Depression and jump started the age of middle class prosperity during WW II.

1982 – 2008

This is the period of the last three decades and the “Reagan Revolution.”  The bottom 90% has shared only 11% of income growth, while the richest 10% got 89% of the growth.  This is the vast, rapid increase of inequality we are struggling against.  Notably, more than 50% of growth went to the top 1%!  That’s right, over the last thirty years the top 1% got more than 50% of all new American income while the entire bottom 90% got only 11%.

1993 – 2000

During a part of the last 30 years, that overall trend was tempered somewhat in the Clinton Administration when the top 1% got about 45% of the growth and the bottom 90% got about 30%.  It was a period of greatly rising inequality.

2001 -2008

The GW Bush administration, a period of massive income and wealth consolidation by the top 1%.  The average income of the top 10% grew, about 85% of that growth going to the top 1%.  The income of the bottom 90% declined between 2000 and 2007.




This is the difference between the period of Prosperity and the GW Bush version of the Reagan Revolution.  It was nothing short of a complete reversal.  With this kind of history, the bottom 99% could only have experienced a substantial decline: reduced real incomes, increased unemployment, increased poverty, reduced affordable educational opportunity, increased illiteracy, reduced health care, and a major housing crisis.  And this is exactly what has happened, on an enormous scale, while the wealthy have enjoyed tax cuts and the profits of war.

Reaganomics is dead

Thanks to OWS and hundreds (perhaps thousands) of Occupy communities across the country, we are now able to understand the truth and make sure every one knows.  The conversation has greatly, and irreversibly changed.  The wealthy keep pressing for lower taxes, and the radical right keeps blinking bemusedly when it is pointed out that the various “flat tax” proposals of the Republican Party presidential hopefuls would greatly reduce the taxes of the top 1% even more.

But today, when Michael Steele argues with Reverend Al on Politics Nation he talks over everyone, so he can only talk about government debt when he is asked to talk about inequality and jobs.  Ron Christie, likewise, is edgier than usual on the Ed Show.  It’s harder to keep up a charade you know (or should know) is wrong when you have been called out by a majority of the American people, and when they make it clear they aren’t buying it anymore.

It has become next to impossible to fool anyone anymore with the claim that reducing taxes on the rich will do anything but make them richer.   Take for example this graph, which appeared in the Brad Plumer article on increasing inequality:

It shows cumulative growth in after-tax, real (inflation-adjusted) income for the middle classes (21st to 80th percentiles) in comparison to the top 1%, the top 20% and the bottom 20%.  That the after-tax income growth of the top 1% so greatly exceeded everyone else’s, I will argue, defeats any claim that the wealthy are paying their fair share of taxes.

When Grover Norquist, the president of Americans for Tax Reform and author of the infamous “Norquist pledge” legislators have signed never to increase taxes, was a guest on the the latest  Bill Maher  show, Real Time with Bill Maher (Bill Maher and Grover Norquist Spar Over Tax Reform), Maher showed this graph and the following dialogue ensued:

Maher – Is there any amount of income inequality that is bad?

Norquist – It’s not the government’s job to …

Maher – … there was no “yes” or “no”:  Is there any amount of inequality that is bad?

Norquist – Yes, if it’s because the government is doing things that don’t allow people to get on the first rung of the ladder, you know, the challenges we’ve had with trying to get public education out from under the teachers unions’ rules.  We need to give everybody in this country a chance, and not everybody’s getting a chance, so they’re not doing as well as they could.

I’ll stop there.  Views like Norquist’s proceed from an ideological bias against government that simply precludes a discussion proceeding on what Skip Christensen would call a “common ground of verifiable fact.”  Whether or not I might agree with Norquist about the advisability of particular teachers union rules, I’m finding it difficult, indeed, to imagine how such rules could have resulted in the decline in public education, teacher layoffs, and school closures we have seen in the last four years.  These effects resulted from budget cuts brought on by the the recession, and it resulted from a persistent failure to maintain a sound fiscal policy, which is government’s responsibility.  Ironically, the Norquist policy of not increasing taxes on wealthy incomes exacerbated the need to make the cuts in state government spending which are so harmful to education and other important public programs.

His is an intellectually dishonest position, because the policies he tries to support with such arguments simply make the rich richer and further deprive the bottom 99% of the resources needed to survive and flourish.  Norquist, as he must, completely ignored the consolidation of income growth by the top 1%, a graph of which was displayed in front of him as he spoke.  He and the other right-wing ideologues cannot acknowledge even the existence of growing inequality and still pretend to support economic opportunity.  When you are living in poverty and cannot get an education, then you cannot get “on the first rung of the ladder” – and poverty is on the rise.

Once the truth about growing inequality is widely known, Norquist is finished. His cynical attempt to support tax reduction policies by arguing that they somehow support increased economic opportunity presumes that others will be unaware that the inequality his tax policies fosters destroys economic opportunity.  Those policies provide gain for the top 1%, and loss for the bottom 99%.  Norquist and the right attack government and oppose taxation even when the federal government must cut and borrow and states must make drastic cuts.  It’s a fruitless line of argument, but they have nothing better: Those were, after all, the first words out of Grover Norquist’s mouth when he was asked about inequality.

The rise of OWS and its companion movements should, by ensuring increased public education on these matters, ring the death knell of trickle-down Reaganomics (r.i.p.).  Thus, with this post I am encouraged to move on to a discussion of “optimal inequality,” and the identification of a fair level of taxation for corporations and the top 1%.

Stay tuned, and Happy Halloween, Occupiers!   


JMH – 10/31/11 (ed. 11/1/11)

_________

[1]  Rich get a lot richer, outpace middle class, by Andrew Taylor, AP, Albany Times Union, October 27, 2011.  See also: Income Inequality Reaches Gilded Age Levels, Congressional Report Finds, Huffington Post, October 26, 2011;  CBO: Top 1% getting exponentially richer , CBS News, October 25, 2011;  The CBO study itself: Trends in the distribution of Household Income between 1979 and 2007, October, 2011

[2] The CBO takes on income inequality  , by Brad Plumer, The Washington Post, Ezra Klein’s Wonkblog, October 26, 2011.

[3] Income gap a mounting crisis , by David J. Lynch, Bloomberg News, Albany Times Union, October 14, 2011.

[4] See Emmanuel Saez, citing “Income Inequality in the United States, 1913-1998″ with Thomas Piketty, Quarterly Journal of Economics, 118(1), 2003, 1-39 (Longer updated version published in A.B. Atkinson and T. Piketty eds., Oxford University Press, 2007) (Tables and Figures Updated to 2008 in Excel format, July 2010)

[5] Well, again, today’s reality is different, having seen securities and housing market crashes from which Wall Street has pretty much recovered but the bottom 99% has not, and the advent of the Great Recession.  The New York Times seems reluctant to even talk about it.  Again, credit OWS for its impact on the media, but we’re in for some major revelations about the last four years, I predict, and it’s not clear when the other shoe will drop.  Hopefully sooner rather than later.

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2 Responses to Essays on Inequality VIII – OWS and the “New” Income Inequality Data

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